By David G. Barry
Massachusetts Pension Reserve Investment Management (PRIM), which has not been historically active in China, has committed to a series of funds from Sequoia Capital China.
The $101 billion fund will commit up to $150 million in four Sequoia China Capital funds. It will commit up to $8.2 million in Sequoia Capital China Seed III, L.P., up to $18.8 million in Sequoia Capital China Venture IX, L.P., up to $61.5 million in Sequoia Capital China Growth VII, L.P., and up to $61.5 million in Sequoia Capital China Expansion I, L.P. Press reports have said that Sequoia Capital China is seeking to raise a total of $8 billion.
Sequoia Capital China makes VC and growth equity investments in seed, early-stage, late-stage and growth equity stage companies in China in the technology, consumer and healthcare sectors.
In a memo about the funds, PRIM’s staff touted the benefits of “an industry-leading venture capital firm with compelling performance, a highly touted organization with proven investment skill and diversification benefits associated with Asian venture capital.”
According to its website, PRIM has only previously backed funds from three Chinese private equity and venture capital firms: Hony Capital, Keytone Ventures and SAIF Partners.
Word of PRIM’s investments come as some institutions are considering their exposure to China – driven in part by discussions about divestment efforts in Russia. A Maryland State Investment Board member, for instance, raised questions at a recent meeting about the plan’s investing in China. Andrew Palmer, the Maryland State Investment Board’s chief investment officer, said the board will further discuss China at its September meeting.
Institutions also have shown concern about China’s crackdown on tech companies as well as its economic struggles brought about, in part, by COVID crackdowns.
Those concerns are illustrated by the fundraising activities of China’s venture capital firms. According to Pitchbook, the country’s VC firms raised $37 billion in 2021, down from $60 billion in 2020, according to PitchBook. That is the lowest fundraising year since 2016. The slowdown in fundraising, though, did not slow investing. According again to Pitchbook, VC deal activity in China reached a near $114 billion in 2021.
In its memo, PRIM staff outlined risks and concerns with the Sequoia funds – some inherent to the general riskiness of private equity and venture capital – and others more specific to China. The funds, it said, will be “exposed to the direct and indirect consequences of potential political, social and diplomatic changes in China.” There is also, the potential according to the memo, for regulatory risk – “changes to Chinese laws and regulations could have a negative impact on performance.”
Approval of the Sequoia funds also is noteworthy for two other reasons.
The first is that Sequoia Capital China is the first private equity or venture capital firm backed by PRIM in 2022 with which it did not have a previous relationship with. PRIM has now approved more than $1.8 billion in commitments to PE & VC firms in 2022, or more than half of its $2.7 billion to $3.3 billion plan.
The second is that it will be the last venture investment that will have to be approved by the board, as it gave CIO Michael Trotsky final approval over new VC commitments.
In addition to the Sequoia funds, PRIM in May also made new commitments of up to $200 million to ArrowMark PRIM Fund of the One, a custom evergreen strategy that will invest in bank regulatory capital relief, and up to $175 million in North Peak Capital, which is using a private equity approach to public markets.
PRIM also allocated capital to a series of managers
that it has backed previously. These
An up to $50 million commitment to Insight Partners Vision Capital II, L.P. and up to $20 million to Insight Partners Fund XI Follow-On Fund. Insight is a private equity firm focused on growth-stage software, software-enabled services and internet businesses.
Up to 40 million euros (US$43 million) in Medicxi IV, L.P. Medicixi invests in seed, early- and late-stage biotech assets and companies across several therapeutic areas. PRIM has invested in five prior Medicxi Ventures funds since 2021.
Up to $200 million in Technology Crossover Ventures XII, L.P. PRIM has invested in six prior funds by the growth investment firm and done three co-investments.