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One tech-focused investor is putting money to work at a record pace as trade tensions and economic-slowdown concerns deflate lofty valuations.
All-Stars Investment Ltd. has invested, or increased its stake, in six privately held Chinese technology companies over the past year, seizing on cheaper valuations, Hong Kong-based Chief Investment Officer Richard Ji said. That’s “double or triple” the number of private deals it strikes in a typical year, he said.
As China and the U.S. engage in a stop-go trade spat, slowing economic growth in Asia’s biggest economy is damping investor appetite for listed giants such as Alibaba Group Holding Ltd. and Tencent Holdings Ltd., as well as their unlisted peers. The country’s vaunted tech sector is undergoing a period of pain as companies including JD.com Inc. lay off staff and trim costs, while startup investment fizzles.
Against that backdrop, Ji sees an opportunity.
“The macroeconomic overhang is the worst we’ve seen in 10 years,” he said. “The market has become more rational, and that’s helpful for value investors like us.”
Forecast valuations for unlisted Chinese tech firms that plan to go public within three years have dropped at least 20% to 30% versus a year to 18 months ago, Ji said. There have been isolated cases of sharper declines of as much as 50%, he added.
All-Stars is targeting firms that can sustain robust growth throughout an economic cycle by helping customers cut costs, improve efficiencies and innovate, Ji, a former head of Asia internet and media research at Morgan Stanley, said.
Hong Kong-based All-Stars manages almost $2 billion in hedge and private equity funds that focus on “new-economy champions” in China. The majority is in private equity, including $600 million the group closed in January for a seven-year fund. Unlike early-stage venture capital investors, All-Stars’ private-equity investments focus on more mature companies that are close to public share sales.
All-Stars’ new investments include artificial intelligence outfit SenseTime Group Ltd., online financing company Lufax, co-working firm Ucommune and WeDoctor. It added to its investments in Tujia.com, a Chinese rival to Airbnb Inc., and Full Truck Alliance Group, China’s largest truck-sharing platform, Ji said.
Besides cheaper valuations, muted sentiment has made it easier to negotiate terms that are more favorable to investors, he said. Having deployed a majority of the money in the $600 million fund, All-Stars plans to tap investors for another private-equity fund in the second half, he said.
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