The Unchanged in the Changing World


HUANG Xiaojie, founding partner of JD Capital, presently General Manager of Tongchuangjiuding Management Co., Ltd. (JD Group) This is an excerpt of HUANG Xiaojie’s speech at the 2014 annual conference of JD Capital.x59九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

The world we are living in now is changing really fast. However, if seen from a longer time span, the changing is even faster than that we’ve imagined. Only if we find the relatively unchanged logic in this changing world, can we go through our career life in a relatively safe way. This is also the main approach of life. We may easily fail if we continuously pursue superficial changes instead of finding a relatively fixed logic.x59九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Current market value of global financial institutionsx59九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

To become a genuine internationalized company, we should be measured by USD. Globally, both individuals and enterprises are measured by billion USD. PE companies are relatively small in size, and the largest among them is Blackstone, with a market value of USD 20 billion. Goldman Sachs, as the best performer among global investment banks, has part of business of commercial banks, but is mainly involved in wealth management with a worth of over USD 8 billion. Berkshire Hathaway, with a market value of over USD 300 billion, is the third largest company in human history. The largest is Apple, with a market value of USD 700 billion, followed by Google, whose value is USD 400 billion.x59九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

In the next 5 to 10 years, I think Berkshire Hathaway will remain one of the companies with the largest market values globally, but Apple and Google may no longer exist, because they are technology companies. The life cycle of every technology company is relatively short, just as it was impossible for us to expect the bankruptcy of Nokia five years ago, or that of Motorola ten years ago. However, companies doing investment may last longer, as money does not exist in a fixed industrial pattern; it flows everywhere in the world like water. Therefore, a well-performing investment company may have a relatively longer life period.x59九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Of course, the well-known Warren Buffett created his company with long-term low-cost leverage and relatively high returns. Compared with our company, Buffett’s company is three orders of magnitude larger than us, which is a fairly huge gap. Our advantage is being young, but to defeat such companies, there is still a long way to go.x59九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Thoughts on Internet financex59九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

From the changes during the past year, financial product seems to be the most suitable thing to be delivered on the internet. Once placed online, its entity will basically disappear. Just like CDs and books, the main forms of money (finance) in the online world are data flow and information flow, and its changes are the movements and changes of figures in different accounts. Therefore, the finance is the most suitable for online products.x59九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

In fact, cash-related issues can be normally solved through partners, an approach widely applied in the US. In 2011, I visited the US a lot. Once when I paid with my credit card for what I’d bought in the supermarket, the shop assistant asked me, “Do you want cash back?” I was a bit confused and thought he might have wanted to give me something for free, so I replied, “Yes.” Then he asked me, “How much?” Now that he asked me how much I wanted, then I thought I would rather have them all. So I replied, “All of them.” Then the shop assistant looked at me in a strange way, and asked me again, “Do you want cash back?” Not until then did I realize I might have not understood what he meant. Later, my friend explained to me, “As many US banking outlets are being removed, you can withdraw some cash after shopping and paying with the credit card, then the problem of money withdrawal at bank counters to pay the tips can be partially solved.”x59九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

In the future, cash deposit and withdrawal can be solved with partners, e.g. filling stations and supermarkets. In Kenya, the largest bank is no longer financial institution. Instead, a service named “M-PESA” launched by Safaricom, a mobile phone company, occupies 50% of financial asset in Kenya. This service enables cash deposit and withdrawal through partners on the mobile phone and produces data flows online. Therefore, I consider finance as the most suitable product to be delivered online.x59九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

In the future, China’s market will be incomparably huge. In 2014, the frictional costs of China’s financial industry exceeded RMB 4 trillion. The combined profit of banks, securities, insurance and trust companies (excluding finance companies) amounted to roughly RMB 1.6 trillion, with staff compensation and bonus of RMB 1.7 trillion and tax payment of over RMB 700 billion. If our new industrial pattern reduces the whole frictional cost to RMB 1 trillion, then all the service costs will reduce to only a quarter.x59九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

In the future, with the changes in technological approaches and competition patterns, and the transformation of capital property from state-owned to private-owned, if the profit of the industry decline to RMB 1 trillion, then all existing banks, securities and insurance companies shall all risk going bankrupted. However, by reforming themselves, the bench-marking enterprises in the industry may secure about 50% of the market share. For instance, in Kenya, giants through internet reforms accounted for 50% of the market share, with market value exceeding several trillions USD and a net income of 500 billion USD which amounted the half of their income.x59九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Current financial structure in Chinax59九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

