Hillhouse Capital Group

Hillhouse Capital Group (高瓴资本) is an Asia-focused private equity firm,[1][2][3] especially focused in East Asia and Southeast Asia. It was founded by Lei Zhang in 2005 with US$20 million[4] in seed capital from the Yale Endowment.[5] Hillhouse has offices in Beijing, Hong Kong and Singapore.[6]

Hillhouse Capital Group
TypePrivate
IndustryFinancial services
Founded2005 (2005)
FounderLei Zhang
Headquarters
Hong Kong
Beijing
Singapore
Area served
East Asia
Southeast Asia
Websitewww.hillhousecap.com
Hillhouse Capital Group
Simplified Chinese高瓴资本
Literal meaningHigh (located) Tile Channel Capital

Hillhouse manages over US$50 billion as of October 2018,[7] and is known for its avoidance of publicity.[8][9] 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, investing in all equity stages in sectors including consumer, healthcare, financials and services.[10][11]

History

Lei Zhang founded Hillhouse Capital Group in June 2005.[12] The company is named after an avenue in New Haven, one block from where the Yale investment office was previously located.[13] 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.[4]

According to the Financial Times, Zhang built Hillhouse by being one of the first investment firms to back China's burgeoning internet sector, including investing in Tencent Holdings Ltd., which is one of the worlds's most valuable internet companies today. Hillhouse was also one of the first firms to invest in JD.com, the e-commerce giant.[4]

In 2017 the firm participated in more private equity purchases in the Asia-Pacific region than any other firm, totaling $26 billion worth of transactions.[14]

In September 2018 Hillhouse closed Fund IV at $10.6 billion,[15] breaking the record set by the $9.3 billion private equity fund raised by KKR in 2017,[16] the largest capital raised by a private-equity firm in Asia.[17]

GaoTeng Global Asset Management, a partnership between Tencent Holdings and Hillhouse, launched GaoTeng Asian Income Fund in November 2018, to focus on investing in government and corporate bonds.[18]

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[8][19][20] In 2014, returns had reportedly dropped to over 40%.[21] Owing to its low profile but high performance, founder Lei Zhang and Hillhouse have been likened to Stephen Mandel and Lone Pine Capital.[8]

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.[9]

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.[22]

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 eight consecutive years, from 2010 until 2018.

Belle International: In July 2017 Hillhouse purchased for $6.8 billion the largest women's Chinese footwear company, Belle International Holdings Ltd.[23][24]

Global Logistic Properties: Hillhouse, together with Hopu Investment Management purchased Singapore-based warehouse operator Global Logistic Properties in 2017 for $12 billion. At the time that was the largest buyout of an Asian company.[24]

Little Freddie: In 2018 Hillhouse began investing in the food sector, including organic baby food and snack manufacturer Little Freddie; a Californian craft beer maker and a pet food brand.[25]

Miniso: In October 2018 Hillhouse and Tencent signed a strategic investment agreement with Japanese-style retailer Miniso worth RMB 1 billion ($145.6 million).[26]

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.[27]

In November 2017 Peets Coffee China, a partnership between Hillhouse Capital and San Francisco-based Peets Coffee, opened a coffee bar in Shanghai, China.[28]

Investment philosophy

Henny Sender discussed Zhang's investment philosophy in an article published in the Financial Times.[4] 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.”[4]

When it comes to buyout investments in traditional industries—Belle International for example—Zhang has argued that technological innovation can be harnessed for job creation, saying that technology can act as an "equalizer" as opposed to a "disruptor."[29][30]

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.[31]

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.”[4][32]

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.[33]

Notable investors

According to the Wall Street Journal, Stanford University pledged to invest about $200 million with Hillhouse in August 2015.[34] With Stanford's investment, the firm manages "money for at least six of the 10 wealthiest universities in the U.S."[35]

The other university investors in Hillhouse include Princeton University, Massachusetts Institute of Technology, University of Pennsylvania, University of Texas, and Yale University.[34][36]

CPPIB committed US$200 million to Fund II in 2014, US$300 million to Fund III in 2016 and US$300 million to Fund IV in 2018.[37]

