Neil Shen and Ray Dalio on Principles, Investment Cycles, and Navigating Global Change

On June 22, 2022, Neil Shen, Founding and Managing Partner of HSG, sat down with Ray Dalio, Founder of Bridgewater Associates, to explore how investors and leaders can navigate a world undergoing profound structural shifts.

Their wide-ranging discussion touches on topics from Dalio’s book, Principles for Dealing with the Changing World Order—including investment cycles, widening wealth gaps, and the major forces that shape global power dynamics. They also compare perspectives on building investment teams, adapting to new technologies, and leading through uncertainty.

Dalio shares how 50 years of global macro investing—and a lifetime of writing down his principles—have shaped his approach to decision-making and leadership. Shen offers reflections from his own experience backing technology entrepreneurs, and explains why long-term commitment, curiosity, and a spirit of service remain core to HSG’s investment philosophy.

A lightly edited transcript of their discussion is included below.

Neil Shen: Hello everyone, I’m Neil Shen of Sequoia China. Today, I’m excited to be joined by Ray Dalio, founder and co-CIO of Bridgewater, the leading asset management firm in the world. Hi, Ray. Great to see you here.

Ray Dalio: Hi, Neil. Good to see you too.

Neil: Many Chinese readers are keen to hear from you directly about your new book, Principles for Dealing with Changing World Order, which examines the most turbulent economic periods in history to reveal how we should position ourselves for what’s ahead. It is now published in Chinese by CITIC Publishing, so it’s a remarkable addition to your book series. My very first question has to be, what prompted you to write this book? What inspired you to do so?

Ray: Well, I’m a global macro investor who has to place bets on what’s happening, and economics and politics coming together are driving that. I did a study, and my study is to look at history to help inform how I deal with what’s going on right now. I learned in history through my 50 years of experiences, that sometimes I was surprised at things that never happened in my lifetime, but happened many times in history. There were three things that are happening now that never happened in our lifetimes. These three things are the main drivers of what is happening now, but they never happened in our lifetimes; they happened in history.

Those three things are, first, enormous creations of debt and printing of money to monetize that debt in the world’s major reserve currencies. The second is internal conflicts due to large wealth and values differences that are producing populism of the left and populism of the right, and this great conflict that is political and social that is going on in the United States and in a number of countries. The third is a great power competition between the United States and the American world order, which was started in 1945, and the rise of China and other powers to be comparable in power and to compete with those powers.

In order to see those things, even to examine wars, different types of wars, I don’t mean just military wars. There are five different types of wars. There is a trade war, a technology war, a geopolitical war for influence, and an economic and capital war. Then there’s a military war. To see those through history, those things, I needed to study the last 500 years because they’re the sort of things that come along once in a lifetime. I did that study. Then, in completing that study, I decided to put it out as a book because I think it’s important for people to have the opportunity to review it.

Neil: Actually, let me double-click on the second point you try to make. The increased gap between the have and have-nots. Historically, how bad we are today?

Ray: We have the largest wealth gaps in the United States, and they’re also true in Europe, but particularly in the United States. There are large wealth gaps in China, too, but that is the largest since the 1930-1945 period. To put that in perspective, the top one-tenth of 1% of the population’s wealth is equal to about the bottom 90% combined. There are large wealth gaps.

They create, also, opportunity gaps because wealthy people have greater opportunity for not just themselves, but to raise their children and give them benefits. That’s a classic source of problems when there is economic tensions and external tensions, as there are now. It is the basis of populism. Traditionally, populists, who are people who will fight for that population, that type of populism comes when those gaps in wealth and values are large. That’s what we saw. It’s very typical.

Neil: Coming to the point of massive printing of money—how should we think about our current situation compared with historical periods of excessive liquidity?

Ray: Over a period of time, there’s a big cycle. I could describe the cycle to you if you’re interested.

Neil: Would love to.