The total volume of financial assets in China is RMB 200 trillion, in which RMB 130 trillion is stored in banks, and RMB 70 trillion is managed by five major banks. Such a competitive structure is extremely favorable for the development of internet.x59九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

In my opinion, these five major banks are, in essence, five giant dinosaurs, being nibbled by internet finance. With each taking a bite, they are attempting to eat the biggest and fastest bites in the most proper way. Their corpse will be digested to build up the muscle of internet finance institutions, to let them grow, and form the structure following the completion of the competition of internet finance. Based on my estimates, such a process still needs a decade, and the time point for change has arrived. JD Capital has also been engaged in it recently, for example our “Double Ball” project. This project is expected be launched online in April and, once succeeds, it may be possible to take a share in the world of internet finance.x59九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

When a major trend approaches, the first thing to do for the giant is to eliminate new competitors; if unable to do so, it is necessary to follow the trend; if still not, at least become part of it. Only with these strategies can a giant traditional institution remain alive. Last December, two companies were listed on the same day in the US, one is Momo from China, and the other is Lending Club from the US. Afterwards, it’s discovered that the largest institutional shareholder of Lending Club was Wells Fargo Bank, the biggest competitor of Lending Club. The bank used to prohibit its staff from registering on and buying anything from Lending Club. Despite all these, it still secretly became part of its competitor that it aimed to eliminate. This, in my opinion, is precisely the choice under the logic of internet that is rapidly changing this world.x59九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Of course, our first choice is to become the new trend. If we finally failed to achieve this, we shall definitely invest in a batch of emerging enterprises to become part of it.x59九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Rapidly-changing worldx59九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Recently I read some popular science articles, from which I recognized that the rate of human revolution is beyond our imagination. There is a new unit of measurement called the “paradigm shift rate”, referring to how often a startlingly different paradigm would be found. If we bring people lived 250 years ago to the year of 2015, he would be startled at what he sees, such as the fact that mobile phones and the internet allow him to see people and things happening thousands of kilometers away, and airplanes are flying in the sky. However, if we take someone living in the year of 1500 to 1750, then he might be surprised at ships, steam engines and machines, but not startled, because the paradigm was not completed shifted. Scientists such as Ray Kurzweil believe that if people living in 1200 are brought to 1750, he would find a paradigm shift that startles him. Similarly, if someone living in 100,000 B.C. is brought to the year of 1200 A.D., the skill of using fire would startled him on site.x59九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Taking a close look to this rate, we can see the acceleration, from 100,000 years to 10,000 years and then to hundreds of years. According to the deduction of statistics, the next paradigm shift would take place within 15 years. If we are confined till 15 years later, we would be startled on spot. Though we do not know what will take place then, the statistics tell us there would be five paradigm shifts by 2045, as the law of accelerating returns.x59九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

The rate may turn from 15 years to 7 years, and then to around 3 years and finally to a few months. If we are confined till 2045, the world might be beyond all imagination: not only with startling paradigms but possibly the extinction of entire human being. It is difficult for us to imagine the world in 2045, one that we may all experience if the mankind does not perish or we, as individuals, remain alive. The world is changing extremely fast, and the underlying logic is that the more developed the society is, the more capable it will be in development. Such capability grows exponentially, the same goes for money making.x59九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

This is an era of tremendous changes. In the past, a paradigm shift will take place every 200 or 300 years, which was rather long compared with the lifespan of 60 or 70 years, making it difficult to perceive. However, it comes every few years or decades, and people would continuously feel the shifts. In this sense, we are living in a rapidly changing world. In the coming 15 to 30 years, such feeling will be more sensible and changes will be unprecedentedly fast.x59九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

How to seek those relatively unchanged in such a rapidly changing world is the issue we are facing. These are a few things:x59九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

First is about energy. Instead of sparing our efforts on things that will be rapidly abandoned, we should focus on things that remain relatively unchanged. For instance, for human beings, the way of competition has always been changing: at the earliest stage, those who could hunt tigers are the strongest; later, the greatest farmers became the boss; after that, people competed with each other in manufacturing, technology and investment, which demonstrated such a trend. However, the core of human competition remains unchanged, as the top competitiveness is physical strength, i.e. the capability to remain sober and to persevere.x59九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Second is intelligence, meaning to be cleverer than others. Admittedly, much of one’s physical strength and intelligence is natural, and in many cases, whether one can become a hero of our times has been determined at birth. While it is hard to change, there are still some abilities that can be learned. It is crucial to have a deep insight into human nature, as we have to compete with other people. One’s insight is important to his social success. This includes not only self-perception and self-recognition, but also observation of others and the ability of collaboration.x59九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

