Hillhouse Capital Group (“Hillhouse”) is an investment management firm founded by Zhang Lei in 2005 with US$20 million in seed capital from the Yale Endowment.
Hillhouse manages over US$20 billion as of January 2016. and is known for its avoidance of publicity. 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. Hillhouse focuses on the consumer, TMT, industrials and healthcare sectors and invests in companies across all equity stages.
Hillhouse has over 30 investment professionals across its offices in Beijing, Hong Kong and Singapore. It invests globally, with a particular focus on Asia.
Zhang Lei founded Hillhouse Capital Group in June 2005. The company is named after an avenue in New Haven, one block from where the Yale investment office was previously located. 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.
According to the Financial Times, Zhang built Hillhouse by being one of the first investment firms to back mainland China’s burgeoning internet sector, including investing in Tencent Holdings Ltd., which is one of China’s most valuable internet companies today. Hillhouse is also one of the first firms to invest in JD.com, the e-commerce giant.
Hillhouse has achieved an investment record of up to 52% annualized since 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 In 2014, returns had reportedly dropped to over 40%. Owing to its low profile but high performance, founder Zhang Lei and Hillhouse have been likened to Stephen Mandel and Lone Pine Capital.
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.
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.
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 China Brand Power Index published by Ministry of Industry and Information Technology. The market share of its liquid detergent is ranked #1 in China for the past five consecutive years.
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.
Henny Sender discussed Zhang’s investment philosophy in an article published in the Financial Times. 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.”
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.
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.”
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.
Under a plan reported in August 2015 for Stanford University to invest about $200 million with Hillhouse, the group will be "investing money for at least six of the 10 wealthiest universities in the U.S."