Blue Pool Capital, the Hong Kong-based family office of Alibaba co-founder Joseph Tsai, has not allocated a specific amount for ESG investments because, in its view, the market is still at a “super early” stage and is prone to hype and greenwashing, a senior representative said on Tuesday.
Concerns about liquidity and the depth of the market also means Blue Pool is not participating, at least for now, in special purpose acquisition company (Spac) listings in Hong Kong. A new regime for these listings on the Hong Kong Stock Exchange took effect on January 1.
“If you look at the Spac game today, the honest truth is Hong Kong is a bit late in the game,” said Danny Lee, Blue Pool's senior advisor, during a panel discussion at the Asian Financial Forum (AFF).
“I think the US already has thousands of Spacs of all sizes. So I think it’s an interesting thing that Hong Kong tries to do, but there’s a lot more liquidity and depth elsewhere in the market. It’s a bit oversupply of these Spacs versus opportunities. So, we probably won’t be participating in some of these in the near term,” Lee said.
Tsai, Alibaba's co-founder and vice-chairman, founded Blue Pool Capital as a family office in 2015 after Alibaba's initial public offering in the US in 2014. It manages much of his $8 billion fortune, although Bloomberg and Financial Times have reported that the firm also looks after some of Jack Ma’s $40 billion in assets. Lee did not mention Ma's assets when he introduced the firm at the AFF.
None of Tsai's family are involved in Blue Pool’s day-to-day operations. Every manager comes with professional experience in public equity, private equity and real estate, Lee said.
It focuses mainly on investments in technology, media, and telecoms (TMT), services and the consumer sector, with a small portion of assets in real estate. Except for the $3.3 billion purchase of the Brooklyn Nets basketball team and its home arena the Barclays Center in New York, most of Blue Pool’s investments are financial investments into funds and companies.
Lee acknowledged that ESG investing is a hot topic in the market but because of its concerns about hype and greenwashing, the firm is still assessing its approach to it rather than setting a particular allocation aside.
“We like to focus on thematic areas or technologies that we think can change the world. So we go by looking at particular technology and see whether that is worthwhile investing,” he said. “We try to make sure that when we look at investments, we try to invest in the things that actually help people, and not just for the sake of putting money into ESG.”
Current investments include biomaterials, vertical farming, and water technologies.
“We tend to deploy larger trucks into more stable businesses that have good cash flow, but at the same time, we also look out for what we call ‘moon shots’ – early-stage investment in companies that what we think could be changing the world in the next 10, 20 years. So we do invest selectively into early-stage companies as well,” Lee said at the event.
Lee worked for Tsai in private equity at Investor AB, an investment arm of the Swedish Wallenberg family, back in 1998 before Tsai started Alibaba with Ma. Noting that private equity is in its DNA, Lee said Blue Pool invests across the whole spectrum of private equity, from venture capital, growth capital to buyouts, participating in deals in the US, Europe and China.
The firm is willing to take longer-term risks for higher returns. For example, it participates in buyouts in the US and prefers to write bigger cheques, as it’s easier to operate considering the small team size, Lee said, without disclosing the actual size.
Unlike other family offices, Blue Pool prefers to source its own deals and do deep-dive due diligence. On-site visits and reference calls are also important to its investment process and it commissions professional companies to do background checks on management to make sure a company is worth investing in.
It also works with an experienced and scalable GP in the US to source investment in tech companies and and get help on assessing technologies.
Lee believes Blue Pool's small size compared to private equity firms gives it a competitive edge in making decisions and getting deals done, especially for late-stage funds. But it doesn’t like to participate in auctions, as they are not to the firm’s advantage over bigger firms, and prices tend to be high.
In Lee's view, prices generally are higher across the private sector than the public sector at the moment, particularly for Chinese companies.
“I think that's also been difficult for us. We have to stay very disciplined to deploy capital and vest with the right companies at the right price,” he said.
A fully professional family office means Blue Pool feels the pain in having to compete with large firms to attract and retain talent. The pandemic hasn't helped either to bring in good people from the Chinese mainland or overseas.
“That puts a lot of pressure on the hiring, and we're also - I think like the other family offices - growing, so we need more people to join the team. That's been the biggest challenge,” Lee said.