Zhang Lei: Great companies are emerging in Asia, it's time to invest in the Asian market.

Key Points:

1. Asia is currently facing the challenge of economic slowdown, but we can see that great companies are emerging.

2. Only companies that are leading in technology, have interaction with employees, and maintain good long-term relationships with distributors and suppliers can succeed.

3. Private credit in Asia is indeed rising rapidly. Some companies need transitional capital, while others are facing intergenerational succession issues. In Asia, the leverage of established companies is much lower than that of their American counterparts. Private credit will be a new growth area in Asia.

4. More and more cross-regional cooperation is taking place, and as an investor, you will have many opportunities to seize firmly in these difficult restructuring processes.

5. Asian companies have low leverage but rapid growth. This is the beauty of Asian companies. Most of their balance sheets are well managed, even for companies with participation from private equity funds.

6. It is still worthwhile to invest in the Asian market. The growth brought by investing in Asia in the coming years will come from asset categories such as private credit, private equity, physical assets, and infrastructure. We will also see some new types of asset businesses in the private equity field in the future.

On November 8th, Zhang Lei, the founder and chairman of Hillhouse Capital, made the above sharing and judgments at the 2nd Financial Leaders Investment Summit.

With sharp investment insight, Zhang Lei has discovered high-quality companies such as JD.com, Tencent, and Meituan. He has led Hillhouse Group to become one of the largest investment funds in Asia, known as the "Chinese Buffett" and "Investment Guru." He has been selected as one of the "40 People of China's Reform and Opening-up Returnees in 40 Years" and one of the 30 most influential investors in China in 2022.

He believes that the private credit sector in the Asian market is experiencing rapid growth, and more and more cross-regional cooperation is taking place. He also points out the beauty of Asian companies and proposes investment advice for the Asian market. He also emphasizes the need to strengthen resilience when building investment portfolios.

The following are the highlights compiled by the Investment Workbook Representative (WeChat ID: touzizuoyeben) and shared with everyone:

Great companies are emerging in Asia

Most successful companies are actually born during the most challenging and difficult times, rather than in sunny and calm times.

Think about it, in Asia today, we are facing the challenge of economic slowdown, but we can see that great companies are emerging.

We have invested in many traditional industries, and these companies in these industries have also encountered resistance. For example, we acquired one of the world's largest footwear retailers, but during the pandemic, everyone was wearing slippers and didn't need high heels.

We also invested in real estate companies, but the real estate industry has also slowed down. But these companies may be in different cycles compared to technology companies.

What we have learned is that companies that are leading in technology and have interactions with employees, maintain long-term relationships with distributors and suppliers are the ones that can succeed.

This reminds me of 1998 when my teacher, the chairman of the Yale Endowment Fund, Charles Ellis, wrote a book. He said that in order to win the loser's game, just like in a tennis match, you don't need to be the strongest, you just need to stay steady and wait for the opponent to make unforced errors.

In this case, I told my management team that you don't need to be super smart, what you need to do is to consistently and steadily do the right things, and in fact, you can gain a lot of market share.

I have seen this in the companies I have invested in, and they have done very well. I really respect those companies that can go through difficult times, show leadership, and continue to grow.

You know, cycles repeat themselves. When the cycle turns around, they will be even stronger companies.

Asia Credit is Rising Rapidly

In terms of private credit, Asia's private credit is indeed rising rapidly. Some companies need transitional capital, while others are facing intergenerational transfer issues.

They are not sure whether to sell all their equity, but they are certain that they need partners to get through the difficult times. People say that in the United States, private credit can achieve such high returns, but in Asia, the leverage of established companies is much lower than their counterparts in the United States.

The situation of many companies is actually very good, and many people are more conservative in managing the company's balance sheet. The companies also have higher growth potential. Therefore, I would say that private credit will be a new growth area in Asia.

Another point is a special situation, as we know, more and more cross-regional cooperation is happening now. Chinese companies are operating in Southeast Asia, and Korean companies are expanding their business in the United States.

In these difficult restructuring processes, as an investor, you will have many opportunities to firmly grasp.

Returning to the issue of flexibility, for entrepreneurs, more tools have just been opened for them, and if you do well, there will be many things to use.

Asia pays great attention to equity financing, and in the past, there were not many other tools. We will help these companies grow.

The Beauty of Asian Companies

If you look at Asia's growth engine in the past, it was largely driven by demand. But now, we are seeing integration on the supply side.

Secondly, we see that management teams are becoming more mature. I just met with the management team of a pan-Asian healthcare company, and I was very impressed by the CEO.

The pan-Asian market is very fragmented, with different sub-markets. How did they carefully consider entering these markets?

We found that this company has low leverage but very rapid growth. I think this is the beauty of Asian companies. Most of their balance sheets are well managed, even for companies with private equity funds involved. Over the years, we have seen an increase in talent in the field of management. Compared to 10 or 20 years ago, there are now many highly skilled individuals in this area.

I am particularly impressed by the managers in traditional industries. Their businesses may not be as cutting-edge as rocket science or AI, but they know how to expand their operations, penetrate different markets, and excel in their respective fields.

As for the prediction for the Asian private equity market in 2024, I believe it is crucial to enhance resilience and add sufficient resilience to current investment portfolios.

Investing in the Asian market is still essential, as the growth in the coming years will come from asset categories such as private credit, private equity, physical assets, and infrastructure. We may also witness the emergence of new types of asset businesses in the private equity sector.

Author: Fan Zilong, Wang Li Source: Investment Workbook

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