In the high flying world of investing, Lei Zhang maintains a relatively low profile. Yet since he was seeded by David Swesen of Yale Endowment with $20 million in 2005, he has achieved a ~40% compounded annual return (28x not adjusting for inflation), making him one of the best performing investment managers. To put it into perspective, Warren Buffet has achieved a compounded annual return of ~22%, albeit for the past 50 years!! Today, Lei Zhang’s Hillhouse Capital, named after a street nearby Yale where Lei received his MBA and master’s in public policy, manages ~$18 billion. Thought not just focused on tech, Lei is best known for backing several most successful Chinese internet entrepreneurs and start-ups (e.g. Tencent, JD.com). On April 29th, Lei paid a visit to the “Temple of Value Investing” Columbia Business School to share his investing and life lessons. Below are my synthesis of his wisdom:
在喧譁的投資世界裡，張磊比較低調。自從2005年從耶魯基金的David Swesen手中獲得2000萬美金， 他實現了年化~40%的收益。作為對比，巴菲特的年化複合收益~22%，不過保持了50年。今天，Hillhouse管理180億美金。儘管不是專注技術領域，張磊的成名來自投資了幾個最成功的中國網際網路企業（騰訊和京東）。以下是他4月29日在哥倫比亞商學院做的投資和人生經驗分享。
For those who crave for brevity, here is the essence of the lessons that Lei Zhang shared:
簡短的版本：
- Being a long-term investor gives you a big advantage from the starting line.
做一個長期的投資者具有巨大的優勢。
- Do deep fundamental research, make few bets instead of keeping on chasing ideas. This way you simply your life and your business.
做基礎研究，投資少而精，而不是追逐概念。這會使你的生活和生意簡單。
- Hillhouse invests in changes and strives to help create value through entrepreneur-like thinking and problem solving. “We are entrepreneurs so happen to be investors”
Hillouse投資於變化，通過企業家思維和解決問題創造價值，“我們是創業家碰巧還是投資人”
- Spend quality time with quality people, doing quality things. Hopefully part of the outcome is making money.
和高質量的人花夠時間，做高質量的事情。掙錢是自然而然的結果的一部分。
- Stay connected to reality and everyday life, do not become a victim of your own success.
不要脫離現實和生活，不要為自己的成功所束縛。
- Four most important traits in people that Lei looks for: intellectual curiosity, intellectual independence, intellectual honesty, and empathy.
尋找那些有如下特質的人：好奇心，獨立思考，誠實，有同理心
For those who want more details and articulations, read on:
長版本：
- Investment Strategy （投資策略)
- Flexibility – Lei only had one investor in his fund when starting out Hillhouse – David Swensen from Yale Endowment seeded Hillhouse with $20 million. He could have raised more money with Swensen’s endorsement but did not. He wanted to start with a solid foundation, a strategy that allows him 100% flexibility to invest in whatever he believes in and is passionate about, be it public equity, venture capital, or private equity. In Lei’s words “it’s not about the format but about the essence.” To him the essence is to invest in companies that he thinks make sense, truly believes in, run by people who he respects and are open-minded, and could compound capital over a long stretch of time no matter what stage the company is in. In terms of his investment team, Lei believes in a generalist model and prides himself on being one of the analysts.
靈活性—開始投資時他只有一個投資人，雖然可以利用Swensen的背書募集更多的錢，他沒有這麼做。希望可以有100%的靈活性去投資他相信並且有激情的東西，不管是股票，風險投資還是PE。“形式不重要，內容才關鍵”。他相信通才模式，並以自己是分析師的一員而自豪。
- Long Term Orientation – Hillhouse is a long-term investor. Lei thinks that when you have a long-term orientation, from day one you have a huge advantage over most people – it’s what he calls free option value of time arbitrage. His view on the Chinese stock market at the time of this speech? “It’s like 1999 all over again, but times three.” The environment is so bubbly that any company that changes its name into something internet related could get an elevated multiple on their valuations. Some say long-term investing does not work in China because everybody trades so much. Speaking at one mutual fund conference, some managers asked Lei “how do you make so much money despite being a long term investor” (everyone in the room laughed really hard on this comment). Some Chinese mutual fund managers complain to regulators, “I know you want long term investors, but we need to make money, we have a fiduciary duty.” The understanding of long-term investing in China is so distorted, people think there is a cost to being a long-term investor.
