Hong Kong Investment Corporation is a young institutional investor, and it is finally feeling confident enough to discuss what it does – in very general terms.
On May 22 it announced three new funds with partner institutions: Gobi Partners, Lanchi Ventures, and Gaw Capital.
HKIC is benefitting from good timing. Hong Kong’s universities have been retooled and are producing lots of entrepreneurs and startups. That was a known, engineered trend. But Trump’s America is turbo-charging Hong Kong’s efforts to reinvent itself as an innovation hub – by becoming so unwelcoming to Chinese researchers and founders.
When HKIC was launched in 2022, with initial capital of HK$62 billion (about $8 billion), Hong Kong was reeling from self-inflicted wounds of a political crackdown morphed into a harsh response to Covid.
And mainland China was misfiring. Beijing’s attack on its tech sector in 2019 led many international investors to decide China was ‘uninvestible’; the overburdened real-estate sector proved a huge drag on growth; both the first Trump administration and that of Biden forced US venture capital and private equity to disengage from China investments in many sectors, notably AI.
This year has seen a reversal, symbolized by two things. First is DeepSeek, which surprised the rest of the world in February by producing a large-language model with the capabilities of ChatGPT but produced at a fraction of the cost. Suddenly Chinese tech was hot again.
Talent attractor
The second thing is the reelection of Donald Trump in the US. Under his predecessor, Joe Biden, the US was becoming paranoid about ethnic Chinese researchers. Trump has metastasized that into outright hostility, starting with his clumsy tariffs and rhetoric. Many Chinese entrepreneurs had still flocked to Silicon Valley because of its longstanding attractions; here they could bury themselves in a welcoming environment even if tracts of the US were less friendly. But the naked xenophobia of Trump and his supporters has prompted many Chinese entrepreneurs to reevaluate their opportunities.
And they are finding Hong Kong might be a welcoming destination a theme local investors have expressed to DigFin on multiple occasions this year. Although the negatives of Hong Kong’s political issues linger, the city is still considered distinct from mainland China (so long as one keeps their political opinions to themselves). It has contract law and English language. It now has efficient transportation links to the tech hotbeds of Shenzhen and other parts of Guangdong – the heartland of advanced manufacturing. Hong Kong has a giant capital market.
And now it has a growing raft of university graduates eager to launch a startup, and professors who have come around to supporting commercializing ideas developed in the classroom, just as is the norm from Stanford to Hsinchu. Hong Kong’s university system helped give birth to big tech companies, including SenseTime (AI) and DJI (drones), as well as fintechs such as Fano Labs (regtech) and Aqumon (wealthtech). Those were one-offs; is the city poised to unleash a wave of such companies?
Chibo Tang, managing partner, Gobi Partners, says tech is now more than 7 percent of Hong Kong’s GDP, up from under 2 percent in 2015. He predicts it will rival financial services over the next decade in terms of contribution to GDP.
Hong Kong Investment Corporation is stepping in with what it touts as ‘long-term’ capital to try to ensure more startups can get funding, from early stage to late. Its size is potentially massive: Gobi’s Tang estimates total VC funding into Hong Kong is now about $5 billion per annum, up from less than $500 million just 10 years ago: HKIC could more than double that figure, if its capital were to be fully invested.
A big reason for this rise is the sheer scale of China’s labor. Terry Zhu, managing partner at Lanchi Ventures, said, “We are active investors in AI because we see Chinese talent.”
He noted third-party research suggesting a quarter of the top 2 percent of AI specialists are ethnic Chinese, as is about 20 percent of the general pool of AI engineers worldwide. The elite are mostly US educated, with more of them returning to Hong Kong or the mainland; but a growing portion are Chinese homegrown. “They are the driver of the next big thing,” Zhu said.
That ‘next big thing’ includes mainland entrepreneurs looking to expand globally, sometimes using Hong Kong as a springboard, to get a handle on how overseas legal systems and markets work, or as a base for capital-raising.
More capital, please
He reckons the biggest gap to fill, for Hong Kong to seize the advantage, is making more capital available, for longer. To that extent, VCs like Lanchi and Gobi are jostling to partner with HKIC. It’s a lot of money they can leverage and partly manage.
