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Hillhouse's Zhang Lei: Be a Friend of Time- Part 2

Zhang's early path

September 20, 2020

Some time ago, I wrote an article on the topic of path dependence. The idea of path dependence was popularized by the renowned Nobel Laureate Douglas North. The basic idea can be summarized as the following: "Actions in the present are constrained by actions in the past." One's own path, to a large extent, determines one's temperament and how one views the world. Therefore, when studying great investors, path dependence is an enormously important mental model because, inevitably, every investor's investment style is reflective of his past experiences. To best understand them, we better understand what the original path is and why it was taken.


Zhang Lei was born in 1972, in a city called Zhumadian of the Henan Province in China. Zhumadian and its surrounding areas are located near the center of the origin of the Chinese civilization. Zhang's family was a double working family, meaning both parents worked full-time at the same state-owned enterprise. In Zhang's own words, the benefit of being born in a double working family is that neither parent had time to discipline him. Therefore, he was always playing with his buddies. In elementary school, he wasn't a very good student. In fact, he barely passed the middle school entrance exam by one point.

Because both of Zhang's parents were busy, they often left him with one of their relatives. And that relative would then take him to the city library and leave him there for a whole day. Although Zhang didn't like school, he did enjoy reading books. He read all kinds of books, including poetry, kong fu novels and biographies. During this period of time, one book in particular greatly influenced him – "And Quiet Flows the Don" by the famous Russian writer Mikhail Sholokhov.

After finishing all the classic literature, Zhang started reading scholar books and became interested in logical analysis and moral ethics. It was reading that inspired him. During his sophomore year in high school, he became very diligent in school and aspired to attend China's top universities so he could pursue the best knowledge.

Another milestone event for Zhang in high school was the appointment of class monitor by his headmaster. The headmaster hold him that to be a great leader, he had to learn how to empathize with others. Zhang took this to heart. One way to learn empathy is to experience life. During the summer before college, Zhang worked at a construction site as a brick mover. It was a very laborious job, but Zhang said it was worth it because it made him realize "everything tasted great after hard work."

Even today, the ability to empathize with entrepreneurs is one character that sets Zhang apart from his competitors.

Early entrepreneurial attempts:

Zhumudian's located at the crossroads of the Beijing-Guangzhou railway route. Many people from Zhumadian chose to work in other cities, but they left their families in Zhumadian. Therefore, the passenger flow at the railway station is very large. Zhang's family lived right next to the railway station. As a teenager, Zhang would often go to the railway station and observe. What he found out that because the trains were either late or overloaded, many passengers had to find ways to spend their time. Now people just checked their smartphones, but back then there was not much they could do. Zhang discovered business opportunities. He collected recreational books from his classmates and rented those books to the waiting passengers. He even got his friends to join his startup. Later on, they came up with the bundle idea – rent five books and get water and snacks for free. It was the prototype of the share economy.

College life

Zhang Lei was accepted by Renmin University of China, one of China's best universities. He majored in international finance. While attending school, Zhang participated in a market research project for a television manufacturer called Beijing Mudan Television. At its peak in the 1980s, Mudan had more than 50% of the market share in China's TV market. But in 1990s, Mudan's market share gradually declined and faced tremendous challenges. The project's goal was to determine the cause of Mudan's declining influence.

A few teams participated in the project. All except Zhang's team had their focus on the market in big cities. Zhang's team, however, followed Chairman Mao's research approach and focused on the television market in rural areas and lower tier cities because they thought consumers in those cities represent the "real market." Zhang went to his hometown Zhumadian and interviewed consumers, distributors and retail end points. He wanted to understand how consumers made their decisions. In the end, Zhang's team won the grand prize by a large margin.

This project shaped the way Hillhouse conducts fundamental research.

Another event that had great impact on Zhang was the mock trading contest in which Zhang was a key organizer. In the early 1990s, stock market was a very esoteric concept to most Chinese people. Most participants ignored fundamental analysis and used technical analysis. Zhang thought that was wrong. So he organized the mock stock market contest. In order to participate in the contest, each team had to base their recommendations on the fundamentals of the business such as competitive advantages and management team changes. This event got the attention of China's most prominent TV network, CCTV, and Zhang was invited to participate in a program by CCTV and introduce value investing to ordinary Chinese people.


From Zhang's early experiences, we can determine a few things. First of all, he loved reading and, like Charlie Munger (Trades, Portfolio), he read on a variety of topics. Second, he was entrepreneurial at an early age and was good at managing a start-up team because he can sympathize with others. And lastly, from the very beginning, Zhang placed great emphasis on grassroots research, which is the hallmark of Hillhouse's research methodology.

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About the author:

A global value investor constantly seeking to acquire worldly wisdom. My investment philosophy has been inspired by Warren Buffett, Charlie Munger, Howard Marks, Chuck Akre, Li Lu, Zhang Lei and Peter Lynch.

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