HONG KONG—Venture capitalist Neil Shen’s Sequoia Capital China is setting up a hedge-fund business to leverage its record of choosing winners in Chinese technology.
In August the firm launched the U.S.-dollar-denominated Sequoia Capital Equity Partners fund with initial capital of more than $300 million from investors, according to people familiar with the matter and filings with the U.S. Securities and Exchange Commission. It plans to invest in publicly traded stocks globally, the people said.
The launch puts Sequoia China in more-direct competition with Hillhouse Capital, another high-profile Chinese asset manager that has investments in private equity, venture capital and listed stocks around the world.
Veteran investor Mr. Shen co-founded Sequoia China in 2005, the same year Chinese entrepreneur and investor Lei Zhang established Hillhouse. The two firms have grown significantly and gained global prominence over the past decade, thanks to hugely successful bets on Chinese technology startups.
Sequoia China is part of Sequoia Capital, started in Menlo Park, Calif., in 1972. While the global investment firm is best known for venture-capital investing, its Sequoia Capital Global Equities fund dates to 2009 and manages over $4 billion. It invests in public companies across the technology, media and telecommunications sectors, in addition to late-stage private companies, according to its website.
Mr. Shen directs Sequoia China’s strategy and oversees its investments. The firm has made billions of dollars in profits from early purchases of stakes in Internet companies such as Meituan Dianping, which operates a popular lifestyle and food-delivery app in China, and Pinduoduo Inc., a fast-growing e-commerce rival to Alibaba Group Holding Inc. Sequoia China has also invested in Bytedance Ltd., the owner of the popular social-media app TikTok.
Sequoia China has lately broadened its horizon beyond early and growth-stage investing to buy stakes in companies at later stages of development or close to going public. Traditional venture-capital investments can take years to be monetized, usually when a company goes public or is sold.
The new fund would have a clearer mandate to invest in companies that are already public and could trade in and out of positions more frequently. China’s venture-capital industry is also maturing, following a decadelong boom in fundraising and valuations of private startups.
In recent years, shares of many Chinese technology companies have surged after going public. Pinduoduo, which listed on the Nasdaq Stock Market in July 2018 with a $24 billion valuation, now has a market capitalization of roughly $100 billion, while Meituan’s valuation has more than tripled to nearly $200 billion since it listed in Hong Kong in September 2018. Sequoia China still has stakes in both companies.
In June, Sequoia China applied to become a Qualified Foreign Institutional Investor in mainland China, according to a filing with the Chinese securities regulator, potentially paving the way for its dollar-denominated fund to invest in the onshore A-share market. The application is in progress.
Sequoia China has hired three former Hillhouse employees to run its fledgling hedge-fund business, according to a person familiar with the matter. Henry Shen, a former Hillhouse trader, is the fund’s chief operating officer, while William Du, who goes by Du Zhiheng in Mandarin, has also joined, the person said. Reggie Fang, also known as Fang Cao in Mandarin, joined last year as the fund’s portfolio manager, according to his LinkedIn profile and people familiar with the matter.
Hillhouse, one of the biggest asset managers in Asia, has profited handsomely from early bets on Tencent Holdings Ltd. and JD.com Inc. It manages hedge funds in addition to private equity and is known for making concentrated bets and long-term investments.
Chinese hedge-fund managers have been having a banner year, thanks to the draconian government measures that curbed the coronavirus pandemic, and an outperforming domestic equity market.
Write to Jing Yang at Jing.Yang@wsj.com and Xie Yu at Yu.Xie@wsj.com
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