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Value investing with legends – Lei Zhang’s lecture at Columbia Business School

By ValueWalk
Asset Management

Value Investing With Legends – Lei Zhang's (Hillhouse Capital) Lecture At Columbia Business School by Zong Z. Peng: Art, Travel, Entrepreneurship, and Investing:

In the high flying world of investing, Lei Zhang maintains a relatively low profile. Yet since he was seeded by David Swensen 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 Buffett 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.

For those who crave for brevity, here is the essence of the lessons that Lei Zhang shared:

Being a long-term investor gives you a big advantage from the starting line.
Do deep fundamental research, make few bets instead of keeping on chasing ideas. This way you simply your life and your business.
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”
Spend quality time with quality people, doing quality things. Hopefully part of the outcome is making money.
Stay connected to reality and everyday life, do not become a victim of your own success.
Four most important traits in people that Lei looks for: intellectual curiosity, intellectual independence, intellectual honesty, and empathy.

 

For those who want more details and articulations, read on:

Investment Strategy

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.

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 thi

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