Gobi is to co-manage a ‘Patient Capital Strategic Fund’ that is meant to attract other sovereign wealth funds as LPs and find startups from among Hong Kong’s universities. Lanchi will co-manage a ‘Co-investment Partnership Program’ to invest in Chinese entrepreneurs looking to expand abroad; and Gaw will set up an ‘International Strategic Expansion Platform’ to help commercialize R&D in overseas markets such as the Middle East.
As these deals make clear, HKIC isn’t just a VC, investing just to make money. It blurs the lines between seed money, venture investor, growth investor, and private-equity manager; between being an LP, a fund of funds, and a co-investor; being a government agency and a financial actor.
Its CEO, Clara Chan, spoke today (May 22) at the firm’s inaugural public conference. She didn’t say anything new, but reiterated the point that HKIC is meant to invest through multiple cycles, and help shepherd startups to ultimate IPO on the Hong Kong stock exchange.
The fund has so far backed more than 100 projects, most of them in AI and robotics, although it has also backed fintech (with a stake in WeLab). It also has a mandate encompassing biotech, new materials, and new energy. HKIC invests both for impact – to spread innovation throughout the Hong Kong economy – and for a ‘reasonable’ return over the middle and long term.
Paul Chan, financial secretary of the Hong Kong government, noted that HKIC also plays a catalytic role, working with other investment groups. He says for every dollar invested by HKIC, it has brought in an additional four dollars from co-investors.
This gives HKIC a role more akin to, say, the International Finance Corporation (the private lending arm of the World Bank Group), than to Temasek. It’s a blended mandate. HKIC is also a startup, in a sense: at least, it’s very young, and still formative.
Many goals. Too many?
This naturally leads to questions about how HKIC is structured, how it makes investment decisions, and how it aligns its divergent roles. What is ‘patient capital’ and what does it want?
For the financial secretary, the desired outcome seems clear: with geopolitical tensions reshaping supply chains and global investment flows, Chinese tech companies have had to be even more resourceful: hence, the breakout of DeepSeek. “We want to support starts like that and provide the capital bridge” to take them, over time, from startup to public company, Chan said.
But wanting to back dozens or hundreds of DeepSeek-level companies in Hong Kong doesn’t resolve the competing mandates within HKIC.
Are VCs that co-invest with HKIC subject to different fund structures or terms? Do they face longer lockup periods for their other clients’ capital?
HKIC says its dual mandate is impact plus reasonable, long-term returns. Do its investment partners also need to share those goals? Do they need to accept ‘reasonable’ returns, and how do those compare to the sort of 10x, 20x, 100x kind of returns that typically fuel a VC’s ambition?
It’s possible that HKIC, because of its all-things-to-all-people nature, can swap partners in and out, depending on the stage of an investment. But the details of such an engineering project would be daunting. So will be the internal debates of the investment committee. For example, who gets a board seat on startups?
Sovereign wealth funds are usually marquee names on a cap table, so it’s not surprising that many companies will welcome HKIC investment, for the money and for the prestige that unlocks more money. And HKIC is a lucrative partner for venture and PE funds. But founders often bristle when VCs start gaining control on their boards. How will this dynamic play out when HKIC is in the background, with its government bureaucracy and its impact mandate? Does this suggest a free ride for founders – patient capital, right? – or the possibility of the government opining on strategic decisions?
Similarly, the optics for a company that has HKIC money may change. For example, WeLab is operating digital banks in Southeast Asia, or seeking licenses to do so. If the Hong Kong government is now a shareholder, will foreign regulators regard WeLab as a purely commercial actor? Outsiders will recognize a Temasek-portfolio company as ‘Singapore Inc.’, and that will change expectations.
HKIC has been lucky in its timing. It was set up at a time when the Hong Kong government was desperate to reverse a bad situation, while also responding to exhortations from Beijing to transform the city into an innovation hub. HKIC brings heft and credibility, and it has begun seeding its first investees as Hong Kong’s fortunes are rebounding and a swell of talent is rising both at home and from the US.
The institution is confident enough now to start parading some of its work to the public, which is good. But behind the smiles and the on-stage bromides, this new entity, its partners, and its investee companies face a raft of interesting but difficult battles. HKIC has yet to clearly define what its version of patient capital will want.