Ray: Okay, I’ll describe the cycle to you. We go from one world order to another world order, usually because there’s a war that resolves the conflict. The great cycle, for example, World War II, had winners. Those winners, particularly the United States, had much greater dominance and power than the rest, and they get to set the rules of the game, which we call the world order. The United States, for example, in 1945, after the war, established pretty much the world order, because the United States had 90% of the world’s gold, and gold was money.

It had half the world’s GDP, and it had dominance in military power. There’s a development of that new world order. That’s why, for example, the United Nations is in New York, and the World Bank and the IMF are in Washington, DC. And the United States had a dominant currency. As a result of that, you have a period of peace and prosperity, because no one wants to fight the dominant world power. Over that period of time, when you have a reserve currency, others want to save in that reserve currency because that’s the currency that is commonly spent. That saving effectively becomes lending to the reserve currency country.

You also see that increasingly, as peace and prosperity take place, individuals and companies are more inclined to take on debt and bet on the future. Then, whenever there’s a downturn, the response is usually to stimulate the economy by extending credit—that gives people more buying power. And when people have more buying power, that causes the prices of things to go up.

As a natural cycle, as wealth is accumulated, it’s accumulated unevenly. Some people make a lot of money, and others don’t. That’s just part of the nature of the system. But it also creates large wealth gaps—and not just in income, but in opportunity. The wealthy tend to have far greater opportunities than the poor.

Those wealth gaps become more and more challenging over a period of time. Of course, at the same time, the power of the leading world economy, the leading world power, declines relative to emerging countries. Because, as other countries recover from the war and become stronger, that gap in power begins to narrow.

As you start to approach these phases where there’s then quite a bit of debt, and not as much hard money – like gold – then you have this internal conflict. And that internal conflict and the money issue becomes a political problem that causes this greater polarization.

You come into a period prior to these military wars, where there are these competitions, the five kinds of wars that I mentioned before. The trade war, the technology war, the geopolitical war, the economic war, and the capital war. Then, traditionally, as that conflict becomes greater internationally, you see those economic wars intensify.

For example, sanctions are not a new thing. In other words, economic and capital sanctions are not a new thing. They happen throughout history. For example, leading up to World War II, Japanese assets were frozen by the United States and oil imports were curtailed by the United States. Because of that economic pain, it led to the bombing of Pearl Harbor and the military. Then you have that war, because there’s no world court that you go to resolve your differences. It’s enforced by the conflict.

Then, when you have the war, you have a dominant power that sets the rules, and you do it again. That pattern has existed throughout history. One could see that big arc in the cycle. By looking at what’s actually happening, with thinking about that big arc, it’s helpful. For example, right now, the January 6th attack on the U.S. Capitol, essentially by populists of the Right, which are very similar to fascists in World War II, that move was very much in line with that.

We are in a political situation in the United States where it’s conceivable that, in elections, neither side will accept losing. We’re seeing the breakups, questions of rule of law. For example, will the Supreme Court decisions be followed or will they not be followed? It’s a threat to that system. There is a typical cycle. Then, by knowing what that arc of that cycle is, and by watching what is happening day by day, you can match the two up. It’s not predestined, but it gives a very good frame of reference, for example, in understanding today, what is happening with economic sanctions and where that might lead.

Neil: These are very interesting observations. Let’s look at numbers. The Fed balance sheet has ballooned from $1 trillion in 2008 to $4 trillion in 2020, and to US$9 trillion in 2021. $5 trillion of the US dollar balance sheet was created just in one year. Now, almost all central banks in the U.S., in Europe, are aggressively raising interest rates simultaneously. At the same time, we have geopolitical conflicts and the pandemic. All kind of events are happening at the same time with a magnitude unseen. What kind of tail risk do you see happening in the financial market?

Ray: I like to explain it mechanistically. What happened was there wasn’t enough money. And in history, money used to be hard, like gold or silver in China. When the coffers were empty and there’s not enough money, there would be the printing of money. Because where do you get the money from? You either have to take it from somebody, and that’s a fight, or you print the money. That’s what you have seen a lot. Where did the checks come from to pay for all that has been paid for? It produced the printing of money.

