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Value investing with legends – Lei Zhang’s lecture at Columbia Business School
<p>Value Investing With Legends – Lei Zhang's (Hillhouse Capital) Lecture At Columbia Business School by Zong Z. Peng: Art, Travel, Entrepreneurship, and Investing:</p> <p>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.</p> <p>For those who crave for brevity, here is the essence of the lessons that Lei Zhang shared:</p> <p> Being a long-term investor gives you a big advantage from the starting line.<br /> Do deep fundamental research, make few bets instead of keeping on chasing ideas. This way you simply your life and your business.<br /> 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”<br /> Spend quality time with quality people, doing quality things. Hopefully part of the outcome is making money.<br /> Stay connected to reality and everyday life, do not become a victim of your own success.<br /> Four most important traits in people that Lei looks for: intellectual curiosity, intellectual independence, intellectual honesty, and empathy.</p> <p>&nbsp;</p> <p>For those who want more details and articulations, read on:</p> <p> Investment Strategy</p> <p> 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.</p> <p> 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</p>
Can central banks help push stocks higher?
<p>Investors may be feeling a bit of “déjà vu all over again,” to quote the recently departed Yogi Berra. As the fourth quarter kicks off, amid scarce evidence of global growth, equity investors are once again looking to central banks for largesse and monetary stimulus to help push stocks higher.</p> <p>While stocks ended the third quarter with their worst performance since 2011, according to Bloomberg data, a renewed reliance on central banks was evident in last Friday’s sudden stock market turnaround. As I write in my new weekly commentary, “As Growth Slows, Markets Seek Comfort in Old Friends,” the Dow Jones Industrial Average swung from a 250-point loss to a 200-point gain on Friday after U.S. investors treated a weak jobs report as a sign the Federal Reserve (Fed) will hold off on raising interest rates, according to Bloomberg.</p> <p>Investors in other countries are also following suit, similarly exhibiting this shift in the investment regime. European equities stand to benefit from a recent weak inflation point, which may promptfurther quantitative easing by the European Central Bank. A similar pattern is evident in emerging markets such as India, where last week stocks benefited from an unexpected rate cut from its central bank.</p> <p>Growing concerns over the health of the global economy are manifesting in several ways, as data accessible via Bloomberg show. A broad measure of financial stress, the Global Financial Stress Index, recently hit its highest level since the summer of 2012. In addition, with investor risk aversion climbing, so-called high-beta, momentum names that are more volatile continue to suffer. For example, at the lows last week, the Nasdaq Biotech Index was down nearly 30% from its July high, according to data accessible via Bloomberg.</p> <p>How a global slowdown may impact the U.S. economy</p> <p>Though I don’t believe a U.S. recession is on the horizon, it’s becoming clear that the U.S. isn’t immune to the global slowdown. Not only was the September jobs gain number roughly 50,000 below expectations, but the August payroll numbers were revised lower as well. In addition, hourly earnings were flat and the labor participation rate fell to its worst level since 1977.</p> <p>Meanwhile evidence continues to suggest that the U.S. manufacturing sector is struggling under the weight of a strong dollar and feeble overseas demand. As a result, second-half growth is likely to be considerably slower than the nearly 4% we witnessed in the second quarter, and a more pessimistic outlook for the U.S. economy is pushing back expectations for a Fed hike and driving down short-term yields.</p> <p>So what does this mean for investors going forward? As we have seen in recent years, in a world where the Fed keeps rates anchored at zero, stocks benefit, if only because they compare favorably to cash and negligible bond yields. Finally, in such an environment, some old themes, such as a preference for income-producing equities, come back into vogue as investors gir</p>
