Funds seed for the future

Two major pension funds from the Netherlands and Canada – ABP and OMERS – have seeded an innovation and technology program to invest in their domestic knowledge economies. Called inkef capital, it has already begun searching for the success stories of the future. In knowledge economies, the same “crystal ball questions” apply as in all other investment sectors, says Frank Landsberger, director of inkef capital in the Netherlands. “If we knew the successes of the future we would be better investors today.”

But without perfect forsight, Landsberger and Phillip Haggerty, vice president – of corporate development at OMERS with responsibility for inkef capital, must, like all investors, accept that a certain amount of uncertainty will exist in the knowledge economy investments that they carefully research and select for their 15-year program which has €200 million committed for the first five years.

“You can’t know which way ventures are going to go, but if you wait until they’ve developed, you’ve lost the opportunity,” Haggerty says.

inkef capital– or, Investing in the Knowledge Economies of the Future – is a joint venture launched in June by $208 billion ABP and the $48 billion OMERS to invest in and provide mentoring to home-country knowledge economy ventures.

It aims to simultaneously reap financial returns and strengthen these domestic industries.

Haggerty says the innovation industries of Canada and the Netherlands are ranked among the top 10 in the world: they are relatively small economies “punching way above their weight in their intellectual property generation”.

But while the inkef capital chiefs are not certain which new ideas will become raging commercial successes, they point to some sectors they keep a particularly close watch on. Due to increasing demand from ageing Western demographics, the health care sector is almost sure to produce knowledge economy champions in the future.

Medical and technological advances will always be applied to humans’ desire to be healthier for longer, Landsberger says. And there will also be demand for increasingly sophisticated computing products and information-transfer technologies, while the emerging field of nanotechnology can drive further innovation in medicine, electronics and the energy industries.

The goods of knowledge economies are ideas, but since they must find commercial applications, inkef capital is searching for the “economic exploitation” of these commodities, Haggerty says.

Landsberger chimes in to say their current search for knowledge economy success stories can be described as “mining for ideas” that can be commercialised. But a calculating commercial logic, as well as an open mind, must be exercised when unearthing these rich veins of investment opportunity.

inkef capital must be very selective, Haggerty says, and consider whether the ideas they assess have international appeal – because globalisation has everything to do with successful knowledge industries.

“We want to be able to take a small idea and grow it into a $10 million investment. We might be mining ideas in Northern Europe and North America, but we’re selling around the world.” Health care, for instance, is a universal need.

And if a researcher in Utrecht or Toronto develops a treatment for adverse medical conditions endured by humans worldwide, this knowledge will find demand in multiple markets.

“If you have a successful drug for Alzheimer’s, it’s not a drug limited to North America,” Landsberger says. “The human body is not defined by territory.”

To find promising ideas, inkef capital will tap industry contacts, talk with existing companies mulling spin-off technologies from their operations, and also keep an eye on the research programs of Dutch and Canadian universities.

Landsberger and Haggerty see these institutions as hotbeds of innovation for knowledge economies because each generation of researchers aims to better the achievements of their predecessors.

“At the end of the day, knowledge economies are about providing goods and services based on strong research efforst coupled with insights into how future economies will look,” Landsberger says. “So we look at university systems that train people to be at the cutting edge of everything they do.”

They have not sought exclusive partnerships with universities because this can result in a real or perceived obligation to commercialise ideas. Also, Landsberger and Haggerty believe that free and competitive markets produce stronger venture industries.

“If you look at a developed knowledge economy like Silicon Valley, there’s no exclusive access. There is relationship access – a strong alumni – but no exclusive access. If you have that, you’re limited in the capacity of capital to make a rational choice,” Haggerty says. “An ecosystem with too much exclusivity will fail.”

He says sluggish economic growth in North America and Europe will not significantly weaken the potency of their home-country knowledge economies.

“Macro-economic conditions will have a small effect on research, but it’s the development costs of turning that research into something commercial that might be affected,” Haggerty says. “However, development often occurs within private structures with private funding and I don’t think that’s going to be affected.

“But taking ideas and putting them out is less expensive now than in 1998, at the height of the tech boom.”

Regulatory stability is important for inkef capital’s long-term ambitions. To invest money in a venture for 10–15 years, Landsberger says they will need to be confident the governments of Canada and the Netherlands will not significantly alter patent laws or begin taxing newly launched businesses more heavily.

“Where do you find venture capital being robust? It’s in politically, economically and legally stable states,” he says.