That causes the value of money to go down in relation to goods and services, and that causes the inflation rate to rise. The inflation rate rising takes buying power away from people. It reduces their wealth in real terms. Even when we think of what a safe investment is, people think that holding cash is a safe investment, or maybe even holding a secure bond like a government bond, but they learned through this—

Neil: No longer.

Ray: No longer. They learned from that experience that they’re taxed very high in form of inflation, so they want to move out of that. At the same time, the government wants to fight inflation. But what is the way they fight inflation? They take away buying power that they gave in order to fight inflation. First of all, prices are going up. Then, in order to fight it, they say, “I’m going to take away your spending power.” At the same time, prices are going up because they remove liquidity, like the Federal Reserve will sell $1.1 trillion in bonds. And they have interest rates going up, and that takes away buying power.

They produce a stagflation environment in which, in a sense, one is suffering from both ends. One’s losing buying power from both ends. That’s where we are in the cycle. Very, very, very classic. The only way you can raise living standards is by producing more. You can’t raise living standards by making money and credit because credit has got to be paid back. Since one man’s debts are another man’s assets, you have to make that balance appropriately. Otherwise, you have a problem.

That’s the problem. When you have a lot of debt, it’s very difficult to make debtors and creditors have an acceptable set of circumstances. We’ve been in a situation, and we are still in a situation in which those who are lenders and own the debt instruments will get taxed very heavily. The rise in interest rates will not be high enough to curtail the inflation or to reimburse holders of those assets for the rate of inflation without having a negative effect on economic activity. Hence, that’s why the mechanics of stagflation work as they do.

Neil: You clearly have done some very interesting research. Does this research, including, the content in this book, largely come from quantitative analysis, or is this more instant? Do you have many tools like the data analytics or an AI type of algorithm supporting your research?

Ray: Yes. It’s so important to have good measurements. Through the book, you see many charts, many reflections, because objectively measuring things is the only way to gain clarity. It’s also the only way to build models—not just to understand what’s happening, but to anticipate what comes next, since everything that happens has causes that precede it.

By understanding those cause-effect relationships and measuring them over time, one can then create these models for understanding that. These things repeat over periods of time for logical reasons. For example, when you print a lot of money, it leads to a higher level of inflation. When you have a higher level of inflation, it leads to a tighter monetary policy. By being able to measure those things in their degrees, you can know how the dominoes will fall. That’s what I do and bet on.

Neil: Great.

Ray: It’s not theoretical. That’s what we’ve been doing. I’ve been doing it in varying ways for the last 50 years, is that modeling. That’s why it’s practical. It’s not historical in that you’re reading stories of the past. It has a purpose, which is to make a correct bet.

Neil: It’s a combination of business instinct, plus, obviously, a lot of data supporting that.

Ray: It’s like a doctor seeing many cases. When you see many cases over and over again, you know how the cases typically transpire.

Neil: You see the patterns.

Ray: And you see the cause-effect relationships between those patterns.

Neil: In other words, there are some big data factors here. Here’s a question from the Douyin audience. Based on the economic trends and the conditions we just discussed, what is your advice on an investment strategy for the future, Ray?

Ray: Of course, it depends where one is investing and where one can invest. But generally speaking, for the world, cash investments, in other words, short-term or longer-term government debt and debt in general, will have a negative real return. In other words, after inflation. One does not want to own those assets. It’s very important to have a diversified portfolio of investments. That means balance.

We have a strategy, which we call an all-weather strategy, which is based on balancing different asset classes because wealth is like – if it contracts somewhere, then it rises somewhere else. For example, in an inflation environment, then you have commodities, gold, other inflation assets that will compensate for the negative returns of other assets. By starting with a balanced portfolio, that’s very important because when you achieve effective diversification, you can maintain an excellent return with much less risk because you can put in assets that have about equally expected returns but diversify each other.

