Zhang Lei's "high-rise" Hillhouse myth is the superposition of value creation for entrepreneurs and investors.
Author: Yin Yadan Editor: He Xiang
出品：零售商业财经 ID：Retail-Finance
On July 22, there was news in the industry that "Gaoji Health had a sudden personnel change, Gong Jianjun was appointed as the new CEO of Gaoji Health, and Niu Heyi and Li Bo withdrew from the president and CEO positions respectively". At the same time, Hillhouse Capital's pharmaceutical group, the behind-the-scenes operator of Gaoji Health, is experiencing a new round of staff layoffs, and Hillhouse Capital, which has plunged into drug retail, seems to have fallen into the dilemma of "tens of billions of gambles" and the urgency of withdrawal after seven years.
Not long ago, Tick Travel, which was listed on the Hong Kong stock market, suffered a stock price waterloo, falling more than 10% on July 8, and finally closed at HK$2.92 per share, and Hillhouse's capital gains shrank sharply.
From $20 million to a market value of 100 billion, Hillhouse Capital has created investment myths such as JD.com, Tencent, Belle, etc., and has also become one of the largest investment institutions in Asia in terms of assets under management. The trader (founder) behind it, Zhang Lei, known as the "Oriental Buffett", has remained at the historical high platform for nearly 20 years.
Of course, in the face of a market environment full of uncertainties, the myth of Hillhouse Capital's "golden finger" has also experienced stress tests and investment review opportunities due to the emergence of the crisis, and the final values determine how it will respond and deal with itself.
What are Hillhouse Capital's values?
The core of anti-arbitrage is to exchange definite value sacrifice for long-term interest moat, and to discover and create value with long-termism and research-driven.
The word "long-term", since Warren Buffett, has gradually become an alternative to "speculation" in the investment world. After Zhang Lei introduced the concept of "value investment" into the Chinese investment community, "research-driven" has also become the first principle of rational quantification and insight into the underlying logic behind the business.
It is worth noting that Zhang Lei, the "golden sage", has been hidden behind the scenes since the book "Value" was published in 2020, perhaps from the book we can get a glimpse of the source of the value concept, and then think about how to get rid of the shallow imitation of "painting the cat and the tiger" and grasp the real lifeblood of the industry?
As for whether the targeted Zhang Lei can sit on Mount Tai and whether he will change the normal situation and go to the front of the stage again, it still depends on Hillhouse's accumulation of long-term experience, and it is surprising to truly grasp the fixed situation and keep the right in the general trend.
01 Hillhouse Capital, Zhang Lei, who is not shocked
In 1998, Zhang Lei, who graduated from the International Finance major of the National People's Congress, came to Yale School of Management to study for graduate studies.
In 2005, 32-year-old Zhang Lei returned with tens of millions of dollars from his Yale mentor and founded Hillhouse Capital. However, in the first five years of the institution's establishment, Zhang Lei's investment actions were very small, and there were only two more well-known major investment projects before 2010: Tencent and Midea.
As we all know, Ma Huateng made Zhang Lei's investment appreciate by 200 times.
Unlike United States, where the investment market is relatively mature and attaches great importance to admission tickets, the domestic investment environment at that time was more like a wasteland to be developed, full of "gold" and "traps".
As Zhang Lei mentioned in the book "Value", we should discover value from fundamental research, conduct systematic investment research based on people, business, environment and organization, and systematically integrate all the elements of success into a predictive model qualitatively and quantitatively, turning randomness into necessity.
Source: Internet
Value investment and research-driven have been the foundation of Zhang Lei and Hillhouse Capital from the very beginning.
Value investment, to put it bluntly, is to invest in sustainability, adopt strategies to discover corporate value, let capital achieve value-added, and create value for society.
Compared with traditional cyclical thinking and opportunism, "Mr. Market" (Mr. Market) Market), Intrinsic Value, and Margin of Safety form the logical chain at the beginning of value investing.
Investors pay more attention to the sustainability of intrinsic value, and more emphasis is placed on the "margin of safety", that is, maintaining appropriate rational expectations and controlling losses in extreme cases. This means that not only in-depth investigation and careful consideration are required to plan and then act, but also to be cautious in the "tightrope walk", and any unexpected wind and grass can lead this "positive-sum game" to a "zero-sum collapse".
Research-driven, that is, the means used to achieve precise value investing.
In short, Zhang Lei's value investment philosophy is to avoid value traps (seemingly "inexpensive" projects may not be good investment targets) and growth traps (failure to accurately measure the company's internal mechanism and kinetic energy, growth is unsustainable), use first principles to think from the perspective of time, pursue a larger framework and perspective of thinking, and comprehensively measure the survival and development status of the enterprise from the aspects of people, business, environment and organization.
