Hillhouse Capital “failed”, Zhang Lei “lost his voice”

The high-profile Hillhouse seems to have lost its "voice" in the capital market.

For a long time, Hillhouse Capital has been quite mysterious in the capital market, with many halos on its head, and Zhang Lei's label has become that he is not afraid to "take over" at high prices in the pharmaceutical and new energy sectors.

But when the tide receded, Hillhouse Capital did not become the ultimate lucky one.

According to "China Entrepreneur", in mid-2022, Hillhouse Capital began to frequently look for buyers for some of its projects.

A person familiar with the transaction even revealed that "the scale is quite large."

From frequently participating in large-scale private placements to looking for someone to take over, what has Hillhouse Capital experienced?

The answer may lie in Zhang Lei’s investment tracks and choices.

There is an old saying in the capital market that "profit and loss come from the same source." Zhang Lei, the founder of Hillhouse Capital, once said that the most expensive thing in investment is time, not money.

When facing the media, he once confidently said the famous saying "Choice is more important than hard work."

As an absolute advocate of value investing, Zhang Lei and Hillhouse Capital have suffered a lot from value investing in the past two years. To the outside world, Hillhouse Capital is still mysterious, like seeing flowers in the fog.

Time has given the answer. Zhang Lei has also begun to remove the halo of value investing and seriously reflect on the secondary market.

Buffett once said: "If it is a good company, I am willing to hold it forever." But how to identify a good company is a test for investors. Investing is simple and complex. In Buffett's investment career, he rarely makes mistakes in decisive investments. Whether it is the investment in Wells Fargo or Apple, it absolutely proves Buffett's ability to discover good companies, which is the key step to winning in investment.

Unfortunately, most investors do not have this ability.

"First Battle" became famous

Zhang Lei once said, "Water does not compete for the lead, but for the continuous flow."

In China's investment circle, Zhang Lei was once an alternative figure. Hillhouse Capital is the only investment fund that started in the secondary market and then grew in the primary market. Its secret is to make heavy bets on companies such as JD.com.

In 2019, blue-chip stocks led by Moutai were all the rage, and the rose of time became the golden rule of the capital market. At that time, any fund of a certain size would bind its investment philosophy to "value", and Zhang Lei was no exception.

In mid-August 2019, Gree Electric's equity transfer stirred up huge waves in the capital market. However, by the final equity transfer solicitation stage, only two relatively large consortiums remained, one was Hillhouse Capital led by Zhang Lei, and the other was Hillhouse Capital headed by Fang Fenglei.

After several rounds of competition, Zhang Lei finally won.

In fact, Hillhouse Capital's decision was not a sudden one, but rather a long-planned one. As early as the fourth quarter of 2016, companies under Hillhouse Capital increased their holdings of Gree Electric Appliances by more than 50 million shares, becoming one of the top ten shareholders. Zhang Lei's bet also almost reaped the huge profits brought by the rise in Gree's stock price.

In order to maintain this advantage, Hillhouse Capital eventually became the largest shareholder of Gree Electric Appliances at a cost of more than 40 billion yuan. This battle also made Hillhouse Capital and Zhang Lei famous in the capital market outside the investment circle.

After entering 2020, Hillhouse Capital's investment reached a climax. Its investments such as Blue Moon, JD Health, Anker Group, Xpeng Motors, and Perfect Diary were all listed, which also gave Zhang Lei and Hillhouse Capital unlimited courage.

Later, Zhang Lei was not afraid of the prices of some new energy and pharmaceuticals, and chose to participate in the private placement at a high level. In the field of new energy alone, Hillhouse Capital invested more than 10 billion yuan in CATL and Longi. Later, Hillhouse Capital also participated in the private placement of Enjie Co., Ltd. and Tongwei Co., Ltd.

In the pharmaceutical field, Hillhouse Capital also participated in the private placement of Alethera, Kellytech, and Sinoplasma Materials. In addition, Zhang Lei also invested heavily in BeiGene, WuXi AppTec, Hengrui Medicine, and Aier Pharmaceuticals.

This was Zhang Lei’s most glorious moment and also the hottest period for Hillhouse Capital.

Falling from the altar and losing the voice

In the first half of 2022, with the collapse of the group stocks, track stocks suffered a collective sharp drop, and stock prices that were "halved" were everywhere.

As blue-chip stocks fell from their pedestal, the "bubble" created by the private placements began to burst. Some of the "top-tier" institutions were the first to become "victims" of the bubble, and Hillhouse Capital was no exception.

What made Zhang Lei most "embarrassing" was the private placement of UFIDA Network and the huge investment in Gree Electric Appliances.

After a round of decline, the capital market began to question "value" investment, and "Hillhouse concept stocks" also changed from being popular to being abandoned by the market.

In less than two years, Hillhouse lost not only the shrunken market value of its holdings, but also the market's confidence in Hillhouse.

Looking back at the projects invested by Hillhouse, losses abound in 2022, and it is hard to be optimistic about investment. Among them, the most "hurt" for Hillhouse Capital and Zhang Lei is the rumor of layoffs at the end of the year.

At that time, some media revealed that Hillhouse Capital was indiscriminately laying off employees, and there were even reports that its founding partner had "left". Although Hillhouse Capital denied it, the market no longer blindly followed Hillhouse Capital's investment targets, and investors even accelerated the selling of projects invested by Hillhouse Capital.

Helplessly, Hillhouse Capital began looking for buyers for some investment projects.

A VC industry insider said that many of Hillhouse Capital's projects have high transaction prices, which will bring great pressure to funds that intend to take over.

In fact, after a year of decline in Hillhouse Capital's holdings, Zhang Lei has long lost his former "high profile". Not only has he "faded out" from the public eye, his investment philosophy has also been gradually abandoned by the market.

On the evening of November 20, 2022, Bestore announced that three limited partnerships under Hillhouse Capital planned to reduce their holdings by no more than 22.29 million shares due to their own funding needs, which would not exceed 5.56% of the company's total share capital. If the reduction is completed, Hillhouse Capital will no longer hold shares in Bestore. In fact, this clearance-style reduction is just a microcosm of Hillhouse Capital's current situation.

In the future, if track stocks continue to be under pressure, Hillhouse Capital's situation will become worse, and Zhang Lei will be under greater pressure. At that time, Zhang Lei's long-accumulated good reputation may also disappear.

Zhang Lei once said that on the road of life, choosing who to walk with is more important than where you want to go.

Today, both Zhang Lei and Hillhouse Capital have reached a crossroads of fate.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.