Sequoia’s wealth business eyes credit and real estate investments ahead of VC split
Sequoia Capital’s $16.4 billion wealth management arm is eyeing credit and real estate investments for the first time since the fund’s early days and seeking to capitalize on a wave of investor interest in making private equity portfolios more liquid.
Sequoia Heritage, as the little-known wealth unit is called, is plotting a different course from the venture capital firm as Sequoia Capital prepares to split up in response to U.S.-China tensions. It’s hunting for investments that it deems to be durable, according to a person familiar with the firm — and which, for the most part, fall outside the purview of its VC cousin.
These include public equities outside the U.S. that are trading below historical valuations, energy investments in Europe and natural resources needed for electric vehicles, the person said.
Heritage has cultivated an independent streak since it was founded in 2010 as a separate legal entity to manage the fortunes of Sequoia Capital’s partners and entrepreneurs. Most recently, it dumped positions in several Sequoia Capital portfolio companies — including Eventbrite Inc., Medallia Inc., Block Inc. and Airbnb Inc. — as part of a major overhaul that saw it sell nearly a third of its holdings between September 2020 and the end of 2021. It added back a small position in Airbnb in the first quarter of this year.
Now, the Sequoia Capital split will formalize Sequoia Heritage’s autonomy, untethering it from the broader group’s profit-sharing agreement and perhaps some of its connections in the business world.
While Heritage’s returns aren’t publicly available, the firm’s assets under management grew to $16.4 billion as of April 30, up from $4.2 billion in April 2018, filings show. The Financial Times previously reported that it made net returns of 73% from June 2020 to June 2021.
Heritage declined to comment on its returns. Sequoia Capital declined to comment.
The question now is whether the Sequoia split will limit Heritage’s connections. Chinese wealth manager Noah Holdings advertised its access to Sequoia Heritage in September 2018, but the status of its relationship with the U.S. firm today is unclear. Noah Holdings didn’t respond to a request for comment. Heritage declined to comment on the relationship.
Sequoia Heritage is also beginning to face more competition from other firms seeking to manage founders’ money: Andreessen Horowitz filed this year to launch a16z Perennial, its own take on a wealth manager that’s listed as handling $105 million for 18 individuals, filings show.
'APPLES VERSUS ORANGES'
Heritage was started by Michael Moritz and Doug Leone, Sequoia’s leadership at the time, who were looking for ways to manage their newfound tech wealth but didn’t like the available options. They each seeded Heritage with $150 million of their own money and brought in $250 million from outside investors.
“[Heritage] is Moritz and Leone wanting a solution for their own wealth management needs and then thinking that this would be a good thing to offer,” said Sebastian Mallaby, a fellow at the Council on Foreign Relations and author of The Power Law: Venture Capital and the Making of the New Future.
Heritage initially struggled to find its footing but eventually found its key man in CEO Keith Johnson, who had worked in family offices before joining Stanford University’s endowment as a director. His idea was to upend the traditional silos that put individuals in charge of sectors like real estate, commodities and stocks and instead go where the best opportunities were.
Or, as Johnson phrased it to Mallaby once, build “a team capable of comparing, in a very thoughtful and debate-oriented way, apples versus oranges.”
“It’s an intellectually ambitious thing to compare a real estate investment in Ottawa with a forestry investment in New Zealand,” Mallaby said.
Heritage was designed so that it could work closely with Sequoia Capital if it wanted to, while retaining the independence to make its own investment decisions. It’s registered as a separate legal entity in the town of Wilson, Wyoming, (population 1,567) near where one of its partners has a residence, records show.
Free from the investing constraints of a traditional fund, Johnson formed a team of generalists who explore opportunities ranging from Veterinary Emergency Group — a chain of vet clinics that’s currently Heritage’s largest position — to other fund managers, like Durable Capital Partners’ Henry Ellenbogen.
Heritage will typically partner early, before some of the funds get off the ground, then make them part of their investing network to help source deals, fund managers backed by the firm said.
“It is an exclusive club,” said Adam Boehler, a former Trump administration official whose health care investment firm, Rubicon Founders, is backed by Heritage. “There are not a lot of funds that they back, but if you are in that club, they’re going to spend a lot of time.”
The MacArthur Foundation, Broad Institute and University of Oxford all have millions of dollars invested in Sequoia Heritage, filings show. However, most of its backers are Sequoia-affiliated founders.
Heritage leans on those founders for investment ideas, inviting them to dinners or overnight brainstorming sessions. Unlike some wealth management firms that keep money in separate funds, Heritage puts everything into one pot managed by its six-person investment team.
Heritage’s goal was to triple investor capital in a decade — and it beat that, head investors Johnson and Kevin Kelly said in a December 2021 interview with the Financial Times.
Its investments range widely: blockchain, industrials, fintechs and opioid treatment centers. In 2022, Heritage backed PingPod, a table-tennis-on-demand startup, and also Citadel Securities, the high-frequency trading firm founded by billionaire Ken Griffin.
Heritage has also backed venture and private equity firms, like Randall Winn’s 22C Capital, fintech specialist Ribbit Capital and Latin America investor Kaszek. Heritage then uses its relationships with firms and founders like an extension of its investing team to bring in more deals.
“They have a lot of investors who are the founders of technology businesses and they partner with other institutional investors as well,” Winn said. “That network tees up a lot of opportunities for them.”