The Hunt for Unicorns How Sovereign Funds Are Reshaping Investment in the Digital Economy

Who holds the power in financial markets? For many, the answer would probably be the large investment banks, big asset managers, and hedge funds that are often in the media's spotlight. But more and more a new group of sovereign investors, which includes some of the world's largest sovereign wealth funds, government pension funds, central bank reserve funds, state-owned enterprises, and other sovereign capital-enabled entities, have emerged to become the most influential capital markets players and investment firms, with $30 trillion in assets under management ("super asset owners").

Their ample resources, preference for lower profile, passive investing, their long-time horizon and adherence to sustainability as well as their need to diversify globally and by sector have helped to transform the investment world and, in particular, private markets for digital companies. They have helped create and sustain an environment that has fostered the rise of the likes of Uber, Alibaba, Spotify and other transformative players in the digital economy, while providing their founders and business models the benefit of long-term capital.

Despite this increasingly important impact, sovereign investors remain mostly unknown, often maintaining a low profile in global markets. For the same reason, they’re also among the most widely misunderstood, as many view investments made by sovereign investors as purely driven by political aims. The general perception is that most sovereign investors lack transparency and have questionable governance controls, causing an investee nation to fear exposure to risks of unfair competition, data security, corruption, and non-financially or non-economically motivated investments.

The current global tensions around the AI race and tech competition – and now the corona virus pandemic – have exacerbated such misperceptions, spawning controversies around sovereign investors and capital markets, governments, new technologies, cross-border investments, and related laws and regulations. As such, sovereign capital and the global digital economy are undergoing an unprecedented, contentious moment.

In short, the emergence of sovereign funds symbolizes a major shift of the world’s economic power. For the first time, investment funds from developing countries are playing with OECD financial giants as equals. Furthermore, their investments into high tech enable them to participate at the cutting-edge of the fourth industrial revolution, challenging traditional innovation powerhouses like the US and Germany. For all stakeholders, from tech unicorns, VC funds, asset managers, financial firms, to policymakers, law firms, academics, and the general public, this is the must-have book to get to know these new venture capitalists and "super asset owners".

WINSTON MA is an investor, attorney, author, and adjunct professor in the global digital economy. Most recently for 10 years, he was Managing Director and Head of North America Office for China Investment Corporation (CIC), China's sovereign wealth fund. Prior to that, Mr. Ma served as the deputy head of equity capital markets at Barclays Capital, a vice president at J.P. Morgan investment banking, and a corporate lawyer at Davis Polk & Wardwell LLP. He is the author of the best-selling books including Investing in China (2006) and China's Mobile Economy (2016). Winston was selected as a 2013 Young Global Leader at the World Economic Forum and in 2014 he received the NYU Distinguished Alumni Award.

PAUL DOWNS practiced international law for more than four decades, most recently as a partner at Hogan Lovells in New York, where he co-founded the Sovereign Investor Practice and initiated its annual Sovereign Investor Conference. He has represented sovereign investors transacting in assets globally, has spoken and published on the topic and guest lectured at Columbia and New York University law schools. Mr. Downs served as President of the American Foreign Law Association.

Foreword xi

It is Time to Build the Greatest of Time Machines —Ajay Royan xi

The Investment Partners of Choice —Russell Read, CFA, Ph.D xviii

Into the Vanguard of the Digital Transformation —Margaret Franklin, CFA xx

Authors’ Notes and Acknowledgments xxiii

Acknowledgements xxvii

About the Authors xxix

Preface xxxi

Chapter 1 Sovereign Investors Rising in Crisis 1

Chapter 2 From Passive Allocators to Active Investors 33

Chapter 3 Global Hunt for Unicorns (Decacorns) 65

Chapter 4 Long-term Capital into Digital Infrastructure 103

Chapter 5 Spurring Domestic Digital Transformation 137

Chapter 6 Go Early, Go Nimble 175

Chapter 7 The Hunt for the Hunting Party 205

Chapter 8 Overseas Expansion and National Security Collide 241

Chapter 9 Tech Transactions Snared by Geotech Tension 275

Chapter 10 Super Asset Owners 313

Appendix: Table of Abbreviations 343

Bibliography 347

Index 359

The New copy of this book will include any supplemental materials advertised. Please check the title of the book to determine if it should include any access cards, study guides, lab manuals, CDs, etc.

The Used, Rental and eBook copies of this book are not guaranteed to include any supplemental materials. Typically, only the book itself is included. This is true even if the title states it includes any access cards, study guides, lab manuals, CDs, etc.