So, you started out in business, I understand, selling magazines as a teenager? Right. What's different about you? Why did you do that? Well, I guess I was just curious. I mean, I would see it as a two sides of a coin. On one side I'd say, I was very curious about how to make some money and I had to see the financial freedom. As a teenager, financial freedom, I would be interested in that. On the other hand I saw, "Oh, okay, it wasn't that difficult." It's really trying to organize things. So, later you founded Hillhouse Capital Management yourself. Right. Alone, right? Uh huh. How did you get the courage to do it? Why did you do that? Well, I think a couple of things. One, I wanted to do something I'm passionate about. I think having apply what I learned in the environment that fits where I want to go, it's very hard to go for work somebody. So why don't I just start a company and focusing on what I believe in back then, was to investing in China's emerging technology companies and the businesses. So, I thought that was my passion. I wanted to do that. And the opportunity opens up and I got a lot of investors. I just think most young people today wouldn't think of starting, they can't imagine they could do that. You never know until you try. You regarded it as a big gamble, then? You didn't know that you could do it? I always had the interest and the confidence starting something. I tried actually a few other things before this. Some of them failed, some of them succeeded a bit. But I truly believe you have to be a doer. You can't just be a thinker. You have to get started something. Well, I'm just an academics or thinkers. Yeah. You are doing by teaching. That's a different doer system. So you made it into a huge financial advisory company. And you have investors, are they from China exclusively or are they from other countries as well? Yeah, around the world. Yeah. And so, what is your philosophy? Do you follow a formula or do you use personal judgment? Very simple. You want to learn the philosophy? Come here to Hillhouse Capital management. And also learn from across street at the [inaudible]. That's where you learn the basics. My students have started by taking my course online. That's the first step. To listen to your class is a good idea. But it's about I think at the end of the day, it's about spotting those opportunities. It's applying common sense. Sometimes common sense is hard to get by. Now, a lot of people have the impression that markets are efficient and that they're so competitive that you can't win at this game, but somehow, you had confidence otherwise. Why didn't you believe this efficient market story? Right. That was why I went to school here and was taught right market efficiency theory. But at same time, it's a dynamic concept. There were so many conditions and assumptions on that market efficiency. And I think the opportunity I spotted back then about China's investment opportunities was so big. It was such a transitional economy that over time actually I developed my theory. Initially, I thought of myself as a value investing, as conventional sense of value investing which is more about discovering value. What are the value? Maybe that discovering various starting from the secret bet, deep value investing. Over time I changed, I would say. I am more not only about discovering value but also about adding value. And also about like investing value not as a static concept, but a dynamic growth concept. So that's my test, if you will, on the value investing. But is your twists related to your personal ability to judge people and business ideas? Right. Yeah. I think about myself not so much an investors in a way. So, I think about I'm a kind of entrepreneur who happen to be an investor. Oh, you've been on the other side? Right. Actually, every time when I make a judgment, I'm not like, "Oh, you're so to the five forces and all those static business school case. Instead I was like think about me starting that business; what's the essence of that business? What's the nature of the people behind the business? What are the drivers of his ambition? Trying to understand better of the first principles, not necessarily from a formula. That's how I started. How did you get started? In a sense, you have to find investors who believe in you from the beginning? How did you do that? I was lucky enough. I got Mr. David Swensen. Well, you are now. That's an interesting story because you were one of his interns. Right. That's right. And in fact, you translated his book into Chinese. Yeah. That's right. His book was selling for $30 in the US. After my translation sells for $5 in China. That was a lot of value added. So, you were telling the world how you are going to do it, right? So, you are following something like the Swensen approach? Yes, absolutely. I think in the end about that thinking, about long-term orientation, the focus on equity, focus on the residual free cash flow of the nature of the business and focusing on residual returns. So that's what I learned from David. I mean, those are philosophies, very much the same core philosophy of what do we do. But then, I would say we combine that with actually a lot of Chinese philosophy. One thing I always talk about that then so the Chinese put this in a way talking about, how do you do when thousands of drops of water when you only need a bottle. So, how do you think about that focus? How do you win a conventional markets using unconventional thinking, that's Taoism thinking. There's also the thinking about how do you be focused and also have peace of mind, don't get bothered about the market movement. There are a lot of those philosophies, I would say, combine with what I learned here at school of management and with David Swensen, I would say. So, those form the foundational of my investing philosophy. You've been through some big market movements in China. Right. How did that make you feel? The market was going crazy. It must have seemed that way. Right. Yeah, absolutely. I think that's exactly the opportunity. When there's people chasing up and downs, when the volatility drives so much opportunity for long term investors with long-term orientation, you should have an inherent advantage over other people. I was asked actually to speak with the Chinese [inaudible] Manager Association. They're like, "Lei, we love what you do about long term investing, but how do you make money despite being a long term investor?" But that's he whole point, right? It's like you want to be long term, because that's actually how you think you can make money. But, did you sell at the top in 2007? I wouldn't necessarily know exactly on a whole portfolio because we're not a market timer, but if we look at everything