By Rolfe Winkler, Jing Yang and Alexander Osipovich
No matter the outcome of the struggle between China and the U.S. over video-sharing app TikTok, an unlikely winner will be a secretive trading firm based outside of Philadelphia.
Susquehanna International Group LLP, an options-trading giant, has largely avoided publicity during its three-decade history. Susquehanna's core business is using quantitative models and computers to execute rapid-fire trades in various markets. Such firms tend to rake in profits by making thousands of small trades a day, often holding securities for fractions of a second.
But in the case of TikTok, the firm bet big and held on to its investment for years.
Susquehanna owns around 15% of TikTok owner ByteDance Ltd., according to people familiar with the matter. This makes Susquehanna the largest outside investor in the Beijing-based social-media company. Based on private trades of ByteDance shares earlier this year, Susquehanna is sitting on a stake that could be worth more than $15 billion on paper, according to data firm PitchBook.
The firm's founding partners are poised to personally profit from the investment more than traditional venture capitalists would, because the firm invests only the partners' money, according to Susquehanna's China website. Typically, venture-capital firms raise funds from outside investors and must share profits with them. Susquehanna declined requests to interview its founders.
Susquehanna got into ByteDance early, joining a $5 million investing round in 2012, the year the Chinese company was founded, according to PitchBook. The company's TikTok app now has hundreds of millions of users globally, about 100 million of whom are in the U.S., many of them teenagers. Susquehanna also invested in Musical.ly, a video app that was bought by Bytedance in 2017 and later folded into TikTok.
The future of the investment is still undecided, with Susquehanna caught in a geopolitical standoff between Washington and Beijing. ByteDance is currently seeking approval from both governments for a deal that would include Oracle Corp. and Walmart Inc. taking a stake in a newly created U.S.-based company and running some of its operations. Regardless of how it plays out, Susquehanna is likely standing on a significant return.
People close to ByteDance say the driving force behind the investment was a pair of local executives at Susquehanna's China venture-capital unit, SIG Asia Investments: Tim Gong, who has led the unit, and Joan Wang, who was a big early supporter of ByteDance founder Zhang Yiming.
Susquehanna invested in two startups that Mr. Zhang was involved with before founding ByteDance -- travel site KuXun and real-estate portal 99Fang -- and the firm invested in ByteDance even after the failure of 99Fang. Ms. Wang met Mr. Zhang frequently to advise him on strategy as he cycled through ideas for a business model in ByteDance's early days.
During the Chinese New Year holidays in 2012, Mr. Zhang met Ms. Wang at a cafe in Beijing and the two discussed artificial intelligence. The meeting planted the seeds for an AI-powered news-aggregation service called Toutiao, which would become Bytedance's first big hit before TikTok.
At first skeptics doubted Toutiao's ability to compete with larger rivals Sina Corp. and Sohu Inc. Ms. Wang, an early ByteDance board member, connected potential investors to Mr. Zhang, says Hong Chen, chief executive of Hina Group, a Chinese investment bank and investing firm.
"She was a great helper for ByteDance," said Mr. Chen, who is friends with Ms. Wang. "She is a very hands-on investor."
The bridge between ByteDance, Ms. Wang and Susquehanna's headquarters in Bala Cynwyd, Pa., is Arthur Dantchik, who co-founded the firm with a group of college friends in 1987.
Mr. Dantchik is on the ByteDance board, having taken over the seat initially occupied by Ms. Wang. He would also be a board member of TikTok Global, the proposed U.S.-based spinout that the company is working to create to avoid the app being banned from the U.S. by the Trump administration.
People close to Susquehanna say Mr. Dantchik is an affable, well-liked figure within the firm who was more globally oriented than some of the other founding partners. He helped start SIG Asia Investments in 2004. He has traveled regularly to China and other places where Susquehanna has investments, such as Israel, these people said.
The firm's roots date back to the State University of New York at Binghamton, where six of its co-founders were students in the 1970s. Most of them shared a love of poker. They initially set up shop in the building of the Philadelphia Stock Exchange. Israel Englander, the billionaire chief executive of hedge-fund firm Millennium Management, helped the crew get its start by sponsoring Susquehanna co-founder Jeffrey Yass for a seat at the exchange. Mr. Yass's father Gerald also helped set up the firm.
Poker remains a big part of Susquehanna's culture. The game is part of the training curriculum for new employees, and the firm holds an annual employee poker tournament, detailed in a blog on Susquehanna's website. Another co-founder, Eric Brooks, won first place in a seven-card stud event at the 2008 World Series of Poker. He gave his winnings of $415,856 to an educational charity.
Susquehanna now has more than 1,900 employees in offices world-wide. The firm accounts for more than one-fifth of U.S. options-trading volume, and it was sitting on more than $80 billion worth of stocks, options and other securities and derivatives at the end of 2019, according to an analysis of the firm's regulatory filings by Alphacution, a research firm specializing in proprietary trading firms. Options are contracts that give investors the right to buy or sell a stock at a particular price.
Secrecy is another hallmark of Susquehanna, which doesn't publicly disclose its financial metrics. The firm, like many high-speed trading firms, requires employees to sign noncompete agreements to keep trading secrets from being shared with rivals.
"Susquehanna is like a black hole," said Paul Rowady, director of research at Alphacution. "There's no light that escapes."
As ByteDance negotiates the fate of TikTok with U.S. and Chinese authorities, Mr. Dantchik hasn't played a big role in talks with officials, allowing other ByteDance investors such as Sequoia Capital and General Atlantic to take the lead, people familiar with the discussions said.
More than 30 years after its formation, Susquehanna is still closely held by its remaining co-founders, and it has never brought in outside investors, the people close to the firm said.
That explains in part how it ended up in China. The trading business generated such hefty profits that it spurred the Susquehanna co-founders to look for other places to reinvest their money, these people said.
The firm branched out into traditional investing in the 1990s, initially focusing on private investments in public equity, or PIPEs, a type of deal in which private investors buy equity stakes directly from a publicly traded company. Later, Susquehanna set up units for venture capital and private-equity investments. As the Internet boom spread to China and more Chinese startups were listed in the U.S. in the 2000s, it launched SIG Asia Investments in Shanghai.
In its early days in China, Susquehanna appeared alongside Sequoia in several investments, such as Bona Film Group, producer of the 2019 World War II epic "Midway," and fast-food chain Country Style Cooking Restaurant Chain Co. Overall in China, Susquehanna has invested in more than 260 companies since 2005 in such sectors as media, internet, consumer and health-care, totaling more than $2 billion, according to its website. It co-invested with Sequoia 36 times, according to Chinese venture capital research firm Zero2IPO.
In the coterie of entertainment financiers in China, Mr. Gong is known for co-hosting an exclusive party with Bona Film during the Shanghai Film Festival each year at a bungalow near the city's famed waterfront promenade The Bund, according to people familiar with the matter. Attendees are often the power brokers in China's film industry, such as producers and directors. Mr. Gong, a proud wine aficionado, handpicks the wines served at the parties.
Write to Rolfe Winkler at firstname.lastname@example.org, Jing Yang at Jing.Yang@wsj.com and Alexander Osipovich at email@example.com
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