Hillhouse Capital Group


Hillhouse Capital Group is a global East and Southeast Asia-focused private equity firm. It was founded by Lei Zhang in 2005 with US$20 million in seed capital from the Yale Endowment. Hillhouse has offices in Beijing, Hong Kong and Singapore.
Hillhouse manages over US$50 billion as of October 2018, 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, investing in all equity stages in sectors including consumer, healthcare, financials and services.

History

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

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

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.
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 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.
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.
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.
Miniso: In October 2018 Hillhouse and Tencent signed a strategic investment agreement with Japanese-style retailer Miniso worth RMB 1 billion.

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

Investment philosophy

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 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.”
When it comes to buyout investments in traditiional 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."
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.

Notable investors

According to the Wall Street Journal, Stanford University pledged to invest about $200 million with Hillhouse in August 2015. With Stanford's investment, the firm manages "money for at least six of the 10 wealthiest universities in the U.S."
The other university investors in Hillhouse include Princeton University, Massachusetts Institute of Technology, University of Pennsylvania, University of Texas, and Yale University.
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.