To start, don’t be in cash and those [similar] assets. Second, be well-diversified in a way that produces that balance. Then, third, if you’re a global investor, and I’m a global investor, to be diversified between locations and countries, and then industries.

Neil: You are talking about diversifications across different asset classes and across different countries. Specifically regarding different asset classes, can you share a little bit more in detail about what are the major categories an investor in China or any investor global investor should actually have exposure to?

Ray: The way I think about it is like a quadrant of four boxes with two main influences. The two main influences are inflation and growth. They can rise or they can decline. Think of a four-boxes square. On the top, it says inflation, other one says growth, the other one says down or up. If you think, “What assets would I like to own if I was in either of those environments,” and you put 25% of your risk in each one of those environments.

For example, if growth is faster than expected, you would like to own equities, and you would like to own credit spreads. Because when that condition exists, credit spreads come down and equities go up, and that’s what you would like. If growth is falling, what would you like to own? You would like to then own assets that do well when growth is weaker than expected, and so on, then you would like to own bonds. High-quality bonds, typically.

If you go to the upper right-hand corner and you say, “What do you want to own if inflation is stronger than expected?” then you would want to own inflation hedge assets. It would be commodities. It could be gold, it could be inflation index bonds, those kinds of assets. You do the same with, “What do you do if inflation is less?” That’s a guide to balance, how you achieve balance. You want to risk-balance those things because, being conscious of the fact that, let’s say, bonds are less volatile than stocks. So if you put the same amount of dollars in stocks and bonds, then you’re going to have more volatility inequities than you have in bonds, so you want to risk-balance those.

That’s a very quick and probably inadequate explanation of achieving balance to start with. Then, once you have that balance, you’re like a ninja, you’re balanced. That means that no matter what happens, you have that balance and you have your risk under control just by nature of that balance. Then you make tactical moves depending on the change of the environment.

This is timeless and truthful all around the world. For example, when you have pressure in China of weaker growth and you have economic activity slowing, there is a pressure to lower interest rates, tends to bring down the interest rates, and tends to not be good for equities. That dynamic means that you could imagine how that balanced portfolio then adjusts. For example, in our investments in China, we’ve done very well because of that balance.

Even though equities go down, what’s happened is the inflation hedge part of it has done very well, and the bond part of it, or the credit part of it, is doing very well, so we are able to achieve that balance, and then we make tactical moves from that balance.

Neil, you’ve asked me a lot of questions, but I’m so curious about your perspective because you and Sequoia have been the backbone of a lot of private investment in China, so you get to see it up close. Can you tell me what it’s like now, what the circumstances are, what the opportunities are?

Neil: Thanks, Ray. We’re very lucky to partner with many amazing entrepreneurs and create great value for investors. Along the way, we made a lot of mistakes, and we have been trying to learn from these mistakes. There were failures coming out of technology risks. There are failures coming out of bad execution. There is also public market volatility, which affect investment returns. We need to have, I would say, hearts of all. To many people, we’re in the financial service business, looking after assets. But we are really in the people business, both internally and externally.

Internally, we provide our team member some great career opportunities based on their strengths, their interests, and we learn and grow as a team. Externally, we have a different mentality from public investors. Our position really come down to one word: serve. We serve our entrepreneurs, and how we work with them will determine a good part of our results. Also, it will establish our brand and reputation.

The approaches of venture and growth investments, which are the main products for us, are different from hedge fund investors or traditional buyout investors. Like I said, we, as venture and growth investors, are mostly focusing on tech sectors. One thing I feel I’m a little bit lucky about as I listen to you describe the macro environment is that does the macro environment does not matter that much to us. Business, certainly, will be negatively affected because of challenging macro conditions, but technology development has its own cycles.

For example, over the last decade, with safety improved, with costs coming down, the lithium battery is able to be used in electronic vehicles as well as in power storage at a large scale, not only in China, but also globally. The timing of such a technological breakthrough does not have much to do with the ups and downs of the economy. It requires completely different skill sets to predict an emerging tech trend, which is exactly the critical part of our jobs.

