Trouble in the financial jungle
The investment company Tiger Global management has announced it is to retreat on many of its China equity investments, saying it seeks more clarity before putting more cash into the country’s stocks and economy.
Tiger executives, including founder Charles “ Chase” Coleman, said that President Xi Jinping’s re-election and his packing the Communist Party’s top tier with loyal acolytes at the recent party Congress could increase geopolitical tensions and means the country’s zero-Covid policy will likely continue, according to reports.
Why the change?
China’s determination to battle any further Covid outbreaks with lockdowns and other restrictions has been a major factor in slowing its economic growth. Concerns about what Beijing might do about tensions with Taiwan have also caused anxiety among financial players in the country.
Tiger had been shrinking its exposure to Chinese equities, concentrating on a smaller set of companies it knew well and believed in, the Wall Street Journal reported. Tiger also reduced its hedge fund’s China exposure to the mid-single digits heading into the congress, avoiding some of the carnage that hit Chinese equities as a result of it.
A wider trend?
Companies globally have been scaling back their China exposure as a series of official crackdowns on online and tech companies and education businesses created significant losses on many funds, and highlighted the perils of investing in a state so heavily regulated. But the recent Party congress has meant even experienced operators in China to rethink their strategies.
Tiger said it wants more clarity about issues such as how vigorously China will pursue growth and whether the country will invade Taiwan before investing fresh dollars in Chinese equities, according to the Journal.
Large paws to big pause
An early pioneer in China, Tiger made billions by investing in China-focused types of US tech firms, aiding its reputation as a savvy tech investor. It invested in three publicly traded Chinese internet companies in 2002 and closed its first private equity fund, a $75.8m vehicle, in 2004. One of that fund’s first investments was in Alibaba, which went public in 2014 in a major IPO on the NYSE.
The firm’s most successful bet in China was a $200m investment in e-commerce giant JD.com, which returned $5bn. Tiger also was an early investor in Didi and artificial-intelligence company SenseTime, and had exited both companies not long after the IPO lockup periods ended, according to people familiar with the investments.
Our take
While Tiger still retains significant exposure to China through several private equity funds, the question is whether others will follow its example.It has overtly slowed down in making new investments in private companies since Beijing intensified its regulatory crackdown on internet platforms last summer. Its biggest private investments in China are TikTok parent Bytedance and fast-fashion retailer Shein.
Tiger’s hedge fund has been one of the worst performers in the industry recently, erasing years of gains in months and prompting the firm to cut fees earlier this year. The hedge fund lost 7% last year and has retreated 52% this year through September. Its long-only fund has fared worse.
Whether this means that Tiger is simply being skittish or is ahead of a coming curve remains to be seen, but the impact of such a savvy and reputable company adapting its position will all too likely affect China’s attractiveness to international investors.