Sunrise Investments, founded in 2000, is a privately owned Investment holding company, and forms a key part of Chinese tech entrepreneurs’ sunrise investment strategies. With the rapid growth of Chinese economy and especially the booming of high tech industry, more and more Chinese tech tycoons and startup founders love to set up sunrise investment vehicles and structures, which are normally owned by offshore family trusts, in order to better diversify their assets and lower risks. This article will give an overview of some famous examples of sunrise investment strategies and structures adopted by Chinese tech giants.
Sunrise Investment holdings under Lei Jun family trust of Xiaomi
Lei Jun, the founder of Xiaomi, has set up a 6-layer sunrise investment structure before Xiaomi went public. Xiaomi Corp is at the first layer. The second layer consists of two companies holding class A and B shares. The third and fourth layers are sunrise vision holdings and parkway global holdings. The fifth layer is Lei Jun’s family trust which benefits Lei Jun and his family. The sixth layer is the trustee ARK Trust. Compared with traditional trust structures, Lei Jun’s family trust acts as the trustee of his sunrise investment holdings, which is a typical pre-IPO model. Through such sunrise investment structure, Lei Jun and his family can exert greater flexibility in decision making.
Comprehensive Utilization of Offshore Trusts and Holdings by Jack Ma
As of 2017, Jack Ma held 167 million Alibaba shares, accounting for 6.4% of total shares. However, most of Jack Ma’s Alibaba holdings are through offshore entities, such as family trusts, overseas foundations, and Cayman holding companies. Among which, Jack Ma’s family trust holdings account for 64.4% of this total holdings, valued at around 111.9 billion RMB. Jack Ma’s offshore trust is set up with Jack Ma as settlor, Jack Ma and his family as beneficiaries. The family trusts hold Alibaba stocks through two BVI companies. For Alibaba’s control, Jack Ma decides according to Alibaba’s partnership system. For the property rights, Jack Ma’s spouse and offspring will distribute according to the trust deed.
Liu Qiangdong’s 0 Salary and Hidden Family Trusts
Behind Liu Qiangdong’s ‘0 salary’ is an offshore family trust structure: According to JD’s IPO prospectus, ‘the founder Liu Qiangdong holds JD stocks through the offshore company Max Smart Limited in British Virgin Islands (BVI)’. It is explained in the final prospectus that this offshore company actually holds the stocks through a trust, of which Liu Qiangdong is the sole beneficiary and is entitled to benefits. In 2014 or even earlier, Liu Qiangdong had set up a secure shield for his shareholdings. It is commonly believed that through the offshore Max Smart Limited, Liu Qiangdong has placed his one-time bonus options and other equity rights into an offshore family trust. This means the ownership of his equity rights no longer belongs to Liu Qiangdong himself, and what he can enjoy formally is only the revenue rights.
In summary, Chinese tech tycoons like using offshore family trusts to hold equities and other assets, in order to avoid family disputes, isolate debts across generations, and minimize tax burdens. Their sunrise investment holdings are normally structured as multiple layers involving trusts and offshore companies in tax havens. Such sunrise investment strategies help diversify risks and maintain control over key assets.