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Value investing with legends – Lei Zhang’s lecture at Columbia Business School
Asset Management
<p>Value Investing With Legends – Lei Zhang's (Hillhouse Capital) Lecture At Columbia Business School by Zong Z. Peng: Art, Travel, Entrepreneurship, and Investing:</p> <p>In the high flying world of investing, Lei Zhang maintains a relatively low profile. Yet since he was seeded by David Swensen of Yale Endowment with $20 million in 2005, he has achieved a ~40% compounded annual return (28x not adjusting for inflation), making him one of the best performing investment managers. To put it into perspective, Warren Buffett has achieved a compounded annual return of ~22%, albeit for the past 50 years!! Today, Lei Zhang’s Hillhouse Capital, named after a street nearby Yale where Lei received his MBA and master’s in public policy, manages ~$18 billion. Thought not just focused on tech, Lei is best known for backing several most successful Chinese internet entrepreneurs and start-ups (e.g. Tencent, JD.com). On April 29th, Lei paid a visit to the “Temple of Value Investing” Columbia Business School to share his investing and life lessons.</p> <p>For those who crave for brevity, here is the essence of the lessons that Lei Zhang shared:</p> <p> Being a long-term investor gives you a big advantage from the starting line.<br /> Do deep fundamental research, make few bets instead of keeping on chasing ideas. This way you simply your life and your business.<br /> Hillhouse invests in changes and strives to help create value through entrepreneur-like thinking and problem solving. “We are entrepreneurs so happen to be investors”<br /> Spend quality time with quality people, doing quality things. Hopefully part of the outcome is making money.<br /> Stay connected to reality and everyday life, do not become a victim of your own success.<br /> Four most important traits in people that Lei looks for: intellectual curiosity, intellectual independence, intellectual honesty, and empathy.</p> <p>&nbsp;</p> <p>For those who want more details and articulations, read on:</p> <p> Investment Strategy</p> <p> Flexibility – Lei only had one investor in his fund when starting out Hillhouse – David Swensen from Yale Endowment seeded Hillhouse with $20 million. He could have raised more money with Swensen’s endorsement but did not. He wanted to start with a solid foundation, a strategy that allows him 100% flexibility to invest in whatever he believes in and is passionate about, be it public equity, venture capital, or private equity. In Lei’s words “it’s not about the format but about the essence.” To him the essence is to invest in companies that he thinks make sense, truly believes in, run by people who he respects and are open-minded, and could compound capital over a long stretch of time no matter what stage the company is in. In terms of his investment team, Lei believes in a generalist model and prides himself on being one of the analysts.</p> <p> Long Term Orientation – Hillhouse is a long-term investor. Lei thinks that when you have a long-term orientation, from day one you have a huge advantage over most people – it’s what he calls free option value of time arbitrage. His view on the Chinese stock market at the time of thi</p>
Startup heavy-hitters in Indonesia launch $150 million fund for early stage companies
Venture Capital
<p>Three top startup investors are putting together a new band with support from the Indonesian family conglomerate Lippo Group.</p> <p>The new firm, Venturra Capital, will target Series A and B deals in Southeast Asia raising between $2 million and $5 million -- but will also consider seed candidates.  This will be an interesting group to follow -- the founders have impressive credentials: Stefan Jung is co-founder of German incubator Rocket Internet; Johny Riady, was a director at Lippo Group, and Rudy Ramawy was in charge of Indonesia for Google.</p> <p>Tech in Asia reports the fund has already raised $15o million, mostly from  Lippo. The fund is successor to Lippo Digital Venture (LDV) - Lippo's corporate VC arm where Ramawy was managing partner.</p> <p>Venturra has absorbed LDV's portfolio of investments previously made off of Lippo's balance sheet. However, Lippo's role will be restricted to limited partner.</p> <p>Between them the founders have an investment track record the covers start-ups such as GrabTaxi, Traveloka, HappyFresh, Bridestory, Munchery, and MatahariMall. The fund will focus on e-commerce, fintech, and healthcare.  Jung - who last set up Monk's Hill Ventures' Jakarta office - says the firm is open to earlier stage investments:<br /> "We are considering ourselves agnostic in terms of stage preference. We are still keeping ourselves open to early stage and seed rounds. If we’ve known the entrepreneur for a while and want to support them from day one, then we will surely consider investing.”<br /> Photo: The Diary of a Hotel Addict<br /> &nbsp;</p>
Will the Fed lift rates this month?
