PE Panorama: Not all plain sailing for entrepreneurial superstar Ma

21 July 2014   Category: News, Asia, Global   By Paul Mackintosh

Jack Ma seldom seems out of the news these days – as befits the entrepreneurial superstar behind the record-level Alibaba IPO due in August, potentially valuing his company at up to US$150 billion. But some of the recent coverage may not be so welcome, as Reuters has picked up the issues around one of his other businesses – his private equity fund Yunfeng Capital. Reuters interviewed and approached several investors who had been approached to back Yunfeng, and who had declined over concerns around conflict of interest.

Yunfeng, established in 2010, claims on its website to be “the only private equity firm in China set up by successful entrepreneurs, pioneers and industry leaders [a questionable claim, but leave that on one side for now]. Its goal is not merely to be a financial investor, but also to share the entrepreneurial experience with companies, helping them refine their development, organisational management and brand building strategies”. Obviously, Yunfeng is leaning heavily on Mr. Ma’s personal involvement and track record to build the value proposition for its fund, even though it has a long slate of other successful Chinese entrepreneurs on its list of founders. And yet the Reuters interviewees were citing Mr. Ma’s role in the firm as precisely their reason for not taking up the opportunity.

There are precedents in Asia for quite a successful fund on the Yunfeng model. For instance, Taiwan’s iD SoftCapital Group “was established by Acer Founder, Stan Shih, together with venture capital veterans and former Acer senior management”. Currently managing “a total fund size of $832 million”, the firm and its subsidiaries, including iD TechVentures Inc, has built up a solid reputation under Mr. Shih’s chairmanship as a manager of third-party money, without apparent conflicts of interest. But Mr. Ma has long been surrounded with concerns and allegations over conflict of interest, and he comes from a less mature private equity and corporate environment than Taiwan. Plus, his recent moves to cement personal control of Alibaba send reassuring signals about respecting others’ interests.

Yunfeng still managed to raise $1.1 billion recently for its second fund, Yunfeng Fund II, comparable with many recent raises in the region, and above a reported $1 billion target. All the same, it has reportedly already co-invested with Alibaba on a few deals, including CITIC 21CN Co Ltd and Youku Tudou Inc. Furthermore, Alibaba itself has committed $100 million to the fund’s capital. Third-party investors who contributed other tranches of that $1.1 billion should probably cross their fingers and hope that Mr. Ma’s interests continue to align with theirs, with or without the constraints of a private equity structure.