China and the Fed
<p>Markets<br /> The third quarter of 2015 was marked by significant losses in capital values and an increase in volatility. The S&amp;P 500 lost 7.55% in the quarter and 6.71% year-to-date; NASDAQ dropped 7.77% quarterly and 2.26% for the year; Dow Jones Industrial average declined 8.15% in the quarter and 8.68% year-to-date. The VIX fear measure closed the quarter at 24.50, an increase of 42.6% since the beginning of the quarter and 37.7% since the beginning of the year. The Russell 2000 small cap index lost 11.82% for the quarter and 8.18% for the year. Short term treasury yields remain at near-zero levels while 10 year treasury yields declined 15.4% to its current value of 2.03%. NYMEX-traded oil declined by 21.31% while the U.S. dollar lost 1.92% to the euro and 2.81% to the Japanese yen.</p> <p>Global markets, particularly Chinese, experienced serious declines in the third quarter. SSE Composite Index declined by 21.98% for the quarter, and is down 8.89% for the year. China also devalued the yuan with its base rate being cut by 1.9%. MSCI Emerging Markets Investable Market Index lost 17.88% in this quarter and is down 15.48% for the year. Japanese Nikkei 225 declined by 15.27% in the quarter but is flat for the year. EURO STOXX 50 lost 10.47% in the quarter but is up 2.56% for the year. Some bright spots for New Frontier investors included long treasuries (up 3.20%) and domestic REITs (up 3.03%). In spite of a very challenging quarter, our portfolios remain ahead of global benchmarks year-to-date.</p> <p>Perspectives<br /> The global economy was very close to collapse in late 2008. Nearly universal fear of default resulted in a near shutdown of commerce. Banks simply did not trust that borrowed funds would be paid back, and business activity stops when short-term lending stops. The Bush-Obama stimulus of 2008-2009 and the full support of the Federal Reserve resurrected lending confidence, and American banks began to return to profitability in March 2009. The Fed was in the forefront of applying modern monetary macroeconomic principles developed largely by a small number of Nobel Prize winning American economists with lessons learned from the Great Depression.</p> <p>Since then the American economy has been the main driver of global economic growth. U.S. equity markets have outperformed all others with the S&amp;P gaining nearly 200% since March 2009 and well exceeding prior 2007 highs. In contrast, EAFE has grown less than 100% and remains well below its prior highs. Markets reflected a recovering economy with 3.9% GDP growth in the last quarter and annual growth twice that of Europe and four times that of Japan. Consumer spending is up, household net worth is up, household debt ratio is down, and unemployment is at essentially a full employment rate of 5.1%. While the deficit is the lowest since 2007, China’s debt has ballooned dramatically. The dollar has strengthened relative to major currencies with enhanced purchasing power for U.S. consumers. Low interest rates are a positive driver of growth while the dollar remains the reserve currency safe haven of choice for global investors.</p> <p>Serious uncertainties remain for U.S. investors. Economic policies and capital markets are often out of synch. The Fed’s decision this month not to raise interest rates was accompanied with the explanation: “Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term.” In other words, global economic and political risks raised concerns about whether American economic growth was sustainable without continuing Fed support. The Fed’s comments spooked the market.</p> <p>The U.S. can’t be the only source of growth if growth is to be sustainable. While the Fed’s</p>
Daily Scan: Asian shares cap the week higher