Ray: I’m just curious about the pricing. A lot of liquidity raises all boats, and taking away liquidity lowers all boats. Are you finding that it has been expensive to buy assets when there was a lot of liquidity? Are you finding that the reduction of liquidity is having an effect the way it is having on other tech companies around the world?

Neil: I think that’s a very, very good question. In fact, indeed, I think in the last five years, most of time we see a lot of liquidity. Not only in China, but also in other parts of the world, especially in the tech space. Because of that, the valuation for the investor gets a lot more expensive. Second, the companies have received more money than they probably should be received, and so the competition is also getting more fierce.

Luckily, in the last six to nine months, globally, you are seeing that the tech market has become more subdued. We are actually seeing the first time that the investor is able to get a more reasonable valuation with those private companies. Frankly, because of that, the competition among the tech company themselves is getting more rational. I hope this will lead to a healthier environment for tech innovation as well as for investors from a return perspective.

Ray: We have a question from the Douyin audience about changes. Technology changes happen so fast. The question is, how do you possibly deal with these changes? In other words, you make an investment, and before you know it, there’s another technology investment. How do you remain mobile in a more illiquid market? How do you grab the best ones and go with it when the technology’s changing so much?

Neil: I think that’s a great question, Ray. That’s also a question we actually ask ourselves every day. The answer is that we need to adapt ourselves to the fast-changing tech market. We need to go through learning curves on any emerging new technology, and we need to do that as quickly as possible to be ahead of the competition. Like you suggested, I think the next decade could be dramatically different from the last decade in your business.

Same for us. What has worked before most likely will not work in the new era. In order for us to adapt effectively, we should have a flat organization structure and a decision-making mechanism which is effective. This is very much like the setup of some of our very successful tech portfolio companies. At the same time, it’s important to adopt a consistent strategy with a long-term view of the market because the tech market goes up and down significantly, like what we saw over the last one year or so.

If you believe the potential of these tech innovations, whether in the new energy areas or in synthetic biology areas or in biotech, you need to stick your neck out, especially during tough times. You should continue to invest and continue to help them to navigate through obstacles and try to achieve their dreams in building great companies. Our portfolio CEOs would love to find a board member and a long-term shareholder who have such consistency in their approach.

Lastly, I need to love my business. For me personally, I have been genuinely interested in these tech trends and themes that have created new products for human beings. When I read those research memos from my team and participate in the discussion, it brings me back to my university days when I’m working on a new science or engineering subject. Actually, you have some similar sets of questions. Why? What? How? The analytical approach is also very comparable.

An engineering and scientific training background is very, very helpful in our business for tech investing. I really have enjoyed that learning process, and I’m very curious to find answers, just like you, through data and facts.

You have been to China many times if I understand correctly. What’s your impression, let’s say back 20 years ago, when you were in China, versus your last trip to China from three years ago. We would love to hear your perspectives.

Ray: When I came at first in 1984, China was an entirely different place. I was the guest of CITIC to teach them about the financial markets because China just opened up, it was 1978, Deng Xiaoping opened up. I was invited in 1984 when CITIC was the only window company to deal with the outside world. There were no cars. There were bicycles. People took naps in the middle of the day, they mostly lived in hutongs, there were very undeveloped conditions, and so on. But the people were always very clearly smart, not like a developing country mentality. Very smart, great potential.

I’ll give you an idea. I would give $10 calculators to people as gifts. They never saw calculators before, and they thought that they were miracle devices. Now, today, whether it’s AI or quantum computing, you have that kind of technology development in China. I got to participate in even the development of the first stock market and the financial market since.

There was a group of seven people. It was called the Securities Exchange Executive Council, seven people. They were in a hotel room because they didn’t have offices then. There was a dingy hotel, and they hadn’t hardly any resources. They were building the first stock market, so it was a kick for me. Now, I didn’t earn any money. They didn’t give me a dime. On the contrary, I helped to support them.
We would build the first stock market and see that develop. Now you have the second-largest capital markets in the world. Since I came to China, per capita income has increased by 26 times, the life expectancy has increased by 10 years, the hunger poverty rate has gone from 88% to less than 1%. I’m watching a vibrancy that you’re seeing and that you are experiencing throughout the country. It’s evolved that way.

