Low-profile Beijing Fund With Envious Record

06 January, 2012

Hillhouse Capital is one of the world’s largest investment funds that most people have never heard of because its founder Zhang Lei sits in Beijing.

The fund is not strictly a local fund – its investors are offshore and they give Mr Zhang dollars, not renminbi. But he is part of a growing movement of mainlanders who have studied and trained in the west but returned to China to run alternative funds. By putting their offices in Beijing, these managers have an edge both in terms of information and relationships.

Since he established Hillhouse in 2005 with $30m from the Yale endowment, both Mr Zhang and Hillhouse have come a long way. He graduated from People’s University in Beijing before going to Yale School of Management, where he met David Swensen, head of the Yale endowment.

Hillhouse has a record that others can only envy, up 52 per cent compounded since it was founded – even in spite of a 37 per cent drop in 2008. Tom Hill, head of the arm of Blackstone that invests in hedge funds describes Mr Zhang as China’s Steve Mandel, in a reference to the founder of Lone Pine, one of the most admired and low-profile figures in the hedge fund world.

Hillhouse has flexibility that many funds lack and the freedom to invest both in the public market and the private market, giving young companies growth capital and taking big stakes in companies just before they list. For example, when First Eastern Leasing, a Shanghai-based leasing company with a big stake from KKR, went public early last year, Hillhouse was a big cornerstone investor.

Mr Zhang also has a valuable network in China. Many of his investments are in technology companies at a time when Chinese entrepreneurs are no longer merely imitating their western peers.

Associates say that, in spite of Mr Zhang’s wealth, he is determined to stay grounded. “Many sea turtles stop being local enough,” says one, in a reference to returnees. “They can’t socialise with the local entrepreneurs,” adding that Mr Zhang is not like that.

His avoidance of publicity was reinforced after Mr Zhang gave $8m to Yale. He was pilloried in the local blogs for not supporting his Chinese alma mater with the same generosity. Inaccurate, but Mr Zhang did not bother to contradict his critics.

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Low-profile Beijing Fund With Envious Record

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