TikTok fortune of billionaire Republican donor Jeff Yass threatened by Washington

Author: Editors Desk, Ryan McMorrow in Beijing, Tabby Kinder in San Francisco, Demetri Sevastopulo and Alex Rogers in Washington Source: Financial Times
April 23, 2024 at 21:56
© FT montage/Eddie Malluk
© FT montage/Eddie Malluk

Investor’s Susquehanna International Group owns estimated $40bn stake in parent company ByteDance as app faces potential ban

Jeff Yass’s Susquehanna International Group first invested $80,000 in ByteDance, the Chinese owner of TikTok, on the back of an idea sketched on a napkin in a Beijing coffee shop more than a decade ago.

His global quantitative trading firm followed up with another $2mn months later, becoming the first big backer of ByteDance founder Zhang Yiming and helping to kick-start a social media revolution.

SIG now owns roughly 15 per cent of ByteDance, a stake worth about $40bn that represents a significant chunk of Yass’s net worth, according to people familiar with the matter. His estimated $30bn fortune is now hostage to growing geopolitical tension between the US and China, as Congress moves forward with a potential ban of the viral video platform in its largest and most lucrative market.

A bill requiring ByteDance to divest TikTok or face having the app banned over national security concerns may pass in the Senate this week before it is signed by President Joe Biden.

As TikTok’s fate has become intertwined with politics, Yass has increased his political spending, laying out more than $46mn for Republican candidates and making him the largest donor of this election cycle, according to OpenSecrets, a non-profit organisation tracking campaign finance and lobbying. But his political outlays were not enough to slow the TikTok bill, which sits at the centre of the battle between Washington and Beijing. “Investors are being forced to pick sides,” said Ming Liao of investment firm Prospect Avenue Capital. “Geopolitics is the biggest risk and there is no way to mitigate it.”

Since founding SIG in 1987, Yass has built a business on making many small bets with the potential for outsized payouts.

The approach turned SIG into an options trading powerhouse, and it gradually grew into a market maker in more than 600 publicly traded companies including Alphabet, Microsoft and Goldman Sachs. Its publicly reported positions were worth more than $500bn at end of 2023, according to Fintel, an investment research platform.

There is nothing one financier can do in the face of America’s overarching aim of containing China Li Chengdong, head of internet think-tank Haitun Yass, an avid poker player who got his start with horseracing, pushed the firm towards venture investing.

In 2005, SIG focused its efforts on China, then the fastest-growing large economy in the world with an exploding middle class. Since then, SIG has put over $3.5bn into more than 350 Chinese start-ups, making Yass’s group among the leading foreign venture capital firms in the country, according to research group ITjuzi.

SIG’s stakes include holdings in Chinese groups designing semiconductors and making chip design tools, as well as a cyber security start-up.

SIG has yet to come under scrutiny in Washington, where lawmakers have been investigating the investment activities of many American venture capitalists in China.

Two of the groups, Silicon Valley venture capital firms Sequoia Capital and GGV Capital, decided in 2023 to split their operations in response to the push for tech investors to disengage from China. Under pressure, Yass has gone on the offensive. He is a top backer of Club for Growth, an influential rightwing group, and the main donor behind Protect Freedom PAC, a Republican fundraising super-political action committee aligned with senator Rand Paul, who opposes the TikTok ban.

Trump, who once tried to ban TikTok, has since reversed his position on the app, saying in March that banning it would only serve to benefit Facebook, after meeting Yass and speaking at a Club for Growth event.

The group also paid Kellyanne Conway, a former senior Trump political adviser, to do TikTok-related polling. Trump has said he did not discuss TikTok with Yass. A Yass spokesperson said the billionaire never contributed to Trump and had no plans to do so.

Nearly half of the 15 Republicans who voted against a TikTok bill that passed the House in March counted SIG or the Club for Growth as top campaign donors, according to data from OpenSecrets.

One of the nay votes was from West Virginia’s Alexander Mooney, who has received $2.4mn in support from the Club for Growth and the Protect Freedom PAC for his senate bid. A spokesperson for Mooney did not respond to requests for comment. “I’m proud to have stayed with President Trump on this one,” he told West Virginia radio station MetroNews in March.

SIG’s investments in China go beyond ByteDance. Unlike traditional venture capitalists, the investment arm is internally funded, meaning it invests only partners’ money, rather than raising capital from external sources such as pension and endowment funds. SIG’s structure also means that the ByteDance gains accrue directly to Yass and his co-founders instead of outside limited partners.

ProPublica, a non-profit investigative journalism outlet that has reviewed Yass’s tax returns, said the ByteDance stake accounted for a major part of Yass’s wealth and estimated he owned 75 per cent of SIG.

The structure has insulated the firm from the whiplash of US politics on China, as it does not have to answer to institutional investors.

But new rules unveiled by the Biden administration last year would limit SIG’s ability to invest in Chinese artificial intelligence, semiconductors and quantum computing.

It is unclear if the executive order, which is still in the consultation stage, would force SIG to divest its Chinese holdings in these sectors.

Data from ITjuzi shows that out of SIG China’s 389 deals, 49 were in AI-related start-ups and five in chip companies, though the group did slow the pace of China investment last year.

Some of the investments are in sensitive sectors. For example, Yass’s group is the largest outside investor, with a 14 per cent stake, in Beijing Xindun Times Technology, or Trusfort, which provides cyber security solutions to several state-owned groups and government offices including the Ministry of Public Security and the country’s powerful internet regulator, according to public records. Trusfort’s website says it is “deeply carrying out the [Communist] party and government’s efforts to build a powerful cyber nation” and that it has “demonstrated great responsibility and achievement in advancing the party and national affairs”. The founder Guo Xiaopeng was recently named to Beijing’s top political consultative body.

A spokesperson for SIG and Yass said SIG China did not invest in companies engaged in government surveillance or for which AI was the primary business driver and said Trusfort offered consumer fraud protection for banks and brokerages.

For SIG, no Chinese start-up has been a bigger winner than TikTok owner ByteDance. After funding ByteDance’s seed round, Yass’s group put in “hundreds of millions” more in subsequent funding rounds, according to court records in the US. If TikTok is banned, it will dent Yass’s fortune, said Li Chengdong, head of internet think-tank Haitun. “Now the most likely outcome is they will shut down the US, and all the American investors in ByteDance will bear the losses,” Li said. “[Yass] did what he had to do, but there is nothing one financier can do in the face of America’s overarching aim of containing China.”

Additional reporting by Nian Liu in Beijing

You did not use the site, Click here to remain logged. Timeout: 60 second