As a top investment institution in the Chinese capital circle, the holding position of Hillhouse Capital has always been one of the reference vane for many investors to invest in American stocks, especially Chinese concept stocks.

As the first half of 2021 is coming to an end, Hillhouse has made a lot of new moves in many fields and tracks. Compared with the normal adjustment in the past, this time, the wind of investment may be changing. By analyzing hillhouse’s new investment moves, perhaps we can see a slight change in the global investment perspective.

From position perspective of the industry, which secondary market track does Hillhouse love?

In 2020, the global economy faces a test due to the impact of COVID-19. Under the influence of the epidemic, hillhouse’s top ten us stocks in the first quarter of last year were ZOOM, IQiyi, Baiji Shenzhou, Uber, JD, Xueersi, Alibaba, Pindoduo, Tibang Bio and Enstar in order.

In 2021, in the same quarter, hillhouse’s top 10 stocks were adjusted to Baiji Shenzhou, Pinduoduo, IQiyi, ZOOM, Enstar, Uber, JD, Taibang Bio, BridgeBio and Tianjing Bio.

From an industry perspective, there are nine bio-pharmaceutical companies, three cloud computing companies, two streaming media companies and two e-commerce companies. Perhaps the most obvious change is the “disappearance” of Xueersi and the continued heavy trading of the biomedical industry.

Due to the undercurrent of policies in the field of education and the withdrawal of dividends from the epidemic, Hillhouse liquidated its original holding of $405 million for the good future. Before this, hillhouse had reduced its holdings of education stocks in batches for several quarters. The stock has fallen more than 70% from its first-quarter high and is worth less than a third of its peak.

Noqing Yi, chief investment officer of Hillhouse, says the health industry is on the eve of the information industry’s explosion. By the end of the first quarter, Hillhouse held 91 stocks of American listed companies, including 45 of them in biomedical enterprises. The total market value of biomedical enterprises was $4.343 billion, second only to the Internet. Among them, the stock price of Baekje Shenju has risen more than 60 percent since the end of last year.

Of course, this does not mean that Hillhouse has chosen a path to go dark. In the first quarter, while it built 4 new positions and increased its holdings of 3 biomedical companies, it reduced its holdings of 19 companies in the same industry and continued to optimize its portfolio. Another background is that more and more Chinese concept stock star companies are going back to Hong Kong for financing needs, and institutions also need to adjust their investment strategies and redistribute bullets accordingly. Moreover, since last year, some companies have seen impressive gains, such as Bilibili, which rose by 106% in the fourth quarter of 2020. No matter from which perspective, institutions have sufficient reasons to adjust.

In fact, during the epidemic period of more than a year, Hillhouse fully demonstrated how to make choices for the track and industry according to the market and environmental conditions, including frequent adjustments in the e-commerce field, heavy positions in the biomedical field, optimization in the education field, changes in streaming media, games and real estate.

The investment in the secondary market is different from that in the primary market. In addition to the fundamental logic, the grasp of the market often determines the success or failure of the moment. Hillhouse is really appreciated for its logic that lies far above the investment action.

Hillhouse’s investment logic is not limited to being a friend of time

In terms of the secondary market, hillhouse usually does not adjust the heavy positions very much. For example, among the top heavy positions in the first quarter of this year, the positions of Baiji Shenzhou ($1.904 billion), Taibang Biological ($351 million) and BBIO ($330 million) are unchanged compared with the top three positions in the fourth quarter of last year, and the positions of other heavy positions also change very little. It is in line with hillhouse’s value of “being friends of time”.

In the primary market, hillhouse’s logic is more complex and close to the industry.

On June 8, the lidar “unicorn” Hesai Technology announced the results of its latest Series D funding round. More than two months after pulling out of its ipo plan, it received more than $300 million in backing, led by Hillhouse Capital.

For Hillhouse, it is particularly important to select companies and industries that maintain long-term structural competitive advantages. Compared with the final result, the track, competitive pattern, business model and moat are more valuable in the early stage. Based on this, Hillhouse believes that the landing speed of the current autonomous driving track far exceeds everyone’s expectation at the beginning, and the commercialization progress is also changing rapidly. Hillhouse also selects low-level technology layers like Hesai.

In addition to such “hardcore” companies, one of the reasons hillhouse has long favoured the Internet track in both primary and secondary markets is that marginal costs decrease rapidly with scale. Hillhouse used to be a loyal supporter of Haidilao, because in the catering industry, which is extremely short of relevant standards and economies of scale, Haidilao creates new imagination space in the form of hotpot, including food standardization, store and personnel management, and overall operation mode.

