Hillhouse founder emphasizes tech transformation opportunities

Participating in a webinar organized by FCLTGlobal, a non-profit organization that produces research focused on long-term investing, Zhang (pictured) used a barbell metaphor to describe his areas of interest. At one end there are start-ups focusing on robotics, artificial intelligence, and online technologies that are continuing to see rapid growth despite COVID-19. The other end is populated by companies that are not defined by technology but have the potential to embrace it.

Zhang pointed to Belle International, a Chinese footwear business acquired by Hillhouse and CDH Investments three years ago, as an example. They spun-out the sports retail unit through a Hong Kong IPO in 2019, leaving the more challenged women’s footwear division. COVID-19 has not been good for business.

"Everyone is doing Zoom and virtual conferencing wearing pajamas – who would need dress shoes? In February and March, sales were down more than 90%,” Zhang said. “Today, sales are growing at a double-digit pace. After more than three years of ownership, we have leveraged technology to transform the company to be just-in-time with cloud-based inventory.”

As a result, Belle was able to act nimbly once China’s lockdown ended, pushing out spring collections faster than its competitors because there was no inventory backlog from the winter to deal with.

The proliferation of technology-based business models – from asset-light start-ups to traditional operators – is forcing LPs to leave their comfort zones. For Canada Pension Plan Investment Board (CPPIB), this was a gradual process in Asia. The pension fund’s first new economy exposure was Alibaba Group, which could at least be assessed using conventional metrics because it was profitable. This was not the case with online-to-offline services platform Meituan-Dianping.

“It was our first private equity investment in a company that didn’t have any profit. I remember talking on the investment committee for a long time, debating whether we could use a revenue multiple to value this business,” said Suyi Kim, CPPIB’s Asia Pacific head.

What got the pension fund over the line was its belief in the Asia consumer story – and this remains a clinching factor when looking at investments in early-stage or established companies. The impact of the region’s growing middle class, urbanization, and general consumption trends are considered as CPPIB’s team has extended its new economy exposure into payments, healthcare, and education.

“We want to really understand the long-term structural changes that are coming in this part of the world,” Kim added. “We have been able to express that through investments like Ping An Good Doctor, which has been really well during this pandemic, or Ant Financial, which is now going through an IPO process, and Byju’s, an online education company in India.”

CPPIB also recently launched a dedicated VC strategy out of San Francisco. A dedicated team makes fund commitments and co-investments, giving the pension fund more early-stage exposure.

Lei’s technology philosophy encompasses stakeholder engagement as well as the pursuit of profit. It’s about “finding a way to help people to leverage technology, making technology not just a creative disrupter, but also an equalizer,” he said. For example, Belle incentivized employees by encouraging them to set up mini-stores on WeChat as additional sales channels, while Cowell Health ran free face mask lotteries through its online drugstore platform.

The importance of stakeholder engagement – whether investors, employees, customers or suppliers – was a recurring theme in the webinar. A business that commands the loyalty of those who work for it and with it will be better positioned for growth once the economic situation stabilizes.

“In the past the concept was shareholders in companies. Many organizations around the world have recognized it goes beyond that; you have to take stakeholders into account,” said Kiat Lim Chow, CEO of GIC Private. “Governance structures must be updated accordingly, whether it’s ESG [environment, social and governance] or other ways. How you treat your employees, suppliers, and business partners – all these things have to be aligned in terms of looking after their interests.”

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• Topics
• Greater China
• Technology
• Expansion
• GPs
• LPs
• South Asia
• Asia
• China
• Hillhouse Capital Management
• Canada Pension Plan Investment Board (CPPIB)
• GIC Private
• TMT