<p>Updated throughout the day.</p> <p>October 9</p> <p>Good evening everyone. After heading for the stratosphere earlier in the day, Asian equities trimmed some of their gains in the afternoon – though not enough to knock them off orbit. Hong Kong’s Hang Seng China Enterprises Index finished the day up 1.6% - its best showing since August – while Japan’s Nikkei 225 ended the session up 1.64% - a whisker away from it’s a month-long high. Thanks Janet! Here’s how the rest are doing:</p> <p>Day<br /> Week</p> <p>Hang Seng Index<br /> +0.46%<br /> +4.54%</p> <p>Hang Seng China Enterprises<br /> +1.6%<br /> +7.66%</p> <p>Nikkei 225<br /> +1.64%<br /> +3.87%</p> <p>Topix<br /> +2.28%<br /> +4.9%</p> <p>Shanghai Composite<br /> +1.3%<br /> +4.3%</p> <p>Shenzhen Composite<br /> +1.47%<br /> +5.47%</p> <p>Europe isn’t doing too shabby itself. The FTSE 100 is currently up 0.5%, the DAX up 0.9%, while the CAC is up 0.8%. U.S. stock index futures however are pointing to a more subdued open in the region, with S&amp;P minis down 0.09%, Dow minis down 0.07%, and Nasdaq minis down 0.15%.</p> <p>Here’s what else you need to know:</p> <p>North Korea's leaders are going broke.  China’s economic slowdown and a plunge in coal prices are depriving North Korea of critical foreign currency, threatening to stir discontent among the small, elite class that the nation’s mercurial dictator relies on for support. The drain on income comes as North Korea continues to plow its limited resources into its armed forces. Wall Street Journal</p> <p>Lagarde: China isn’t all “gloom and doom.” Speaking to the BBC, IMF chief Christine Lagarde said China’s economy should reverse its current deceleration and regain its momentum sometime next year. BBC</p> <p>VW to recall 100,000 vehicles from down under. With its image crumbling in the wake of the emissions scandal, Volkswagen Australia plans to appease its customers by announcing a voluntary recall. “I want to assure customers that the affected cars are technically safe and the necessary measures will be undertaken at no cost to them.” Financial Times (paywall)</p> <p>Bank of England keeps rates steady. As expected, the Bank of England’s monetary policy committee kept rates on hold Thursday, citing continued issues with inflation as well as a way to “ensure that growth is sufficient to absorb any remaining underutilised resources.” The region’s quantitative easing program also stood pat £375 billion. Bank of England</p> <p>Mexico snares El Chapo’s pilot. Speaking to the nation’s Senate, Mexico Attorney General Arely Gómez said that not only have they bagged 23 officials in connection to El Chapo’s escape, but also the pilot “who transported this person” as well. Financial Times (paywall)</p> <p>Alibaba shares climb. Jack Ma made his shareholders happy today after his recent let</p>
Daily Scan: Stocks climb; McCarthy drops from House speaker race
<p>&nbsp;</p> <p>Updated throughout the day</p> <p>October 8</p> <p>Good evening, US stocks rose modestly Thursday after the Fed's meeting minutes showed how badly the central bank wants inflation to rise. The Dow gained 0.8%, the S&amp;P 500 rose 0.9%, and the Nasdaq added 0.4%. Earnings season kicked off with a report from Alcoa Thursday. The aluminum company lost 3.8% in after-hours trading after its earnings and revenue fell short of expectations. Oil broke $50/barrel for the first time since July.</p> <p>Here's what else you need to know:</p> <p>Kevin McCarthy drops out of speaker race. House Majority Leader McCarthy was expected to succeed House Speaker John Boehner when he resigns at the end of October. McCarthy expressed skepticism that he would win the Speaker race outright, and didn't want to divide his Republican party further. The vote for speaker has now been delayed. CNN</p> <p>Russian missiles fall in Iran. Four Russian missiles meant for Syrian antiregime forces fell short of the country and landed in Iran. Russia and Iran are allies in their support of Bashar al-Assad as leader of Syria. Wall Street Journal</p> <p>Save the drama for your mama, Bill Gross. Gross is suing Pimco for $200 million. The Bond King says a "cabal" of executives drove him from the firm he founded so they could claim his bonus for themselves. Pimco's directors were "driven by a lust for power, greed, and a desire to imporve their own financial position and reputation." Gross left the firm in September 2014. The year before, his pay topped $300 million. Reuters</p> <p>Chrysler Fiat averts strike. Again. The four-year contract affects 40,000 workers in the U.S. Last month workers rejected a deal. This new agreement also requires UAW member