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Alibaba becomes the latest Big Tech to cut back strategic investment team

Rebbeca Ren

posted on July 15, 2022 0:09 am

Alibaba plans to cut its strategic investment team as the behemoth's deal-making pace has slowed significantly, Reuters reported, citing people familiar with the matter.

About 30% of the division's staff, mostly middle and senior management, will be let go. At present, the in-house deal team has more than 110 employees, mainly based in mainland China, said the report, adding the company has already informed a bulk of staffers of their redundancy.

According to Dealogic, from 2015 to 2021, Alibaba on average made about 44 investments every year, peaking in 2018 with 70 deals totaling $54 billion. In 2021, when Big Tech suffered a massive regulatory hit in China, it still closed 38 deals totaling $6.2 billion. So far this year, however, the giant has made just nine investments worth $5.2 billion.

Alibaba's rival Tencent has also scaled back its investment arm recently. The Chinese gaming and social giant made just 32 investments and acquisitions in the first half of this year, which accounted for about a quarter of its 129 total transactions in the same period in 2021, according to data from ITjuzi, a market research firm that tracks deals in China's internet industry.

Given the weakening economy forecast and rising uncertainties, investors are becoming more cautious, and Alibaba and Tencent are no exception.

Global capital markets are cooling amid sluggish economic growth, rising inflation and chaos from Russia's war with Ukraine. Since hitting record highs in January, global stock markets have lost more than $20 trillion.

Venture capital-backed startups raised far fewer rounds of funding during the past three months than they did during the more ebullient days of late last year and early this year, according to analytics firm CB Insights. Data from the firm showed that deal activity across the globe dropped 23% between the first quarter and second quarter of this year.

Earlier this week, Singapore's sovereign wealth fund Temasek said it expected to slow investment as the global economy deteriorated. One of the world's top 10 investors, Temasek, has a 63 percent exposure to Asia based on the underlying assets of the firms in its portfolio, the majority of which are in Singapore and China.

Rohit Sipahimalani, chief investment officer at Temasek, said the global slowdown could extend into this year and possibly into 2023.

The worsening economic situation is a contributing factor, but China's strict regulations also play a major role in dampening investment activity. As a reaction to Beijing's call for "preventing the disorderly expansion of capital," ByteDance, the TikTok owner, in January disbanded its strategic investment unit, which involved reallocating about 100 employees.

ITjuzi reported that the number of investments and acquisitions made by ByteDance dropped to 9 in the first half of this year from 27 in the same time in 2021.