Hedge Funds
<p>Here’s an intriguing thought. Yra Harris, the low-key futures vet who was featured in Steven Drobny’s “Inside the House of Money,” recently opined that he thinks the Fed is going to lift rates this October.</p> <p>Why? Well, apparently San Francisco Fed President John Williams telegraphed the move in his latest speech:<br /> “Why do I think the rate increase is coming? Williams gave three hints in a speech he delivered today, ‘The Economic Outlook:Live Long and Prosper.’</p> <p>1. ‘In addition, an earlier start to raising rates would allow us to ENGINEER a smoother, more gradual process of policy normalization. That would give us space to fine-tune our responses to react to economic conditions. In contrast, raising rates too late would force us into the position of a steeper and more abrupt path of rate hikes, which doesn’t leave much room for maneuver. Not to mention, it could roil financial markets and slow the economy in unintended ways.’</p> <p>2. ‘I am starting to see signs of imbalances emerge  in the form of high asset prices, especially in real estate, and that trips the alert system;’ and</p> <p>3. ‘When unemployment was at its 10 percent peak during the height of the Great Recession, and as it struggled to come down during the recovery, we needed rapid declines to get the economy back on track. NOW THAT WE’RE GETTING CLOSER, THE PACE MUST START SLOWING TO MORE NORMAL LEVELS. LOOKING TO THE FUTURE, WE’RE GOING TO NEED AT MOST 100,000 NEW JOBS EACH MONTH.’ [emphasis all mine]”<br /> The man has a point. Williams’ speech, while littered with Fed speak meant to offset Yellen’s post-decision presser, is absolutely hawkish at its core. And the fact that he’s one of the FOMC’s members should make it something more of note. Timing however was not quite apparent, though Harris does have a compelling reason for October:<br /> “I say October because I believe December is too late as year-end funding issues will cause unwanted volatility in the REPO MARKET.”<br /> It’s still a little too early to call though. Federal fund futures are still giving a 2015 hike the thumbs down, but the FOMC minutes are coming up tonight and that could change the entire ball game. Stay tuned.<br /> Photo: Anne-Lise Heinrichs</p>
PLDT builds SoftBank-style web of influence
Venture Capital
<p>&nbsp;</p> <p>The recent decision by PLDT (Philippines Long Distance Telephone Company) to launch its own venture capital unit is the latest in a series of moves by telecoms giant that are reminiscent of its larger Japanese counterpart SoftBank.</p> <p>Just as SoftBank has grown its internet and media empire by drawing on an expanding global web of early stage investments, PLDT is also turning to venture capital to help build its own kingdom.</p> <p>The new investment unit - PLDT Capital - will not be based in the Philippines but instead it will be based in Los Angeles. But its remit will be to try and tap innovative Silicon Valley and Southeast Asia-based startups that can contribute to its own ecosystem. Winston Damarillo, Managing Director of PLDT Capital, had this to say:<br /> “The PLDT Group serves more than 70 million mobile and internet customers in the ASEAN region,”In addition to investments, PLDT Capital aims to become the gateway for the most promising startups to expand their opportunities to the fast growing digital consumers in the ASEAN region.”  <br /> This is by no means its first foray in venture capital. The firm made headlines earlier this year when it bought a 10% stake in Rocket Internet, the German incubator and venture capital investor that is currently driving an e-commerce revolution in Southeast Asia and other emerging markets globally.</p> <p>The firm also recently swallowed up Singapore's Paywhere, the start-up  behind TackThis, an ecommerce platform that operates on a software-as-a-service (SaaS) model, through its digital innovations unit: Voyager Innovations.</p> <p>Corporations using venture capital investments to tap innovation is neither new nor unique. That said, the way PLDT (a telecoms company like SoftBank) is using VC to broaden its global influence and access new verticals - notably e-commerce - shares a few parallels with the Japanese giant.</p> <p>Of course PLDT has nowhere near the size, or the war chest, of a firm like SoftBank. Perhaps PLDT looking for that one big hit in same the way SoftBank had its home run with Chinese e-commerce Alibaba. Setting up shop in Silicon Valley certainly increases their chances of finding it.<br /> Photo: Rod </p>
Bill Gates, Li Ka-shing take a second helping of fake burger maker
Venture Capital
<p>Impossibe Foods, the startup famous for creating a vegan cheeseburger that actually "bleeds", has whet the appetites of two of the world's wealthiest men - Microsoft co-founder Bill Gates and Hong Kong tycoon Li Ka-shing - and raised a fresh $108 million Series D round of funding.</p> <p>The round was led by UBS and also included Viking Global Ventures, the firm said. Exisiting investors Gates and Li - who got involved via  his VC firm Horizon Ventures - also re-upped for the round alongside Khosla Ventures.</p> <p>Impossible makes plant-based foods that look and taste like their meat or dairy equivalents but take fewer resources to produce. It is a part of cluster of food start-ups that have emmerged in recent years looking to disrupt unethical meat and diary alternatives.</p> <p>This isn't Li's first foray into hi-tech food. His Horizon Ventures also backed Modern Meadow, a start-up that experiments with bioengineering animal cells to make cruelty-free leather and meat products.</p> <p>The firm also backed Just Mayo maker Hampton Creek, as did Khosla Ventures.  Hampton is looking provide a range of dairy-free alternnatives to egg-based products. Samir Kaul, partner at Khosla,said:<br /> "To achieve a sustainable future, we need to further invest in companies like Impossible Foods that minimize the environmental impact of our food system through innovation without compromising taste,"<br /> Photo: stu_spivack<br /> &nbsp;</p> <p>&nbsp;</p>