長期導向—長期投資者有巨大的優勢，張磊所謂時間套利的期權價值。現在中國的股市就像1999年，還要乘三倍。任何股票改個名字沾上網際網路，估值立即翻幾倍。有些人說長期投資在中國不管用，因為大家交易太頻繁。
- Bias Toward Inaction – But how does Hillhouse find high quality names? The way is to do deep fundamental value research and only research things that could potentially compound value over time. There are many people in China that are successful at trading, but traders have capacity issues because they have to trade all the time. In China, an average portfolio manager has 600% annual turnover, Lei’s public equity portfolio has only 15% turnover and he continues to own his private equity portfolio. Hillhouse does not attempt to constantly chase different horses. In a given year, Hillhouse takes on 2-4 positions at best and sometimes only one. By taking away the action, Lei believes you simplify your life and the investment business, and you let the portfolio compound for you instead of you doing the work. By being patient and not too active, he was able to accumulate a portfolio of high quality names.
不活躍投資– 如何找到好質量的公司？ 方法是基礎研究而且只研究價值長時間能複合增長的領域。在中國，基金經理的組合平均一年流轉6次，張磊的只有15%並且繼續投資私有公司。Hillhouse不去追逐不同的馬。一年最多投2~4個，有時1個。去除了頻繁投資，張磊相信生活和投資都會簡單化，讓投資組合去掙錢而不是自己不停的工作。通過耐心和低頻投資，他積累了一個高質量公司的組合。
- Deviation from Traditional Value Investing Philosophies （和傳統價值投資哲學的分離）
- Investing in changes – Lei Zhang is a big believer in value investing, but where he deviates from the traditional value investing philosophy is that he likes investing in changes. He believes that it is change that derives value and he would like to invest in people driving them. In particular with China, and globally as well, technology has become a bigger part of the game, either in traditional or new industries. Changes are driving forces for creative destruction and value creation. He spends a lot of time understanding the changes and the people behind them. Lei says that one thing about investing in early stage company is that some companies look distracted on the outside, but if you look at the core they are intensely focused. On the other hand, the traditional sense of value investing represented by Warren Buffet dislikes changes and prefers long-term stable businesses with strong moat, hence why Warren ends up with big positions in names like in Coca Cola, Amex, Wells Fargo, and IBM.
投資變化—張磊深信價值投資，但與傳統價值投資哲學不同，他喜歡投資變化。他認為變化產生價值，並且要投資那些驅動變化的人。特別在中國，技術已經成為遊戲更重要的一部分，不管在傳統還是新的行業。他花很多的時間研究變化和背後的人。很多早期公司從外面看似乎很分散，內部實際很集中。以巴菲特為代表的傳統價值投資不喜歡變化，喜歡有護城河的長期穩定的公司，所以巴菲特的組合是可口可樂，Amex等（插一句，如果Hillouse的管理資金到了巴菲特的程度，投資變化也會是個問題，因為體量不夠）
Example 1: Blue Moon and JD.com. Blue Moon is in a traditional business, liquid laundry detergent. Hillhouse would never have invested in it if everything is done the same way, as there is P&G and Uniliver, which you invest in for their brand value and moat. After investing in Blue Moon, Lei arranged its executives to meet with those from JD, having Blue Moon learning about ecommerce from JD and have JD learning about merchandising from Blue Moon. Subsequently, Blue Moon redesigned its detergent packs so that they could fit into JD’s delivery bins. Leveraging social media and ecommerce, Blue Moon achieved the largest brand build up in years and now is the largest liquid detergent brand in China.
案例一：投資藍月亮，撮合藍月亮和京東，藍月亮學習電商和社交媒體，在很短的時間裡成為最大的品牌。
- Value Investing Taken to the Next Level – Lei believes his approach is value investing taken to the next Level. In addition to investing in changes and long-term fundamental value, he also wants to compound that value by participating in the value creation process via deep research. The traditional Ben Graham value mismatch alone is not good enough (current price vs. intrinsic value), he wants to grow that value mismatch over time, not just to take advantage of an arbitrage opportunity. To this end, Lei thinks his approach is more like constructive (or suggestive) activism, though Lei rejects the notion that he is an activist. For him, the traditional sense of activism falls into the category of “life is too short” (too much work and headache? Ackman’s battle with Herbal life comes to mind).
更高層次的價值投資—張磊相信他的價值投資更高一個層次。除了投資變化和長期的基礎價值，他希望通過參與價值創造過程和深度研究來實現更高的價值。傳統的Ben Graham的價值不匹配（價格和內在價值的差異）是不夠的，他希望能增長價值，而不是僅僅利用這種價值套利的機會。
Example 2: Strategic partnership between Tencent and JD.com.
Lei is an early investor in both companies and brought many senior executives to JD, Tencent was one of one of Hillhouse’s earliest investments and remains in the portfolio. In 2013, Lei saw a new trend – JD had a great retail gene, but was having difficulty confronting mobile commerce on the technology front. On the other hand, Tencent had just acquired an ecommerce business. The core problem is that Pony Ma had never dealt with inventory before and suddenly had lots of physical goods on hand. Lei brought the two companies together, summarizing their problems with one word each, mobile vs. inventory. The solution is for Tencent to hand inventory to JD and JD to hand mobile to Tencent. Pony and Richard hated each other and had been fighting to win the ecommerce war, but the deal just makes all the sense.
