Hunter Biden’s China investment firm is small fish in China’s private equity pond
- Chinese-backed firm linked to former US vice-president Joe Biden’s son is a small player in China’s private equity market
- Filings show the company shifted focus to yuan investments in China soon after it started because of capital account controls imposed by Beijing
The Chinese private equity firm at the centre of a controversy concerning director and shareholder Hunter Biden is a small entry in China's private equity industry, focused solely on the domestic market after it was blocked from investing abroad by Beijing’s capital account controls, according to corporate filings and government registry information.
BHR (Shanghai) Equity Investment Fund Management Company has grabbed global media attention for its links with Hunter Biden, the son of former United States vice-president Joe Biden, after US President Donald Trump fired a barrage of corruption allegations at him and requested China investigate the Bidens’ financial activities in the country.
Li refused to comment on the younger Biden when reached by the Post on Monday.
A recent visit to the firm’s registered address in Beijing found a small, plainly decorated office, where a receptionist said she had never seen Hunter Biden.
Biden joined the firm “based on his interest in seeking ways to bring Chinese capital to international markets” and “it was an unpaid position”, his lawyer George Mesires said in a statement on Sunday.
“Hunter has not received any compensation for being on BHR’s board of directors. He has not received any return on his investment; there have been no distributions to BHR shareholders since Hunter obtained his equity interest,” the statement said.
Biden would resign from the BHR board of directors by the end of this month, it added.
Biden still holds a 10 per cent stake in the firm, for which he paid about US$420,000 in October 2017, the statement confirmed, but did not specify whether Biden would sell his equity when he leaves the board.
BHR, which is backed by a government fund in Tianjin and registered in the Shanghai free-trade zone, has a capital base of 30 million yuan (US$4.2 million).
While the company has kept a low profile in recent weeks, it is clear the firm’s original plan to invest Chinese capital abroad was blocked by government limits on capital outflows, forcing it to refocus on domestic deals, according to corporate filings, government registry information, past interviews with executives and industry insiders.
When the firm was incorporated in December 2013, the Chinese government was encouraging capital outflows as the country’s foreign exchange reserves had risen steadily, turning into a headache for Beijing.
But by the time Biden invested in BHR in October 2017, Beijing had started to curb outflows to clip the wings of Chinese tycoons trying to invest abroad. At the same time, US officials began to increase scrutiny of Chinese investments in American firms.
BHR’s latest major overseas deal was in April 2017, when it bought a 24 per cent stake in a Congolese mine for US$1.14 billion, according to the company’s website. In 2015 it made its most high-profile US acquisition by joining forces with AVIC Auto, a unit of Aviation Industry Corporation of China (AVIC), the country’s aerospace contractor, to buy US car parts company Henniges Automotive, for about US$600 million.
The private equity fund had a target in 2014 of raising US$1.5 billion for overseas investments.
Trump has accused Beijing of paying “billions of dollars” in “payoffs” to the Bidens in exchange for beneficial trade treatment. The US president has said the younger Biden walked out of China with “US$1.5 billion in a fund”, though there is no evidence to support this.
Li, BHR’s chief executive, said that in 2014 the company relied mainly on its partner, Rosemont Seneca Partners - a firm co-founded by Hunter Biden and Devon Archer - to raise funds in dollars, according to a report in the 21st Century Business Herald, a Chinese language newspaper.
BHR currently operates five yuan-denominated funds backed solely by Chinese companies, according to the Asset Management Association of China, the government-backed industry body of Chinese mutual and private equity funds.
The newest BHR fund, started in May 2018, has raised 80 million yuan (US$11.2 million), of which BHR holds a 0.07 per cent stake. The fund’s money was all invested into Changchun Lianxin Investment Consulting, which in turn used it to finance a controversial restructuring of a listed cheesemaker, according to Chinese corporate information database Tianyancha and the corporate announcements of the listed company.
Biden’s role at BHR could be seen as “ornamental” as the company was mainly involved in China deals “with little relation to the US”, said a Chinese private equity firm executive who declined to be named.
“Many financial institutions like to have a few big names on board … sometimes the big names are just used for decoration and are not really involved in operations,” the executive said.
Biden’s lawyer Mesires also said his client “played no role in directing or making BHR’s investments”.
BHR remains a small player in China’s private equity industry. The firm has just 20 employees with fund industry qualifications, according to the asset management association. In April 2017, the BHR website said it had 12 billion yuan (US$1.69 billion) of assets under management, a relatively small sum.
A popular ranking of Chinese private equity firms, compiled by ChinaVenture Investment Consulting, showed the diminishing significance of BHR. The firm was ranked No. 28 in ChinaVenture’s 2016 list of the top 100 China private equity investors, but the ranking dropped to No. 68 in 2017. BHR dropped out of the Top 100 list last year.
A second Chinese private equity executive said BHR is little known within the industry.
“With or without Biden, it’s just another small player in a competitive industry of about 20,000 firms,” he said.