The case for gold to protect clients’ wealth shorting the Federal Reserve
Asset Management
<p>“I’ve never let my guard down by saying, I do not need to be hedged” - Paul Singer</p> <p>Preservation of clients’ wealth is the most important fiduciary duty guiding investment managers. This obligation is under-appreciated in the midst of financial asset bubbles when recency bias blunts the need to sacrifice potential gains in exchange for protection against losses. Inevitably, this is made painfully clear when a bubble pops and those once-popular assets lose value and the manager’s clientele suffer. As valuations are stretched on the back of reckless Federal Reserve monetary policy and poor economic fundamentals, caution is paramount.</p> <p>This article presents the case for an asset that will help managers protect their clients and uphold their fiduciary duty owed to them. I’ll explain why gold is a powerful hedge that will protect your clients’ wealth, but first I’ll look at the history of trade and currencies and how gold evolved to become a global store of wealth.</p> <p>Gold - ?g?ld AU #79 - A heavy yellow elemental metal of great value</p> <p>Gold is neither a claim on the promise of future earnings like a stock, nor a liability owed by a public institution or a private party like a bond. It also lacks the full faith and credit of most governments that a currency has. Gold serves little industrial purpose, unlike all other commodities, and is most commonly revered as a shiny metal used in ornamental display or jewelry.</p> <p>But it is precisely these failings that make gold a unique and valuable asset and one that can play an important role in portfolio construction.</p> <p>Gold is one of the few stores of value that is limited in supply, transportable, globally appreciated and not contingent upon the faith and credit of any entity. It cannot be manufactured or debased. Gold is the only time-honored currency, or in the words of John Pierpont Morgan (J.P. Morgan), “Gold is money; everything else is credit.”</p> <p>History </p> <p>Thousands of years ago trade began through a system of barter. This method of payment was effective but very limiting. Trade could not occur unless both parties had the goods or services demanded by the other. If a metalsmith, for example, did not need wheat, a farmer seeking a new sickle would have to find alternative goods or services to offer the metalsmith.<br /> These stark limitations and the growing desire to conduct trade with parties over greater distances required a more robust system. Accordingly, trade graduated from the barter system to that of a common currency. Aristotle stated the rationale for a common currency eloquently: “When the inhabitants of one country became more dependent on those of another, and they imported what they needed, and exported what they had too much of, money necessarily came into use.”</p> <p>At first, in almost all cases, the currency was a commodity. While eliminating some of the problems associated with barter, this system presented new ones. Carrying gold or other commodities such as silver, grain, shells or livestock can be cumbersome and difficult to properly measure for weight and purity. Dividing most commodities into fractions for ease of exchange produced additional difficulties. Paying for an acre of land with a quarter of a cow m</p>
Paul Tudor Jones says Fed constrained by debt
Hedge Funds
<p>Paul Tudor Jones echoed a whisper concern in a Bloomberg TV interview this morning, saying that the U.S. Federal Reserve is restraining itself from raising interest rates because such a move would increase government interest payments. The observation that the Fed was focusing on debt management rather than overall economic conditions, putting yet another mandate in play as a determinant as to when it should raise interest rates, is an issue most often verbalized in private, which makes the public comments even more noteworthy.</p> <p>Paul Tudor Jones: Acknowledgement of government debt a much larger macro issue<br /> With over $18 trillion in government debt, or $154,480 per taxpayer, the interest payments on government debt can be significant. In 2014, for instance, with rates at historic low levels, interest on the debt consumed 7 percent of the budget deficit, the third largest independent line item. “I think it's kind of acknowledging to me a much larger macro issue, which is if you think about the last 50, 60 years,” the Tudor Investment Corporation founder best known in quantitative investment circles for his mathematical approach to problems, said in an interview with Stephanie Ruhle and David Westin. While he was on the show speaking about his cause of choice, JUST Capital, which seeks to provide economic incentive for positive corporate behavior, it is the economics of debt and negative incentives that are concerning him.