London-based Atlantis Investment Management is opening an office in Mumbai and readying its first Indian equities fund, to be managed by BP Singh, who joined from Deutsche Asset Management this summer. The fund should launch this quarter, says Peter Irving, CEO, and complements existing funds investing in Japan, Korea and China.

The $1.8 billion Atlantis is a small- and mid-cap specialist that runs a star manager system, and therefore has taken nearly three years to find the right person for its India shop, Irving says. "Our interest in that market is for structural reasons, not to ride the current bull market. The demographics, what Indian companies have to offer and market accessibility have all improved."

The new office's operations were originally slated to begin now, but the terrible floods this summer set them back a few months. Atlantis aims to raise $50-100 million for the new fund from international investors.

The firm's view is that Asian countries go through periods of swift manufacturing growth based on low-cost labour, which spurs building infrastructure and other forms of pump priming that eventually spark consumer spending and lifestyle improvements. "We focus on how that cycle impacts companies in which we're investing," Irving says. "Korea for example has been an extreme export success, which has filtered into the domestic economy, and the next phase will see Korean manufacturing start to set up capacity overseas, just like Japan did."

While China is now making the transition from building infrastructure to expanding domestic demand, India is five or 10 years behind. "India needs to spend a lot of money on things like roads and transport," Irving notes. The fund will concentrate on beneficiaries such as construction and building materials companies, particularly those with clearly established property rights - an area overlooked by most foreign investors.

The risk of this kind of investment strategy is that it depends upon the politics moving roughly in tandem with economic development - with Vietnam as the example to beware, Irving says. "Vietnam failed to deliver because of bureaucratic bottlenecks," he says. He acknowledges that factional politics and the caste system are keeping India from realizing its potential, but he is confident these will eventually adapt.

As for valuations, he believes the high prices are found only in very concentrated sectors such as IT and pharmaceuticals. "There are a lot of listed companies in India," he says. "We don't need to buy the Reliances of this world."

The India fund is but one initiative on several fronts for Atlantis. Its Korean small-cap fund is now 10 years old, its NAV having grown 40 times in that period, and the firm is preparing to launch a Korean big-cap product to complement it. James Cameron, who now supports the small-cap fund which Irving directly oversees, will manage the new one from Seoul. It is expected to launch before the end of this year.

The rationale for a Kospi fund is to take advantage of what the firm sees as structural demand for Korean equities, both from US institutions and from Korean retail investors, which over the past year or so have joined regular savings plans that allocate to domestic stocks.

The firm has also introduced a second China fund, which like the existing one established in 2003, will be managed by Yang Liu in Hong Kong. The new product allows her to short via index futures, or take aggressive cash positions in order to protect her capital.