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 The investors were worried that Yunfeng Capital might not put their
interests first, said David Yu, a long-time friend and business
associate of Ma, speaking to Reuters in a rare interview at his Hong
Kong office on July 3.
Yu said the independence of Yunfeng from Ma was "the number one
concern institutional investors had".
He named several high-profile investors that came on board after
getting assurances Ma played no direct role in Yunfeng's investment
decisions.
However, four other institutional players told Reuters they opted
out because they said they were worried Ma's role as one of China's
most active private investors could conflict with his responsibility
to Alibaba shareholders. They declined to be identified because
their talks with Yunfeng were private.
"You can look at Yunfeng and you can say there are clearly a lot of
synergies with Alibaba and Jack Ma, but you can also say it's a
clear conflict of interest. It's a double-edged sword," said one
person whose firm turned down an opportunity to invest.
To be sure, it is not unusual for successful businessmen in China or
elsewhere to invest personal wealth in private equity and venture
capital firms. In Silicon Valley, lines between entrepreneurs and
their companies can also become blurred, leading to complaints about
conflicts of interest.
Yunfeng still raised $1.1 billion for its latest fund, but its
challenge attracting institutional investors underscores the
long-standing concerns some investors have had about Ma as he
prepares to take Alibaba public next month in a New York IPO that
could raise more than $15 billion.
Alibaba acknowledged the broader issue of potential conflicts in its
IPO prospectus issued on May 6, saying that given Ma's other roles
it could not guarantee he would "act in the best interests of our
company should any conflicts of interest arise".
Alibaba declined to comment or make Ma available for an interview
for this story.
TIES THAT BIND
There are plenty of links between Alibaba and Yunfeng, a firm Ma and
Yu founded in 2010 and which has a total of $3 billion under
management.
The two entities have invested in each other, according to filings
from Chinese online gaming firm Giant Interactive Group Inc <GA.N>
with the U.S. Securities and Exchange Commission, and sportswear
maker China Dongxiang Group Co Ltd with the Hong Kong
stock exchange.
Yuzhu Shi, the chairman of Giant, and Yihong Chen, the CEO of
Dongxiang, are both founding partners of Yunfeng, according to
Yunfeng's website.
Ma also has personal money invested in China-based Yunfeng,
Alibaba's filings show.
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Giant and Dongxiang were also among around a dozen investors that
poured about $500 million into Alibaba in 2011 via Yunfeng, the two
firm's filings show. The investment was part of a $1.6 billion
tender offer to Alibaba employees that allowed some Alibaba staff to
cash out their shares in the company.
Yunfeng and Alibaba have also invested in at least three deals
together, starting in 2010 when they paid $24 million for a combined
16 percent stake in a Chinese online search engine company called
Sogou Inc, a subsidiary of Sohu.com Inc.
Yu said the firm told institutional players that Ma did not sit on
its investment committee, which decides which companies to invest
in. Yunfeng also showed investors documents to prove it sourced its
deals independently, Yu added.
Among the investors that bought into the fund were Singapore
sovereign wealth fund GIC, Yu said. Alibaba's arch-rival, Chinese
Internet firm Tencent Holdings Ltd, was another.
Yu declined to say which entities expressed concern about Yunfeng's
independence or if any of those that did chose not to invest. GIC
did not respond to calls and emails seeking comment. Tencent
declined to comment.
"There is a very clear separation of duties," said Yu, who sits on
the four-member committee that makes investment decisions.
According to Alibaba's SEC filings, Ma donates any profits he makes
from Yunfeng to charity.
Ma and Yu agreed to form the private equity firm to invest some of
their personal wealth after a boat ride in June 2009 at West Lake in
the eastern Chinese city of Hangzhou, Alibaba's home base.
Also on the boat was global financier George Soros, who was visiting
Alibaba's headquarters, and who discussed their idea of helping a
new generation of entrepreneurs in China, Yu said. Soros Fund
Management declined to comment.
This year, Yunfeng has invested around $182 million alongside
Alibaba in two deals totaling close to $1.4 billion. The most recent
was in April, when the two agreed to pay $1.22 billion for an 18.5
percent stake in online video website Youku Tudou Inc, a
business akin to Google Inc's YouTube.
(Additional reporting by Gerry Shih in San Francisco, Saaed Azhar in
Singapore and Paul Carsten in Beijing; Editing by Dean Yates)
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