Li Lu, a student leader in the Tiananmen Square uprising, has jumped headlong into the bull market. In January, he rented two rooms of office space on the 15th floor of 660 Madison Avenue, and, equipped with a phone, a computer and a Bloomberg machine, he got to work investing other people’s money, running a high-risk hedge fund called Himalaya Capital Partners L.P. The minimum investment is $1 million.
In setting up the fund, Mr. Li said he’s experiencing firsthand the capitalism and democracy he was fighting for in his homeland. “Free man, free market,” is a phrase he invokes often.
Mr. Li is 32 years old. He wears Armani suits that he buys at a factory outlet; he lives in one of those bland modern towers on the East Side. While other Wall Street hotshots his age may have endured the trauma of not getting into the business schools or investment banks of their choice, Mr. Li has survived poverty, separation from his family (his parents were forced into labor camps) and a devastating earthquake. When he escaped to America after hundreds of his fellow protestors were killed in Beijing, he was one of the most wanted dissidents in China.
His clients hope they’ll see big profits, but they also seem to be investing in the future of Mr. Li himself. Jerome Kohlberg Jr., a founder of the leverage buyout monolith Kohlberg, Kravis, Roberts & Company, said his decision to invest with Mr. Li “wasn’t my usual cautionary thing, but my admiration prevailed … I don’t know about others, but I would like to see him succeed and eventually help bring China into the 21st century and be a democracy, and I think he, by then, will be uniquely qualified.”
Others who have invested in Mr. Li’s new hedge fund include: Stanley Shuman, executive vice president at Rupert Murdoch’s deal maker, Allen & Company; Jack Nash, co-founder of Odyssey Partners L.P.; Robert Shaye, chief executive of New Line Cinema Corporation; Robert Bernstein, former chief executive of Random House Inc. and a founding chairman of Human Rights Watch; and his son, Tom Bernstein, president of Chelsea Piers Management Inc. And proving that it’s a chic investment, there is also Sting, the sensitive rock star and rain forest activist, who has kicked in with at least a million of his own.
The glittering client roster seems not to intimidate Mr. Li. “You prove to them you’re good, people trust you,” he said over iced tea at Sofia’s Fabulous Grill on the Upper East Side. “They don’t ask how many years I’ve managed a fund. The question is, Can you make me money? Show me the money! This is one area where, if you really believe you’re smart and you’re unique and you’re different, this can be challenging-this is it. Because if you’re right, you make a lot. If you’re wrong, you lose a bundle.”
With the Dow Jones average rising above 9,000, the latest financial district jokes and clichés liken good investing to good sex. Mr. Li considered the comparison. “This market is not a man’s sex drive,” he said. “If you had to compare it, this market is a woman’s sex drive. It is really experiencing a multiple climax, but even the woman has downtime. The traditional Chinese sentiment is that the woman has the capacity to climax 15 times. The market is turning into the traditional description of the woman’s sex drive. My girlfriend is around that number.”
So how long can it last? “Nothing goes forever,” Mr. Li said. “As I say, even if you compare it with the woman’s sexual capability, it has an end. This market is capable of multiple climaxes, but there is a recession.”
Born in 1966, the year Mao Zedong initiated the Cultural Revolution, Mr. Li was separated from his parents when he was less than a year old. He passed through half a dozen adoptive families during the first decade of his life. Mao’s regime condemned his mother, a botanist and the daughter of a wealthy landowner, and his father, an engineer, as bourgeois intellectuals-and therefore enemies of the state. They were sent to separate labor re-engineering camps. Facing a life of hard labor, Mr. Li’s mother was forced into having to choose one of her children to keep with her. She kept Mr. Li’s older brother.
“Mao Zedong’s way was to make people crazy,” Mr. Li said. “It was like a religious cult. You cut all the culture, you kill or jail all the people with learned minds who think independently. Anything that remotely reminded you of humanity was destroyed.”
