Late 2011 saw Andy Mantel, founder & CEO of Pacific Sun Advisor launch the Pacific Sun Greater China Equities Fund, an absolute return, long only value fund investing in greater China equities. The fund was launched alongside its hedge fund sibling, The China Mantou fund, which has been running since July 2003.
In an interview with Asia Pacific Intelligence, Mantel explains that the team behind the funds at Pacific Sun numbers six partners, each with 20 years' experience of Chinese banking or equities and all able to speak Mandarin. The firm is based in Hong Kong with an affiliate office in Nanjing, Jiangsu province.
The Pacific Sun Greater China Equities Fund focuses on undervalued small and mid-cap companies. It launched with $1m under management and has a target asset base of $200m with Mantel reporting that new subscriptions have been received the past few months. Mantel has a track record for his investment style for this fund which dates back over 10 years and shows over 10 years' worth of double digit returns.
The themes for this fund vary, Mantel says. "This month I'm looking at China's National Peoples' Congress to get hints of where the Chinese government will allocate money." Principal themes for Mantel have been urbanisation and domestic consumption.
"Sceptics feel that China's growth relies too much on trade but some of the companies that I am investing in make electronic components for computers or leading consumer electronic companies with fast growing sales of popular cloud and 3D TVs - these are themes that are becoming true because the consumption story is strong. With rising minimum wages, people have more money to spend."
Mantel has identified about 6,500 companies that are investable and holds just 16 stocks at the moment, listed in Hong Kong, as H shares, red chips, and other main board listed companies. Investments are largely in small and mid cap stocks from the private sector and the style is bottom up stock picking. Companies usually have a market capitalisation of under $5bn and valuations of <8X PER, 3-10% yield, and 30% CAGR.
Favourite sectors for Mantel include consumer, food and beverage, agriculture, building materials, household durables, real estate, transport, materials and retail.
The firm plans more diversification, investing across Asia, starting with Taiwan, where Mantel was originally based.
Mantel frequently travels to mainland China to review his top positions.
The fund suits long term investors such as high net worth investors, endowments or pension funds. "The timing is good for this type of strategy because of the excessive pessimism that has been prevalent for these stocks the past few years" Mantel says.
Andy Mantel was part of the panel at the Opalesque Hong Kong Roundtable in 2010. You can read that here.
This article was published in Opalesque's Asia Pacific Intelligence our monthly research update on alternative investments in the Asia-Pacific region.