The third is competitiveness that remains unchanged throughout thousands of years. People’s lifestyle, from daily necessities to aesthetics, has been continuously changing. Despite the long history of human revolution, the only thing unchanged, as I observe, is that we still exist in the form of protein. Of course, this may also change in a few decades or a century, when we may become electric waves that exist on the internet. Nonetheless, in the world that we are able to see, we will still be existing in the form of protein.x59九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Therefore, when thinking about people, one has to start from the most fundamental things, because the essence remains unchanged.x59九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

For individuals, I think the most important abilities remain unchanged are abilities to learn, to communicate, to observe and to execute. Besides, the nature of human competition also remains unchanged, as our rivals are still human beings. Therefore, all you have to do is to excel most men. If you have outperformed most in the above aspects, then from a comprehensive view, you should be a relatively successful person. This is what I consider relatively unchanged in this rapidly changing world. Certainly, the world is developing so fast that there may be changes in the future; but in the foreseeable years, the condition should be stable.x59九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

As an enterprise, we are faced with more changes: strategies, products and organizations, all ever-changing. For instance, in terms of products, originally engaged in training, JD Capital later did PE consulting and has now launched a variety of alternative products. It also acquired insurance companies, securities companies, and plans to incorporate insurance banks. These, plus Internet finance, shall lead to significant variations.x59九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

In this process, there is still something unchanged, specifically, the culture of JD Capital. There are two points at its core: imagination and executive power. The company’s first annual meeting in 2007 was held in a cheap and poorly-decorated place. The attendees, with all our staff and families, only added up to 20. At that time, we decided to write at the end of our PPT slides: Directly manage a fund of RMB 300 million and cooperatively RMB 1 billion. Though that was actually what we imagined, we were all highly encouraged. We dared to dream. Executive power refers to whether something can be implemented after being thought of, which is extremely important. Our company also boasts considerable executive power. I would like to tell a story of us during those earlier training years. The other day, we had to negotiate with a school in Wudaokou the other day. However, we had neither experts nor name cards which were seen as negotiation necessities at that time. At last, we decided to attend the negotiation, pretended that we were senior officials. At that moment, all printing shops had closed, so we knocked at their door one after another, woke people up, printed the name cards, and dried them with electric hair driers so that we had this necessity. Such executive power signifies that we shall never give up.x59九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Besides, there is also the culture of our core team, which features two aspects: sincere treatment and trust, as well as a sound mechanism with indivisibility. The “Little Giant” project, subdivisions, and the top management team in particular, should bear these in mind. While JD Capital has made a huge progress from the original 300 million in our imagination to what we’ve achieved today, there are a lot more people with more imagination and executive power out there.x59九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Here are two cases: first is comrade MAO Zedong. At the age of 30, being theoretically an “outlaw” wanted by the Kuomintang, he asked in Changsha who shall rule over this boundless land. While most people now at the age of 30 are still thinking about how to purchase the first house or car, he started from 1921, and spent 28 years to liberate the whole China. Even more admirable is ZHU Yuanzhang, who also wrote a poem: Though the snow brought the branch down, it never touches the earth; when the sun rises, it still looks to the sky. With great imagination, he was even more able than Chairman Mao: it took him 17 years from launching the uprising as a beggar, to seize the power as a member of the volunteer army, and finally became an emperor in the ancient Nanjing. Considering that he reunified China in the era of cold arms merely through walking and horse riding, his imagination and executive power is even stronger than ours. Therefore, we have no reason not to insist on our endeavors.x59九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

During these years, as our wealth is increasing, sometimes I have an illusion that our money is nothing more than the constantly changing figures on our accounts. I’m often afraid that someday, if the computer systems and custody systems fail or disappear, all money deposited in bankcards or kept in the custody center of securities companies would disappear. What if all the money turn into nothing? I used to become depressed due to this problem, but later I was no longer concerned about it, as we have our brothers and our team. With time and culture, we will set up all these again; and the same goes for individuals, families, enterprises and countries. Resources may all be exhausted someday, but culture shall remain unchanged.x59九鼎投资(600053.SH)_上交所私募股权投资领域上市公司