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思考兔

To the money born
By FT Reporters 2010-04-15

New Horizon Capital is one of the most influential and successful participants in China's fledgling private equity industry. It has billions of dollars under management and a stable of investors that includes Deutsche Bank, JPMorgan Chase, UBS and Temasek, Singapore's sovereign wealth fund. But you would not guess any of that from its central Beijing headquarters.

The company has no nameplate in the lobby of the Golden Treasure Tower, a nondescript building near the Forbidden City, the traditional seat of imperial power. Its simple 12th floor offices are identified only by a small sign inside the door that reads, in Chinese, "New Horizon Growth Investment Advisory Limited".

The company does not need flashy suites as it has one of the most valuable assets in China. He is Winston Wen, an MBA from Northwestern University's Kellogg business school in the US who keeps a low profile and bears a striking resemblance to his father - Wen Jiabao, premier of the People's Republic of China.

The younger Mr Wen and New Horizon are in the vanguard of a more aggressive generation of taizidang ("princelings") - offspring of senior Communist party officials - who dominate the burgeoning home-grown private equity industry, where huge profits are to be made from restructuring state assets and financing private companies.

In 2009 private equity deals in China totalled $3.6bn, accounting for one-third of all such transactions in the Asia-Pacific region, according to Thomson Reuters. But industry participants say the potential market is far larger.

According to those working in the sector, the princelings' ascendance is squeezing out less well connected operators, including foreign firms, which might have important consequences for two reasons. First, private equity could play an important role in modernising the economy, channelling funds to promising but capital-starved companies - but those benefits will be felt only if the industry is run in a professional and competitive manner.

Second, some in the political establishment fear that princeling dominance of private equity could exacerbate public perception of nepotism and misrule at the top of the Communist party. In an opaque authoritarian system lacking the popular legitimacy of a democracy, such fears are hard to dismiss. A recent online opinion poll by the People's Daily, the party's official mouthpiece, found that 91 per cent of respondents believe all rich families have political backgrounds.

In an interview with the same newspaper, the former auditor-general said the fast-growing wealth of officials' children and relatives "is what the public is most dissatisfied about". Li Jinhua, widely respected as the senior graft-busting official between 1998 and 2008, told the paper this month: "From the numerous cases currently coming to light, we can see that many corruption problems are transacted through sons and daughters."

Many of the elite's children are western educated and, over the past 15 years, dozens have been recruited by western companies and banks hoping to secure an entry into the Chinese market and win mandates to take state-owned companies public in New York or Hong Kong. As most foreign investors know, employing the relative of a senior party leader as an adviser or employee can help cut through bureaucratic obstruction and resistance from local interest groups.

But today those institutions and investors are scrambling to invest in the private equity funds of princelings who would once have been on their payroll. "In the past, the best option for these people with 'background' was to go to the high-paying western investment banks but now the economic strength has shifted," says one person in the private equity industry, asking not to be named because of the sensitivity of the topic. "Now they're saying to the foreigners, 'Hey, I'm in the driving seat, I have all the deals - so you give me your money and I'll invest it myself and take a big cut'."


Prominent private equity princelings include George Li, a former banker at Merrill Lynch and UBS with an MBA from the Sloan School of Management at the Massachusetts Institute of Technology, whose father, Li Ruihuan, was one of the country's senior leaders from the late 1980s until 2003. Another son, Jeffrey Li, recently resigned as China head of Novartis, the pharmaceuticals group, to go into private equity, according to people familiar with the matter.

Wilson Feng, who bankers and private equity investors say is the son-in-law of Wu Bangguo - officially second in the party hierarchy - left Merrill Lynch two years ago to launch a fund with ties to the state-owned nuclear energy conglomerate, according to media reports and people familiar with the matter. Mr Feng was key to securing Merrill's mandate to take Industrial and Commercial Bank of China public in Hong Kong in 2006 in the biggest initial public offering in history.

