The departure of K1 Ventures’ Steven Green

All good things must come to an end. After 15 years of heading K1 Ventures, one of the largest listed venture capitalists, Steven Green unexpectedly announced his departure a couple of weeks ago. I am writing this article to pay tribute to one of the most talented investment wizards in Singapore.

K1 Ventures used to be a shipping company in the 1970s and adopted its current name in 2000 after a series of business consolidations. The company was looking at transforming its scope of activities to include a portfolio of technology and non-technology companies. At that point, Steven Green was the US Ambassador to Singapore and had an outstanding reputation for being a business leader. Subsequently, Steven Green was appointed to be CEO on 7 September 2001, just four days before the 9/11 terrorist attacks.

K1 Ventures Business Strategy

The fact that K1 Ventures’ board of directors looked to US Ambassador indicated that the company intended to seek opportunities in the United States. The terrorist attacks in 2001 certainly threw up a lot of bargain buy opportunities for K1 Ventures. Throughout the years, Steven led his team to make a series of notable acquisitions in USA – Helm Holding Corporation, McMoran Exploration, Knowledge Universe Holdings and Guggenheim Capital. K1 Ventures turnaround these companies and exited to unlock massive value for shareholders.

When I started my investment journey, K1 Ventures was one of my first stock investments. The company’s investment philosophy resonated with mine – buying businesses that are simple to understand, such as rail leasing, oil and gas exploration, education and automotive. However, as an institutional investor, K1 Ventures has the advantage of being involved in business decisions and transforming these companies to derive value for stakeholders.

To illustrate the investment record of Steven, it was stated in the FY2016 Annual Report that K1 Ventures paid out dividends of $2.14 per share (adjusted for the share consolidation) or more than $904 million since Greenstreet Partners assumed management responsibilities. To further highlight Steven’s investment prowess, K1 Ventures’ 12.2% equity interest in Knowledge Universe Holdings, LLC (“KUH”) was acquired at a cost of approximately US$57 million. By June 2016, total cash and property distributions received from inception were a mind-boggling US$223 million.

K1 Ventures Investment Record

How many investment managers in Singapore market can match K1 Ventures’ record in growing companies? In Steven Green, K1 Ventures has a brilliant leader with strong investment skill-sets and extensive business relationships. Probably because of the confidence in Steven, the management board appointed him as both the Chairman and CEO of K1 Ventures. With the departure of Steven, Prof Neo Boon Siong will take on the role of Chairman, while Mr Jeffrey Safchik will become the new CEO.

As of now, the remaining key investments of K1 Ventures are KUE 3 LP and Guggenheim Capital.  K1 Venture’s interest in the remaining KUH assets was restructured such that the Group received its pro rata direct interest in KUE 3 LP. The reason for the reduced investment activities is because the management has decided to focus on divesting its current portfolio of assets and returning the value to shareholders.

Although the management of K1 Ventures has a stellar performance, they stunned investors in 2012 by announcing a surprise management buy-out at offer price of $0.135 per share. Many analysts thought that the offer price was way below the sum-of-total-parts of the company assets. Hence, most of the minority shareholders did not take up the offer. Eventually, the buy-out failed and management had made it clear that it would not be making any new investments but would focus on managing the current portfolio of assets.

K1 Ventures Outlook

With Steven’s departure, he left behind a strong company. Revenue was $12.3 million for the first quarter ended 30 September 2016 compared to $89.3 million in the prior year period due to a decrease in investment income from KUH. Profit before tax was $11.5 million for the quarter ended 30 September 2016 compared to $88.3 million in the corresponding previous year period. The decrease was due to lower investment income from KUH and lower foreign exchange gain, partially offset by a decrease in operating expenses.

Following the cash distribution of 7.5 cents per share announced on 3 August 2016, K1 Ventures declared another round of interim dividend of 2.0 cents per share to be paid out on 5 December 2016. With its major shareholder Keppel Corp facing headwinds, K1 Ventures management would be pressured to accelerate its asset monetization programme so as to deliver more value for shareholders.

My Strategy

I have exited this stock since the beginning of this year but have been monitoring the development of this company regularly. K1 Ventures has an interesting investment approach, quite similar to mine, and has been my champion investment so far. It is a pity that the management decided to monetize their assets and made it clear that they would not be investing in new assets going forward. Thus, the end is very near for K1 Ventures. When the day come, I think I will miss this chapter of my journey with K1 Ventures.

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Magically yours,

SG Wealth Builder