In 2010, the 24-year-old Zhicheng “Alvin” Jiang—the grandson of former Chinese president and Communist Party leader Jiang Zemin—had just graduated from Harvard with a bachelor’s degree in economics, and was working in Goldman Sachs’ private equity unit in Hong Kong. Less than a year later, he assembled an all-star team of former Lenovo CFO Mary Ma and former executive director of Ping An insurance group Louis Cheung—adding up to a combined 50 years of experience in the business—to set up Boyu Investment Advisory Co, a Hong Kong-based private equity fund. Today, as Stephen Aldred and Irene Jay Liu of Reuters lay out in an extensive special report, little Alvin, also known as “Featherhead”, is landing the biggest deals in China —one of Boyu’s investors is Asia’s richest person Li Ka-Shing—and very likely making a whole bunch of cold hard cash in the process. While not making any official conclusions (especially since practically all its subjects declined to comment on the issue), the report begs the question: How much of this success can be traced back to Alvin’s government hookups?
Not even five years old, Boyu is already set to rake in enormous piles of RMB with two impending IPOs: First, they’ve got their hands on e-commerce giant Alibaba Group Holding Ltd, whose opening in the third-quarter of this year on one of the New York exchanges is predicted to exceed Facebook’s $16 billion IPO in 2012; second, there is China Cinda Asset Management Co., which was created in 1999 to buy up bad debt from China’s state-owned banks.
Boyu’s history of returns right off the tails of its founding is comprised of the kind of stuff private equity managers dream of: In mid-2011, Boyu made an $80 million investment in exchange for a 40 percent stake of Sunshine Duty Free, which is responsible for all the duty-free shops in Beijing and Shanghai’s international airports. Less than three years later, there are bankers that estimate Sunshine’s value at $1.6 billion, indicating a quadrupled rate of return in an industry where, as Reuters points out, “earning a multiple of two times over five years is considered a success.”
Jiang Zemin (L) and his son Jiang Mianheng
The report also points out the role that Featherhead’s Grandpapa has historically played in the Duty Free industry.The head of Sunshine is a Chinese-American by the name of Fred Kiang, a businessman who allegedly has close ties with the Jiang family. In 1999, Kiang founded Sunrise just as the Chinese central government under Jiang Zemin opened up the operation of Duty Free shops to international bidders at the brand-new Pudong International Airport: Sunshine, coincidentally, was one of three companies selected to do business at this airport. A year later, despite the passing of a measure that restricted further foreign ownership and transferred all control of airport duty free shops (except in Shanghai) to state-owned China Duty Free, Sunshine was granted “special approval” by the State Council: In 2012, Sunshine cashed in a cool $1.08 billion in revenue, and the world keeps on spinning..
The report does stress: “Whether the young private equity executive actually uses his personal connections in the way investors attribute to him remains unclear. There is no evidence that Jiang Zemin had a role in helping Boyu win a part in the Sunrise deal or in any other transaction.” In fact, Featherhead’s friends attest that there is more to him than his connects, arguing that some of his negotiation strategies stem directly from the (brief) time he spent at Goldman Sachs: “Many people from his background would not bother to do that,” they say.
With Xi Jinping’s anti-corruption crusade showing no signs of waning, certain investors have indicated wariness about doing business with princelings like Alvin: One European investor mentioned their firm being “pretty equally divided” on the issue, saying that “I oppose it, but many of my colleagues are for it. I see princeling funds as a double-edged sword.”
For a more detailed and quantitative layout of Alvin’s work with the Boyu Investment Advisory Co., check out the Reuters report here.
By Alex Stevens
[Images via Reuters // Want China Times]