ratification. Reuters</p> <p>Svetlana Alexievich wins Nobel Prize for literature. The chair of the Swedish academy called the work by the Belarussian author a “monument to suffering and courage in our time.” The Guardian</p> <p>Dell reported in talks to buy storage company EMC. No price yet on the deal, but it is likely to exceed the $37 billion offer Avago Technologies made for Broadcom. Dell is valued at $50 billion. Reuters</p> <p>Uber China is toast. Didi Kuaidi, Uber’s Beijing-based rival, scored a massive win against its San Francisco-based nemesis after it secured a license to operate private cars in Shanghai. This is a huge blow to Uber, not only because Shanghai is a major market, but also because other Chinese cities typically follow suit. Wall Street Journal (paywall)</p> <p>Sony to sell stake in world’s largest music publisher. Sony, the embattled Japanese electronics giant, is selling its stake in Sony/ATV Music Publishing – which it co-owns with the estate of Michael Jackson. Sony/ATV owns the copyrights to songs from the Beatles, Marvin Gaye, and Taylor Swift, and i</p>
Rubenstein gives $25M to Duke
<p>Carlyle Group co-founder David Rubenstein is giving $25 million for the art program at Duke University.</p> <p>Rubenstein, a Duke alum, has given almost $100 million to the school over the years, Art News. The latest gift will help fund a new 71,000-square-foot arts building. The $50 million building will include a dance studio, theater, and classrooms.</p> <p>Rubenstein recently gave $4.5 million to the National Zoo's giant panda research and conservation program as well.</p> <p>&nbsp;<br /> Photo: See-ming Lee</p>
Samsung red-faced with China hack on LoopPay
FinTech
<p>This week it was revealed that LoopPay, a US subsidiary of Samsung, was targeted by a group of government-affiliated Chinese hackers earlier in the year,</p> <p>The New York Times reports that the data breech by the so-called the Codoso Group, also called the Sunshock Group, was only discovered in August. It appears they were after LoopPay’s technology, known as magnetic secure transmission (MST).</p> <p>This is a big worry for Samsung which bought LoopPay in February for $250 million and had put its MST tech at the core of mobile payment service Samsung Pay.</p> <p>The hackers are said to have broken into LoopPay’s corporate network, but thankfullly not the system that manages payments. The breech was only found when an organization tracking the hackers unearthed LoopPay’s data during a separate investigation.</p> <p>Samsung and LoopPay have assured the public that the infected machines have been removed, that the service is uaffected, and that customer data is secure.  But the timing could not be worse. Samsung Pay launched in the U.S. just 38 days after LoopPay discovered the attack.</p> <p>Samsung Pay will now not only have to convince consumers of it advantages of its Google and Apple rivals, but will also need to reassure them of its security.<br /> Photo: Charles Roper<br /> &nbsp;</p> <p>&nbsp;</p>
Asian PE funds continue to grow
<p>Private equity fundraising has supposedly stalled across the globe, but apparently, Asia didn’t get the memo.</p> <p>Hot on the heels of RRJ Capital’s record-breaking $4.5 billion fund raise, Preqin reports that Asia-focused private equity funds are continuing to grow despite all the turmoil in the region.</p> <p>26 Asia funds apparently raised $15 billion in the third quarter, more than double what they raised in Q2, and two of those funds actually cracked Preqin’s top 10 list:</p> <p>This underscores just how investors love Asia at the moment. Despite their apparent exit from the region, North American investors were among the largest contributors to RRJ’s third fund, while GLP’s CLF Fund II – currently the world’s largest China-focused infrastructure fund – seems to have attracted its fair share of foreign investors as well.</p> <p>A lot of these funds are dry powder though. With the contagion from China’s downturn still a huge matter of concern, capital deployment within the region has certainly not been what it used to be.</p> <p>As equity prices creep lower however, these guys should have more than a few options to work on pretty soon.<br /> Photo: Pictures of Money</p>
