Star China investor Boyu seeks to navigate Xi Jinping’s tech crackdown

Alvin Jiang was 24 years outdated and embarking on a profession at Goldman Sachs when he was employed by considered one of China’s high dealmakers to assist launch Boyu Capital, a Hong Kong-based personal fairness agency.

For Sean Tong, who based Boyu in 2011 after working the Chinese language funding portfolio of US personal fairness agency Normal Atlantic, Jiang was a pretty prospect. The bespectacled Harvard graduate is the grandson of Jiang Zemin, China’s president from 1993 to 2003.

That originally gave Boyu a status as a “princeling” agency, a time period used to explain the kids and grandchildren of senior Chinese language Communist celebration leaders, although Tong and his founding companions, who included a few of the nation’s most senior executives, had in depth enterprise expertise.

A decade later, the low-profile agency has surfed China’s tech growth to grow to be one of many nation’s most profitable traders, final yr closing a US-dollar fund value nearly $7bn.

However the sector’s fortunes have grow to be caught up in an unprecedented regulatory crackdown. Boyu, like different traders, should now adapt its technique to Beijing’s imaginative and prescient for the sector, which emphasises “frequent prosperity” over capital market success.

“Some sectors are seeing a lot much less exercise, particularly client web corporations,” mentioned one particular person acquainted with Boyu’s evolving technique. “However others are having fun with lots of coverage tailwinds, issues like semiconductors, electrical automobiles and different various power applied sciences. Traders additionally need to be much more cautious than earlier than about regulatory dangers.”

Boyu is greatest recognized for making billions of {dollars} on massive early tech bets together with Alibaba, Jack Ma’s ecommerce platform that listed in 2014, whereas additionally specializing in rising client, finance and healthcare corporations.

The logo of Boyu Capital at the company’s office in Hong Kong
Hong Kong-based Boyu Capital rode China’s tech growth to grow to be one of many nation’s most profitable traders. Now, it should alter to Beijing’s crackdown on the sector and emphasis on wealth inequality © Tyrone Siu/Reuters

The agency was poised to repeat its Alibaba trick in late 2020 as an early investor in Ma’s on-line finance unit, Ant Group, earlier than regulators blocked what would have been the world’s largest-ever preliminary public providing.

Boyu was additionally hit by a authorities crackdown on personal training corporations in July — the agency was an early investor in on-line tutorial supplier Yuanfudao.

It dodged a bullet, nevertheless, when it offloaded most of its stake in Didi Chuxing earlier than the ride-hailing group’s June preliminary public providing in New York, in response to folks acquainted with its funding. Didi’s share worth collapsed after the Chinese language authorities launched an investigation into its knowledge safety practices.

Along with Didi, folks near Boyu mentioned it had invested in seven or eight corporations that efficiently launched IPOs final yr, together with Cloud Village, the music streaming unit of NetEase, and biotech start-ups akin to Brii Biosciences and KeyMed Biosciences.

“Just a few years again you’d nonetheless have very massive ecosystem corporations within the market — the likes of Alibaba, Ant, Meituan and ByteDance,” mentioned a Boyu investor. “However this market is way more crowded than earlier than and the probability of an ecosystem firm that massive popping out is getting smaller. Boyu has to focus extra on winners in area of interest sectors.”

Boyu’s early success with Alibaba had its roots in an unintended encounter. Within the early Nineteen Nineties, Ma, then a college English trainer, was a choose at an English-language competitors in his hometown of Hangzhou in jap China. Tong was one of many high-school college students competing on the occasion, in response to folks acquainted with their relationship.

Ma, who went on to grow to be the nation’s most well-known entrepreneur, was impressed by Tong’s efficiency and congratulated him. It was the beginning of a three-decade friendship.

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

The kids and grandchildren of China’s leaders have historically loved entry to choice makers, and overseas companies within the nation have turned to them as facilitators.

Liu Tianran, son of vice-premier Liu He, a confidante of Xi Jinping, established Skycus Capital in late 2016. Skycus has invested in items of Chinese language know-how giants Tencent and JD.com, that are Ant and Alibaba’s greatest rivals. Wen Yunsong, the son of former premier Wen Jiabao, based the New Horizon funding fund in 2005, when his father was in energy.

However since Xi grew to become Communist celebration chief in 2012, the princelings’ affect has diminished, traders and analysts mentioned.

“These princelings who’re nonetheless lively in finance are extraordinarily low-key, staying in narrower sectors, with a lot smaller funds than Boyu,” mentioned a veteran dealmaker who was concerned within the restructuring of state-owned enterprises. “What makes Boyu totally different is the calibre of its basic companions, fund measurement . . . and observe document, which all imply that it doesn’t have to commerce on princeling connections.”

Kerry Brown, a China skilled at King’s Faculty London, mentioned it was “now in all probability as a lot a legal responsibility as a assist to have these figures [princelings] related to you”.

“There are actually so many individuals outdoors these [elite] networks with wonderful abilities,” he added. “Why depend on somebody simply due to who they’re associated to?”

Boyu, Tong and Jiang declined to remark for this text.

For Boyu’s half, launching with trade veterans was instrumental to its success, in response to individuals who labored with the agency. Apart from Jiang, Tong additionally recruited Louis Cheung, a former president and chief monetary officer at Ping An, China’s largest insurance coverage group, and Mary Ma, who was finance chief at Lenovo when the Chinese language firm purchased IBM’s PC enterprise in a landmark 2005 transaction. She later joined TPG Capital, the US personal fairness agency.

“If there was no Sean, no Mary and no Louis we might have been involved about [Boyu’s] set-up,” mentioned an government at one of many agency’s longtime companions.

From 2011 to 2019, Boyu raised 4 US greenback funds, and final yr finalised a fifth value $6.8bn, in response to a number of folks concerned. It’s the largest US greenback fund in China managed by an impartial supervisor, in response to AVCJ, a knowledge supplier. Boyu has additionally accomplished three smaller renminbi-denominated funds and is now elevating a fourth.

The agency has elevated its workplace area in Beijing and Shanghai, the place Jiang relies. It additionally opened a Singapore workplace in late 2019; Tong relocated there from Hong Kong in 2020.

However Boyu is now navigating a dramatically extra politicised funding local weather. Xi has made it clear that no trade is protected from regulatory threat if it doesn’t contribute to “frequent prosperity” within the run-up to his bid this yr for an unprecedented third time period as celebration head.

“Boyu has picked nicely however the identical relationship is not going to at all times provide the similar consequence — have a look at Ant,” mentioned one Boyu investor. “The factor with China is, you don’t know when regulatory threat would possibly hit you.”

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