Investors eye localization for better returns

Global investment players reexamine biz strategies amid US-China tension

Global investors are reexamining their business layouts amid the economic tension between the United States and China, and will likely bank on more localized strategies for better investment returns in the coming years, industry experts said.

They made the comments after leading US venture capital firm Sequoia Capital announced plans on Tuesday to have its businesses in China and those in Indian and Southeast Asian markets shouldered by two independent companies.

According to a statement to China Daily provided by the VC firm, which is known for its early backing of many leading Chinese internet companies like Alibaba Group Holding, JD and ByteDance, it will brand its Chinese arm as Hongshan, China's equivalent of Sequoia.

Its brand covering Indian and Southeast Asian businesses will be named Peak XV Partners, while the US and European units will remain Sequoia Capital.

The split will be completed by March 31, 2024, said the statement signed by Roelof Botha, a Sequoia managing partner; Neil Shen, head of China; and Shailendra Singh, chief of Indian and Southeast Asian businesses.

In an interview with Forbes, the three executives cited conflict between the funds' respective startup portfolios and brand confusion as factors while acknowledging but attempting to downplay the frostier geopolitical environment.

Wang Peng, a researcher at the Beijing Academy of Social Sciences, said: "The globalization of investment has been going on for decades. However, due to changing geopolitical situations, especially between the world's two largest economies, leading global investment firms, including VCs and private equity firms, began to rethink their layout to better mitigate potential risks."

Wang said that it is especially the case as some US politicians vowed to restrict US capital from flowing into China. They aim to leverage political power to suppress the latter's rising prowess in technology and other emerging fields.

For instance, Paul Rosen, a senior US Treasury official, said at a recent hearing that outbound investment review will be narrowed, especially in sectors like advanced semiconductors, artificial intelligence and quantum computing.

A global investment firm's senior investor, who declined to be named, said his company reexamined the position of the China market last year and part of its staff was relocated from China to other markets earlier this year.

The investment firm is also in touch with limited partners in markets other than the US, such as those in the Middle East, for more possibilities, he said.

In the first quarter, a total of eight foreign currency funds in China closed their deals, which was only 28.6 percent of the same period last year, according to capital market research firm Zero2IPO Research.

"It has been a trend for global investment firms to localize. For instance, no matter if it is Sequoia or IDG Capital, their trading team, investment and management have been quite localized, and this trend will become more obvious in the future," Wang added.