(Corrects date in dateline)
* Read this story in a PDF link.reuters.com/duf38v
* Grandson of former China president rising private equity
* Investors believe Alvin Jiang is a gateway to lucrative
* Alvin's Boyu Capital purchased Sunrise Duty Free in
* Boyu now sitting on a paper gain of 4 times its investment
By Stephen Aldred and Irene Jay Liu
HONG KONG, April 10 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 Chinese president and Communist Party leader 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 Hong Kong-based Boyu Capital, now
one of the hottest firms in China. Boyu has attracted
high-profile investors such as Asia's richest man, Li Ka-shing,
and Singapore's sovereign wealth fund, Temasek Holdings Private
Founded in 2010, Boyu Capital is poised to earn big paydays
from two of the most notable initial public offerings to emerge
from China in the last 18 months - e-commerce giant Alibaba
Group Holding Ltd IPO-ALIB.N, and state-backed debt trader
China Cinda Asset Management Co. No other
China-focused firm with such a short history has found its way
into both deals.
Boyu is regarded as among the most professional operators in
China private equity, with seasoned executives at its helm. But
according to multiple investors, Alibaba and Cinda are not only
what lures 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 believe, provided evidence that Jiang
Zemin's grandson could gain access to a strictly controlled
state sector and convert those assets into a highly profitable
The Sunrise investment is expected to earn a substantial
exit payout for Jiang, his Boyu colleagues and investors in the
firm's first $1 billion fund, people in the private equity
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. That hasn't stopped the belief from spreading
that Alvin Jiang is tapping his family connections.
Alvin Jiang and Boyu Capital declined to comment for this
Alvin Jiang's Chinese given name is Zhicheng, which means,
"with ambition, you can achieve." He is a "princeling," the
relatives of current or former senior Chinese Communist Party
leaders. His father, Jiang Mianheng, is also a princeling. He is
the CEO of one of Shanghai's largest state-owned enterprises and
is in charge of China's push into alternative nuclear energy
The extensive control of China's Communist Party over almost
all aspects of China'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 by
Reuters were either founded by a princeling, or have employed
princelings in senior roles. Between them, these funds have
raised at least $17.5 billion for investment since 1999.
The most powerful investors in private equity funds, known as
limited partners, include giant U.S. 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," said one veteran limited partner. "It's
why you invest with a princeling fund."
Several limited partners told Reuters that their firms
assess princelings on their political connections and ability to
convert those ties into business deals.
Alvin Jiang and Boyu Capital, these investors say, rank high
on those lists.
AN OUTSTANDING RETURN
In mid-2011, Boyu agreed to pay around $80 million for a 40
percent stake in Sunrise Duty Free, according to three sources
with direct knowledge of the deal, valuing Sunrise at $200
The ownership of the remaining 60 per cent of Sunrise has
not been made public. Boyu, however, has told investors it has 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
around $670 million, according to the Moodie Report, which
tracks the duty free industry.
By early 2013, Boyu had marked the Sunrise business on its
books at a value of around $800 million, two of the sources with
direct knowledge of the valuation said. Bankers, however, value
Sunrise at twice that amount - at around $1.6 billion - based on
2012 sales figures the company filed with Chinese authorities,
which Reuters reviewed.
Based on Boyu's more conservative valuation of $800 million
for Sunrise, Boyu could be sitting on a paper gain of around
four times its money in just under three years - an outstanding
return in an industry where earning 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.
BEHOLD THE SUNRISE
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
Kiang founded Sunrise in 1999. That was the year the central
government under Jiang Zemin opened up the operation of duty
free shops to international bidders at the new Pudong
International Airport in Shanghai - Jiang's political power
Previously, duty free operations had been a monopoly
controlled by state-owned China Duty Free, and foreign firms
like Kiang's were excluded from the business.
Three international companies were selected to operate at
Pudong airport, including two established duty free firms: World
Duty Free, owned at the time by the British Airport Authority,
and Orient King Power, a subsidiary of Hong Kong's King Power
Group. The third tender went to Kiang's newly formed Sunrise
Duty Free, a foreign-owned company with no previous experience
in the industry.
Sunrise won a 10-year contract to sell tobacco and alcohol
at Shanghai's Pudong Airport, World Duty Free won a five-year
contract to sell perfume and cosmetics, and Orient King Power
won the concession to sell luxury goods.
In 2000, China's State Council approved a measure that
handed control of all duty free businesses - except those in
Shanghai - from local governments to state-owned China Duty
Free. Foreign companies were banned from setting up joint
ventures or directly owning duty free businesses in China.
Yet in 2001 Sunrise Duty Free took over the perfume and
cosmetics duty free concession at Pudong airport when World Duty
Free pulled out of its contract. Published reports at the time
quoted World Duty Free as calling it a "strategic withdrawal"
because passenger traffic had not reached forecast levels.
Sunrise in time would also take over luxury goods at the
In 2005, Sunrise won a 10-year concession at Beijing
International Airport, outbidding China Duty Free and Orient
King Power. In 2009, its contract at Pudong was renewed for
Sunrise was granted "special approval" to operate duty free
shops by China's cabinet, the State Council, despite
restrictions against foreign ownership, according to a 2009
report by China Business News, a state-owned media outlet. No
other details were given on the Sunrise exemption.
Today, business at Sunrise is booming. According to the
company documents seen by Reuters, Sunrise had revenue of $1.08
billion in 2012. The Moodie Report ranks Sunrise just behind
state-owned China Duty Free, which controls nearly all of
China's other duty free shops.
