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Lei Zhang: Better Than Warren Buffett?

By Rupert Hargreaves. Originally published at ValueWalk.

Almost every investor has heard of the world’s most prominent value investors such as Seth Klarman and Warren Buffett, but these aren’t the world’s only value investor. There are hundreds of smaller value money managers in the lower ranks, some of which have achieved returns that make even Buffett and Klarman look like amateurs. However, as these managers have chosen to remain small (as Buffett has previously acknowledged investors managing the less have a wider opportunity set) their exploits are not widely reported, but what about Lei Zhang?

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One such investor, who purposefully sought to keep a low profile during the first part of his career (and has since become one of the most prominent investors in China ) is Lei Zhang. Zhang was seeded by David Swesen of Yale Endowment with $20 million in 2005 and has since achieved a 40% compound annual return for his investors at Hillhouse Capital, which managed around $18 billion in 2015 and has since seen its assets grow to $30 billion.

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Lei Zhang: Best Ever?

According to a lecture he gave at the Columbia Business School in 2015, Zhang’s investment strategy follows the traditional value structure with a long-term outlook based on deep fundamental analysis. He’s put his own spin on the strategy by searching out companies that inspire change and create value through entrepreneur-like thinking and problem-solving. “We are entrepreneurs so happen to be investors.” When assessing companies and their management’s the four most important traits in people Zhang looks for are intellectual curiosity, intellectual independence, intellectual honesty, and empathy. In a given year, Hillhouse takes on 2-4 positions at best and sometimes only one.

Investing in change has virtually made Zhang’s reputation. When Lei Zhang returned to his home country, China with his seed investment, the investor immediately sought to capitalize on the rise of China’s tech sector, which was really just getting started at the time. In an interview with the FT in 2014, Zhang noted that before the recent boom, “it used to be that the whole world learnt from the US,” and many people dismissed Chinese internet companies as “mere copycats of companies established in the US and elsewhere, with no original business models or technology.” He goes on to say that these ideas proved to be wrong as China has “leapfrogged the US in many ways, especially mobile internet.” According to the interview, this belief in the Chinese tech sector led Zhang to put much of the money he initially raised into Tencent, the largest Chinese internet service, and social networking portal.

Zhang was also one of the earliest investors in e-commerce giant JD.com and before it became a public company he was the third largest shareholder. With a significant stake in both JD.com and Tencent, Zhang was instrumental in bringing the two parties together to form a strategic partnership. This initial early involvement in the tech sector has helped Zhang become one of the major players behind the scenes in the Asian technology sector. As the FT describes:

“Now Zhang is taking the Chinese template offshore. “The Chinese model, which is mobile-driven, is more suited to emerging markets than the US model, which is desktop driven,” he says. “The socio-economic profile is more similar. We can help companies like Tencent go abroad and accelerate the growth of the mobile internet elsewhere and others also can leapfrog. It is a win-win situation. We are changing intra-Asian trade.”

In Indonesia, for example, Zhang created a joint venture between Tencent’s WeChat mobile messaging platform and Global Mediacom, Indonesia’s largest media, television and pay TV conglomerate. “Indonesia now is like China some years ago,” he says.”

This particular FT interview was published in 2014, and since then Zhang’s ambitions have only expanded. Today he is currently trying to engineer the takeover of Hong Kong Stock Exchange-listed Belle International Holdings for a sum of $6.8 billion, making it one of Asia’s biggest de-listings. Zhang and his partners are planning to try and return the struggling traditional footwear retailer to growth, swimming against the tide of online retail.

According to reports, Lei Zhang believes he can bring his tech experience to revitalize old economy companies. He is understood to be contemplating the use of 3-D printing technology and a customized online service to re-invigorate Belle’s growth. As well as trying to breathe new life into the old retail sector, Zhang was part of a group bidding for GLP in Singapore, a logistics company that he first became familiar with because it does so much business with JD.com.

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