On the eve of Mao Zedong’s death in 1976, Mr. Li survived an earthquake in Tangshan, China, that killed the adoptive family whom he had grown to love. In the earthquake’s rubble, the 10-year-old boy ran through the city; the dead bodies overwhelmed him and he blacked out. When he came to, he saw a woman giving birth and heard her cries.
Days after the earthquake, radio propaganda claimed that Mao Zedong’s administration was helping his ravaged town-something that ran counter to what he saw. “The soldiers and party officials are grabbing all the things available for relief for themselves or their family,” he recalled. “Older people just don’t get anything. So I developed a tremendous aversion, you know, hatred toward those people.”
He was living with his blood family again and came under the guidance of his grandmother, a founder of elementary schools in the 1930’s. She told him the only way he could beat the government and help people was, first of all, to educate himself. Mr. Li immersed himself in books, which gave him the idea that “other people have lived a different life, a better life, so should I-so should everybody.”
His convictions led him to Nanjing University and Tiananmen Square. He was deputy commander of the student movement, second to Chai Ling, who is now at Harvard Business School. He saw many of his fellow student protesters shattered by the massacres. “They couldn’t get over this sense of loss and failure and guilt,” he said. “It was terrible and I had some of it.”
He arrived in Manhattan in December 1989. By 1996, he had earned a B.A., M.B.A. and J.D. from Columbia University, and written a memoir of his experiences in China ( Moving the Mountain , Macmillan London). With royalties from the book, as well as fees earned from giving lectures, he made investments and rode the bull market to the $125,000 he needed to pay his living costs and the tuition not covered by his scholarship.
“Early on,” he said, “I know I gotta make money work. The whole thing is, really, money makes money. That’s the whole thing about capitalism. Without the capital, there is no -ism.”
His early success in investing, linked with his abysmal experience with communism, made him a true believer in the free market. “But the precondition of capitalism is a free man,” he said. “With free market and free man, if you remove one of them, it is not called capitalism in my dictionary. Without a free man, there is no free market. That’s called exploitation. In China, there’s not capitalism. It’s official corruption, that’s what it is.”
Before striking out on his own, Mr. Li worked for a summer at the white-shoe law firm Simpson, Thacher & Bartlett, put in four months at the media investment-banking firm Allen & Company and spent two years as a corporate finance associate at another investment banking firm, Donaldson, Lufkin & Jenrette. The chores that go with pleasing clients didn’t sit well with him. “It’s very hard for me in the service business,” he said. “I want to make up a decision and do it. I’m a doer rather than just giving ideas.”
Mr. Li’s liberation from corporate hell came on the red-eye from San Francisco to New York last year. On the flight, he saw Rena Shulsky, a Manhattan real estate magnate whom he had met while giving a lecture. She encouraged him to start a fund. “I thought he could do better than working at D.L.J.,” she said. She also, according to Mr. Li, gave him something better than advice-namely, $2 million in seed money. (Ms. Shulsky would not comment on how much she invested with him.)
Tom Bernstein, who helped Mr. Li gain asylum in the United States in his role as board president of the Lawyers Committee for Human Rights, was another early investor. “We kid about Li Lu,” Mr. Bernstein said. “If you said that someone was going to make a billion dollars and be the head of the largest country in the world, all in one lifetime, he could be the guy.”
Two investors said John Kluge, chairman of Metromedia Company, had invested in Mr. Li’s fund this past January. Which seemed odd, given Mr. Kluge’s recent meeting with Chinese President Jiang Zemin concerning the possibility of expanding his company into China. (Mr. Li at first would not comment on Mr. Kluge; in a later interview, he said Mr. Kluge was not one of his clients. Mr. Kluge did not return calls seeking comment on the matter.)
Mr. Li said he likes to buy stocks that are undervalued, in his estimation. That goes against the currently fashionable “momentum” theory used by investors who believe they can ride an overvalued stock that is still soaring in price, and then jump out before the stock comes crashing back down.
“If you’re right, ultimately it will prove you’re right, but you look stupid for a long time,” he said of his own gambits. “It is what I’m all about. It’s revolutionary. It is about trusting yourself. It’s about challenging the conventional wisdom. That’s what we did in Tiananmen.”