And at the same time, the world is changing because, as I say, China now is a roughly comparable power – all things considered – in many ways, but of course there needs to be a lot of great development in China still because there’s large populations that are in areas in the country. But still, it’s quite amazing. I got to see that, and I got to work over the period of time with the evolution. I’ve seen the most amazing changes.

I think it’s the greatest economic revolution progress that has ever existed. Essentially, 1.3 billion people changing at that rate and seeing it. I think that it’s almost a shame that younger people who haven’t seen that whole thing may not fully appreciate the magnitudes of the developments. It’s a struggle to get that all right. That’s what it looks like to me.

Neil: Great. I think that indeed it has been amazing development in the last 40-plus years. I’m so happy for you because you are not only an observer, but you have been part of it, and you have participated deeply, and that does make it even more wonderful.

Ray: It’s a joy.

Neil: My very last question. You mentioned wanting diversification across different regions and countries — obviously, the U.S. is important, and China is also very important. What would be the third country or region you’d choose to gain exposure to, if you’re looking to diversify your fund or assets further?

Ray: I’m looking at three things now, and they relate to the three concerns I have. The first is, is the country financially stable, meaning, does it earn more than it spends? Does it have a good income statement and a balance sheet? Does it have internal conflict that could be disruptive, or is it orderly? Does it have a risk of an external war of something that’s disruptive?

The countries, generally speaking, that also have appeal that way, where they’re developing technologies and so on, are the ASEAN countries in Southeast Asia, India and also the Middle East, which is developing very interesting ways – particularly Saudi Arabia and Abu Dhabi and some of the other areas in the Middle East – because they have the financial resources, and their circumstances are changing in terms of internal conflict. Exposures in those areas are interesting to me.

Neil, we’ve been talking about investments, but one of the most important things is building investment teams because we all can’t do it ourselves. The culture that you build is so important. We each have built our investment teams, and we’ve done it over a long period of time. Tell me, in your opinion, what are the most important aspects of leadership and team building?

Neil: I think it’s a very good question. Frankly, I think I’m still in the learning curve, but indeed, in the last 17 years, we have seen our team has grow. I think it’s important for the leader of the firm, first of all, to be a good investor himself or herself. I think that’s critical. Second, I think investing is really about learning something together as a team. I feel it’s extremely important that you are able to share your experience, even including failures, together with the team, because we learn so much from those failures.

Certainly, I think you need to build a strong analytical capability internally, like you just mentioned. I think when you do that amazing research, I’m pretty sure you have some very strong tech “behind the scenes” so that you enable the investors to best leverage the resources that you have. Lastly, I would think that it’s really a platform to encourage the young investors to really develop his or her skills based on their own interests because, like if you’re an artist, you need to do something which really interests you, which inspires you.

You cannot force someone to do something or to change himself or herself to do something which is boring because he or she cannot be successful. I think these are probably some of the experiences I have gone through.

You have built Bridgewater into the very, very top global investment firm, and I’d love to hear from you about how you built that.

Ray: Just touching on some of the things that overlap with yours – but the most important thing, I think, is excellence and continuity. What it really means is meaningful work and meaningful relationships – or excellent work and excellent relationships. They complement each other. You’re on a mission with the best of the best to be able to achieve something, and the relationships among those people are binding – they bind them together on that mission.

I have one sentence that describes it: I want an idea meritocracy.

Neil: Meritocracy.

Ray: I want the best ideas to win out, wherever they come from. Not hierarchical. The best idea is to win out. I want an idea meritocracy in which the goals are meaningful work and meaningful relationships. In other words, that combination of ‘we’re in it together’ and we have that ‘esprit de corps.’ Idea meritocracy where the goals are meaningful work and meaningful relationships through radical truthfulness and radical transparency.

