In July, President Lai Ching-te told the 2026 Taiwan Venture Capital and Private Equity Annual Conference that Taiwan should convert its strengths in semiconductors, AI, and emerging technologies into greater capital-market appeal and international competitiveness. In the background of global supply-chain restructuring, accelerating AI adoption, and geopolitical tensions, his remarks were timely and well targeted. In contrast to the sovereign wealth fund proposal discussed during his first anniversary address, President Lai appears to have reassessed Taiwan’s advantages in light of the latest global developments in venture capital and private equity.

To encourage life insurers to invest more capital domestically, the Financial Supervisory Commission (FSC) has also relaxed restrictions on insurance investment in venture capital and private equity. Meanwhile, geopolitical tensions, deglobalization, protectionism, and growing scrutiny of AI investments are exposing the limitations of the traditional sovereign wealth fund, venture capital, and private equity models.

First, war has demonstrated that even the ambitions of well-funded sovereign investors remain vulnerable to geopolitical reality. In recent years, the six members of the Gulf Cooperation Council (GCC) deployed vast pools of capital across global markets. Yet retaliatory Iranian attacks inflicted an estimated US$25 billion in damage on regional infrastructure, abruptly bringing those ambitions back to earth.

Furthermore, the institutional foundations supporting private-market investment are also changing. China Investment Corporation (CIC), China’s sovereign wealth fund, has reportedly sought to sell approximately US$1 billion of private equity holdings on the secondary market.

In the United States, the Trump administration’s campaign against higher education and restrictions on university funding have put pressure on major endowments. Yale University entered negotiations to sell a private equity portfolio code-named Project Gatsby. Reportedly valued at US$2.5 billion, the portfolio was offered at a discount of about 10%.

Howard Marks, co-founder and co-chairman of US-based Oaktree Capital Management, observed that investors are beginning to question the durability of American exceptionalism and adjust their global allocations, particularly in private markets.

Moreover, market disruption has dealt another blow. For years, Wall Street viewed the rise of software companies as one of the world’s most reliable paths to wealth. Their recurring revenue models generated exceptional returns for the venture capital and private equity funds backing them. Benefiting from the global expansion of technology and software, private market funds consequently became another investment gold mine.

That model began to unravel in 2022. Higher interest rates and the emergence of AI triggered broad public market sell-offs, and exposed weaknesses in private market valuations and strategies. Investors increasingly recognize that past fund performance offers no assurance of future returns.

Liquidity remains plentiful, and equity markets continue to inspire optimism. In 2025, US private equity assets under management approached US$1.3 trillion, more than three times the level recorded in 2015. Middle Eastern sovereign wealth funds have helped fill the gap left by retreating pension funds and university endowments.

Most importantly for Taiwan, two-thirds of global investment capital has reportedly been directed towards AI. The combination of semiconductors and AI has further enhanced Taiwan’s reputation as a technology leader, contributing to the sharp rise in TSMC stocks and Taiwan’s equity market. As global investors search intensely for opportunities and Taiwan begins positioning itself as a technology financing hub, the country has a rare favorable alignment of timing, industrial strength, and market momentum.

The era in which venture capital and private equity routinely generated returns of tens or even hundreds of times the original investment is likely over. The traditional playbook relied on rapid asset turnover, raising capital, acquiring assets at low valuations, using inexpensive leverage, exiting at higher prices, and returning capital to investors before repeating the cycle.

That formula no longer works, at least as reliably as before. Funds of funds, life insurers and university endowments are no longer deploying capital as freely. Some venture capital and private equity managers have moved into innovative strategies such as quantitative hedge funds, and volatile capital markets have also weakened traditional price discovery. With exit channels constrained, profitable acquisition has become increasingly difficult.

The government’s proposal to develop Taiwan into a technology financing hub is timely. Taiwan’s strong recent stock market performance has demonstrated the appeal of its tech sector, while bottlenecks in conventional venture capital and private equity models reveal the need for new capital allocation channels.

An innovative capital market combining distinct local strengths with an Asian base and global reach could help Taiwan transform from a high-tech manufacturing hub into a technology financing hub – advancing the FSC’s Asian Asset Management Center initiative, while supporting startups throughout their development from early-stage expansion to the creation of ecosystems for the next generation of strategic industries.

Taiwan already possesses a comprehensive technology supply chain, democratic institutions, the rule of law, free markets, an entrepreneurial culture, and a reputation as a trusted industrial partner. What it must now do is strengthen its global identity as a technology island, remove obstacles to international investment, and communicate a compelling blueprint for technology financing.

Taiwan’s venture capital and private equity should continue deepening its international connections to attract more global capital to provide fresh momentum for the next phase of industry growth. Doing so would fulfil President Lai’s message: “Investing in start-ups means investing in the nation’s future; supporting venture capital means supporting the nation’s growth.”

The author is a Managing Partner at Treasury Capital Management and holds a master’s degree in finance from Cornell University.