China is going through a reset in which investments on the private side are “frozen,” said Christopher Wu, chief investment officer at Alibaba founder Joe Tsai’s family office Blue Pool Capital. Speaking at a forum earlier this month, he said he maintains a long-term bullish view of China but is currently focused on the public equities markets, which could rally quickly on stimulus measures.
As tensions have risen between Washington and Beijing, the US government and legislative bodies have been tightening scrutiny of American money flowing to China-focused investment managers and Chinese companies, while raising the bar for US-based institutional capital such as pension funds and university endowments to invest in China.
In late November, the governor of Texas ordered state agencies to stop investing in China and to sell such assets as soon as possible. Some such institutions include the Teacher Retirement System of Texas, which had $210.5 billion in assets under management as of August 2024.
In the last days of his presidency, on Jan. 2, Joe Biden’s administration started to impose civil and criminal penalties on US investors who violate restrictions on investing in semiconductors, artificial intelligence and quantum computing — technologies considered useful for the Chinese military. This raised more questions for China-focused private equity funds, from investors wary of crossing red lines.
While the industry is waiting for new US President Donald Trump’s China policies to crystallize and some believe he is open to negotiations, the confluence of a sluggish Chinese market and American pressure is changing the industry.
HongShan Capital Group—one of the largest private Chinese players with $55 billion under management, and a backer of fast fashion provider Shein and e-commerce giant Alibaba—has stepped up a global push since its spinoff from U.S. investment firm Sequoia was announced in 2023.
Last year, HongShan registered under the brand HSG Advisors (U.K.) with Britain’s Financial Conduct Authority, and as HSG Advisors (SG) with the Monetary Authority of Singapore. Compared to fly-in operations, obtaining a capital markets services license under the MAS allows a manager to source deals and do on-the-ground investments.
HongShan looks for deals with either China or Asia angles, people familiar with the situation said. Its Singapore team recently invested in stablecoin payment company KAST and crypto investment platform SoSoValue, both headquartered in the city-state, a person familiar with the situation said.
HongShan declined to comment for this story.
IDG Capital, which was until recently designated by the Pentagon as being associated with China’s military, is carefully managing its brand image.
Soon after Oman’s sovereign wealth fund announced a collaboration with the Hong Kong-headquartered venture investment firm in November, it issued a correction to its own news release. Under advice from the company, it said that what it had described as “China’s IDG Capital” should have been referred to as “an international investment firm with a global footprint and extensive experience in China.”
The clarification was an effort to avoid being seen as a state-owned or government-backed entity, a person familiar with the situation said. Founded as a China-focused venture capital investment arm of U.S. company International Data Group, IDG later became independent, with offices in the U.S. and Beijing. As for broadening its investments, an IDG spokesperson said the company does not comment on future geographic capital allocation strategies.
Despite the geopolitical challenges, the U.S. remains a market that Chinese private fund managers want to tap, said Daniel Haoyu Wang, CEO of Hong Kong-headquartered Merit Asset Management, which has some 80% of its private investments in the U.S.
“The China-U.S. competition has forced many Chinese private equity companies to review their regional and global strategies,” said Wang. Some of the managers have resorted to hiring locals and setting up local fund structures in the U.S. in order to separate their China operations.
Shanghai-headquartered Highlight Capital announced at its annual general meeting with investors in November that it had moved its dollar fund headquarters to Tokyo, according to Steven Wang, founder of the company. Highlight, which focuses on investing in chemistry, biotech and health care, has about $3.8 billion in assets under management, according to its website. Wang declined to comment further on the decision when asked how it would cushion the impact of the U.S.-China geopolitical conflict on investors and investments.
The drive to set up overseas structures comes as investors question the dollar access of funds controlled by China-based managers, even if the funds themselves are registered in offshore jurisdictions like the Cayman Islands.
Some lawyers said they would sometimes talk investors out of spending efforts to set up U.S. offices and funds if they are ultimately controlled by Chinese nationals, to avoid wasting time on deals that could run into obstacles.
“Now, that’s not to say that you can’t do the investment then because it’s Chinese-controlled,” said Morrison Foerster’s Ellis. But investment objectives, locations and whether the manager has China government contracts are all considered by investors and target investment authorities, she added.
Samson Lo, Asia-Pacific co-head of M&A at UBS, said he sees a growing trend of Chinese private investment managers opening offices in Japan or South Korea and looking proactively for Southeast Asian companies. But some are staying under the radar for “various reasons,” Lo said, when asked by Nikkei Asia how Chinese managers facing geopolitical risks are exploring such routes.
He said that over the past 12 to 18 months, besides looking at China deals, most of the China-background private equity funds have been asking “if there’s any deal to look at in Japan, Korea and Southeast Asia.”
He suggested that their message is, “Don’t think of us as only looking at China M&A opportunities,” adding that “there are growing inquiries on this.”