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Longtime China investor seeks more clarity before putting more money in Chinese equities

Longtime China investor Tiger Global Management has hit pause on investing in Chinese equities, said people familiar with the matter, as the firm reassesses its exposure to the world’s second-largest economy after President Xi Jinping cemented his control over the country.

Tiger executives, including founder Charles “ Chase” Coleman, have told others that Mr. Xi’s reelection and his stacking of the Communist Party’s leadership with loyalists at the recent party Congress could increase geopolitical tensions and means the country’s Zero-Covid policy will likely continue, the people said.

China’s determination to stamp out Covid-19 outbreaks with lockdowns and other restrictions has been a major drag on its economic growth. Concerns about what Beijing might attempt to do with Taiwan, a democratically self-ruled island, also increased after the Chinese Communist Party recently amended its charter to include the phrase “firmly oppose Taiwan independence” and elevated a military commander familiar with Taiwan.

Covid-19 lockdowns, corruption crackdowns and more have put China’s economy on a potential crash course. WSJ’s Dion Rabouin explains how China’s economic downturn could harm the U.S. and the rest of the world. Illustration: David Fang

Tiger had been shrinking its exposure to Chinese equities, concentrating on a smaller set of companies it knew well and believed in, said people familiar with the move. High valuations in early 2021 also played a role, one of the people said.

Tiger further shrank its hedge fund’s China exposure to the mid-single digits heading into the congress, some of the people said, avoiding some of the carnage that hit Chinese equities as a result of it. The Hang Seng Index in Hong Kong fell 6.4% on Oct. 24, the biggest one-day decline since the 2008 global financial crisis. Chinese companies’ American depositary receipts plunged, with the five biggest U.S.-listed Chinese companies as of Oct. 21 losing $52.17 billion in market value in one day.

Tiger refrained from buying into the steep selloff, with executives telling clients they are spending more time on opportunities in India and the South Pacific.

Investors have been scaling back their China exposure as a series of regulatory crackdowns on internet-platform companies and for-profit education businesses inflicted heavy losses on many funds and highlighted the perils of investing in an authoritarian state. But the recent congress has caused even longtime China bulls to rethink their exposure.

Tiger 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, said people familiar with the firm. Some could come from the Politburo central committee economic work conference in December, which sets the tone for the coming year’s economic agenda and usually is chaired by Mr. Xi.

Mr. Coleman and others also have said Mr. Xi would have to stimulate the economy to some degree, said people familiar with the conversations.

An early believer in China, Tiger made billions by investing in China-focused versions of U.S. internet companies, helping to make its reputation as a savvy tech investor. It invested in three publicly traded China internet companies in 2002 and closed its first private-equity fund, a $75.8 million vehicle, in 2004. One of that fund’s first investments was in Alibaba Group Holding Ltd. , which went public in 2014 in a blockbuster New York IPO.

The firm’s most successful bet in China was a $200 million investment in e-commerce giant JD.com, which returned $5 billion. Tiger also was an early investor in Didi Global Inc. and artificial-intelligence company SenseTime Group Inc., and had exited both companies not long after the IPO lockup periods ended, according to people familiar with the investments.

Losing bets include those in apartment provider Danke Apartment and tutoring company Zuoyebang, according to a recent Tiger document.

Tiger still retains significant exposure to China through several private-equity funds, said people familiar with the firm, but has dramatically 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 Ltd. 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. Tiger’s Chinese equities exposure has contributed to the losses, said people familiar with the firm, though to a lesser extent percentage-wise than the rest of the portfolios. Tiger managed roughly $60 billion firmwide as of Sept. 30.

Tiger was a net seller of Chinese equities for the year ended June 30, one of the people said, but Tiger also bought Chinese equities as the market was falling, a buy-the-dip strategy that previously had proved profitable. Tiger partner Edward Lei, who focused on Tiger’s public investments in China for almost a decade, left in June and is trying to raise money for his own global hedge fund.

Some of the people familiar with Tiger said JD.com and food-delivery company Meituan comprise the bulk of Tiger’s remaining exposure to China in its hedge fund.