May 28, 2019, 3:13 PM ETFireside Chat, Interview

Lei Zhang: Founder and CEO of Hillhouse Capital

Zhang Lei is the founder and CEO of Gaoling (Hill House Capital), established in 2005 with $20 million in seed capital from the Yale University endowment.
Over 15 years, the firm has grown assets under management (AUM) from $20 million to over $60 billion.
Gaoling employs a lean team of 45 people to manage its massive fund, prioritizing a reputation-based model where entrepreneurs seek them out rather than relying on aggressive coverage teams.
The firm's strategy combines Western long-term, equity-oriented investment principles with Eastern philosophies, specifically Taoist and Buddhist concepts of value creation and Sima Qian's principle that "trees do not speak, but people beat their way to them."

Lei emphasizes a "high bar" for entrepreneurship, requiring founders to pursue ventures because they genuinely believe in them, not because trends dictate participation.
Core founder qualities sought by Lei include:
- Empathy: The ability to connect with diverse stakeholders and view competitors as positive forces to help nurture the overall market.
- Lifelong Learning: A drive to learn for truth and self-improvement rather than solely for financial gain, coupled with intellectual humility.
- "Sports Team" Culture: A preference for organizational cultures that balance aggressive competitiveness ("I want to win") with adherence to rules and the resilience to learn from losses, distinct from "wolf" or purely "family" cultures.
The firm avoids investing in businesses that lack a clear, meaningful vision or where founders are driven only by the desire to "be in the game."

Lei identifies a shift in the Chinese tech landscape from "Internet Plus" (connecting people/goods/information) to "Plus Internet" (innovation 2.0), where technology, AI, and SaaS drive traditional industries.
The firm is actively investing in "Industrial Internet" (Chan Ye Hu Wang Lian), targeting the penetration of technology into the 80% of traditional businesses rather than just the top tech giants.
Specific areas of innovation include leveraging biotech in pharmaceuticals, SaaS in manufacturing, and AI across various sectors to transform traditional business models.

Baili, a major Chinese shoe retailer, was acquired by Hill House after experiencing 14 to 18 quarters of decline due to e-commerce disruption and fast fashion trends.
At the time of acquisition, the company operated 20,000 shops, served 30 million visitors, employed 100,000+ people, and sold 150 million items, yet lacked data visibility into customer behavior.
Key operational changes implemented include:
- Technology Integration: Deployment of RFID tracking on products (e.g., the Sijiatu brand) to monitor specific SKU engagement (views vs. purchases) in real-time, allowing immediate design adjustments rather than end-of-season discounting.
- Manufacturing Flexibility: Introduction of Lean manufacturing practices to shift production batches from 4,000 pairs to 4 pairs, drastically increasing agility.
- Results: Inventory turnover time was reduced by over 30 days, freeing up working capital to reinvest in brand quality and reducing the need to discount inventory, thereby protecting brand value.
- Employee Empowerment: Transformation of store clerks into the primary user interface for data collection and customer service.

Lei views education as the "best investment" because it involves compounding human capital without the need for an exit strategy.
Hill House Academy, established in partnership with Renmin University, aims to bridge technology gaps between different socioeconomic groups.
Lei served as a founding donor and chairman of the development committee for Westlake University (Xihu University) in Hangzhou.
- The university raised nearly 5 billion RMB (approx. $800–900 million USD) from Chinese entrepreneurs within a few years, with total capital exceeding $1 billion including committee funds.
- This fundraising effort signals a cultural shift in China from a "dynastic" wealth model to a community-building, philanthropic culture among the younger generation of entrepreneurs.