The Wealth Today interviews Winston Ma, an investor, attorney, author and adjunct professor in the global digital economy
New York, 6 April 2021
Sovereign investors or the so-called Trillion Dollar Club are the leading forces of new age capitalism and are fundamentally transforming global capital markets, being the most significant source of capital supply with the longest term impact.
This new group of asset owners who were passive investors just a decade ago, are now at the forefront of the global digital transformation. They are strongly promoting innovative investment models and alternative asset allocation through a direct exposure to “new economy” technology venture investments amid the current fourth industrial revolution, among other market-defining movements.
In his book, The Hunt for Unicorns: How Sovereign Funds Are Reshaping Investment in the Digital Economy, Winston Ma and Paul Downs present a detailed analysis of the three intersecting aspects of sovereign investors’ pursuit of digital revolution: their strategy and institutional setup, their investments and impact, and national/multinational regulatory policy responses. The book highlights current case studies including from the China Investment Corporation to the funds of the Middle East and the pensions of Canada, Nordic lands and the US, and walks us through the varied investment considerations, strategic motives, governance traits and regulatory challenges of sovereign investors.
1. Tell us about yourself and what was the motivation behind writing this book?
I consider myself an investor, attorney, author, and adjunct professor in the global digital economy. Currently there are many exciting developments – and global tensions – at the intersection of sovereign investment funds, cross-border tech investing, and digital economy regulations. In the past, for 10 years, I have been the Managing Director and Head of North America Office for China Investment Corporation (CIC), China’s sovereign wealth fund; and now I am back in the capital market for tech investing, while serving as an Adjunct Professor at the NYU School of Law on sovereign funds.
My first direct encounter with sovereign wealth funds was during the global financial crisis in 2007-2008, when I left Wall Street to join the newly established China Investment Corporation, the SWF of China. At that time, SWF was a new entrant to the global capital markets; now, it is hard to avoid the headlines their activities attract.
Therefore, based on several years of experience, in 2020 I completed two new books with Wiley publishing. The Hunt for Unicorns– How Sovereign Funds Are Reshaping Investment in the Digital Economy, and The Digital War – How China’s Tech Power Shapes the Future of AI, Blockchain and Cyberspace, a sequel to my book published in 2017 – China’s Mobile Economy. For both books, sovereign funds are the new, powerful venture capitalists that are reshaping the global tech investing scenario.
2. Who would you reckon this book is for?
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. Therefore, the Hunt for Unicorn book is for all these stakeholders in the global digital economy.
3. Tell us something about the “super asset owners” you have mentioned in the book and how are they shaping the capital market?
To put the “super asset owners” in context, here is a quick question: 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 increasingly, a new group of sovereign investors, which include some of the world’s largest sovereign wealth funds, government pension funds, central bank reserve funds, 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, hence the notion of “super asset owners”.
They have shaken off their traditional, passive investor roles and stepped into the vanguard of the digital transformation we are all living through. Because of the large size of their investments, they are the “unicorn makers”, fostering the likes of Uber, Alibaba, Spotify, and more “new economy” start-ups. Today, they are the new, powerful venture capitalists. Their ample resources, preference for lower profile, long time horizon, as well as their need to diversify globally have helped to transform the tech world.
4. How do you think countries can use sovereign funds to help boost their current economies? What impact that would generate on the local economies?
This is already an ongoing, powerful trend across different continents. These funds see tech investments as a way to support economic activity and job creation at home, while simultaneously achieving commercial returns from new businesses.
In this book, global sovereign funds are seen to rush to Silicon Valley, China and other innovation hubs of the world to join the unicorn hunt. At the same time, the book looks into sovereign funds nurturing the technology sector in their own back yards. For example, one of the goals of Turkey’s sovereign fund is to develop the domestic entrepreneurial economy and become the “investment gate of Turkey”. And of course, the PIF fund of Saudi Arabia and the Mubadala fund of UAE, who were the main investors behind the $100 billion Vision Fund for tech venture investments, are probably the most prominent examples.
5. How are sovereign funds transforming the local economy from oil-based economy to tech-based economies?
Amid the global technology revolution, the sovereign funds of oil-based economies have thrown themselves into the technology race. They are investing overseas, domestically, or both, to support and facilitate the digital transformation at their home countries. The cases in this book illustrate two main ways for SIFs to achieve strategic tech investment objectives: (a) facilitate cross-border technology transfer and (b) build domestic innovation ecosystem and infrastructure. The latter can provide a longer and more powerful catalyst for these emerging markets.
States like Abu Dhabi and Dubai in the United Arab Emirates (UAE), as well as other countries in the Middle East, are increasingly pumping into local tech ecosystems. On the one hand, the Gulf states have some of the most plugged-in populations in the world, with the rate of internet penetration in Bahrain, Saudi Arabia, Kuwait, and Qatar all exceed 70%, far outpacing the global average of 50%. On the other hand, it helps reduce their reliance on oil- dependent industries. Shifting away from simply acting as global technology investors, the Gulf states have focused on investing domestically with a goal of becoming emerging hubs for digital innovation.
6. Your other book published recently, “The Digital War” talks about how sovereign funds are being taken to a different level from development-based agendas to being competitive and competing on a global scale. How do you view competing sovereign funds carrying government agendas?
Importantly, the rise of sovereign investors is reflected not only in the increase in the size of assets under their management but also in the proliferation of new funds established over the past decade and the anticipated establishment of new funds in countries with recent resource wealth (such as African countries), as well as in regions striving for government-driven economic transformation. This is seen in China’s government fund for semiconductor and US fund for 5G technologies, as well as in the rest of the world, such as the EU.
According to media reports in August 2019, EU staff have drafted a plan to launch a €100 billion ($110 billion) sovereign wealth fund, to be called “European Future Fund”. The main goal of this proposed Fund will invest into future “European tech champions”, which could potentially compete in the same league as China’s BAT (Baidu, Alibaba & Tencent) or the US GAFA (Google, Apple, Facebook & Amazon). Due to the complex EU politics, it is not clear that the fund will ever be realized; but the determination to compete with American and Chinese dominance, using a sovereign fund, in the future digital economy is clear.
About Winston Ma
Winston Ma specializes in the global digital economy, cross-border investments, and multinational law and policy with a specific interest in the US-China relations. Ma is the former Managing Director and Head of the North American Office for the China Investment Corporation (CIC), China’s sovereign wealth fund, where he spent 10 years enabling cross-border digital economy investments and seeking out synergies between China and world markets.