I would rather lose my clients than lose their money in investment

I would rather lose my clients than lose their money in investment

 I would rather lose my clients than lose their money. There is only one criterion for real investment, that is, whether it is creating real value and whether this value is beneficial to the overall prosperity of society.

Zhang Lei, the author of this book, is the founder and CEO of Hillhouse capital. Hillhouse was founded in 2005. After 15 years of development and expansion, the fund management scale has increased from the US $ 20 million to RMB 500 billion, making it one of the largest investment institutions in Asia. Zhang Lei's personal wealth also reached 28billion yuan, ranking 178 in the Hurun China rich list in 2020. Hillhouse's annualized yield exceeded 40%, and it has invested in famous companies such as Tencent, jd.com, blue moon, qunar, pinduoduo, liangpin store, and Belle.

In 1990, Zhang Lei was admitted to Renmin University of China majoring in international finance as the number one liberal student in the college entrance examination of Henan Province;

In 1994, after graduating from University, he entered China Minmetals Group;

In 1998, he went to Yale University in the United States to study, and later received a master of business administration and a master of international relations degree from Yale University. During his study, he worked in the famous Yale University Investment Office under David Swenson.

I will explain this book in three parts:

The first part is about Zhang Lei's entrepreneurial process.

Zhang Lei had two entrepreneurial experiences. The first time he founded a website called "China entrepreneurship network" with his old classmates, and later failed due to changes in the general environment. The second time was to establish Hillhouse in 2005.

As a private equity fund, the first hurdle for Hillhouse to pass after its establishment is fund-raising. The Yale endowment fund team led by David Stevenson invested $ 20 million for Hillhouse, which was the first capital raised by Zhang Lei after the establishment of Hillhouse. Shortly thereafter, the Yale fund added another $ 10 million. Subsequently, several endowment funds from well-known American universities also successively injected capital into Hillhouse.

The second part is about what kind of investment institution Hillhouse is.

Hillhouse has the gene of learning organization from the beginning. The investment allocation portfolio adopted by Zhang Lei follows the Yale model created by David Stevenson and also places venture capital in a prominent position. At the same time, it also does stock trading on the stock market. It holds a large number of Chinese concept stocks in shares, Hong Kong stocks, and U.S. stocks. It can be said that Hillhouse is an all-around player in private equity funds.

The investors of the Hillhouse fund are institutions such as the Yale endowment fund, and the lock-in period can be more than 10 years. Zhang Lei has long-term funds to support him. What he needs to do next is to find good company and be a friend of time.

The third part talks about how Hillhouse put the valuable investment of these two steps into practice.

The first step is to find value. Zhang Lei believes that in-depth research is the cornerstone of value discovery. The uniqueness of their team is to establish their own analysis framework, which depends on four elements: people, business, environment, and organization.

Look at people: it's to find entrepreneurs with a great pattern. Look at business: that is, to see what essential needs it can solve for customers, its business model, core competitiveness, and whether there is a dynamic moat. Many start-ups have to go through a money-burning stage. Zhang Lei is concerned about whether the money burned can create a dynamic moat. Next, look at the environment: macro factors such as policy environment, economic cycle, and demographic changes should be taken into account. The last one is to look at the organization: that is, the organizational culture within the start-up enterprise. What Zhang Lei appreciates very much is a sports team culture. From the start-up to the listing of the company, every step is full of hardships. The team that can go to the end must be a united team that can fight a hard battle.

There is only one moat in the world, that is, entrepreneurs continue to innovate and continue to create long-term value crazily. Early death, early rebirth, subvert yourself from the inside.

The second step of Zhang Lei's value investing is to create value, specifically its post-investment management. From the investment practice of Hillhouse, it can be seen that it has integrated value discovery and value creation. Obviously, the larger the cake is made with good enterprises, the higher the investment income of Hillhouse will be. This is a win-win outcome.

Zhang Lei said: a very important thing in life is to find a group of really reliable people you like and do interesting things together. We are entrepreneurs and happen to be investors.