思考兔

Other private equity princelings include Li Tong, daughter of Li Changchun, the member of the nine-strong ruling Politburo standing committee in charge of propaganda and the media. Ms Li now runs a private equity fund at Hong Kong-based Bank of China International focusing on the media sector, according to three people familiar with the matter. Stanford-educated Jeffrey Zeng, son of Zeng Peiyan, former vice-premier, has also set up a fund affiliated with state-owned financial institutions.

"This is turning into a crucial moment for the financial industry in China," says the head of a foreign bank in Beijing."But we are very worried that foreigners and other skilled Chinese are being shut out by a string of princelings and other very well-connected people trying to dominate [the private equity] market."

The government has been encouraging the creation of a home-grown private equity industry in recent years but approvals to set up funds are tightly controlled and investments often require them from numerous state agencies. Having the relative of a top leader in its management team can help fledgling funds overcome these hurdles.

Princelings have long been suspected of leveraging parental political power for personal gain; the topic was a source of public anger during the 1989 Tiananmen Square student protests that ended in a bloody military crackdown. But Beijing political insiders say two men led the way for the ambitious new generation, fostering the modern perception of close ties between money and political power.

Levin Zhu, son of former premier Zhu Rongji, and Jiang Mianheng, son of former president Jiang Zemin, are familiar to many foreign investors, having worked for or set up joint ventures with several large western companies. Their fathers helped push through some of the past two decades' most important market-based reforms, including World Trade Organisation membership.

Mr Zhu has a PhD in meteorology from the University of Wisconsin-Madison. Following a stint at Credit Suisse First Boston in New York, he returned to China in the late 1990s and orchestrated a virtual take-over of China International Capital Corp, a joint venture in which Morgan Stanley holds about 34 per cent.

Mr Jiang boasts a PhD in electrical engineering from Drexel University in Philadelphia. Returning to Shanghai in the early 1990s he was courted by foreign investors who saw him as the country's most valuable joint venture partner. Today, he controls Shanghai Alliance Investment Limited, a government investment company operating much like a private equity firm.

With their parents both out of formal office since 2003, the influence of Mr Jiang and Mr Zhu has waned. But as children of the "third generation" of technocratic leaders, they are seen to have paved the way for the current wave of princelings. "Those two really helped create the image of Red families running this country for their own benefit," according to one person who deals closely with many princeling families. "Their actions have given all the younger generation a green light to go out and aggressively build their own buckets of gold, no matter what the consequences for the image of the party or the leadership."
By squeezing out foreigners and other competition, dominance of the private equity sector by princelings will bring few benefits in terms of management skills or financial discipline, some analysts and industry participants say.

"Private equity is a very good area for princelings because with these sorts of connections you can get into companies ahead of their IPOs and make a lot of money in a short space of time," says Professor Victor Shih of Northwestern University. "It is an easy way to make money because everyone will be willing to back them because of their connections. Everyone will do it willingly in order to potentially get favours from senior leaders in return."

People close to several private equity princelings say they often feel they are victims of reverse discrimination; that no matter how smart or hard-working they are, the public will assume their success relies purely on nepotism. However, some important operators in the Chinese sector, while benefiting from family links, are seen in the industry as well qualified in their own right. One such person is Liu Lefei, son of Liu Yunshan, head of the party's central propaganda department. The younger Mr Liu previously managed Rmb1,000bn ($147bn;

leeh14

哎...看不懂...

leeh14

发个中文版我转到回收站慢慢看...

kyoivy

回复 4# leeh14


    14锁帖

№帅又如何

私募业红色贵族？呵呵。。。。

№帅又如何

很早在FT中文网里看了。。

xioye

private equity

貌似是枪毙的主儿啊

gilzl

太子党都去做PE了啊···

国内VC量还是太少了 主要还是PE

Think

前几天看过。。。唉。。。不过FS industry本来就这样的。。。在哪都一样。。。