References
  1. "Hillhouse in talks to take developer SOHO China private, sources say". CNBC. 2020-11-13. Retrieved 2021-01-28.
  2. Zhu, Kane Wu, Julie (2020-08-20). "Ex-Warburg real estate veteran to team up with Hillhouse". Reuters. Retrieved 2021-01-28.
  3. "Hillhouse Capital to Bid for Thyssenkrupp Elevator Unit". Bloomberg.com. 2019-11-18. Retrieved 2021-01-28.
  4. Sender, Henny (20 June 2014). "Zhang Lei has Lunch with the FT". Financial Times. Retrieved 3 March 2015.
  5. Nadeem, M. (12 January 2015). "Hillhouse Capital Management Cuts Passive Stake". Insider Monkey. Retrieved 3 March 2015.
  6. "Hillhouse to Seek Billions of Dollars for China Stocks, Sources Say - Caixin Global". www.caixinglobal.com. Retrieved 2019-12-10.
  7. Liao, Rita (30 October 2018). "Uber investor Hillhouse goes after food and beverage startups with $100M fund". Techcrunch. Retrieved 11 November 2018.
  8. "Low-profile Beijing fund with envious record" (subscription only), ft.com, January 12, 2014. Partially retrieved 2015-08-18.
  9. Hu, Bei (20 January 2015). "Hillhouse Capital Said to Raise $2 Billion Private Equity Fund". Bloomberg Business. Retrieved 3 March 2015.
  10. "高瓴资本张磊：价值投资成PE服务实体重要组成部分". Baidu Financial. March 2014. Retrieved 10 December 2019.
  11. "高瓴资本张磊：何谓长期结构性价值投资？". www.sohu.com. Retrieved 2019-12-10.
  12. "Value Investing Congress". Archived from the original on 2015-03-06. Retrieved 3 March 2015.
  13. 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.
  14. Hu, Bei; Browning, Jonathan (14 February 2018). "Asia's Biggest Private Equity Acquirer Is Seeking $6 Billion". Retrieved 11 November 2018.
  15. McElhaney, Alicia (19 September 2018). "Hillhouse Raises $10.6 Billion for Latest Private Equity Fund". Institutional Investor. Retrieved 11 November 2018.
  16. Sender, Henny (18 March 2018). "Hillhouse Capital set to beat KKR's record with China fund". Retrieved 11 November 2018.
  17. Xie, Stella Yifan. "China's Hillhouse Capital Raises $10.6 Billion for a New Fund". WSJ. Retrieved 2018-11-11.
  18. "Tencent, Hillhouse-backed GaoTeng launches fund to invest in debt securities". DealStreetAsia. Retrieved 2018-11-11.
  19. McEnery, Thornton, "The 15 Biggest Asian-Based Hedge Funds", businessinsider.com, May 17, 2011. Retrieved 2015-12-21.
  20. 804/Zhang-Value_Investing_Congress_West_2010.pdf valuewalk.com, 2015/04.
  21. "Research & Rankings: Top of the Hill" Archived 2015-05-18 at the Wayback Machine, Institutional Investor's Alpha/cenveomobile.com, Summer 2014. Retrieved 2016-01-11.
  22. "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.
  23. "What China's Leading Tech Investor Saw In a Traditional Shoe Company". Fortune. Retrieved 2018-11-20.
  24. Hu, Bei; Browning, Jonathan (14 February 2018). "Asia's Biggest Private Equity Acquirer Is Seeking $6 Billion". Retrieved 20 November 2018.
  25. Hu, Bei (30 October 2018). "China's Hunger for Safe Food Attracts Tencent-Backer Hillhouse". www.bloomberg.com. Retrieved 2018-12-02.
  26. "Tencent, Hillhouse Agree to $145M Deal With Retailer MINISO - Mingtiandi". Mingtiandi. 2018-10-05. Retrieved 2018-12-02.
  27. "Mayo and Hillhouse Capital China for the first time to develop flexible business model of medical services". Getin. 27 January 2015. Archived from the original on 2015-04-02. Retrieved 3 March 2015.
  28. "Peet's opens Shanghai cafe and roastery in first international foray". SFChronicle.com. 2017-11-22. Retrieved 2019-12-16.
  29. "What China's Leading Tech Investor Saw In a Traditional Shoe Company". Fortune. Retrieved 2020-01-07.
  30. "Goldman Sachs | Talks at GS - Lei Zhang, Founder and CEO of Hillhouse Capital". Goldman Sachs. Retrieved 2020-01-07.
  31. Sender, Henny (20 June 2014). "Zhang Lei has Lunch with the FT". Financial Times. Retrieved 3 March 2015.
  32. "Hillhouse Capital Group". Crunchbase. Retrieved 3 March 2015.
  33. "Hedge Fund - Hillhouse Capital Management". Insider Monkey. 31 December 2014. Retrieved 3 March 2015.
  34. York, Mia Lamar in Hong Kong and Timothy W. Martin in New. "Stanford Is Giving This Chinese Investor $200 Million". WSJ. Retrieved 2019-12-31.
  35. Lamar, Mia, and Timothy W. Martin, "Stanford to hand $200 million to Chinese fund manager", MarketWatch, August 18, 2015. Retrieved 2015-08-18.
  36. Heles, Thierry (19 August 2015). "Stanford moves into Hillhouse with $200m". Global University Venturing. Retrieved 31 December 2019.
  37. "Private Equity Asia | CPPIB | Canada Pension Plan Investment Board". www.cppib.com. Retrieved 2019-12-31.
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