Hillhouse also cares about the real advantages of a company relative to its peers, which is related to whether it can stand firm in the downturn of the industry, and whether it can stand in the forefront of the industry boom. This has worked in both primary and secondary markets, as ZOOM is an example of.

ZOOM, Cisco Webex and Microsoft Teams are the leaders in Gartner’s magic Quadrant 2020 — the sixth time ZOOM has appeared on the list, which is used to assess a company’s overall strength and market position in virtual conferences. In the first tier, ZOOM ranks first in the technologically forward-thinking category.

Hillhouse and ZOOM had an even earlier relationship. ZOOM landed on the capital market in April 2019, and Hillhouse invested in it in 2014, with further increases in subsequent financing. However, on the ground floor of long-term investing, institutions, represented by Hillhouse, are rediscovering and rediscovering tracks that may shift over the next few years.

Track tuyere many, but why do institutions believe that China’s science and technology is expected to usher in a tipping point?

Earlier this month, hillhouse launched to raise a track to raise the threshold of up to 100 million yuan science and technology industry special fund, fund period of 10 years, hillhouse capital managing director XinYin roadshow on June 21, also said hillhouse bullish on the next two to five years of science and technology in the field of semiconductor, cutting-edge technology, new energy, the development prospect of the intelligent hardware and so on four big segment track, in the field of hard science and technology, This is a “historic window for structured investment”.

The high threshold and unique positioning make people marvel: has the wind of Chinese science and technology really come?

Technology is not a new topic, international top institutions such as American Capital Group, Rowe Price Group have an important layout of relevant targets. In May, integrated circuit maker JDC Technology completed a 5 billion yuan ipo, more than half of which came from foreign and domestic investors such as ABU Dhabi sovereign wealth Fund, JP Morgan and Guangdong Development Fund.

Now, what’s different about this round of investment is that it’s more focused on The Chinese market, and it’s more focused on the hard tech sector, where the leading players are also Chinese capitalists. In Q1 of 2021, Sequoia Capital China Fund, Matrix China and IDG Capital invested 62, 44 and 38 projects respectively, increasing by 40, 31 and 29 compared with last year.

Zhang Hui, managing director of KEChuang Star, an investment institution, said that from the perspective of the industry, a large number of investment institutions from mobile Internet investment to hard technology track conversion, semiconductor investment for the first time more than the Internet historical inflection point has appeared. Behind this, China’s industrial development logic and related support is undergoing a radical change.

In terms of national strategy, the substitution of domestic demand for some new products becomes critical. Since the trade war and the Huawei chip incident, the importance of the localization of semiconductors and integrated circuits has increased, and domestic new energy and autonomous driving related companies are springing up.

According to Yunxiu Capital, in the past year alone, the number of enterprises in the semiconductor field in China has reached 534, with a total financing amount of 153.6 billion yuan. Tianyan data show that since January 2020, there have been more than 240 financing incidents of autonomous driving track, while the penetration rate of intelligent hardware such as sweeping robots in China is less than one third of that in the United States, leaving a huge gap.

In addition, it is the government’s policy and financial support that give institutions the greatest confidence. Countries in recent years, the integrated circuit industry investment fund size of overweight – 2019 to start the second phase of fundraising goal has reached 200 billion yuan, by the securities regulatory commission on April 16th this year to win the board “kechuang attribute evaluation guidelines (trial)” to make revisions, perfect the definition standard of “hard” science and technology, science and technology industry have continued to improve secondary market investment environment.

Hillhouse think talent is important factor that influenced by the international situation, talent is accelerating in the field of science and technology in China, thus greatly added the Chinese company’s technology strength, such as hillhouse 2 billion positions of enterprise core chip, more than 300 people in the team of more than 200 people is an engineer, the core team of research and development experience in 10 to 20 years.

In short, the tech sector is heading for a high-demand, high-enabled-high barrier, high-caliber team investment, which is the premise for organizations to get out and bet on the tech track — these factors ensure that companies can find a balance between technology and business that promotes industrial progress while generating reasonable returns for the organization.

conclusion

According to THE “Q1 Venture Capital Report” of IT Orange, the subindustry with the highest investment activity in the first quarter is biopharmaceutical, and the ToB direction mainly includes integrated circuits, frontier technology, data services, medical informatization, automatic driving and other hot tracks. This happens to coincide with the layout of Hillhouse, which shows the familiarity of top institutions with the market.

If the specific track to science and technology, Chinese companies may be under pressure from the outside, and enjoying the unprecedented capital for this kind of “should” is research technology and the application problems, with hillhouse, segmentation of the company on this track difficult and may be doing the right thing, but, “They make the best, highest-performing technologies in the world,” which Hillhouse and other top institutions are willing to invest in.

This article was originally published by American Stock Research