What I mean by that is the ability to talk about everything in a totally truthful way – the strengths, the weaknesses, the mistakes. You talked earlier about mistakes. The ability to say who is good at what aspects and who is not as good, and how do we deal with mistakes, and all of that. That’s what served me the best. I think you also touched on it. As the organization changes, the communication and the continuity are important to manage. I know I went from two people. I started it in my apartment. The second, I had two bedrooms, and out of one bedroom, I started it, and then we ended up with 1,500 people.

As you move from one stage of an organization to another stage of an organization, to keep that continuity and that mission together is crucial. I found that it’s very important to write down principles. What I’d always did was, whenever I would make decisions, I would write down the principles behind it – whether those are investment principles or whether they’re management principles, they’re like recipes. You could read them. “Here’s my recipe for making that decision.”

I found that we could then automate those with algorithms, which would take in that data and make decisions for us simultaneously. That kind of communication — about what works best and how – is essential, because culture is destiny. In other words, what your people are like — and how you manage their differences to make them complementary — along with how you interact with each other, will ultimately determine your level of success. I found those to be the most important factors.

Neil: Very, very insightful, Ray. I think meritocracy is also the number one talent at the Sequoia. You talked about the recipe, and how you developed this book of principles over the last five to ten years – I think these are very helpful. Not only to our own team members but for the broader investment community as well.

Ray: Just on that point about principles, I’d like to recommend something to the audience – and to each other – that I’ve learned: pain plus reflection equals progress. Quality reflection, and writing down the principles – what happened, how it really works – helps you think more deeply. It can allow you to automate the process and communicate more effectively with others you’re working with.

Those recipes are important. Think about the talent that you’re bringing and the criteria in your decision-making. If you don’t write them down, you won’t pass them along. You won’t stress-test them. You won’t collectively look at the criteria you’re using. I found that writing down principles is very helpful, and I recommend it to everyone.

Neil: Great. You talked about communications. Obviously, this is a critical part of building a culture internally. My question here is: given COVID over the past two and a half years, our way of doing business has changed. It’s now mostly through video communications and meetings like this, rather than in person. Do you feel this has had a negative effect on internal communications as well as on external communications with your partners, limited partners, et cetera?

Ray: It brings benefits and detriments. It brings benefits in some ways—people don’t have to commute in the same way, they have certain freedoms, certain efficiencies are gained, and so on. It brings detriments in not having that warm, personal interaction. Of course, it very much depends on the specific jobs that people are doing. The ability to have a choice is a good thing. The way that we’re dealing with it is, we’ve required two days a week when we bring people in.

Neil: In person?

Ray: Yes. And those two days are focused on that type of interaction. In other words, there are two different kinds of work: The work that you don’t need to be in person to do, and the kind where being in person is especially advantageous. It may not just be work; it may be just the quality of the interaction. We emphasize, during those two days, that kind of work, that kind of interaction, that brings people closer at the same time as we then focus in on the other things that exist when we’re out the other three days, so that there are swing periods of time.

Then, depending on the job or the preference, the person can come in three days or we can work it out on that individual basis, and we’ve found that that’s good. You have to take the good and the bad. You have to know how to deal with them and balance them. That’s how we found it works best.

Neil: We’re all adapting ourselves to this really new environment. Back to the question we discussed about identifying new market, which is important. You talked about Southeast Asia, India, et cetera. When you look at those markets and you’re examining its opportunities, are you visiting these countries in person? How are you able to form your view? What kind of data and what kind of information do you rely on to come to your conclusion?

Ray: Three things. The data, the impersonal, and the triangulation with the best of the best in that area. So yes, there’s a picture. I’ve been a global macro investor for more than 50 years, and through data and so on, I can learn a lot about how the place works, of course, but not enough.

