Hillhouse Capital Group

Hillhouse Capital Group
Private
Industry Hedge Fund, Private Equity, Venture Capital
Founded 2005 (2005)
Founder Lei Zhang
Website www.hillhousecap.com

Hillhouse Capital Group (“Hillhouse”) is an investment management firm founded by Zhang Lei in 2005 with US$20 million[1] in seed capital from the Yale Endowment.[2]

Hillhouse manages over US$20 billion as of January 2016 and is known for its avoidance of publicity.[3][4] Hillhouse manages capital for institutional clients such as university endowments, foundations, sovereign wealth funds, pension funds and family offices. Hillhouse is a long-term fundamental research-driven equity investor. Hillhouse focuses on the consumer, TMT, industrials and healthcare sectors and invests in companies across all equity stages.[5]

Hillhouse has over 30 investment professionals across its offices in Beijing, Hong Kong and Singapore. It invests globally, with a particular focus on Asia.

History

Zhang Lei founded Hillhouse Capital Group in June 2005.[6] The company is named after an avenue in New Haven, one block from where the Yale investment office was previously located.[7] Zhang used an initial $20 million, which he received from Yale through David Swensen, Yale’s chief investment officer, to begin Hillhouse. An additional $10 million soon followed.[1]

According to the Financial Times, Zhang built Hillhouse by being one of the first investment firms to back mainland China’s burgeoning internet sector, including investing in Tencent Holdings Ltd., which is one of China’s most valuable internet companies today. Hillhouse was also one of the first firms to invest in JD.com, the e-commerce giant.[1]

Performance

Hillhouse has achieved investment returns of up to 52% annualized from inception until 2012, even in spite of a 37% drop in 2008, making Hillhouse among the most profitable funds of its size in the world, and the leading fund in Asia[3][8][9] In 2014, returns had reportedly dropped to over 40%.[10] Owing to its low profile but high performance, founder Zhang Lei and Hillhouse have been likened to Stephen Mandel and Lone Pine Capital.[3]

Notable investments

Tencent Holdings Ltd: Some of the original $20 million provided from Yale was invested in Tencent Holidings in 2005. It was Hillhouse’s earliest investment and one of their most profitable.[4]

JD.com: Hillhouse was also an early investor in JD.com. At the time of the listing of JD.com on NASDAQ in May 2014, the company was valued at $26 billion. Hillhouse’s original $255 million investment was, at the time of the IPO, valued at $3.9 billion.[11]

Blue Moon: Hillhouse invested in Blue Moon, a liquid detergent maker, in 2010 as its only outside institutional investor. In 2013, Blue Moon was ranked #1 in the China Brand Power Index published by Ministry of Industry and Information Technology. The market share of its liquid detergent has been ranked #1 in China for the past five consecutive years.[12]

Joint ventures

Hillhouse established an exclusive joint venture focused on China with the US healthcare provider, Mayo Clinic. Hillhouse will work with the Mayo organization to expand its influence in China. Hillhouse and Mayo celebrated the establishment of this joint venture in January 2015 with a healthcare conference in Beijing, where healthcare industry CEOs, regulators, and academics participated in a discussion about the future of healthcare in China.[13]

Investment philosophy

Henny Sender discussed Zhang’s investment philosophy in an article published in the Financial Times.[1] According to Sender, “Zhang sees himself as the product of both east and west.” Hillhouse does deep and fundamental research on industries and business models, and applies the value investing philosophy in local contexts while investing in different geographies.

According to Sender, Zhang often brings together leaders of private companies (particularly portfolio companies) for informal discussions. He believes it is beneficial for executives to learn from one another. When leaders of JD.com met with leaders from a hypermarket company, Zhang said, “Etailers learn how offline companies think, and retailers learn how ecommerce companies think.”[1]

Zhang also believes that China’s business model is better suited to emerging markets and is therefore bringing that model to developing nations in Asia. In Indonesia Hillhouse launched a joint venture between mobile messaging platform WeChat and Indonesia’s giant communications and media conglomerate Global Mediacom. “Indonesia is now like China some years ago,” commented Zhang.[14]

Sender also explains that Zhang’s investment philosophy is comparable to that of Warren Buffett, which is to buy and hold. “In a world of speculators, Zhang’s philosophy stands out.”[1][15]

Insider Monkey pointed out that some of Hillhouse’s investment decisions could be classified as contrarian, although they do maintain a considerable number of mainstream investments as well.[16]

Notable investors

Under a plan reported in August 2015 for Stanford University to invest about $200 million with Hillhouse, the group will be "investing money for at least six of the 10 wealthiest universities in the U.S."[17]

References

  1. 1 2 3 4 5 6 Sender, Henny (20 June 2014). "Zhang Lei has Lunch with the FT". Financial Times. Retrieved 3 March 2015.
  2. ↑ Nadeem, M. (12 January 2015). "Hillhouse Capital Management Cuts Passive Stake". Insider Monkey. Retrieved 3 March 2015.
  3. 1 2 3 "Low-profile Beijing fund with envious record" (subscription only), ft.com, January 12, 2014. Partially retrieved 2015-08-18.
  4. 1 2 Hu, Bei (20 January 2015). "Hillhouse Capital Said to Raise $2 Billion Private Equity Fund". Bloomberg Business. Retrieved 3 March 2015.
  5. ↑ "Investment Philosophy". Hillhouse Capital. Retrieved 3 March 2015.
  6. ↑ "Value Investing Congress". Retrieved 3 March 2015.
  7. ↑ Sender, Henny (20 June 2014). "Zhang Lei has Lunch with the FT". Financial Times. Retrieved 20 April 2015. The fund is named after an avenue in New Haven that’s a block from where the Yale investment office used to be located.
  8. ↑ McEnery, Thornton, "The 15 Biggest Asian-Based Hedge Funds", businessinsider.com, May 17, 2011. Retrieved 2015-12-21.
  9. ↑ 804/Zhang-Value_Investing_Congress_West_2010.pdf valuewalk.com, 2015/04.
  10. ↑ "Research & Rankings: Top of the Hill", Institutional Investor's Alpha/cenveomobile.com, Summer 2014. Retrieved 2016-01-11.
  11. ↑ "Hillhouse, DST And Capital Today To Exit In JD.Com's $500M Follow-On Offering". China Money Network. 25 November 2014. Retrieved 3 March 2015.
  12. ↑ "蓝月亮（广州蓝月亮实业有限公司简称" (in Chinese). Baike.Baidu. Retrieved 3 March 2015.
  13. ↑ "Mayo and Hillhouse Capital China for the first time to develop flexible business model of medical services". Getin. 27 January 2015. Retrieved 3 March 2015.
  14. ↑ Sender, Henny (20 June 2014). "Zhang Lei has Lunch with the FT". Financial Times. Retrieved 3 March 2015.
  15. ↑ "Hillhouse Capital Group". Crunchbase. Retrieved 3 March 2015.
  16. ↑ "Hedge Fund - Hillhouse Capital Management". Insider Monkey. 31 December 2014. Retrieved 3 March 2015.
  17. ↑ Lamar, Mia, and Timothy W. Martin, "Stanford to hand $200 million to Chinese fund manager", MarketWatch, August 18, 2015. Retrieved 2015-08-18.
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