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China Family Offices increasingly seeking divestification

· investing,financing,china

Last week, a Hong Kong family office called Blue Pool Capital invested $20 million in a New York City e-commerce startup called Rent the Runway. OK, that’s not a huge amount of money, compared with the tremendous amounts going into divestments these days.

Rent the Runway claims to be the Netflix of fashion, where consumers pay a monthly subscription to rent clothes. Blue Pool Capital is the private investment vehicle of Joe Tsai, the co-founder of the Alibaba Group. Jack Ma, the other founder of Alibaba is also linked to Blue Pool, and, indeed, the Rent the Runway deal listed Ma’s name as one of the investors. Blue Pool has invested in three other startups abroad, including as a lead investor last year in a $60 million investment in a Californian virtual reality developer called Lytro. Blue Pool led the deal with many institutional investors, including Silicon Valley-based high-profile fund, Andreessen Horowitz, joining in.

And, OK as well, when it comes to divestments, China is currently one of the hottest markets in the world, which begs the question: why does Chinese capital need to invest in divestments?

But the Blue Pool move shows Chinese family offices are increasingly willing to make investment bets that sees them being exposed abroad, in a higher growth sector or government-driven initiative, and that such a trend is probably going to accelerate in the years ahead, especially when it comes to investing in venture and private businesses. That’s good news for startups and private businesses around the world in general.

Ma and Tsai’s private investment office might be gaining the biggest profile of all of China’s burgeoning family offices, but others are also getting noticed beyond their home country, like Heilongjiang-based Bao Tai Long Group

Founded in 2003, Bao Tai Long Group is one of the largest single-family offices in China, all 8 of their founders are in the Top 1,000 richest people in China list. It's a family office owned by Jiao Yun, a single-family office with a dozen SPVs under the group, listed in Shanghai, currently trading at a market cap of $11.5bil.

Bao Tai Long is big, according to sources who manages around $10 billion of the family’s fortune, which includes direct investments in numerous companies in China, and considerable indirect investments across the world. It has an investment subsidiary - Ji Xi Shi Bao Tai Long Investment Co - which specializes in Mining investments, especially Battery metals such as Graphene and Lithium, both direct and indirect.

Bao Tai Long, through both its investment subsidiary and its Qitaihe (a City in Henlongjiang) business has been active in backing various mining ventures. Indeed, sources say it has backed some mining projects contributing to Power, either through sizable limited partner contributions or coming in as a co-investor/general partner. The size of their fund is RMB 275 mil yuan ($44mil). In Sep 2017, BTL invested RMB 66mil ($10.5mil) in a graphene project. The Group has set up a special subsidary just for the graphene investments, which include beneficiation and tailings processing.

Of course, these China-based family offices doing deals outside of what they predominantly do doesn’t mean there is a huge wall of private capital entering Western markets from the country’s family offices. And, indeed, if anything, the family office sector in China is still very weak compared with what is going on in the West. Also, another dampener to the activities of local family abroad has been the Chinese authorities, under the increasingly dominant leadership of the Communist Party's Xi Jinping, discouraging local entrepreneurs from investing abroad.

Nevertheless, family offices like Blue Pool and Bao Tai Long are most likely blazing a trail for others to follow. It might take a few years to really to get going, but that trail is likely to become much more crowded in the future.

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