Hillhouse Investment, founded by dealmaker Lei Zhang, made a name for itself in Asia. But Hillhouse, which manages more than $100 billion, is also making waves in global public and private markets.
Last year, Hillhouse made a number of senior hires for its new global private credit team and this year, Hillhouse is looking to take advantage of opportunities around the world.
"We have grown to be among the largest alternative asset managers in the world with a range of investment strategies," said Sean Carney, partner and head of the global investment team at Hillhouse, which is based in Singapore.
"We invest for the long term and we partner with exceptional entrepreneurs and we are growth oriented."
Already, Hillhouse has its portfolio of global companies such as: Philips Domestic Appliances (recently renamed Versuni), Loch Lomond Whiskies, George Clinical, Belle International, On, a maker of running shoes and apparel, and Harney's Fiduciary.
The following are excerpts from a recent interview between Carney and Pensions & Investments on Hillhouse's outlook for 2024 and where Hillhouse is putting money to work. Questions and answers have been edited for style, clarity and conciseness.
A: On the private equity side, we invest across stages, and we invest in a handful of what we consider to be core sectors or focus areas, which include healthcare, business services and industrial, consumer and certain types of climate-related opportunities. We manage capital on behalf of leading global institutional clients, a lot of university endowments, foundations, the big sovereign wealth funds of the world, and many of the large and prominent family offices around the world, but particularly in the United States as well. We have a very significant "deep value creation team" of consultants and advisers. It is focused on portfolio operations, digitization of portfolio operations, and includes a very significant number of software specialists.
A: We have roots in Asia and we have a particular history, expertise and an ecosystem based in Asia. But the firm has long sort of grown past that, such that we have global capital base and capital from around the world.
We have a global team and we have a global mandate where we have our investment mandate everywhere in the world and, indeed, we've been investing in the U.S. since the early days of the firm (founded in 2005) and in other parts of Asia. It's a very global firm. I appreciate that it may not be perceived that way, albeit with a unique history, like I said, knowledge, expertise, that stems from Asia. I think there are many unique things about Hillhouse but one of them is indeed a unique knowledge and experience in China. That is an asset of the firm.What became less well perceived was how the firm had globalized, including from its early days. In China, we have a large brand footprint, people know the firm very well in China, and so that I think that brand sort of presence and knowledge has been larger relative than what we've been able to also achieve globally.
A: A private equity strategy has three components. One is that we're very sector focused (healthcare, industrials, energy transition, business services and consumer opportunities).
We're very focused on targeting high-quality businesses, meaning we're not a distressed-oriented private equity buyer.
And then thirdly, and very importantly, we focus on situations where we think that we can add unique value alongside the entrepreneurs. We're really thinking about a partnership with the entrepreneurs where we bring differentiated value-add beyond what the entrepreneurs can accomplish themselves or what other competitors in a process might be able to do as well.
What that means to us is that it tends to sort of take shape in a couple different ways. On the demand side, to accelerate growth in Asia that can either happen organically or inorganically.
Organically by identifying teams or people in China by connecting portfolio entrepreneurs with our other portfolio companies, other relationships, other ecosystem, elements of our ecosystem in Asia … helping on distribution. It can happen in any number of different ways, but some, those are some of the specific ways that we help to accelerate a growth story in Asia organically.
On the inorganic side, we're so well-connected on the ground in Asia, we know the M&A targets, but we also have the unique capability of being able to help a Western firm — in the case of a global situation — acquire and integrate a firm that is a bolt-on acquisition that is based in Asia. Not easy to do. So demand capture, accelerating growth, organically or inorganically, is one of the key ways that we add unique value.
Another second way that we add unique value is on the supply chain side or on the supply side — which either can mean talent-related, as in, sort of leveraging the deep talent base in Asia or on the supply chain side. Usually what that means is enhancing the agility of a supply chain.
The third way kind of comes back to this deep-value creation team that we mentioned. We're big believers in applying technology to various parts of a company's processes to help optimize operations.
So we use all that … the value creation team, and especially the team of third party consultants and advisers and software-related folks to digitize important workflows and processes within a company. It could be procurement, it could be supply-chain related, it could be CRM (customer relationship management). But it's really using that talent base to help make those processes more efficient and more effective. We think that the deep-value creation team is very unique in private equity. I'm certainly not aware of another firm that has investment and capability of that sort.
A: We are long-term investors, sector-focused, thematically oriented. The noise of the current market — interest rates and inflation — and all those sort of things are relevant.
We stay focused on the sectors that we care about, we stay focused on the themes that we think matter the most in shaping those, and we're very focused on the pipeline of actionable opportunities that we see over the next few years and the companies that we like the most within those pipelines, on the basis of our strategy, high-quality ones, high-quality entrepreneurs, and where we think we can add value.
We have seen a pickup, in our sense, of the number of those opportunities that we focus on that will become more actionable sometime in 2024. We're mindful of the fact that interest rates and inflation and uncertainty in the environment can create issues on the seller side. And thinking about what are attractive moments to bring a high-quality asset to market and historically, that can create some challenges on the financing side. We recognize that those factors have sort of dampened activity in 2023.We would anticipate a bit of a pickup and activity and what I would characterize is actionability of those activities in 2024, and probably moving into 2025.
A: We're focused in healthcare, in business services and in industrials and consumers. We're very focused on high-quality companies, so we see quite a bit of activity or opportunity in the sub areas of those sectors.
For example, take something like healthcare. We're very focused on global businesses, high-quality companies, and outsourced pharma services is a big area focus for us, such as CROs (contract research organizations) and contract developing and manufacturing organizations. We recently bought a company called George Clinical based in Australia. That's reflection of that interest.
This is a big area of focus for us and it's an area that we've invested in historically in a very significant way.
George Clinical is a CRO, so they manage clinical trials on an outsourced basis for pharma and biotech. They sort of play into the investment in life sciences that is going on a global basis, a super interesting company. You know, great tailwinds, unique position, based in Australia, and we think we have a unique ability to add value to it because of our knowledge and ecosystem in the pharma and biotech space.
That's a runway of growth that extends as far as the eye can see, so to speak, in terms of the desire of pharma to outsource those activities to service providers like George Clinical and like many others around the globe as well. We're also focused on therapeutic med-tech outsourced services. They are increasingly outsourcing their research activities, their manufacturing activities, clinical trial activities.
We've been big investors in the med device space, so outsourced services space is a big area of a focus and opportunity. I think life sciences broadly defined, global businesses, high-quality businesses where we can add value … that's a core area of focus for us, for sure.
