• Fri
  • Jul 25, 2014
  • Updated: 11:34am
BusinessBanking & Finance
INVESTMENT

Private equity's princeling with the Midas touch

Grandson of ex-president Jiang Zemin has a knack for landing lucrative deals, including a stake in Alibaba expected to deliver a big pay day

PUBLISHED : Thursday, 10 April, 2014, 3:31pm
UPDATED : Friday, 11 April, 2014, 4:30am

The 28-year-old wears black-framed glasses perched on cheeks still round with youth. A discerning eye might notice the resemblance to his grandfather: former president Jiang Zemin.

Alvin Jiang has a knack for landing lucrative deals in China, the world's biggest emerging market for private equity. He is a founding partner at Boyu Capital.

Boyu has attracted high-profile investors such as Asia's richest man, Li Ka-shing, and Singapore sovereign wealth fund Temasek.

Founded in 2010, Boyu is poised to earn big pay days from two of the most notable initial public offerings to emerge from the mainland in the past 18 months - e-commerce giant Alibaba and state-backed debt trader China Cinda Asset Management.

No other mainland-focused firm with such a short history has found its way into both deals.

Boyu is regarded as among the most professional operators in Chinese private equity, with seasoned executives at its helm. But multiple investors said Alibaba and Cinda were not all that lured them to Boyu.

Investors were also impressed with Boyu's 2011 purchase of a controlling stake in Sunrise Duty Free - which runs all the duty-free stores at Shanghai and Beijing's international airports.

That deal, they said, provided evidence the Alvin Jiang could gain access to a strictly controlled state sector and convert those assets into a highly profitable investment.

The Sunrise investment is expected to earn a substantial exit payout for Jiang, his Boyu colleagues and investors in the firm's first US$1 billion fund, private equity insiders say.

There is no evidence that Jiang's grandfather had a role in helping Boyu win a part in the Sunrise deal or in any other transaction. That has not stopped the belief from spreading that Jiang is tapping his family connections.

Neither Jiang nor Boyu would comment for this article.

Jiang's given name is Zhicheng, which means, "with ambition, you can achieve". He is a "princeling", the term used for relatives of current or former senior Communist Party leaders. His father, Jiang Mianheng, is the chief executive of one of Shanghai's largest state-owned enterprises and is in charge of the country's push into alternative nuclear energy sources.

The extensive control of the Communist Party over almost all aspects of the country's economy and society has often allowed princelings to leverage their political connections to amass wealth.

Conflict-of-interest laws in China are weak, and coverage of the business dealings of the political elite is heavily censored in the largely state-controlled media.

Princelings have played central roles in businesses involved in finance, energy, domestic security, telecommunications and the media. Private equity, featuring deals that are often by their nature opaque, has proven to be a natural haven for them.

Within China's private equity realm, 15 firms identified were either founded by a princeling or have employed princelings in senior roles. Among them, these funds have raised at least US$17.5 billion for investment since 1999.

The most powerful investors in private equity funds, known as limited partners, include giant US pension funds and insurance companies; sovereign wealth funds; university endowments; and ultra-high-net-worth individuals. For some of these big investors, the China game is straightforward.

"You just have to know the right people," one veteran limited partner said. "It's why you invest with a princeling fund."

Several limited partners said their firms assessed princelings on their political connections and ability to convert those ties into business deals. Alvin Jiang and Boyu, they say, rank high on those criteria.

In 2011, Boyu agreed to pay about US$80 million for a 40 per cent stake in Sunrise, according to three sources with direct knowledge of the deal, valuing Sunrise at US$200 million. The ownership of the remaining 60 per cent of Sunrise has not been made public.

Boyu, however, had told investors it had a controlling stake, sources with knowledge of the matter said.

At the time of Boyu's investment, Sunrise ranked 15th among the top 25 travel retailers in the world, with annual revenue of about US$670 million, according to the Moodie Report, which tracks the duty-free industry.

By early last year, Boyu had marked the Sunrise business on its books at a value of about US$800 million, two of the sources with direct knowledge of the valuation said.

Bankers, however, have valued Sunrise at twice that amount, based on 2012 sales figures the company filed with the authorities.

Based on Boyu's more conservative valuation of US$800 million for Sunrise, the firm may have quadrupled the value of its investment, on paper, in just under three years - an outstanding return in an industry where a multiple of two times over five years is considered a success.

Boyu has already recovered much of its Sunrise investment through dividend payments, according to three people with knowledge of the matter.

The man who founded, built and then sold Sunrise to Boyu is Fred Kiang, a Chinese-American businessman with close ties to the Jiang family, according to Alvin Jiang's friends and business associates.

Sunrise was granted "special approval" to operate duty-free shops by the State Council, despite restrictions against foreign ownership, according to a 2009 report by China Business News, a state-owned media outlet.

Kiang, who is in his late 60s, shuttles between Shanghai, Hong Kong and Tucson, Arizona, where he owns various properties. Alvin Jiang and his father have used a Kiang residential address in Arizona for small personal business transactions.

Kiang declined to respond to e-mails and phone calls.

In 2010, Alvin Jiang, newly graduated from Harvard with a bachelor's degree, was just another newbie banker in Hong Kong, working as an analyst at Goldman Sachs' private equity unit. Nine months later, he left to launch Boyu.

On September 21, 2010, he filed incorporation documents in Hong Kong listing himself as the company's sole director.

But when Boyu first made news in 2011, it was private equity veteran Mary Ma whose name captured headlines, not his.

Ma, the former chief financial officer at Lenovo, left a senior role at TPG Capital to help set up Boyu. Additional co-founders soon followed: Louis Cheung, a former executive director of Ping An Insurance, credited with the firm's turnaround from 2000, and Sean Tong, a veteran of US private equity firms Providence Equity Partners and General Atlantic, where he was Jiang's boss during a summer internship in 2008.

Some of Jiang's friends stress he is more than just a well-connected face. He works through a company's numbers when negotiating, a skill he picked up during his brief time at Goldman, one friend and business acquaintance said.

"Many people from his background would not bother to do that," the friend said.

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