Figure: Pitfalls in value investing
Before Zhang Lei and Hillhouse, there were many investors who looked at financial reports, conducted research, and summed up deep and shallow research methods, but they were always only close to and did not completely ask, only Zhang Lei of Hillhouse wanted to dig out the essence in one go.
The pursuit of first principles has made Hillhouse Capital quickly stand out in the mixed investment market. Open for five years, the return on performance exceeded 50%, and it became a star capital, Hillhouse ushered in a period of strategic expansion, Zhang Lei also further showed the ambition of expanding the territory, and successively invested in Didi, Uber, Meituan and other star companies, and in 2010, "threw 300 million US dollars to join hands with JD.com" to achieve a good story of "people are not stupid and have a lot of money": in 2014, JD.com was listed, and Zhang Lei's $300 million soared to $3.9 billion.
It can be said that Hillhouse's investment has always been seen from afar, as Zhang Lei said, value investment should walk with the great pattern viewers and be friends of time. The players on the table of "Zhenghe Game" have always created value together with the company.
Source: Hillhouse Capital
With the good story of investing in JD.com, Hillhouse Capital reached the peak under the leadership of Zhang Lei.
According to Hillhouse Capital's position disclosure in the first quarter of 2024, it holds a total of 63 U.S. listed companies, and among the top 20 positions, there are 14 overseas companies and 6 Chinese concept stocks.
On the one hand, China's urbanization is slowing down, demographic changes are changing, industrial concentration is increasing, technology-driven is becoming more and more important, and the market for blind investment is getting smaller and smaller, while targeted value investment will maximize its value. From this perspective, Zhang Lei's value investing and China's ever-changing investment market environment go both ways.
On the other hand, with the improvement of the quality of the population, enterprises in the Chinese market are having more entrepreneurs, and they need to continue to dig deeper and make upfront investment, so as to turn the value creation of one party into the value superposition of the two parties, so as to create a positive value investment cycle.
This has also created another trend, in the increasingly sophisticated Chinese investment community, the track is becoming more and more detailed, and the difficulty of achieving precise investment has soared. Future investment must be a two-way choice.
Hillhouse Capital, which adheres to the investment philosophy of "keeping the right and using the odd", "three thousand weak water, but taking a scoop", "peach and plum do not speak, and the next is self-contained", will inevitably move towards a big opening and closing, and Zhang Lei, who has always been silent in the public sphere, may gradually move to the front of the stage and play the next big chess step of transformation.
02 Internal and external approach, research-driven investment long-termism
The scenery should be long-sighted. Long-term vision, seeing the distance, and seeing the essence are the so-called moats of Zhang Lei's investment.
In other words, insisting on creating long-term value is the key to Hillhouse's vitality. Unleashing imagination and maintaining and discovering curiosity is the core of the moat, that is, the "dynamic moat" mentioned by Zhang Lei.
In Zhang Lei's view: "We are entrepreneurs, and we happen to be investors. "Hillhouse Capital is both an investment and a start-up company, and its reason for insisting on "research-driven" is to strive to find research methods, study the most classic few companies, and achieve as much as possible through contact bypass, while maintaining the intensity of research and making research a muscle memory.
Figure: Three forms of research drive
The generation of shoe king "Belle", which was deeply in the crisis of transformation and forced to be privatized and delisted, is the test target of Hillhouse Capital's "research-driven".
As early as 2005, when Hillhouse Capital was established, Belle Fashion became the largest women's shoe retailer in China in terms of retail sales, and two years later, Belle International, the "king of shoes", landed on the Hong Kong Stock Exchange, with a market value of more than HK$15 billion. In 2014, the tide of e-commerce was repeated, and the profits of Belle, which had not achieved results, were directly cut in half, and the transformation failed, and the fear of difficulties was contracted, and finally chose privatization and delisting.
Zhang Lei, who has been focusing on consumer research since its inception, understands that the emergence of a commercial species originates from the era and environment in which it lives, and its accumulated production capacity, supply chain efficiency and brand value.
As a representative of traditional offline retailers, Belle's Waterloo may represent a group of enterprises in transformation difficulties under the wave of e-commerce, but the quotation of the capital market is sometimes a pessimistic expectation, as long as it can break through the bottleneck of technological transformation, broaden and activate the value of channels, Belle is still the company with the most opportunity to create a new model.
As a result, in July 2017, a consortium led by Hillhouse Capital offered an astonishing HK$53.1 billion to officially take over Belle International, and Hillhouse Capital began to lead the business spin-off and restructuring of Belle International, and promote the digital transformation of Belle International.
A few years later, Zhang Lei described it in his book "Value": "No failed company can have billions of dollars in cash flow every year. ”
The large-scale retail network and the strength of the whole industry chain have become the driving force for Hillhouse Capital to bet on Belle, and Hillhouse's approach is also final.
Relying on the advantages of Belle's supply chain, Zhang Lei gave two killer features: the first is the digitization of the whole process of the industry, and the second is brand splitting.
