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CoStone Capital: Twelve Years See NO Loss of Staff in Core Team

2014.06.06 Zhang Wei, Tao Tao, Chen Yanli, and Lin Ling Views:


The success of a PE investment is highly related to the expertise of the management team and its experience in investment and research. Their competence is crucial to winning the fierce competition in this mixed PE industry.

 The success of a PE investment is highly related to the expertise of the management team and its experience in investment and research. Their competence is crucial to winning the fierce competition in this mixed PE industry.

 In Zhang Wei’s view, institutional investors are usually unable to instruct their portfolio companies given by their shorter growth cycle. Institutional investors should, on the contrary, learn from the companies’ way of management and governance, striking a balance between motivation and restriction.

 To prevent moral hazards as a GP, CoStone requires every individual in the management team to contribute at least 10%, a proportion way higher than the international custom, to the funds, sharing both risks and interests with LPs. This requirement results in a 19% contribution rate from the management team in CoStone’s capital.  Meanwhile, under the principle of “Non-selective Follow-up Investment”, no partner is allowed to invest in a single program. In this way, the whole team is bonded with the fund, and every partner secures their independent vote in the investment review board.

 In terms of motivation, Zhang Wei designed the stock incentive system for partners and a 1/3 profit distribution system for all employees, under which only 1/3 of the profits are distributed to partners according to their stock shares. “The aim is to better incentivize employees in the front line with more profits,” said Zhang.

 This is the secret of CoStone’s successful management. “Partners should have one common long-term goal. Their interests should also be LPs’ interests. That is crucial to our investment,” as Zhang stated.


This is part of an interview with PE Daily, where CoStone’s partners Zhang Wei, Tao Tao, Chen Yanli, and Lin Ling shared CoStone’s best practice on investment strategies, team management, and post-investment service.


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Rewritten by Chen Cong, Edited by Li Yunzhen, Du Zhixin

The year 2019 marks the fortieth anniversary of China’s Reform &Opening-Up, once again, we meet at the turning point of history. What’s the next step for the game, is there any clear guidance? The answer is affirmative.

Our country is enjoying a good momentum of development, which does not come from the Washington Consensus nor the Beijing Consensus. China’s experience has proved that both the visible hand and the invisible hand are crucial: the visible hand, stands for the government-led reform, and would yield benefits for reform and opening up; the invisible hand, stands for the Marginal Power represented by the private sector, and would improve economic efficiency and tax collection, create jobs and employment opportunities.

Provided that we want to protect and expand the benefits form reform, three simple but mandatory agreements are to be made and followed: No.1 Private ownership must be recognized, protected and treated equally with public ownership constitutionally, both ownerships are scared and inviolable;No.2 Make further clarification of the principal position of market economy, “deepen economic system reform by centering on the decisive role of the market in allocating resources”, as President Xi addressed in the third Plenary Session of the 18th CPC Central Committee;No.3 Implement the guiding principles of “comprehensively promoting law-based governance” of the fourth plenum. The rule of law is essential for economic growth, irreplaceable to protect private ownership, and necessary to encourage innovation and entrepreneurship.

Above are three rules for us to avoid falling into the Middle-income Trap. Assuming that we are breaking systematic barriers to private enterprises’ participation in market economy, and boosting innovation and entrepreneurship of our society, then we are heading towards a promoting direction. We are marching in the path of light, regardless of the ups and downs of Sino-US relationship, the drop in GDP growth rate, or the monetary policy.

These principals also apply on knowing how better to run a business: don’t be hedged by rules and regulations at the beginning, pay more attention to your survival, and you’ll learn more when you start your second business.

For many years, Huawei has been the only Chinese company on the list of the Top 50 R&D Spenders. Regardless of the economy and its income, what Huawei has been doing is investing in its future, dedicated to R&D, continuously and resolutely. This provisional work underscores Huawei’s accomplishments, making Huawei anindustry leader.

So, there are standard answers on how to run a company,which could be summarized as concentration and professional dedication, continuous investment on innovation and trying harder in R&D. Entrepreneurship is also important, every single company needs entrepreneurs to push aside all obstacles and difficulties, to implement strategies and ideas. We, as investors, are destined to look for such outstanding entrepreneurs and their companies, invest in them and partner with them.

At this key point of history, a country, a company, or asingle individual, will all need to find the right path. Four decades after the Reform and Opening-up, it’s time to learn from our experience and stop “wadding across


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