Hillhouse Capital Group believes the future of innovation lies in traditional industries such as retail and healthcare services.
“The future of innovation is in traditional businesses. I think that’s the future. The technology industry itself has growth potential, but the bigger potential is how to leverage technology to help the traditional businesses reinvent themselves,” Hillhouse founder Zhang Lei said at the CFA Institute Annual Conference in Hong Kong on Monday.
Beijing and Hong Kong-based Hillhouse was founded in 2005 with $20 million from the Yale University endowment. It manages over $30 billion in assets for institutional LPs such as Canada Pension Plan Investment Board, San Francisco Employees’ Retirement System, Yale University and Mayo Clinic, according to PEI data.
The firm targets consumer, TMT, industrials and healthcare sectors and invests across all equity stages. Among its earlier investments include Chinese tech giants Tencent, Baidu and JD.com.
On the fundamental dynamics between Asia and western private equity, Zhang noted that private equity in Asia is all about growing and re-shaping businesses.
“Here [in Asia] private equity is much more about growing the business than the typical Western playbook of leverage and cost-cutting,” he said. “To be honest, Chinese entrepreneurs are very good cost-cutters themselves, most times they do a better job than us. But I think what we bring to the table is helping them grow and reshape the business in the digital age, helping them through the transition and get the right talent.”
He explained further that in the case of Belle International – a Chinese shoe retailer Hillhouse invested in last year alongside China-focused private equity firm CDH Investments in a deal valuing the company at $6.8 billion – the firm aims to transform the shoe retailer to become more adaptive to consumers’ evolving needs.
“If we can find a way to leverage technology to make these traditional businesses faster and better, more adaptive, catering more to the consumers’ evolving needs, that’s what we want to be focused on,” he said. “Belle has 20,000 stores in China, 6 million people visit their stores everyday, how can they think more like an internet company? How do we connect with consumers better and have better products to fulfil their needs?”
Another traditional industry Hillhouse has made big bets on is logistics. It struck the largest private equity buyout in Asia last year with its acquisition of Singapore-listed Global Logistics Properties for $11.6 billion. Hillhouse was part of a group of investors that included Hopu Investment Management, Vanke Group and Bank of China Group Investment.
Hillhouse is reported to be raising capital for what would the region’s largest ever private equity fund, surpassing KKR’s $9.3 billion Asian Fund III. According to a Financial Times report in March, Zhang told investors he is capping the fund at $8 billion, despite having commitments of over $10 billion.