Then there are those people like you, for example, who are on the ground and have understanding and intimacy, and there is a fair number of those types of people who you have contact with, and you get the triangulation. That’s a very quick way to get an idea of what’s going on in the place. Then you do need the direct contact. All three of those are important.

Neil: Great. Coming back to the China side of your business, you obviously know China so well, but I know that you have been building a domestic team in China and having a domestic product. How will those strategies be different from your global strategies?

Ray: Yes. We have two offices in China, one in Shanghai and one in Beijing. We have an investment team, and for about the last three years, we have been investing onshore for Chinese investors in China, but we’ve known the markets very well. As I said, even there, to some extent, I’ve helped to play a role in the development of them. First of all, there are timeless and universal rules that exist all through all countries.

Neil: Those same recipes?

Ray: The same type of recipes – like those four boxes that I gave as the example: if inflation rises and growth is discounted, and so on – those things will behave that way. Because in all countries, an investment is a lump sum payment for a future cash flow. You take the discount rate and what the expected future cash flow is, and so on. That’s a timeless and universal truth.

We have these timeless and universal rules that we apply through all countries, and that’s our starting point. Then we get immersed deeply in what’s going on there. For example, policy changes in China, in certain ways, play a much more important role than they might play in some other country in terms of that direction. So how do you take that into consideration? Or you have to get down to a very granular level and ask, “How does the money flow? Who is buying what, and for what reasons?”

Those kinds of things become very granular and local. But the way that we approach them is analogous. It’s probably the same way you are approaching your private equity investments in China versus elsewhere. The criteria are still there—what are the managers like? What do the balance sheets and income statements look like? Where is the opportunity? That’s the kind of approach we take.

The fact is, for most of it, the timeless and universal rules apply. I imagine it was the same for you—that before coming to China, Sequoia already had a clear sense of how to invest well. Then you bring that approach into the local environment. Has that been the case?

Neil: Yes, I very much agree. I think when we look at our business, whether it’s in the US, whether it’s in China, or in Europe, for that purpose, the very leading tech companies share some similar characteristics. Even actually, you can find similar traits among the top CEOs. When you look at the business models, actually, the successful ones oftentimes carry some common features.

For example, one common theme we’ve seen is the idea that “software is eating the world.” In the U.S., there’s a long list of successful SaaS companies as businesses migrate to the cloud—and that same shift is happening in China. It’s probably three to five years behind the U.S., but the core thesis holds true. When evaluating SaaS companies, you can apply the same parameters and use similar frameworks for pricing. That’s something I find very interesting.

Today, there’s another element: U.S. companies can successfully launch products in Europe or China—and increasingly, Chinese companies can do the same in the U.S. and Europe. Success in these markets is driven by the same kind of competitiveness. So if you’re a Chinese company in the software space, and you want to succeed globally, your product needs to be competitive on equal footing with your U.S. counterparts.

Ray: It’s similar. The building of our cultures is similar, and the selection of investments and how we do it with the timeless and universal rules and the local knowledge is similar.

Neil: I feel like it’s so exciting to hear from you, because while we’re in the venture and growth investment space – with some buyout as well –you, of course, are primarily in the public markets across all different asset class. But I’ve found that the core investment principles are very much similar. When it comes down to building a financial services company—an investment firm—there’s so much in common, especially in terms of culture and team-building.

Ray: I know that we’re running out of time, and I want to continue this conversation focusing also on the differences, for example, of liquidity versus illiquidity, because that’s the thing where the real differences are.

Neil: Exactly.

Ray: The education would be there. Like in my case, it’s easy to change my mind, and I can be flexible and adaptable. In your case, you are really business partners with the entities that you’re supporting, and you can’t change your mind.

Neil: Exactly.

Ray: That’s a different story. That’s tantalizing for me to continue this conversation. Whether we do it in person or maybe do it again like we’re doing it now, I hope that we’ll continue it. I think we’re going to get close to being able to do that with maybe not so much of a hurdle, so I look forward to it. Thank you.

Neil: Absolutely. Look forward to that. Thank you. Thank you, Ray.