Sat. Jan 22nd, 2022

Alvin Jiang was 24 years old and started a career at Goldman Sachs when he was hired by one of China’s leading transaction makers to help start Boyu Capital, a Hong Kong-based private equity firm.

For Sean Tong, who founded Boyu in 2011 after managing the Chinese investment portfolio of US private equity firm General Atlantic, Jiang was an attractive prospect. The bespectacled, young Harvard graduate is the grandson of Jiang Zemin, China’s president from 1993 to 2003.

This initially gave Boyu a reputation as a “royal” firm, a term used to describe the children and grandchildren of senior Chinese Communist party leaders, although Tong and his founding partners, including some of the country’s most senior executives, had extensive business experience. .

A decade later, the low-profile firm closed a nearly $ 7 billion US dollar fund, as did China’s investment industry. get caught in unprecedented regulatory unrest.

The firm, which has looked through China’s technology boom over the past decade to become one of its most successful investors, must now align its strategy with Beijing’s vision for the sector, which emphasizes “common prosperity” above capital market success.

“Some sectors see much less activity, especially consumer internet companies,” says one person familiar with Boyu’s development strategy. “But others enjoy a lot of policy backlash, things like semiconductors, electric vehicles and other alternative energy technologies. Investors also need to be much more cautious than ever about regulatory risks. ”

Boyu is best known for making billions of dollars on big early technology bets, including Alibaba, Jack Ma’s e-commerce platform listed in 2014, while also focusing on emerging consumer, finance and healthcare companies.

The Boyu Capital logo at the company's Hong Kong office
Hong Kong-based Boyu Capital has driven China’s technological boom to become one of the country’s most successful investors. Now it must adapt to Beijing’s oppression of the sector and the emphasis on wealth inequality © Tyrone Siu / Reuters

The firm was poised to repeat its Alibaba ploy in late 2020 as an early investor in Ma’s online finance unit, Ant Group, before regulators blocked which would have been the world’s largest initial public offering ever.

Boyu also hit by government repression private education companies in July – the firm was an early investor in online tutorial provider Yuanfudao.

However, a bullet escaped when it dropped most of its interest. Didi Chuxing ahead of the ride-sharing group’s initial public offering in June in New York, according to people familiar with its investment. Didi’s share price collapsed after the Chinese government launched an investigation into its data security practices.

In addition to Didi, people close to Boyu said he had invested in seven or eight companies that successfully launched IPOs last year, including Cloud Village, the music streaming unit of NetEase, and biotechnology beginners such as Brii Biosciences and KeyMed Biosciences.

“A few years back you would still have a lot of big ecosystem companies in the market – like Alibaba, Ant, Meituan and ByteDance,” said a Boyu investor. “But this market is much more crowded than before and the probability of an ecosystem company coming out so large is getting smaller. Boyu needs to focus more on winners in niche sectors.”

Boyu’s early success with Alibaba had its roots in a casual encounter. In the early 1990s, Ma, then an English teacher at the university, was a judge at an English-language competition in her hometown of Hangzhou in eastern China. Tong was one of the high school students who took part in the event, according to people familiar with their relationship.

Mother, what has become the country’s most famous entrepreneur, was impressed by Tong’s performance and congratulated him. This was the beginning of a friendship of three decades.

Tong was in his mid-30s when he founded Boyu. He met Jiang when the latter was an intern at General Atlantic’s office in Hong Kong.

The children and grandchildren of China’s leaders have traditionally enjoyed access to decision-makers, and foreign businesses in the country have turned to them. as facilitators.

Liu Tianran, son of Deputy Prime Minister Liu He, a confidant of Xi Jinping, founded Skycus Capital at the end of 2016. Skycus has invested in units of Chinese technology giant Tencent and, which are Ant and Alibaba’s biggest competitors. Wen Yunsong, the son of former Prime Minister Wen Jiabao, New Horizon investment fund in 2005, when his father was in power.

But since Xi became Communist Party leader in 2012, the princes’ influence has reduced it, investors and analysts said.

“Those princes who are still active in finance are extremely low-key, living in narrower sectors, with much smaller funds than Boyu,” says a veteran trader involved in the restructuring of state-owned enterprises. “What makes Boyu different is the caliber of its general partners, fund size. . . and record, which all means that it is not necessary to trade on principal compounds. ”

Kerry Brown, a China expert at King’s College London, said it was “now probably just as much a liability as an aid to having these figures [princelings] associated with you ”.

“There are now so many people outside this [elite] networks with excellent skills, ”he added. “Why rely on someone just who they are related to?”

Boyu, Tong and Jiang declined to comment for this article.

For Boyu, the launch with industry veterans was instrumental to its success, according to people who worked with the firm. Apart from Jiang, Tong also recruited Louis Cheung, a former president and chief financial officer at Ping An, China’s largest insurance group, and Mary Ma, who was chief financial officer at Lenovo, when the Chinese company bought IBM’s computer business in a landmark has. 2005 transaction. She later joined TPG Capital, the US private equity firm.

“If there were no Sean, no Mary and no Louis, we would be worried [Boyu’s] configuration, ”said an executive at one of the firm’s longtime partners.

From 2011 to 2019, Boyu raised four US dollar funds and last year finalized a fifth worth $ 6.8 billion, according to several stakeholders. It is the largest U.S. dollar fund in China controlled by an independent manager, according to AVCJ, a data provider. Boyu also completed three smaller renminbi-denominated funds and is now raising a fourth.

The firm has expanded its office space in Beijing and Shanghai, where Jiang is based. It also opened an office in Singapore in late 2019; Tong moved there from Hong Kong in 2020.

But Boyu is now navigating a dramatically more politicized investment climate. Xi made it clear that no industry is safe from regulatory risk if it does not contribute to “common prosperity” in the run-up to its bid this year for a unprecedented third quarter as party leader.

“Boyu has chosen well, but the same relationship will not always give you the same outcome – look at Ant,” said one Boyu investor. “The thing with China is, you do not know when regulatory risk can hit you.”

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