Earl Yen is the founder of CSV Capital Partners, a China-focused alternative investment firm, based in Shanghai. CSV was
formed in 2004 and currently manages approximately $56 million in total AUM, of which 30% is from the founders/management.
The firm has two China funds, a private equity fund which has been running since 2007 with $45m under management and an equity long/short hedge fund, seeded with the founders' capital and launched at the beginning of 2010, now with assets of $11 million.
In an interview with Asia Pacific Intelligence, Yen says: "We trade mostly US and Hong Kong listed China stocks". Investors in the private equity fund are largely from North America, Japan and the rest of Asia, while the hedge fund's assets come 60% from the management team's own capital and the balance from investors in Europe and Asia.
"We manage a China focussed long/short equity fund and I think our roots in private equity have given us more of a deep research based, fundamental approach to reviewing Chinese companies. We do extensive local on-the-ground due diligence research and we have been doing it a long time in obscure private companies in China" Yen says.
"We have certain advantages compared with global funds that try to invest in Chinese companies without an on-the-ground team to do local reference checks and who can spot trends, frauds and new opportunities at an early stage."
Yen and his team prefer mid-cap Chinese companies listed in the US and Hong Kong and many of them are there because of previous private equity investments. "We tend to prefer mid-cap companies or smaller because these are the most under researched companies and they offer a lot of valuation inefficiencies."
Yen believes that the firm's "sweet spot" is under-researched small-cap and mid-cap equities, with a strong preference for faster-growing Chinese private sector companies selling to the domestic China market.
he firm has 14 full-time investment professionals in China. Since launch, the CSV hedge fund has outperformed the China equity indices, appreciating by 12.3% (net of all fees and expenses) during 2010, by another 3.5% in 2011 (the various China equity indices were down 20-30% in that year), and by 7.8% year to date through September 2012.
This article was published in Opalesque's Asia Pacific Intelligence our monthly research update on alternative investments in the Asia-Pacific region.