As Investors Ditch China, Inatai Is Leaning In

While peers reallocated to Southeast Asia, the $2 billion foundation spent six months conducting due diligence on the region’s venture managers. Here’s what happened next.

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As peers flee China for Southeast Asian investments, the Inatai Foundation’s Investment Management Company is forging its own path.

After noticing a trend on the part of other institutions moving away from China and toward Southeast Asia, the $2 billion newcomer undertook a due diligence project to determine if Inatai should follow suit. According to Charlotte Zhang, director of investments at Inatai, the question was: “Was it just a slight tweak because of governance, or were there fundamentally more attractive risk-adjusted returns in Southeast Asia?”

The foundation’s conclusion: For the types of venture investments that Inatai would like to tap, it’s too early for Southeast Asia. Plus, the organization’s expertise in China has made the country a more attractive investment opportunity in spite of the geopolitical challenges.

For many allocators, it has become increasingly difficult to invest in China as the country battles a slowing economy and rising tensions with the West. Just recently, Canada’s Caisse de Dépôt et Placement du Québec halted private deals in the country and began the process of closing its Shanghai office. The Florida State Board of Administration, meanwhile, stopped funding new investments in China last year.

As a result, some organizations have begun to explore alternative options in southeast Asian countries such as Vietnam, Indonesia, and Malaysia.


To determine whether it should join the movement, Inatai launched a six-month diligence effort in May 2022. The nonprofit conducted calls and traveled to Southeast Asia for a series of conferences, meeting with more than 40 limited partners, including the sovereign wealth funds and family offices that tend to dominate the region. The fund also met with roughly 15 managers that work in the area.

Inatai was primarily interested in learning about the development of venture as an asset class, the types of investible companies in the region, and the key risks in the area. The foundation’s investment team spent time combing through reports and attending industry events stateside to add to that pool of information.

After six months, Zhang’s team concluded that it’s still too early to invest in managers that specialize in Southeast Asia. Although many Southeast Asian countries have growing populations and have benefited from the supply chain shift away from China, venture investments in the region have so far not lived up to expectations.

According to Zhang, while portfolio company valuations appear promising on paper, there aren’t many exit opportunities for venture firms. When venture firms do offload portfolio companies, it’s rarely through an IPO, as these have generally been unsuccessful in the region, Zhang said.

In 2022, exit values for Asia-Pacific private equity investments fell by 33 percent year-over-year, according to data from Bain. Per the survey, 73 percent of investment managers cited IPO underperformance as the impetus behind the falling exit valuations. For this reason, these managers have relied on selling stakes to other venture firms.

“We believe that the region doesn’t currently justify a dedicated exposure,” Zhang said, adding that the decision is due in part to the concentrated investment style at Inatai. The foundation has thus decided to lean into its internal expertise and hone its investments in China. Currently, roughly 12 percent of Inatai’s total assets under management are invested in the country, and Zhang expects that figure to eventually grow to 30 percent.

“If you look at China’s relative contribution to global GDP, it’s on par with the United States and will be exceeding it in the coming years,” Zhang said. “If you believe that GDP will eventually be equitized over time, your asset allocation to a global opportunity set should probably reflect something closer to [a] country’s relative proportion of GDP.”

Zhang and her team also believe that the centralization of power in China provides a certain degree of transparency for investors — a view that is distinct from many of their peers. According to Zhang, this is because the government often signals policy changes well in advance of their implementation. What’s more, she said many companies located in China have global exposure, something that her team believes is a positive.

“In that context, if you have exposure to those companies, are you really investing in China, or does it just happen to be a company that was founded in China [and] serves a much larger market?” Zhang said.

Inatai’s makeup gives it a leg up on its U.S.-based peers: According to Zhang, three of Inatai’s four dedicated investment team members are native Mandarin speakers.

“That means some of us have spent a large portion of time in the country and have extended networks,” she said. Moreover, she emphasized that knowing the language has enabled them to verify the information provided by the managers who are overseeing their investments in China. It has also allowed them to switch to the general partners’ native language, which helps communicate nuances that could otherwise be lost in translation.

“At the end of the day, this is still a people business,” Zhang said. “The degree of comfort and being able to explain concepts in your native tongue give you a deeper sense of what it is that [managers] know and what they can share with you.”