on both of my bases. Some of them got overvalued that you want to sell, some of them actually you hold on to them over a long period of time. You look at our top holdings on the public equity portfolio. We have been there for, I would say, 60-70% a name that we owned in the first couple of years. And after 10-11 years, we still owned them. But you said unconventional. Yeah. How do you make sure that you're unconventional? How do you know? Right. I think, well, a conventional thinking in China is that first, you have to do market timing well. You have to do sector rotation, so you always follow the trend because China change so fast. You can't be a long-term orientation because the market change so fast. Unconventional is saying that, "You know what? Actually, we could be a long term orientation and hold on to very few names, to a concentrated book instead of a very diversified investment portfolio. Those are unconventional. So, you weren't as diversified as the other friend? No, I was not at all. Probably we own 10-20 other core names, those make them vast majority. And some of them like was a JD. Well, JD was a private equity portfolio turned into a public equity portfolio. And some of like Gree and Midea, the air conditioner, company we own from the beginning. And we own now 11 years and they are still our top five holdings. Anyway, I wanted to ask you about philanthropist. Yes. You are a philanthropist. Yale was very grateful for your gift. Thank you. Is that something that's important to you in your life? Are you different from other people? And your emphasis, is it part of your philosophy? Does it combine well with other things you do? I think it's a learning process for me. Obviously, to me, education changed my life. And it had a such a strong touch on what I do on every day. So, my wife and I, we reflect on that and say, "Oh, how can other people benefit from our appearances?" And so that's why we set up school in China for underprivileged kids, vocational schools. That's why we give scholarship inside China now. We actually set up the smaller libraries for schools in South East Asia and India. That's why we did what we did at Yale. So, I think that we to make a connection to the people who have similar situations. And at the same time, I think China is in a critical crossroad. Hopefully, there's a lot of first-generation entrepreneurs who made the money, hopefully, by being an example in doing this, China could change to be European style kind of dynastic culture to be much more about this open culture. So that help people with social mobility and give people more chances. I think China is right now in this critical crossroad. That's great to hear. You were giving the idea of evolving Chinese culture and that somehow philanthropy was different in older China. Well, there was philanthropy all along. Yeah. There were a lot of philanthropy in different ways and throughout the culture, throughout the Chinese civilization.. But maybe I heard a qualitatively different like more emphasizing to one's family or to one's class. Yeah. To one's communities and also obviously, to be connected to the communities. And there always being in that Chinese culture that confuses all with a belief of giving, but I think the reason that case obviously had been very hard for the Chinese because of the economic difficulties. Now this, really, the first generation entrepreneurs are shaping the Chinese culture. I think that by being a role model for a lot of people instead of make the money and say, 'Oh, OK, there's a better way of using that money and to help the society.' And I think that was a very rewarding [inaudible]. So, you say it was important for you to visit the United States here at Yale, for some years. Is that an enriching experience? Oh, absolutely. I enjoyed it so much. I learned, not only about the knowledge and the instruments, some of financial instruments, but also the philosophy, the thinking. That if you combine that with the Chinese philosophy, I think that makes perfect sense for me to form my investing philosophy as well as my my life. With Coursera, we're trying to give an opportunity for people to see many of our students are from other countries. What do you think about the social media, the online experience is changing the world? Yeah. I think that actually emerging markets over this could have even deeper implications. Because essentially, you have the opportunity to defrock the traditional classroom. And the value added you could have to have world-class faculty and world-class teaching transcending the current system. And I think that given that most of the younger people in the emerging markets also, many of them now have smartphones, that they have access to all those information. If somehow we can empower them, no matter where they live in: suburb of Indonesia, or India, or China, or Brazil, people can benefit from that knowledge dissemination, and really empower them to really try something much better for themselves. This would help with the social mobility, help giving people the chance to succeed. So, it sounds like you are talking about diversification in the human capital. Right. Maybe you will tell me whether you agree, but a lot of people have traditional views about how to invest and they think of, say, real estate as a sure bet, and they think of taking a finance course is something secondary. What do you think? There's nothing better than investing in yourself and investing in your education. And education investment over the long-run always produce the best compounding results that you could never imagine. That's, for sure, the best investment you could ever make on yourself, on your friends and your relatives, and the society. I have a deep belief in that. We haven't even talk about externalities, right? We have better educated society that interact with each other can produce even more profound impact. At the beginning of the era that we can see how human capital can be harnessed better. I think there are two things going on. There two things that we should be mindful of: One is about technology change. Artificial intelligence would that replace human capital? Secondly, about the knowledge gap, or digital gap, between different socioeconomic classes of people especially in places like emerging market where they don't have the same access. The people in a suburb of Jakarta may not have the same access for the people in New Haven. So, how do you bridge that gap? The little gap actually kind of widened. So, how do you bridge that gap? And also, how do you think about technology, not as disfranchising factor and actually as the equalizer. As a equalizer to help bring people together. Those things are very interesting.
