Some notes below (for personal reference only, so any mistakes in transcription are my own):

When he started Hillhouse, he had no idea what he wanted to do. He only had one investor who believed in the vision, which was pretty much “do things that you think make sense and believe in”. Unfortunately in this world, many things don’t make that much sense, so it was actually a pretty high bar despite the flexible mandate. Over time, however, he has found that true of the entrepreneurs they invest in – they are doing something they truly believe in, rather than because it’s hot or other people are doing it. As he looks back, it is unbelievable how much change and how many new opportunities have been created in China over the last 30 years. Can talk about the opportunities, but wants to focus on the people – the relentless drive and energy that people have to do something and change the future. He wasn’t really a great student up until his college entrance examinations, and still wasn’t sure what he wanted to do in college or graduate school. One thing that got him interested was that he felt much more connected with people who have lots of passion in what they do, and that just so happened to be entrepreneurship. 

At Hillhouse, they have followed a strategy that combines Western and Chinese philosophies and investment principles. People are familiar with some of the Western principles – being long-term, thoughtful, equity oriented. Another thing they believe in is based on the Chinese saying, roughly translated to “although peach and plum trees do not speak, people still beat a path to find them.” So they focus on doing the right thing, building their reputation, standing up for the values they believe in and people will find them and want to work with them. That is also part of the reason they can have a relatively lean team rather than a massive coverage team, which in turn allows him to be more entrepreneurial rather than becoming a pure manager.

On qualities he is looking for in entrepreneurs – there are many things and most of them are not mutually exclusive. He highlighted a couple of things. First, empathy, which he defines as the the ability to connect with people who are different from you, including your customers, competitors and employees. The best entrepreneurs see their competitors as positive force and think about how they can nurture the market together. Second, a commitment to lifetime learning. Not just because you want to make more money, but because you are intellectually curious and you want to become a better person everyday. Finally, the ability to build an effective organizational culture. He has seen many different types of cultures in Chinese companies. The one he likes most is the sports team culture – you want to win, but by playing by the rules and as a team. You can lose any particular game, but you will be better in the next one. 

On the changes and opportunities is he seeing in the Chinese investment landscape – the first wave of technology companies was all about connecting things (e.g. Baidu people with information, Alibaba people with goods and services, Tencent people with people). We are now entering the second wave, which he thinks of as innovation 2.0. Seeing the majority of companies across different sectors who are leveraging technology (e.g. internet, AI) to be innovation drivers. Could be traditional businesses that are leveraging SaasS, pharma companies leveraging biotech, and so on. He sees this as the industrial internet which is penetrating into all businesses. 

One example was their acquisition of Belle International. They are a shoe retailer – business was being eroded by multiple headwinds, internet/ecommerce taking share from offline retail, whole world moving to a much faster trend of fashion. Company was in decline for 14-18 quarters before they acquired it. Now into year 3 of ownership, the company is generating double digit growth. When they looked at the company, they saw the data, knowledge, employees as valuable assets. Everyday, the business has ~100k employees servicing potentially ~30m customers viewing ~150m items being sold in ~20k shops. Enormous scale but they didn’t really understand their customers in terms of preferences, past behavior etc. They have now leveraged software to help store clerks become more productive and improve the customer experience. Also put RFIDs in some of the products, so they know what particular SKU is being viewed and touched, but not purchased – maybe it looks good but is not comfortable to wear, so they can fix it right away rather than waiting until end of season and discounting it without knowing why. Also introduced a lean manufacturing practice, not to reduce costs (company was already very efficient) but to make the manufacturing process more flexible. Now can put product into stores every 4 pairs rather than every 4k pairs. This has reduced the inventory time by more than 30 days. The improved free cash flow can in turn be reinvested in the brand, while less inventory to discount means they can protect the brand better. Sets the foundation for mass customization.

On his philanthropy work and focus on education – in his view, no better investment than education. They joke internally about how the best investment is one where you don’t need to think about an exit. That is true of education, where you can just keep on compounding with human capital. Particularly relevant today where there is so much of a gap between the have and have nots. Also encouraging other Chinese entrepreneurs to shift from a dynastic culture/mindset to one of giving back, building community and serving as role models. Have to recognize that many Chinese entrepreneurs are still young and so perhaps haven’t thought about it as much.