China-US PE: Reverse princeling

The China princeling fund craze faded with the demise of Nepoch Capital. In 2013, the PE firm – launched by He Jintao, son of former Politburo Standing Committee member He Guoqiang – made no secret of its connections. A marketing document declared that Nepoch was “the fifth princeling fund in China.” 

The firm raised $200 million but then He was implicated in a corruption probe and the rest of the team severed ties with him. Shorn of its princeling, Nepoch never reached a final close and the portfolio was managed out by another GP.

While the likes Boyu Capital and CITIC Private Equity count the offspring of senior government officials among their senior executives, these firms can point to track records built on more than nepotism. Preferential access to deals, regulators and the capital markets remain selling points in Chinese private equity, but many international LPs now also want to see evidence of operational expertise and strategic thinking. Moreover, any suggestion of shady dealing might be flagged up by compliance teams.

All this offers interesting context to the plight of Hunter Biden, son of presidential candidate Joe Biden, who last week said he would leave the board of Chinese PE firm BHR Partners. 

Biden junior has not been accused of any impropriety, but his relations with BHR – as well as his business dealings in Ukraine – have been drawn into a storm whipped up by President Donald Trump seemingly in a bid to discredit Biden senior. The president’s urging of his Ukrainian counterpart to probe the Biden family’s activities has prompted a House of Representatives impeachment inquiry.

“To date, Hunter has not received any compensation for being on BHR’s board of directors,” George Mesires, an attorney for Joe Biden, said in a blog post. “He has not received any return on his investment; there have been no distributions to BHR shareholders since Hunter obtained his equity interest.” He added that the younger Biden would comply with guidelines to address purported conflicts of interest should his father become president.

It is ironic that Biden’s involvement with BHR was “based on his interest in seeking ways to bring Chinese capital to international markets” – something the firm has largely failed to do in the wake of government-imposed restrictions on outbound capital flows.

BHR was formed in 2013 as an offshoot of Bohai Industrial Investment Fund, a renminbi-denominated investment platform backed by a string of state-owned banks. Speaking to AVCJ in 2016, CEO Jonathan Li explained that he wanted mixed ownership, given the mandate to support Chinese companies going overseas. On the foreign side, he ended up “with RSP, which includes Rosemont, a boutique real estate and TMT private equity firm and Thornton Advisory, a US advisory firm specializing in Sino-US relations.”

Rosemont – full name Rosemont Seneca Partners – was established by Biden and Christopher Heinz, stepson of John Kerry, the former secretary of state, and Devon Archer in 2009. The firm was reported in 2014 to be advising on a $1.5 billion fundraise for BHR. Biden paid about $420,000 for a 10% stake in BHR in 2017. 

It is tempting to describe his role as that of the “reverse princeling.” In the eyes of a young Chinese PE firm looking to win friends, raise capital and secure assets overseas, having a US political scion on speed dial might prove helpful. Even within China, Biden could serve as a curiosity to attract potential business partners. 

BHR’s assets under management – and the structure of its holdings – remain something of a mystery. As of year-end 2015, the firm claimed $1.75 billion, of which 60% was in cross-border deals, 30% in state-owned enterprise (SOE) reform transactions, and 10% in opportunistic growth-stage investments. The portfolio included US-based Henniges Automotive (a joint investment with Aviation Industry Corporation of China), SOE reform play Sinopec Marketing, and ride-hailing platform Didi Chuxing.

Most of these investments were held in dedicated funds. However, a key objective for 2016 was diversifying the LP base and raising US and Europe-focused funds. This does not appear to have been realized. BHR’s last disclosed cross-border deal – a stake in a Congolese mine it held  for a few months before selling to a Chinese strategic – was agreed nearly a year before Biden is said to have bought his stake. Of the 13 active listed portfolio companies, 11 are domestic.

Whether facilitating investment within or outside of China, a princeling is no panacea. 

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• Topics
• Greater China
• North America
• Fundraising
• GPs
• China
• USA
• BHR Partners