Ontario Teachers' favours US over China for tech investing
A senior executive at Teachers’ Venture Growth (TVG), the venture arm of $183-billion Canadian pension fund Ontario Teachers’ Pension Plan (OTPP), has affirmed the primacy of the US over China when it comes to technology investment opportunities.
Avid Larizadeh Duggan, senior managing director at TVG, also singled out opportunities in India in the technology space, and acknowledged the importance of China and elsewhere in Asia.
Duggan made the comments at a Financial Times Weekend Festival in London in early September.
However, Duggan said the US remained the main focus for investment opportunities, emphasising the importance of US capital markets and its huge technology companies, which provided start-up founders with a route to realising profits.
“The US is not just where the company is formed, it is where the capital is, where the public markets, the exit markets, and the acquirers [are]. There [is nothing] comparable to the US,” she said.
She pointed to the Nasdaq and NYSE as listing indexes for successful technology companies, as well as the largest US tech companies, which have acquired companies from all over the world.
TVG
“[They] end up acquiring a lot of European companies and the path of exit tends to be [in the US], so I still think there is a significant advantage as an ecosystem,” she said.
TRANSPARENCY GAP
Richard Kramer, founder of independent technology research company Arete Research, pointed to weaknesses in corporate governance in China and India.
“You need to look at corporate governance. You need to look at whether, as an investor, you can invest with confidence in these markets. You had a decade of Chinese IPOs in the US that were largely fraudulent,” he said, referring to concerns about transparency and trading practices surrounding Chinese companies listing in the US.
In a recent expression of these, US exchange NASDAQ stopped IPOs of small Chinese companies last October, to investigate the short-lived surge in the stock prices of many such companies following their listings. Some prices have increased 2,000% following the companies’ IPOs before nose-diving in the following days, leaving many investors out of pocket.
Kramer also singled out Adani, the Indian industrial conglomerate, whose share price has fallen steeply in recent weeks following revelations that some of the group’s largest shareholders, who had links to the Adani family, shielded their identities via opaque offshore ownership structures. The revelations have focused attention on the relationship between Adani founder Gautam Adani and India’s Prime Minister Narendra Modi.
Retired star fund manager James Anderson, who stepped down from Baillie Gifford last year, said that US sanctions on Chinese technology companies hindered their development, but they also impinged on investment opportunities in the US and European tech sectors.
“I don’t think China is currently ahead on AI, partly because of American actions and constraints, but I think the question for all of us is: how far does American policy, which we know has effects well beyond America, effectively make it difficult for us as investors, whether private or institutional, to get [access to technology opportunities]?” he said.
Anderson delivered returns of 1,371% for shareholders over 20 years at the FTSE-listed Scottish Mortgage Investment Trust, compared with 343% for the FTSE All-World benchmark, before stepping down as co-manager last year.
These included early bets on Amazon and Tesla, and pioneering the fund’s move into venture capital investment 10 years ago, opening up opportunities to retail investors at early-stage promising companies — including SpaceX and Stripe — before they were listed on public markets.
CLOSED LOOP
Kramer said the proclivity for large US technology companies to acquire start-ups, which were often founded by ex-employees, created a closed loop — and this was not a good thing for investors, nor was it good for the diversity of the sector that is forging the current generation of AI start-ups.
“A lot of these start-ups are coming out of the company with the sole purpose of selling themselves back to the company, because they are solving a problem that the company wasn’t willing to [invest in] to solve themselves,” he said.
Kramer added that leading US technology companies tended either to buy out promising rivals or “starve them out”: outspending them to leapfrog the gains made by originating a promising idea, then using their established distribution network to strangle smaller companies’ market share.
“Microsoft is a great example of that: they constantly make just good-enough products to kill the [competition] with their massive distribution,” he said, pointing to the example of Microsoft Teams growing market share over Zoom for video conferencing.
But Larizadeh Duggan said that such companies were not attractive to OTPP. “We would not want to invest in any company whose outcome is: ‘I want to get bought again by [company] xyz’, because it limits what they can do.”