Mr. Shangkong | Connections trump everything in world of private equity in China

Private equity doesn't have a long history in China, but it has grabbed attention over the past few years, partly because of the individuals standing behind the businesses. In other words, people are key in China. I mean, well, those special people.

How special is special? What kind of people are private equity funds looking for in China? Here is a job e-mail I received from a headhunter last week who is helping an unidentified "well established private equity firm with both US-dollar and yuan-denominated investment platforms" to hire a vice-president-level investment professional.

The e-mail was very straightforward about what kind of person the equity firm was looking for. First, it arrogantly stated that the employer didn't have a specific job description for the role. Secondly, it said, however, the fund did have some "key requirements" for any candidates to be considered. The first, a little to my surprise, was that ideally the candidate should be from the so-called "second powerful generation, who may have good resources".

For readers who may not be familiar with that unique Chinese-English term "second powerful generation", let me explain. It basically means someone who comes from a family where his or her father or mother is a senior government official or a rich business person. That's where power comes from. Politics is power. Business is power too.

In China, a senior official can help make deals happen for a private equity fund, and, sometimes, the fund can do great business and earn handsome returns just on account of those connections.

A business person may desire to sell his or her business at a discount to the fund, or even contribute some money to it to become one of its investors.