In the process of promoting the digital transformation of Belle International, Hillhouse adheres to three principles: icing on the cake, pragmatism and pragmatism, and small steps.
In terms of the digitization of the whole process of the industry, from modeling and design, manufacturing, warehousing and transportation, store sales, to membership management, Belle Fashion digitizes the whole process of the industry, and applies big data to the whole process of production and sales. At the level of analysis and decision-making, the sales forecast and inventory parameters are adjusted by collecting real-time traffic data and data on the try-on rate and purchase rate of shoes.
In terms of brand splitting, Hillhouse Capital led the business spin-off and restructuring of Belle International, spun off the sports shoes and apparel sales business Taobo Sports, and led the listing of Taobo Hong Kong stock market in 2019. Sneakers and clothing agency business, is Zhang Lei has always been optimistic about the track, Taobo and Nike, Adidas, Converse and other well-known brands to open a sports city, to undertake the international brand in the domestic market.
Picture: Taobo officially landed on the Hong Kong Stock Exchange
Looking back, Hillhouse Capital's tried-and-true approach is related to the two major elements of business and the environment mentioned by Zhang Lei. What is the prospect of the industry and the industry, as early as the industry traceability report and the forecast of the business prospect, it is explained that the mysterious investment community is transparent, and who can be one step ahead of others.
In the book "Value", Zhang Lei attributes the competitiveness of Hillhouse Capital to dynamic long-termism, that is, a dynamic moat. It advocates the use of "technology" to empower enterprises, from "research-driven" to "environment, business, people and organizations matching" investment ecosystem, and finally superimposes the two routes of "value creation" to develop "long-term structural value investment", so as to match the investment business with the environment, organizations and people, so as to "create value frantically".
03 The general trend of retail, what you want is what you get, and what you get is what you need
Now let's go back to retail.
Retail has always been the most frequent and flexible change of business formats, and it is also the industry that Hillhouse Capital led by Zhang Lei has taken root in from the beginning.
In just eight years from 2014 to 2021, Hillhouse Capital has invested in 24 retail e-commerce, including BESTORE, Youzan, Perfect Diary, etc., and the investment has crossed from angel round to E round investment, and beauty is the top priority.
Source: Net Economic Society
In the retail field, Zhang Lei's performance can be called "go fast and fight fast".
At that time, the reason for investing in BESTORE was that BESTORE understood the premise and grasped the key in the new retail approach, and was also using innovation to reconstruct the scene that is more in line with consumer demand. At the same time, Hillhouse provided some suggestions and support for BESTORE, such as adhering to the route of "high-end snacks" and introducing a big data team.
Of course, we also know the follow-up story. In February 2021, after the lifting of the ban on BESTORE's initial restricted shares, Hillhouse began to reduce its holdings one after another, from the initial 11.67% to 5.56%, almost moving towards the goal of liquidation and reduction. It is normal for a short-term capital investment strategy, but it is not normal for Hillhouse Capital, which emphasizes long-term value investment.
In addition to casual snacks, new tea drinks have also become another area targeted by Hillhouse Capital. This time, Heytea has become the dark horse that star capital is vying to get on the ship.
Following the injection of Heytea in 2020, Hillhouse Capital and others led an investment of 500 million yuan in July 2021, setting off another frenzy of new tea drinks. In Zhang Lei's view, the value of the track gradually exceeds the enterprise itself, as long as you look at the bet, the premium of the track can explode amazing benefits in a short period of time.
"The development of the retail industry is in sync with the development of the times and the improvement of many ecological factors, which not only has a large number of infrastructure upgrades and improvements, but also has many demographic factors and cultural factors." Zhang Lei wrote.
Source: Internet
When the wind comes, pigs can fly in the sky. But after all, pigs can only run on the ground, and they can't fly for long. Although there are not a few companies that can take off with capital, with the blessing of capital empowerment, even in the reckless stage, they can also obtain huge space for development, but the characteristics of the two major conflicts of deep cultivation and buying and leaving constitute the side of the retail industry's business change and anti-economic law.
Focusing on the present, the underlying logic of the retail industry is no longer the "flow economy" that pursues small profits and quick turnover, but the "single customer economy" that focuses on individual differentiated needs and full life cycle value.
The change of the underlying logic is the result of the intersection of economic and capital factors, and "change" also means that the strategy of "digging deep holes, accumulating grain, and slowly becoming king" is still effective, but this space for settling down and becoming king is deeper and more thorough.
"Retail is detail". The product power of material composition and the brand power of culture have become a composite perspective to understand the new trend of retail, and Hillhouse Capital, which is firmly heavy in China and supports the real economy, needs to think about what is the lifetime value of consumers, and should have more realistic operations under the original logic of dynamic and advancing with the times, which is also the quality of partners that start-ups are looking forward to.