GETTING THE GOODS: Boyu’s purchase of a substantial stake in Sunrise Duty Free showed Jiang Zemin’s grandson could gain access to a state-controlled sector. REUTERS/KOH GUI QING CHINA Princeling of private equity A firm co-founded by the grandson of China’s former leader landed a sweet deal in a state-controlled sector of the economy. Now, many in the industry are flocking to invest with Alvin Jiang BY STEPHEN ALDRED AND IRENE JAY LIU SPECIAL REPORT 1 PRINCELING OF PRIVATE EQUITY PRINCELING PEDIGREE: Jiang Zemin (L) was China’s president from 1993 to 2003. His son Jiang Mianheng is CEO of Shanghai government investment vehicle Shanghai Alliance Investment, which has a stake in Oriental Dreamworks. REUTERS HONG KONG, APRIL 10, 2014 them to Boyu. Jiang Zemin had a role in helping Boyu Investors were also impressed with win a part in the Sunrise deal or in any he 28-year-old wears black-framed Boyu’s 2011 purchase of a controlling stake other transaction. That hasn’t stopped the glasses perched on cheeks still round in Sunrise Duty Free – which runs all the belief from spreading that Alvin Jiang is Twith youth. A discerning eye might duty-free stores at Shanghai and Beijing’s tapping his family connections. notice the resemblance to his grandfather: international airports. That deal, they be- Alvin Jiang and Boyu Capital declined former Chinese president and Communist lieve, provided evidence that Jiang Zemin’s to comment for this story. Party leader Jiang Zemin. grandson could gain access to a strictly con- PRINCELING INFLUENCE Alvin Jiang has a knack for landing lu- trolled state sector and convert those assets crative deals in China, the world’s biggest into a highly profitable investment. Alvin Jiang’s Chinese given name is emerging market for private equity. He is The Sunrise investment is expected to Zhicheng, which means, “with ambition, a founding partner at Hong Kong-based earn a substantial exit payout for Jiang, his you can achieve.” He is a “princeling,” Boyu Capital, now one of the hottest firms Boyu colleagues and investors in the firm’s the relatives of current or former senior in China. Boyu has attracted high-profile first $1 billion fund, people in the private Chinese Communist Party leaders. His fa- investors such as Asia’s richest man, Li Ka- equity industry say. ther, Jiang Mianheng, is also a princeling. shing, and Singapore’s sovereign wealth Whether the young private equity ex- He is the CEO of one of Shanghai’s largest fund, Temasek Holdings Private Limited. ecutive actually uses his personal connec- state-owned enterprises and is in charge of Founded in 2010, Boyu Capital is poised tions in the way investors attribute to him China’s push into alternative nuclear en- to earn big paydays from two of the most remains unclear. There is no evidence that ergy sources. notable initial public offerings to emerge The extensive control of China’s from China in the last 18 months - e-com- Communist Party over almost all aspects of merce giant Alibaba Group Holding Ltd, China’s economy and society has often al- and state-backed debt trader China Cinda lowed princelings to leverage their political Asset Management Co. No other China- connections to amass wealth. Conflict of focused firm with such a short history has interest laws in China are weak and cover- found its way into both deals. age of the business dealings of the political Boyu is regarded as among the most elite is heavily censored in the largely state- professional operators in China private controlled media. equity, with seasoned executives at its Princelings have played central roles in helm. But according to multiple investors, businesses involved in finance, energy, do- Alibaba and Cinda are not only what lures mestic security, telecommunications and SPECIAL REPORT 2 PRINCELING OF PRIVATE EQUITY the media. Private equity, featuring deals that are often by their nature opaque, has China’s private proven to be a natural haven for them. Within China’s private equity realm, equity princelings 15 firms identified by Reuters were either founded by a princeling, or have employed princelings in senior roles. Between them, LIU LEFEI movies and build a theme park in Shanghai. these funds have raised at least $17.5 bil- CITIC Private Equity Funds Management lion for investment since 1999. $5. 