The quasi-sovereign investor is penetrating deeper into Asia Pacific with an increasingly VC and technology-oriented mandate although the conservative DNA of an infrastructure investor persists

Qazaqstan Investment Corporation (QIC), a private equity fund-of-funds set up by the Kazakhstan government, understands that with a growing appetite for both Asia and start-ups, entries must be tailored for each sub-market.

QIC cites Asia’s rapid industrialization, economic growth, favourable demographic trends, and status as a hub of innovation and technology among its main motivators. It also notes that many countries in the region have adopted export-oriented economic policies and implemented financial reforms, liberalizing their economies and encouraging foreign investment.

Crucially, the diversity driving this dynamism entails a patchwork of logistical gaps, disparities in digital connectivity, restrictive regulations, trade impediments, and variably skilled workforces. Investee business models must be adjusted to the specific conditions prevailing in each market. That means investors must not only know the market but go in with the right skills.

“Private equity plays a pivotal role in overcoming the challenges faced by businesses and investors seeking entry into the diverse Asia Pacific markets,” said QIC CEO Yerbolat Zholat.

“In particular, private equity investors conduct rigorous due diligence, thoroughly assessing risks associated with market dynamics, regulatory frameworks, and technological disparities. This process helps identify potential challenges early on, allowing for effective risk mitigation strategies.”

QIC, previously known as Kazyna Capital Management (KCM) was established in 2007 as a subsidiary of Baiterek, Kazakhstan’s sovereign wealth fund, to develop private equity infrastructure locally and attract foreign investment and expertise in priority sectors. This includes a mandate to cultivate an alternative asset market in Central Asia and expand collaborations with the global PE industry.

The change in branding to QIC was formalized early last year amidst a shift toward a greater focus on sustainability and new-economy themes. As part of the transition, QIC acquired QazTech Ventures, a government-launched VC investor, and established BGlobal Ventures, an in-house accelerator and angel investor support unit, in 2021 and 2022, respectively.

“Primarily, private equity facilitates a vital capital inflow, imperative for investing in critical sectors, expanding existing initiatives, and promoting innovation, technology transfer, and industry modernization,” Zholat said. “Additionally, private equity acts as a driving force behind entrepreneurship and job creation by offering substantial support and expertise.”

Strategic partners

QIC has a total capitalisation of USD 2.5bn and currently supports 18 funds. The most recent fund commitment was confirmed in February with Sturgeon Capital, a UK-based early-stage VC firm that invests across Egypt, Central Asia, and South Asia ex-India.

Sturgeon Emerging Opportunities II was co-established with QIC – the target is USD 30m – to make IT-related investments across Central Asia, using Kazakhstan as a beachhead. The fund’s investments in the country include Y Combinator and Bloomberg-backed airline operating system provider Farel.

The standout partnership in Asia Pacific to date remains the CITIC Kazyna Investment Fund alongside CITIC Group. The fund, which focuses on renewables and utilities, specialised food processing, infrastructure, and transport and logistics projects across China and Central Asia, was capitalised with USD 200m in 2010.

More recent moves in the region reveal QIC’s increasing interest in tech and start-ups. These include participation as anchor LP in the second fund from Southeast Asia-focused Quest Ventures, which has raised at least USD 50m against a USD 100m target. The partnership has resulted in Quest launching an accelerator in Kazakhstan. The Singaporean GP now has two offices in the country.

Last June, QIC made a commitment of undisclosed size to the debut Southeast Asia fund from Singapore and Dubai-based TVM Capital Healthcare, which aims to raise USD 200m.

The GP was set up in 2007 as part of Germany’s TCM Capital and maintains significant global networks. In addition to Singapore and Dubai, there are bases in Ho Chi Minh City, Munich, Boston, and Riyadh. Intra-regional activity between Southeast Asia and the Middle East, including shariah-compliant investment vehicle, is core to the overall mandate.

QIC views the TCM commitment as a way of infusing expertise into Kazakhstan’s fledgling healthcare start-up space. There is also an intention to create a private equity healthcare fund focused on Kazakhstan and Central Asia in the near future.

Meanwhile, there have been USD 10m commitments to global funds raised by both 500 Global of the US and UK-headquartered Da Vinci Capital. 500 Global V will invest at least USD 2m in Kazakhstan start-ups. Da Vinci, which maintains an office in Kazakhstan, has pledged to deploy at least 75% of its targeted USD 500m in former Soviet republics, excluding Russia.

Zholat sees these fund investments as leveraging Kazakhstan’s geographic positioning as a link between major economic regions. “These start-ups, with QIC’s support, can scale their operations to the vast markets of Europe and the wider Asia Pacific as well,” he said in reference to Quest portfolio companies specifically.

QIC’s plans to double-down on the idea of Kazakhstan as a regional connector challenge prevailing sentiment around deglobalization. This will include an extension of infrastructure investment activity related to the Trans-Caspian International Transport Route (TITR) and the VC-oriented plays that could exploit this corridor.

“Through strategic collaboration with international financial institutions and sovereign wealth funds, QIC could contribute to the development of critical facilities along the TITR, ensuring sustained economic growth and connectivity,” Zholat said.

“Collaboration on technology and innovation projects through QIC can further enhance Kazakhstan’s role as a link between Europe and the Asia Pacific. This includes investments in research and development, technology transfer, exchange of expertise and experience, knowledge sharing, and enhanced skill force.”

New economy networks

Momentum has been significant with the overlapping of these agendas. For example, QIC partnered last December with ADQ, an investment entity controlled by the Abu Dhabi government, to establish a co-investment platform for fast-growing non-resource sectors such as manufacturing, renewable energy, agro-industrials, healthcare, fintech, and education.

Cleantech has been a focus area, the standout investment being a wind farm east of Kazakhstan’s capital city, Astana, developed by green energy and electric vehicle charging infrastructure company Catek. According to Zholat, the project reduces greenhouse gas emissions by 230,000 tons per year – equivalent to the emissions of 113,000 cars – as well as achieving softer macroeconomic impacts.

“Beyond direct financial contributions, private equity-backed initiatives, such as the wind power plant project, play a pivotal role in skills development,” he said. “Training programs associated with these projects enhance the expertise of the local workforce, cultivating a pool of skilled professionals capable of contributing to various industries.”

There is interest in backing more venture funds targeting priority themes. Agriculture investment will be increased, including in microfinance for agro-industrial micro and small to medium-sized enterprises (MSMEs). IT, software, cybersecurity, and biotech are also on the agenda.

QIC’s shift toward venture has been a clear boon for the broader ecosystem. Annual VC funding across Central Asia and the Caucasus region has increased 5.5x in the past five years, according to data from Kazakhstan’s RISE Research with support from BGlobal and KPMG among others. This has prompted a 6x increase in the number of start-ups and a 2.6x rise in the number of active VCs.

Regional investment in 2023 totalled USD 110m in 2023, more than USD 80m of which was in Kazakhstan. Within the country, 90% of deals in 2023 were at the pre-seed and seed stages, with the hottest categories including fintech, artificial intelligence, health-tech, and real estate-related technology. Kazakhstan also recorded a record USD 151m in VC exits on the year.

“In tandem with the surging interest in technology sectors, QIC may exhibit an enhanced interest in technology-driven projects within its core sectors of focus, including the SME segment, housing, technology transfer, healthcare, and innovation,” Zholat said.

“This is particularly relevant considering the escalating importance of technological and digital transformations necessary for companies to maintain competitiveness.”