</p> <p>“There's is a perfect negative correlation between the interest income paid by the Federal government and interest rates,” meaning higher interest rates increase government debt, he said, implying a wider array of corollary impacts. “So the higher the share of GDP that's paid in interest income by the Federal government, typically that correlates high interest rates also. So what the Fed is doing is recognizing there is a tail risk with low interest rates. There's a tail risk with zero. We seem to run perpetual deficits…”</p> <p>The debt problem isn’t just one of the current gap in spending, but with historic levels of seniors retiring, the unfunded liabilities gap is approaching $100 trillion, or $827,000 per taxpayer.<br /> Paul Tudor Jones: Size of balance sheet creates "uncomfortable" situation<br /> Those with their hands on the economic policy steering wheel are “uncomfortable” with the size of the balance sheet. “They're concerned about the expanding global debt-to-GDP.” While concern exists, there appears a yearning to “normalize” interest rates. “I think they're trying to probably insert </p>
The 10 big challenges for emerging market start-up ecosystems by Dave McClure
Venture Capital
Dave McClure, co-founder of global accelerator 500 startups, recently put out a slideshow listing some of the  challenges faced by emerging market startup ecosystems. The slides accompanied a talk at  StartupIstanbul, a four-day event that took place at the beginning of the month. It is no surprise that McClure has a few things to say about emerging markets, his  firm is
Peltz sets his sights on GE
Hedge Funds
<p>As if turning around GE wasn’t hard enough, Jeffrey Immelt just found another thing to worry about – his good friend, activist investor Nelson Peltz.</p> <p>Peltz, through Trian Fund Management, now owns $2.5 billion worth GE shares, which according to the Wall Street Journal, makes the activist fund one of the conglomerate’s top 10 shareholders.</p> <p>Unlike its usual bets however, Trian’s stake in GE is more of a friendly nudge than an aggressive takeover:<br /> “Trian executives began briefing GE officials on their views starting in May, at the beginning of the fund’s share-buying binge. GE has in recent months indicated it would make a number of moves. On Sunday, both Mr. Immelt and Chief Financial Officer Jeffrey Bornstein said that they largely agree with Trian’s prescription.</p> <p>‘We are completely aligned on the levers that get us from point A to point B,’ Mr. Bornstein said in an interview.</p> <p>Mr. Immelt added: ‘We have the clearest path for GE that we’ve had in the past eight years.’”<br /> That’s not to say Trian’s just going to rest on its laurels.</p> <p>Peltz, in an 81-page white paper titled “Transformation Underway … But Nobody Cares,” laid out a few things that he wanted to see in the company, including:</p> <p> More debt – Peltz apparently wants GE to take on around $20 billion in debt to prop up its EPS.<br /> More stock buybacks – despite GE’s announced $35 billion buyback program, Peltz wants more, calling the company’s limited efforts to reduce its share count “a major factor behind GE’s historically below-average EPS growth.”<br /> Better margins – Trian apparently sees a lot of places where GE can ramp up margins, especially in its services business. Also, the fund sees opportunity in lowering the company’s $2.4 billion in corporate costs.</p> <p>Trian’s activist holding in GE is its largest and most ambitious. In fact, only Carl Icahn’s Apple campaign and ValueAct’s Microsoft crusade was bigger.</p> <p>With Peltz's affinity for big companies however, I don’t doubt that he’ll aim for something bigger sometime soon.<br /> Photo: @mjb</p>
Temasek pumps $62m into Singapore VCs, takes it own fund global
Venture Capital
<p>While some investors might be shying away from venture capital right now, it looks as if Singapore state-backed investment fund, and prolific VC investor, Temasek is doubling down.</p> <p>It has just invested 90 million Singapore dollars ($62 million) in four venture capitals funds, at the same time it’s putting  $600 million into its own VC unit - Vertex Venture Holdings - in a bid to take the firm global.</p> <p>According to the Straits Times, Singapore has backed early stage investors NSI Ventures, Monk's Hill Ventures, Jungle Ventures and Golden Gate Ventures but did not disclose how much each would get. The last two, Jungle and Golden Gate, are in the process of raising $50 million and a $100 million, respectively, for their latest vehicles.</p> <p>This comes two days after it was revealed that Temasek's own VC unit, Vertex Venture, got a $600 million injection from its parent to fund its global expansion. </p> <p>The extra capital will allow Vertex to expand its focus - which has so far comprised Singapore and Southeast Asia - to include the United States, Israel and China. It will also broaden it tech and media sector focus to include healthcare investments. </p> <p>Vertex’s early investments include luxury e-commerce portal Reebonz and mobile taxi app GrabTaxi (yes, it's part that group) , it has also listed four start-ups, including mobile game developer IGG. </p> <p>However, it will be a tough call hoping  for futures IPOs in this current environment, which may explain the renewed focus on the healthcare sector which has been somewhat isolated from the recent IPO drought.<br /> Photo: Shubhika Bharathwaj</p>