"I am an optimist by nature. Therefore, I view the world and people around me from an optimistic point of view. "
- Zhang Lei
Before graduating from Renmin University of China, Zhang Lei, like all other graduates of his class, faced the question of finding the right employer. At that time, China's security market was very immature. Therefore, there were few job opportunities in investment related fields such as investing banking, sell side research and buy side research. Most of the finance major graduates would fight for jobs at top commercial banks.
China Minmetals Corporation
Zhang Lei was different. He didn't want to work for the banks. Instead, he wanted to get hands-on experiences in the industrial part of the economy. Like his experience in his youth as a brick mover, he wanted to experience the "real world," not the financial world. He chose China Minmetals Corporation.
China Minmetals Corporation can trace its roots all the way back to the early 1950s when China Minerals Corp. (one of the predecessors of Minmetals) was established in March 1950. It was one of the earliest state-owned enterprises. Unfamiliar to even many Chinese, Minmetals is the powerhouse in the metals and mineral industry. As one of the largest conglomerates in the world, its business consists of metals and minerals, metallurgical construction, trade and logistics and finance and real estate. In 2020, it ranked 92nd among the Fortune Global 500 companies.
There were two main reasons why Zhang Lei chose China Minmetals Corporation. First of all, in early 1990s, Minmetals was one of the few market-oriented state-owned enterprises. It attracted many young and adventurous talents such as Zhang, who could participate in China's transition from central planning to market economy. Secondly, because China's mine resources are mostly located in remote and less developed provinces such as Yun'nan and Guizhou, Zhang had the opportunity to travel across the poorest but also the most beautiful regions in China. He could relate to people who lived in the poor areas. Even today, Hillhouse's research is often focused on tier three and tier four cities, not Beijing and Shanghai.
Working for Minmetals also gave Zhang the opportunity to meet with foreign clients. Some of his colleagues and college classmates also decided to study abroad. He was curious about the world outside of China.
First year at Yale University
Zhang Lei applied for many MBA programs and was accepted by seven of them. Of them, only Yale offered him a scholarship, so he packed up and headed over to New Haven, Connecticut.
Yale's biggest impact on Zhang was its rigorous analytical system, its historical analysis and its comprehensive framework of thinking. Following Yale's methodology, Zhang realized that analyzing and solving a problem is a fun undertaking. He analyzed the history of the U.S. financial system. He challenged the scholarly popular definition of risk. He wanted to know how he could apply modern financial theories in practice. Yale also taught Zhang that it's more important to be honest with yourself, than to merely get the right answers.
John Maynard Keynes once said, "Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally." Zhang Lei was the opposite. His unconventional thinking didn't get him any summer internship opportunities. In fact, he didn't even get many interview opportunities. When he did get an interview with a top management consulting firm, he "blew" it by asking the interviewer whether there was any point to gas stations when asked about the optimal amount of gas stations in a certain commercial area.
First start-up
Because Zhang Lei didn't get any summer internship jobs, he couldn't afford another year's tuition and fees, so he took a year off and started a business called SinoBIT. Zhang observed that entrepreneurs with an engineering background usually are very good at product development as they could communicate their ideas with the capital providers.
This was in the late 1990s, and the technology industry was the hottest industry before the bubble burst. Zhang and his team built SinoBIT, an internet-based platform to provide fund-raising, business plan analysis and other services to facilitate fundraising for start-up companies. SinoBIT was profitable after six months of operation and quickly raised some capital. But unfortunately, the technology industry collapsed, and so did SinoBIT. Even though Zhang's investors didn't request Zhang's team to pay back their invested capital, Zhang insisted to give back every penny of investors' money.
Back to Yale and meeting David Swenson
Zhang Lei went back to Yale after his start-up failed. It changed his life. He took David Swenson's course and was invited for an interview to work for Yale's Endowment Office. During the interview, Zhang Lei's answers to most of the questions were "I don't know." His honesty surprised and impressed Swenson. Zhang got the internship opportunity.
Zhang's project during his internship was to research the timber industry. Weeks later, Zhang returned with inch-thick reports. These reports were best of class deep fundamental research reports.
While interning for Yale's Endowment Office, Zhang also made a report on corporate governance. His idea was that a dynamic approach was preferable to a static approach when measuring the quality of corporate governance. In other words, it's better to follow what managers have done, not what they have said.
Both traditions have carried on at Hillhouse. Hillhouse's analysts could spend years researching an industry and getting to know the management team before making any investment decisions.
Read more here:
- Hillhouse's Zhang Lei: Be a Friend of Time - Part 2
- Hillhouse's Zhang Lei: Be a Friend of Time - Part 1
- Key Takeaways From Li Lu's Recent Roundtable
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