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:
在喧哗的投资世界里，张磊比较低调。自从2005年从耶鲁基金的David Swesen手中获得2000万美金， 他实现了年化~40%的收益。作为对比，巴菲特的年化复合收益~22%，不过保持了50年。今天，Hillhouse管理180亿美金。尽管不是专注技术领域，张磊的成名来自投资了几个最成功的中国互联网企业（腾讯和京东）。以下是他4月29日在哥伦比亚商学院做的投资和人生经验分享。
For those who crave for brevity, here is the essence of the lessons that Lei Zhang shared:
简短的版本：
- Being a long-term investor gives you a big advantage from the starting line.
做一个长期的投资者具有巨大的优势。
- Do deep fundamental research, make few bets instead of keeping on chasing ideas. This way you simply your life and your business.
做基础研究，投资少而精，而不是追逐概念。这会使你的生活和生意简单。
- 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投资于变化，通过企业家思维和解决问题创造价值，“我们是创业家碰巧还是投资人”
- Spend quality time with quality people, doing quality things. Hopefully part of the outcome is making money.
和高质量的人花够时间，做高质量的事情。挣钱是自然而然的结果的一部分。
- Stay connected to reality and everyday life, do not become a victim of your own success.
不要脱离现实和生活，不要为自己的成功所束缚。
- Four most important traits in people that Lei looks for: intellectual curiosity, intellectual independence, intellectual honesty, and empathy.
寻找那些有如下特质的人：好奇心，独立思考，诚实，有同理心
For those who want more details and articulations, read on:
长版本：
- Investment Strategy （投资策略)
- 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.
灵活性—开始投资时他只有一个投资人，虽然可以利用Swensen的背书募集更多的钱，他没有这么做。希望可以有100%的灵活性去投资他相信并且有激情的东西，不管是股票，风险投资还是PE。“形式不重要，内容才关键”。他相信通才模式，并以自己是分析师的一员而自豪。
- 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.
长期导向—长期投资者有巨大的优势，张磊所谓时间套利的期权价值。现在中国的股市就像1999年，还要乘三倍。任何股票改个名字沾上互联网，估值立即翻几倍。有些人说长期投资在中国不管用，因为大家交易太频繁。
- 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.
不活跃投资– 如何找到好质量的公司？ 方法是基础研究而且只研究价值长时间能复合增长的领域。在中国，基金经理的组合平均一年流转6次，张磊的只有15%并且继续投资私有公司。Hillhouse不去追逐不同的马。一年最多投2~4个，有时1个。去除了频繁投资，张磊相信生活和投资都会简单化，让投资组合去挣钱而不是自己不停的工作。通过耐心和低频投资，他积累了一个高质量公司的组合。
- Deviation from Traditional Value Investing Philosophies （和传统价值投资哲学的分离）
- 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.
投资变化—张磊深信价值投资，但与传统价值投资哲学不同，他喜欢投资变化。他认为变化产生价值，并且要投资那些驱动变化的人。特别在中国，技术已经成为游戏更重要的一部分，不管在传统还是新的行业。他花很多的时间研究变化和背后的人。很多早期公司从外面看似乎很分散，内部实际很集中。以巴菲特为代表的传统价值投资不喜欢变化，喜欢有护城河的长期稳定的公司，所以巴菲特的组合是可口可乐，Amex等（插一句，如果Hillouse的管理资金到了巴菲特的程度，投资变化也会是个问题，因为体量不够）
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：投资蓝月亮，撮合蓝月亮和京东，蓝月亮学习电商和社交媒体，在很短的时间里成为最大的品牌。
- 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).
更高层次的价值投资—张磊相信他的价值投资更高一个层次。除了投资变化和长期的基础价值，他希望通过参与价值创造过程和深度研究来实现更高的价值。传统的Ben Graham的价值不匹配（价格和内在价值的差异）是不够的，他希望能增长价值，而不是仅仅利用这种价值套利的机会。
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：张磊投资了京东和腾讯，腾讯至今仍然在组合中。 2013年，张磊看到京东有很强的零售基因，但是移动电子商务不强。另一方面，腾讯刚刚收购了易迅，但马化腾从来没有处理过库存。 张磊把两个公司拉倒一起，各用一个词总结了他们的问题：移动VS库存。虽然双方以前互相打，合作对双方有利。
通过研究，Hillhouse撮合了但是最大的电子商务交易。虽然其股份稀释了，但是两家公司的确定性增强了。这是研究的价值。张磊喜欢自信，开放同时又喜欢像竞争对手学习的创业家。
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，和印尼最大的媒体和电视集团成立合资公司。
原文点评：这已经不是研究的问题，而是像创业者那样思考，如他自己所说“我们是创业家碰巧还是投资人”
- What Hillhouse looks for in entrepreneurs and people?（Hillhouse寻找什么样的创业家）
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:
张磊寻找有激情，并且有纪律性的执行能力的人。
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： 很多人不管做什么都是第一名，但是却没有成就。他们不是想了解事情怎么工作的，只是习惯性的想得第一。
Intellectual independence
- this allows a person to grow over long-period of time (I say this is the compounding value of knowledge and wisdom)
思考的独立性：这让一个人在很长的时间里可以成长，这是知识和智慧的复合价值。
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.
诚实： 真实和诚实很重要。张磊不喜欢过度宣传的人，也不喜欢那些把精力放在组织官僚上人。Hillhouse内部也不做150的PPT来兜售项目。谎说了100次，自己都会相信。
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：理解客户，员工，分析师和创业者的痛
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.
如果你有上面的品质，并且有长期奋斗的心态，剩下的只是运气和大数法则问题。一遍一遍做你有激情的事，并且喜欢一遍一遍的做，成功只是时间问题。
4. Other lessons from Lei（其他的经验）
- 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.”
不要说我要为这家或那家公司工作，不要和自己理论。问一个简单的问题：你愿不愿花时间和他们或者为他们工作，他们是什么样的人，他们是真能量的人吗？
- 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.
世界已经从雇佣关系进化到更加合伙关系的模式。要考虑的只是在什么样的环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.
与其分析成功，不如花10倍的时间分析错误。
更多阅读：
