When we think of great investors, many people think of the Warren Buffet’s and Ray Dalio’s of the world. While others focus on great investments for instance Facebook acquiring Instagram or Google acquiring Youtube. However, we rarely see any focus on Chinese conglomerate Tencent despite the company having extremely impressive returns.
Perhaps, this has happened because their business operations overshadow their investment success or perhaps because they are a Chinese company. Nevertheless, their returns are remarkable and unlike most successful investors or investments they have not been concentrated in one big bold bet going their way.
Additionally, most of their current investment book lies in public market stakes of companies rather than opaque private valuations of venture businesses, that can be supported by the next round of funding. The chart below, shows the data behind these stunning returns of Tencent’s Associate Listed Investments. Read further on my ideas of how they have been generated, although I confess not to know.
While Tencent has other investments, I have focused on Associate Listed Investments because they have market prices which means Tencent can’t manipulate valuations unlike unlisted investments, and they are held at cost which makes gains easier to calculate.
Tencent now owns $151 Billion USD of Listed Associates compared to a cost base of $26.3 Billion (as of 31st December 2020). Their largest investments include JD.com, Meituan Dianping, Pinduoduo and Sea Ltd. The most impressive part of their returns is the sheer size of them.
For example, Ray Dalio’s Bridgewater is widely reported as the Hedge Fund that has made the most money for clients over the firm’s life at around $50 Billion (cumulative) while Tencent has made over 2 times that for shareholders in a short space of time.
Ideas on Tencent’s Investment Success
Using Tencent’s Operations
Tencent has their own business operations across gaming, social media, advertising, payments, financial products, and cloud to name a few. These large operations collect a lot of proprietary data on Chinese citizens which is hard to replicate for other investment firms and other large businesses because of the China’s opaque nature particularly for foreigners. Data Advantage
Scale and Ability to Help Associate Investments
While several of these investments are listed when Tencent initially invested many were not. If you are a young entrepreneur and Tencent and XYZ investor both offer you seed capital, it’s an easy choice to whose offer you should accept. Tencent can use their massive install base to supercharge your business while many other firms cannot offer this in China. Deals go to the Gorilla
James Mitchell who primarily looks after Tencent’s investment operations is a fantastic investor as the above track record indicates. He benefits from Tencent’s advantages described above as well as having permanent capital, a longer time horizon, no benchmark and constant new money (excess free cashflow) to allocate. Great Allocator
The last few years has been a wonderful time to be an investor in Technology (most of Tencent’s investments) and most investors focused in this area have experienced strong returns. One could also argue that components of this sector are overvalued including several companies owned by Tencent. For now, though Tencent and their shareholders are enjoying their time in the sun. Luck
We are holders of Tencent in the Oracle Global Equities portfolio, and we look forward to seeing whether they can match their impressive five year returns over the next five years.
Written by Nick Cummings
Oracle Global Equities Portfolio Manager