Startup heavy-hitters in Indonesia launch $150 million fund for early stage companies
<p>Three top startup investors are putting together a new band with support from the Indonesian family conglomerate Lippo Group.</p> <p>The new firm, Venturra Capital, will target Series A and B deals in Southeast Asia raising between $2 million and $5 million -- but will also consider seed candidates.  This will be an interesting group to follow -- the founders have impressive credentials: Stefan Jung is co-founder of German incubator Rocket Internet; Johny Riady, was a director at Lippo Group, and Rudy Ramawy was in charge of Indonesia for Google.</p> <p>Tech in Asia reports the fund has already raised $15o million, mostly from  Lippo. The fund is successor to Lippo Digital Venture (LDV) - Lippo's corporate VC arm where Ramawy was managing partner.</p> <p>Venturra has absorbed LDV's portfolio of investments previously made off of Lippo's balance sheet. However, Lippo's role will be restricted to limited partner.</p> <p>Between them the founders have an investment track record the covers start-ups such as GrabTaxi, Traveloka, HappyFresh, Bridestory, Munchery, and MatahariMall. The fund will focus on e-commerce, fintech, and healthcare.  Jung - who last set up Monk's Hill Ventures' Jakarta office - says the firm is open to earlier stage investments:<br /> "We are considering ourselves agnostic in terms of stage preference. We are still keeping ourselves open to early stage and seed rounds. If we’ve known the entrepreneur for a while and want to support them from day one, then we will surely consider investing.”<br /> Photo: The Diary of a Hotel Addict<br /> &nbsp;</p>
Vietnam, Malaysia may be the TPP’s biggest beneficiaries: Credit Suisse
<p>Who is the biggest winner of the TPP deal? If you guessed the US middle class... you were wrong</p> <p>The biggest beneficiaries from the Trans Pacific Partnership struck on Oct. 5, are expected to be Vietnam and Malaysia, while the impact on non-TPP Asian countries is likely to be slightly negative, believes Credit Suisse Group AG (ADR) (NYSE:CS) analyst Michael Wan. He said in his Oct. 7 research report on “Asia Economics” that he thinks the manufacturing sector will be the biggest beneficiary from the TPP.<br /> Vietnam could witness a 10% boost to GDP by 2025<br /> Wan terms the TPP a historic agreement, as after almost seven years of negotiations, the U.S., Japan and 10 Pacific Rim countries finally came to an agreement. The analyst points out that if the trade agreement is ratified through the various countries’ parliaments and implemented, it will cover 40% of global output and aim to eliminate over 18,000 tariffs.</p> <p>In another report from CS published jointly by Dan Fineman and Chate Benechavitvilai, the analysts say that most likely, Vietnam is the top winner in Asia from the TPP. Though details on the agreement are currently lacking, the analysts anticipate that the biggest gains for textiles, garments and footwear exports to the U.S. could lead to shifts in production from China and Thailand. Citing estimates from the Peterson Institute, the analysts point out that the TPP could boost Vietnam’s GDP by 10% by 2025-- twice as much as is estimated for any other Asian market.</p> <p>Fineman and colleague point out that the key problem for investors is the lack of large and /or liquid stock that directly benefits from the TPP. However, the analysts point out that given the overall positive impact on the economy, the agreement could also have a spill-over effect on some sectors, including banks, consumer and property. Within their Vietnam coverage, the Credit Suisse analysts maintain their Outperform rating on Vinamilk (consumer) and Vingroup (property).</p> <p>Malaysia’s GDP could see 5% boost</p> <p>Tan Ting Min of Credit Suisse believes the TPP is generally positive for Malaysia as the country is very dependent on trade, and the TPPA will open up four new markets to Malaysia: the U.S., Canada, Mexico and Peru. Min believes the TPPA is positive for Malaysia in the long term, though the analyst doesn’t envisage benefits until 2018, assuming the Cabinet approves it. The CS analyst also thinks export industries in Malaysia such as plantations, electronics, textile, automotive parts and</p>