(Yicai Global) June 8 -- To strengthen its localization strategy, US venture capital giant Sequoia Capital plans to split off its Chinese and India/Southeast Asian businesses by March 31 next year, with Sequoia China renamed as HongShan.

The move will help Sequoia China adapt to the new trend in China’s primary market, industry insiders said, as US dollar venture capital in the country is diversifying fundraising sources and increasing the proportion of Chinese yuan funds.

Because of a broader investment scope and smoother exit channels, yuan funds have become more popular than US dollar funds in recent years.

Dollar funds were more popular in China previously because of their relatively bold investments and high risk preference, but according to a senior financial advisor, things have changed. Now, it is hard for dollar funds to invest in innovative tech projects as most of them prefer to go after government funding, the person added.

Moreover, many US dollar funds are expanding to non-US-based limited partnerships, such as Middle Eastern sovereign funds and investors in Europe and SE Asia, a source at a large fund told Yicai Global, adding that some dollar funds are striving to expand their yuan funds. For example, leading VC firm Matrix Partners has shifted from mainly relying on US dollars to balancing investment between the yuan and the greenback.

China’s primary investment market faces a number of challenges, Ni Zhengdong, chairman of VC firm Zero2IPO Group, said at a recent forum. In this environment, US dollar funds have struggled with fundraisers, investments, and exits, whereas the only difficulty for yuan funds is raising money, Ni said.

As the investment and exit channels for US dollar funds have become obstructed in China in recent years, some foreign institutions have been diversifying toward other, less-active emerging markets than China’s, according Zero2IPO’s data.

In the first quarter of this year, yuan investments rose to CNY102.2 billion (USD14.3 billion) in 1,589 projects, accounting for 78.6 percent and 94.8 percent, respectively, of all-currency investments disclosed.

Yuan-denominated investments are mainly concentrated in the chip, electronic device, biotechnology, healthcare, and information technology fields, while foreign currency investments mostly go into the biotech, healthcare, IT, and internet areas.

Editor: Futura Costaglione