1 billion funds raised ALVIN JIANG The most powerful investors in private Liu Lefei is the son of politburo member Boyu Capital Consultancy Co Ltd equity funds, known as limited partners, Liu Yunshan and CEO and president of $1.6 billion funds raised include giant U.S. pension funds and insur- CITIC Private Equity Funds Management, Grandson of Jiang Zemin, Alvin Jiang was a ance companies; sovereign wealth funds; which has raised a total of $5.1 billion for founding partner of Hong Kong-based Boyu university endowments; and ultra-high net investment from international and domestic Capital by the age of 25, putting him on an worth individuals. For some of these big in- investors. Liu Lefei is also vice chairman at equal footing with some of the industry’s vestors, the China game is straightforward: CITIC Securities, and many investors regard top executives in Asia, including ex-TPG “You just have to know the right people,” him as the most powerful of China’s private and Lenovo businesswoman, Mary Ma. said one veteran limited partner. “It’s why equity princelings, because his father is still Boyu’s other investments include Alibaba you invest with a princeling fund.” in office. Group Holding and China Cinda Asset Several limited partners told Reuters Management. Boyu is finalising a second that their firms assess princelings on their WINSTON WEN fund of $1.5 billion. political connections and ability to convert Co-founder of New Horizon Capital those ties into business deals. $3.2 billion funds raised HE JINTAO Alvin Jiang and Boyu Capital, these in- Wen Yunsong or Winston Wen, is the son Nepoch Capital vestors say, rank high on those lists. of former China premier Wen Jiabao, and $200 million funds raised is the best known of China’s private equity Nepoch was the first new princeling private AN OUTSTANDING RETURN princelings. Winston is co-founder of New equity firm to emerge in the wake of Xi In mid-2011, Boyu agreed to pay around Horizon Capital, which has raised a total of Jinping’s election as paramount leader. He $80 million for a 40 percent stake in $3.2 billion for investment. Wen became Jintao, co-founder of Nepoch Capital, is Sunrise Duty Free, according to three chairman of state-owned China Satellite the son of He Guoqiang, who until the last sources with direct knowledge of the deal, Communications Co in 2012. leadership change was head of discipline in valuing Sunrise at $200 million. the Communist Party. The ownership of the remaining 60 per JIANG MIANHENG cent of Sunrise has not been made public. New Margin Investments, Shanghai Alliance Data sources: Thomson Reuters and Preqin Boyu, however, has told investors it has a Investment Ltd controlling stake, sources with knowledge $1.1 billion funds raised of the matter said. Son of former premier Jiang Zemin, Jiang At the time of Boyu’s investment, Mianheng was a pioneer of China private Sunrise ranked 15th among the top 25 equity investments. Dubbed the “Prince of travel retailers in the world, with annual Information Technology” in the early 2000s, revenue of around $670 million, according he was involved with NewMargin Ventures, to the Moodie Report, which tracks the whose investments included AsiaInfo duty free industry. Holdings and RedFlag Software. His influence By early 2013, Boyu had marked the remains evident through the Shanghai Sunrise business on its books at a value of government investment vehicle, Shanghai around $800 million, two of the sources Alliance Investment Ltd, where he is CEO. with direct knowledge of the valuation Shanghai Alliance is part of a joint venture said. Bankers, however, value Sunrise at with DreamWorks Animation to produce SPECIAL REPORT 3 PRINCELING OF PRIVATE EQUITY twice that amount - at around $1.6 bil- experience in the industry. lion - based on 2012 sales figures the com- Raising capital Sunrise won a 10-year contract to sell pany filed with Chinese authorities, which Despite a recent slowdown, over $168 tobacco and alcohol at Shanghai’s Pudong billion has been raised for China private Reuters reviewed. equity investments since 2006 Airport, World Duty Free won a five-year Based on Boyu’s more conservative val- contract to sell perfume and cosmetics, and uation of $800 million for Sunrise, Boyu PRIVATE EQUITY FUNDRAISING Orient King Power won the concession to could be sitting on a paper gain of around Billion dollars sell luxury goods. four times its money in just under three 60 SPECIAL APPROVAL years - an outstanding return in an indus- try where earning a multiple of two times 50 In 2000, China’s State Council approved over five years is considered a success. Boyu a measure that handed control of all duty has already recovered much of its Sunrise 40 free businesses - except those in Shanghai investment through dividend payments, ac- - from local governments to state-owned 30 cording to three people with knowledge of China Duty Free. Foreign companies were the matter. 20 banned from setting up joint ventures or directly owning duty free businesses in BEHOLD THE SUNRISE 10 China. The man who founded, built and then sold Yet in 2001 Sunrise Duty Free took Sunrise to Boyu is Fred Kiang, a Chinese- 0 over the perfume and cosmetics duty '06 '07 '08 '09 '10 '11 '12 '13 American businessman with close ties to free concession at Pudong airport when Source: Asian Venture Capital Journal the Jiang family, according to Alvin Jiang’s World Duty Free pulled out of its con- friends and business associates.