I recently sat down with Zhang Jiang, founder of LongRiver Investments (LRI), to discuss the latest developments in the Chinese Healthcare and Tech sectors, macro market changes and drivers, as well as the impact of AI development on the Chinese investment landscape. (Click here to access the full video interview.) 

SS&C Intralinks: What notable changes have you observed in the Chinese market in recent years? 

Zhang Jiang: Investments often revolve around identifying enduring elements amidst constant change. Before discussing these changes, allow me to share a few constants: China remains an enormous and vibrant market, virtually unparalleled worldwide. 

China is home to many hard-working entrepreneurs. These entrepreneurs possess a remarkable drive and determination to succeed. Many Chinese startups expanded beyond China, venturing into the global markets, capitalizing on their technological expertise, competitive pricing and strong supply chains. The Chinese government provides unprecedented support for innovation, offering a range of policies and resources dedicated to technological development. Therefore, we firmly believe in the resilience of China's economy, where the next big opportunities are highly likely to emerge.  

Now, talking about changes: China is nurturing new industries such as information technology, artificial intelligence, biotechnology, renewable energy and new materials. The emphasis on sustainable development and high-quality growth presents investors with numerous opportunities. The establishment of the Science and Technology Innovation Board (STAR Market) and the registration-based IPO system further support innovation. 

Can you share your insights on the changes the registration-based IPO system will bring to the industry, and to the STAR Market in particular? 

The registration-based IPO system in the STAR Market is a game-changer. It shifts the focus from the previous approval-based system to a market-oriented approach. Companies with high growth potential can now access financing more efficiently. 

One key advantage is that it opens up early-stage, innovative enterprises to investors, encouraging early investments in disruptive technologies. The STAR Market has attracted some of China's most technologically advanced companies, making it one of the most attractive stock markets globally. This, in turn, fosters an ecosystem of technological advancement and drives economic growth.  

For investors, the ability to accurately assess early-stage technology development and future market trends becomes even more crucial. LongRiver possesses strong technological and industry capabilities while continuously deepening our collaborations with core industry leaders along the value chain. This positions us well to leverage our expertise and capture opportunities in the evolving market landscape. 

Technology advancements derive highly innovative and groundbreaking products, while investors often face challenges in understanding and evaluating sound investment opportunities. How do you help investors appreciate the potential of these "hardcore" technologies? 

Technology investments bring unique challenges for investment firms. The industry is specialized, with complex value chains and numerous opportunities. To tackle these challenges, investors need to specialize and focus. They must have deep industry knowledge and a forward-looking perspective. Strategic focus should be on high-growth segments and key nodes within industry value chains. I believe healthcare products driven by the increasing demands of an aging population, medical devices with untapped market potential but lacking advanced clinical methods, and key companies in materials and energy sectors with technological capabilities for large-scale production can be good targets. Furthermore, deep collaboration with industry-leading companies along the value chain and fostering the incubation and support of new ventures and entrepreneurs is necessary.  

Do you think artificial intelligence (AI) will have a revolutionary impact on the healthcare and technology sectors? 

AI is a powerful tool that can greatly enhance productivity and precision in various industries. However, it's crucial to have a nuanced perspective. In the healthcare field, for example, AI holds immense potential for applications in R&D, manufacturing and clinical treatments. But investing in AI requires a deep understanding of the industry. Investors need to identify the pain points along the industry value chain, evaluate how AI can specifically solve certain problems, assess the value it brings and determine who the payer is. It is essential to approach AI opportunities with a discerning mindset rather than blindly pursuing every AI-related venture. And we also need to understand what opportunities are good for startups to enter.  

What are some of investors’ key considerations when selecting an emerging fund manager? 

Volatile markets often create opportunities for alpha generation, making investors more inclined to consider allocations for emerging managers. On the other hand, emerging managers are laser-focused on generating high returns to build strong track records rather than solely gathering assets. This strongly aligns with limited partners’ (LPs) priority. 

Take LRI, for example. Our institutional background provides us with a distinct advantage in disciplined fund management. We embrace a systematic approach throughout the entire investment process and our IT system plays a pivotal role in managing all the deal information, progress updates and key documentation.  

We also place great emphasis on the research-driven investment strategy. Our ultimate goal is to cultivate a learning organization that prioritizes in-depth research over chasing trends, generate alpha and ensure certainty.  

What do you think is the biggest challenge for an emerging manager? And how does a new manager ensure long-term success and sustainability? 

We may be an emerging manager, but we are experienced venture capital (VC) veterans. The core team has worked together through three fund cycles with a proven track record.  

For an emerging manager, everything is being built from the ground up. Balancing fundraising and investing simultaneously can be challenging, and gaining initial trust from investors is crucial, especially during difficult times like these. Fortunately, we have had a strong start, and we are dedicated to going even further. 

To ensure long-term success, first and foremost, you need to have passion for what you do, the right values and trusted partners. At LRI, we live by three core values: accountability, entrepreneurship and excellence. On an individual level, we focus on sharpening our expertise, avoiding distractions and constantly pushing ourselves to excel. It's all about challenging the status quo and asking ourselves, "What sets us apart?"