KIANG AND THE JIANGS
Why Fred Kiang would sell 40 per cent of a thriving company
at what appears to be a discount remains the central puzzle
surrounding the Sunrise deal. Apart from Sunrise, Kiang's
mainland business remains unknown. Friends and associates note
his taste in expensive cigars, and the little publicity he has
received is largely devoted to that passion. In 2009, he hosted
an event in Shanghai to smoke the 40th anniversary Cohiba
Behike, a limited edition Cuban cigar that sold for $500 apiece.
Kiang, who is in his late 60s, shuttles between Shanghai,
Hong Kong and Tucson, Arizona, where he owns properties in areas
ranging from gated communities to low-end rentals. Alvin Jiang
and Jiang Mianheng have used a Kiang residence address in
Arizona for small personal business transactions.
Kiang declined to respond to e-mails and phone calls from
Born in China, Kiang claims Shanghai roots, but was raised
in the United States. He received his undergraduate and MBA
degrees at Massachusetts' Babson College in 1970 and 1975,
respectively, and now sits on the college's board of trustees.
Kiang first met Jiang Zemin in 1986, when Kiang served as
vice-chairman of the San Francisco-Shanghai Sister City
Committee, led by then city mayor and now U.S. Senator Dianne
Feinstein, according to a person close to Kiang. Kiang and Jiang
noted their common surname, which though spelled differently in
English, is the same character in Chinese, said the source who
is Alvin's friend and business acquaintance.
In 1989, Jiang Zemin became Communist Party General
Secretary; in 1990 Kiang established his base in Shanghai.
Kiang was a senior executive at Newbridge, the former name of
TPG Capital in Asia, one of the world's biggest private
equity firms, three people with direct knowledge told Reuters.
From the late 1990s to the 2000s, Kiang was an advisor to
U.S.-based insurer MetLife Inc as it looked for a joint
venture partner to build its business in China, said a source
with knowledge of the matter. Kiang negotiated on MetLife's
first mainland license in 2004, the source said, one of the
first major Sino-foreign ventures created after China's 2001
entry into the World Trade Organization.
TPG and MetLife declined to comment.
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.
When Boyu first made news in 2011, it was private equity
veteran Mary Ma whose name captured headlines, not Alvin's.
Ma, the former CFO at Lenovo Group, left a senior
role at TPG to help set up Boyu. Additional co-founders soon
followed: Louis Cheung, former executive director of Ping An
Insurance Group of China, credited with its
turnaround from 2000; and Sean Tong, a veteran of U.S. private
equity firms Providence Equity Partners and General Atlantic,
where he was Alvin Jiang's boss during a summer internship in
Ma and Cheung were known in the private equity industry for
turning around struggling companies; Tong was a noted dealmaker.
Combined, they had 50 years of industry experience.
DILIGENT AND FOCUSED
Two subsequent investments cemented Boyu's reputation for
having the influence to find its way into profitable,
high-profile assets. Alvin Jiang played a role negotiating both
In 2012, Alibaba founder Jack Ma found himself face-to-face
with Jiang Zemin's grandson. Boyu had joined a consortium led by
China Investment Corp (CIC) to raise some of the $7.1
billion that Ma needed to buy back half of Yahoo! Inc's
40 percent stake in Alibaba. Some high profile departures had
left CIC, China's giant sovereign wealth fund, short of
personnel. That left it up to Boyu to lead the negotiations,
with Alvin on Sean Tong's team, according to two sources
directly involved in the negotiations.
Alibaba and CIC declined to comment.
The CIC consortium received a 5.6 percent stake in Alibaba
in exchange for raising capital to help buy half of Yahoo!'s
shares in China's giant e-commerce company. Alibaba was valued
at around $38 billion then.
Analysts estimate Alibaba is worth at least $140 billion
today, which means Boyu's investment as part of the CIC
consortium has increased more than three and a half times in
value in 18 months. The e-commerce giant has announced it will
list shares on one of the New York exchanges in the third
quarter of this year, a deal expected to exceed Facebook's
$16 billion offering in 2012.
Alvin Jiang also brought in Boyu to invest around $50
million in Cinda, created in 1999 to buy bad debts from
state-owned banks, said two sources familiar with the deal.
Banks and private equity firms were jockeying to get a piece of
the $1.6 billion stake that Cinda was offering to strategic
investors ahead of its initial public offering.
The consortium of investors that were allowed to make a
pre-IPO investment in Cinda included China's social security
fund NSSF, UBS AG, CITIC Capital, Standard Chartered
Bank - and two private equity funds, the powerhouse
Carlyle Group and Boyu Capital.
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, said one friend and business acquaintance. "Many people
from his background would not bother to do that," the friend
Princeling privilege isn't necessarily permanent in China,
even for the grandson of a living former President. The
extraordinary fall of former Chongqing governor Bo Xilai in 2012
reinforced that notion for many private equity investors.
Because they work for companies governed by Western laws,
some have turned cautious about investing in princeling firms.
In private, investors discuss "headline risk," the fear that a
business deal will end up on the front pages of newspapers.
Those worries have risen with President Xi Jinping's
anti-corruption campaign, and the U.S. Securities and Exchange
Commission's investigation into Wall Street's hiring practices
"Our firm is pretty equally divided on investing with
princelings," said one European investor. "I oppose it, but many
of my colleagues are for it. I see princeling funds as a
For Boyu, profit and prospects have so far trumped any such
anxiety: Alvin Jiang's firm has swiftly raised $1.5 billion from
investors for its second fund, 50 per cent more than its first
fund, people with knowledge of the matter said.
(Reporting by Stephen Aldred and Irene Jay Liu. Additional
reporting by Xinqi Su and Jean Lin. Editing by Bill Tarrant.)