Star China Tech Investor Boyu Seeks To Navigate Xi’s ‘Common Prosperity’ Era

Alvin Jiang was 24 and was embarking on a career at Goldman Sachs when he was hired by one of China’s top negotiators to help launch Boyu Capital, a Hong Kong-based private equity firm.

For Sean Tong, who founded Boyu in 2010 after leading the Chinese investment portfolio of US private equity firm General Atlantic, Jiang was an attractive prospect. The bespectacled Harvard graduate is the grandson of Jiang Zemin, president of China from 1993 to 2003.

This initially gave Boyu the reputation of a “mainstream” company, a term used to describe the children and grandchildren of top Chinese Communist Party leaders, though Tong and his founding partners, who included some of the top leaders. country, have extensive business experience. .

A decade later, the low-key firm shut down a nearly $ 7 billion U.S. dollar fund, just as China’s investment industry was caught in unprecedented regulatory turmoil.

The company that has rode China’s tech boom over the past decade to become one of its most successful investors must now adapt its strategy to Beijing’s vision for the industry, which emphasizes the “common prosperity” on the success of the capital market.

“Some industries are seeing a lot less activity, especially mainstream internet companies,” said a person familiar with the evolution of Boyu’s strategy. “But others are enjoying many political winds, like semiconductors, electric vehicles and other alternative energy technologies. Investors also need to be much more careful than ever before about regulatory risks. “

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

Hong Kong-based Boyu Capital has taken advantage of China’s tech boom to become one of the country’s most successful investors. Now he has to adjust to Beijing’s crackdown on the sector and focus on wealth inequality © Tyrone Siu / Reuters

The company was set to repeat its Alibaba tour in late 2020 as the first investor in Ma’s online finance unit, Ant Group, before regulators blocked what would have been the largest public offering. initial to the world.

Boyu was also affected by a government crackdown on private education companies in July – the company was an early investor in online courseware provider Yuanfudao.

He dodged a bullet, however, by getting rid of most of his stake in Didi Chuxing ahead of the rideshare group’s initial public offering in New York City in June, according to people familiar with his investment. Didi’s share price collapsed after the Chinese government launched an investigation into its data security practices.

Besides Didi, people close to Boyu said they have invested in seven or eight companies that successfully launched IPOs last year, including Cloud Village, the music streaming unit of NetEase, and biotech start-ups like as Brii Biosciences and KeyMed Biosciences.

“A few years ago, you would still have some really large ecosystem companies in the market, like Alibaba, Ant, Meituan, and ByteDance,” said one Boyu investor. “But this market is much more crowded than it used to be, and the likelihood of an ecosystem business of this size going out is diminishing. Boyu needs to focus more on winning in niche areas.

Boyu’s early success with Alibaba stems from an accidental encounter. In the early 1990s, Ma, then a university English teacher, was a judge in an English competition in her hometown of Hangzhou, in eastern China. Tong was one of the high school students attending the event, according to people familiar with their relationship.

Ma, who has become the country’s most famous entrepreneur, was impressed with Tong’s performance and congratulated him. It was the start of a three-decade friendship.

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

Children and grandchildren of Chinese leaders have traditionally had access to decision-makers, and foreign companies in the country have looked to them as facilitators.

Liu Tianran, son of Vice Premier Liu He, a confidant of Xi Jinping, created Skycus Capital at the end of 2016. Skycus has invested in units of Chinese tech giants Tencent and, which are Ant’s biggest rivals and Alibaba. Wen Yunsong, the son of former prime minister Wen Jiabao, founded the New Horizon investment fund in 2005, when his father was in power.

But since Xi became leader of the Communist Party in 2012, the influence of the princes has waned, according to investors and analysts.

“These princes who are still active in finance are extremely low-key, staying in narrower sectors, with much smaller funds than Boyu,” said a seasoned negotiator who has been involved in the restructuring of state-owned enterprises. “What makes Boyu different is the caliber of his general partners, the size of the fund. . . and track record, which means he doesn’t need to negotiate princely relationships. “

Kerry Brown, China expert at King’s College London, said it was “now probably as much a handicap as a help to have these numbers [princelings] associated with you ”.

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

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

For Boyu, the launch with industry veterans contributed to his success, according to people who have worked with the company. Besides Jiang, Tong also recruited Louis Cheung, former chairman and chief financial officer of Ping An, China’s largest insurance group, and Mary Ma, who was chief financial officer of Lenovo when the Chinese company bought the PC business from ‘IBM in a landmark transaction in 2005. She then joined TPG Capital, the US private equity firm.

“If it hadn’t been for Sean, no Mary and no Louis, we would have been worried [Boyu’s] implementation, ”said an executive from one of the company’s long-time partners.

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

The company has expanded its offices in Beijing and Shanghai, where Jiang is based. He also opened an office in Singapore at the end of 2019; Tong moved there from Hong Kong in 2020.

But Boyu is now navigating a much more politicized investment climate. Xi has made it clear that no industry is immune to regulatory risk if it does not contribute to “common prosperity” as his candidacy this year approaches for an unprecedented third term as party leader.

“Boyu chose well, but the same relationship won’t always give you the same result – look at Ant,” said one Boyu investor. “The problem with China is that you don’t know when the regulatory risk might hit you.”

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