Through research, Hillhouse was able to present and close the biggest ecommerce deal at the time. In the process, Hillhouse did get diluted, but got a lot of certainty for both companies out of it. The idea is through research, you could present to founders compelling ideas and add value in the process. Through this example, Lei conveyed that he loves entrepreneurs that are confident, open-minded, and willing to learn from competitors.
案例二：張磊投資了京東和騰訊，騰訊至今仍然在組合中。 2013年，張磊看到京東有很強的零售基因，但是移動電子商務不強。另一方面，騰訊剛剛收購了易迅，但馬化騰從來沒有處理過庫存。 張磊把兩個公司拉倒一起，各用一個詞總結了他們的問題：移動VS庫存。雖然雙方以前互相打，合作對雙方有利。
通過研究，Hillhouse撮合了但是最大的電子商務交易。雖然其股份稀釋了，但是兩家公司的確定性增強了。這是研究的價值。張磊喜歡自信，開放同時又喜歡像競爭對手學習的創業家。
Example 3: WeChat moves into Southeast Asia.
In Indonesia, for example, Lei helped create a joint venture between Tencent’s WeChat and Global Mediacom, Indonesia’s largest media, television and pay TV conglomerate. At the time, WeChat was behind Facebook Messenger, WhatsApp, and Line in user count, and today has surpassed the first two and is on par with Line. Again, Lei emphasized that he found the opportunity through “research.”
案例三：把微信引入印尼，和印尼最大的媒體和電視集團成立合資公司。
原文點評：這已經不是研究的問題，而是像創業者那樣思考，如他自己所說“我們是創業家碰巧還是投資人”
- What Hillhouse looks for in entrepreneurs and people?（Hillhouse尋找什麼樣的創業家）
Lei finds the most impressive people are the people who have deep passion and execute that passion with discipline, instead of people who exhibit habitual behavior. Specifically Lei looks for four qualities:
張磊尋找有激情，並且有紀律性的執行能力的人。
Intellectual curiosity – driver of passion
- Have seen really smart people who are No. 1 in whatever they do, but in the end do not necessarily have the capacity to realize their full potential. The reason is that they are No. 1 not because they want to understand how things work, it’s because they are in the habit of being No. 1. This makes life miserable. If there is no passion in what you do, you will get burned out early on or reach a plateau soon.
好奇心： 很多人不管做什麼都是第一名，但是卻沒有成就。他們不是想了解事情怎麼工作的，只是習慣性的想得第一。
Intellectual independence
- this allows a person to grow over long-period of time (I say this is the compounding value of knowledge and wisdom)
思考的獨立性：這讓一個人在很長的時間裡可以成長，這是知識和智慧的複合價值。
Intellectual honesty
- Being authentic and intellectually honest is so important. Lei also does not like people who are overly promotional and who are focused on organizing bureaucracy. At Hillhouse, the team does not do 150-page presentations and sell internally. Repeat your lies 100 times you believe in it yourself.
誠實： 真實和誠實很重要。張磊不喜歡過度宣傳的人，也不喜歡那些把精力放在組織官僚上人。Hillhouse內部也不做150的PPT來兜售專案。謊說了100次，自己都會相信。
Empathy not sympathy
- the most powerful tool to be a successful entrepreneur or investor is to understand the pain points of consumers, employees, analysts, and entrepreneurs.
同理心而不是同情心：理解客戶，員工，分析師和創業者的痛
If you have the above qualities and a long-term oriented mentality, the rest of it is luck and law of large numbers, do what you are passionate about over and over again, and enjoy doing it over and over again, success will follow in time.
如果你有上面的品質，並且有長期奮鬥的心態，剩下的只是運氣和大數法則問題。一遍一遍做你有激情的事，並且喜歡一遍一遍的做，成功只是時間問題。
4. Other lessons from Lei（其他的經驗）
- Don’t say I am going to work for this firm or that firm, don’t get into the argument with yourself. Just ask the simple question, are they the quality people you want to spend time with, who are you working with, working for, what kind of people are they, are they the kind of people who give “positive energy.”
不要說我要為這家或那家公司工作，不要和自己理論。問一個簡單的問題：你願不願花時間和他們或者為他們工作，他們是什麼樣的人，他們是真能量的人嗎？
- The world has already evolved way beyond the traditional employment relationship but to a more partnership model. It’s all about in what capacity and in what environment you could bring the best of yourself.
世界已經從僱傭關係進化到更加合夥關係的模式。要考慮的只是在什麼樣的環境下你能做最好的自己。
- Don’t wait for the opportunity to analyze your mistakes, spend 10x more effort trying to analyze your mistakes than success.
與其分析成功，不如花10倍的時間分析錯誤。