Wed, Nov 26, 2014
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Asia Pacific Intelligence

Value driven Asian focused portfolio achieves annualised returns of 16%

Wednesday, January 09, 2013

James Hay

James Hay's Pangolin Asia Fund has $37m under management and has achieved annualised performance of 16.3% since launch in December 2004, and a return of 24.7% last year. Although the fund can do most things a hedge fund can, the current strategy is long-only value with an emphasis on investing in listed businesses for the long term. "The markets in which we operate are not that efficient and if you scratch around there are natural arbitrage opportunities" he says, in an interview with Asia Pacific Intelligence.

The portfolio is currently standing at 22% in Singapore, where the firm is headquartered, 42% in Malaysia, 24% in Indonesia and 12% in one stock in Thailand. The high return for 2012 reflects earlier portfolio positioning. "What tends to make us money is what we have done a year or two before" Hay says. "At the end of November 2011, markets were weak and we invested excess cash when things were cheap." The fund made money in Thailand and Malaysia.

"We are a research house that occasionally deals" Hay says. "We don't aim for performance over the month or quarter but really for the long term so our results largely come from something we have done a while ago."

Hay favours Malaysia, which is currently 3% of the MSCI Emerging Markets index weighting having been at 25% in 1993. "A lot of Asian institutions left Malaysia after the Asian financial crisis" Hay says. "Large institutional investors struggled to find liquidity and investments in Malaysia. The fund management industry in Malaysia is largely closed to foreign companies so not many fund managers are looking at the market in great detail. Once you get into the mid-caps the liquidity is low and, as a result, many companies are not widely covered or valued appropriately."

Indonesia has become a little too fashionable for Pangolin's value hunt. "We made pretty good money buying that market in 2008 and 2009 but we have been net sellers over the last couple of years. The valuations are stretched in Indonesia - you can buy stocks that offer as good growth prospects more cheaply in Malaysia and Singapore."

Unlike most fund management companies operating in the region, Pangolin does not invest in palm oil due to the destructive impact that crop has on the environment, the habitat of endangered species and indigenous people. "In my view, it is totally unacceptable for fund managers to own this industry and close one eye to the damage it causes" he says.

The firm has four full time investment professionals and presently invests in only four markets and 18 companies in total. "We have had institutional investors but we are too small for some" Hay says. "We don't hedge - we look for long term outperformance through buying good companies cheaply. When markets fall back we come scalable." The fund offers quarterly liquidity and a 2% redemption fee for the first 12 months, which is effective in deterring shorter-term thinkers. "We only want genuine long term money" he says.

"It is hard to find investors who share our long-term thinking. Or if they do, very often their clients don't. The macro news is always so gloomy that committing to a long only, emerging markets fund investing in small companies is something considered too risky by some; especially a fund that practises no hedging or volatility management".

The current investor based includes individuals (lots of fund managers and people who have visited for their institutions, found them too small and made a personal investment), private banks and single and multi-family offices.

The team looks for other opportunities beyond the four countries in which they currently invest. "China scares us on corporate governance, Vietnam we look at but there is an in-built currency depreciation, there are cheap companies in Sri Lanka and we are pretty comfortable with Korea. We understand the ASEAN markets very well and we could replicate our portfolio in other markets but there have to be strong arguments to expand our geographical coverage. It's bound to happen at some point in the future."

 
This article was published in Opalesque's Asia Pacific Intelligence our monthly research update on alternative investments in the Asia-Pacific region.
Asia Pacific Intelligence
Asia Pacific Intelligence
Asia Pacific Intelligence
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing


  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Investing - George Soros puts $500m of his money on Bill Gross, Soros, Paulson backed Hispania Activos mulls Realia takeover, Ex-Credit Suisse trader’s hedge fund sees yen shorts as crowded, Hedge hunters double default-swaps as views split, Large hedge fund positions come under pressure, Vikram Pandit's fund picks 50% stake in JM Financial's realty lending arm for $87m[more]

    George Soros puts $500m of his money on Bill Gross From WSJ.com: Before Bill Gross was fully settled in at his new firm, Janus Capital Group Inc., he received an unlikely visit from the chief investment officer of famed investor George Soros ’s firm, according to a person familiar with t

  2. Legal - Hedge fund manager fights £8m tax tribunal ruling[more]

    From FT.com: A hedge fund manager who may have to repay £8m in tax is trying to overturn a tribunal ruling that found he had attempted to shelter millions in an avoidance scheme. Patrick Degorce, chief investment officer at Theleme Partners, lost a tax tribunal case last year. HM Revenue & Customs c

  3. Europe - Hedge funds face exit tax as Iceland central bank discusses plan[more]

    From Bloomberg.com: Hedge funds and other creditors with claims against Iceland’s failed banks face an exit tax as the island looks for ways to unwind capital controls without hurting the economy. The government targets having a plan it can present by year-end that would map out how Iceland will sca

  4. Opalesque Exclusive: Risk management emerges as a competitive focus area for hedge funds[more]

    Bailey McCann, Opalesque New York: Risk management has always been a core component of any trading strategy, as well as a critical part of business management. However, as macreconomic weakness persists, and alpha becomes increasingly hard to generate, risk management as emerged as a more promin

  5. Gross: Inflation is required to pay for prior inflation[more]

    Benedicte Gravrand, Opalesque Geneva: As inflation rises, every dollar will buy a smaller percentage of a good. While deflation will mean a decrease in the general price level of goods and services. These two economic conditions are both in the waiting room. The consensus would like the former to