The new fund management venture being set up by emerging markets guru Mark Mobius and two former Franklin Templeton colleagues intends to set up a Hong Kong office later this year.
Mobius Capital Partners announced its launch on May 2 and confirmed that Carlos Hardenberg, former lead portfolio manager of the flagship Templeton Emerging Markets Investment Trust (TEMIT), is joining as a partner in the firm. The third partner is Greg Konieczny, another former portfolio manager at Franklin Templeton. Both left the firm at the end of March, two months after Mobius's departure.
Talking to AsianInvestor from his office in London last Thursday, Mobius said the firm has already hired two additional staff in the UK capital. It intends to hire nine investment professionals in total, to be split between London and the planned office in Hong Kong.
He said Mobius Capital Partners has already applied for its Hong Kong licences and aims to open an office in the city before year-end.
The new venture is currently awaiting Luxembourg regulatory approval for a Sicav fund, an open-ended long-only global emerging and frontier markets fund targeted at institutional investors, which Mobius said he expects to be granted by the end of May or early June.
He declined to provide a target for the investment capital it is hoping to attract but said the company was planning to operate just one fund, initially targeted at European investors but also Asian investors once the Hong Kong office was opened and staffed.
Despite their close association with the Franklin Templeton emerging markets brand, Mobius said the new fund will not be modelled on TEMIT. Instead, he said it will focus on improving corporate governance in emerging companies, something European investors were especially on board with currently.
“We know that ESG (environmental, social and governance) factors are very important for investors and companies that do well in ESG tend to be better performing," Mobius said. "But we also know that anyone can do that — get a list of companies with high ESG scores and put together a portfolio, or even an ETF [exchange-traded fund]. Our idea is to go to companies whose ESG scores are not very high, but who have the potential to grow and to improve. We are going to emphasise the ‘G’.”
Konieczny, also on the call, said experience had taught them that it wasn't necessary to own a large stake to exert influence over a company.
"It’s enough to be a shareholder and partner with key stakeholders and potentially educate them to make the company better, and everybody wins," he told AsianInvestor. "We’ve done it in the past and it has delivered stronger improvements in a short period compared to the more aggressive approach of an activist fund.”
DIAMONDS IN THE ROUGH
Mobius claimed their investing concept is “somewhat unique”, but acknowledged that it is not without risk.
He said the fund will not follow index allocations but “follow the best ideas where we find them”, with the potential to vary widely from benchmarks.
Even in China and India, mainstream equity indices don’t cover all the available ground, he said. “You can find many large companies that don’t show up as an important part of an index.”
The fund will also be active in South Korea, where a “large governance change is happening at the level of the government and chaebols, and that’s what creates opportunities for us”.
Overall, Mobius believes the Asian region still has "a long way to go" to match the progress on ESG seen in more developed regions, particularly Europe.
"Indonesia as a good example … has terrible ESG credentials," he said. "But there’s lots to be done across the region. Korea, Taiwan, China, Vietnam, the Philippines — they all qualify for some improvement in corporate governance.”
Building a performance record is probably the greatest challenge for Mobius and his colleagues. Institutional investors normally require at least three years of demonstrable performance before they will commit. Mobius and his partners can point to their involvement in TEMIT, which has outperformed its global EM peer group over one-, three- and five-year periods, according to data provider Trustnet. But institutional buyers may well want empirical evidence that this new strategy works.
Jayne Bok, Asia head of investments at consultancy Willis Towers Watson, without commenting specifically on Mobius's new fund, told AsianInvestor that high-quality managers with strong track records can generally succeed with new fund launches.
“Investors who have invested in the past and have undertaken sufficient due diligence to get comfortable that the new fund management company has the right set-up, research and people to replicate the process used in the past, would not be overly put off by a lack of track record in the new shop,” she said.
Bok added that WTW had previously allocated client capital to new start-ups, where it had confidence in the managers’ skill and the new set-up and where managers had passed all the required investment and operational due diligence processes.
The performance game is complicated by the tendency for some EM managers to focus on a few high-performing, bellwether stocks. In 2017, for example, simply buying Chinese tech giants Tencent and Alibaba would have helped ensure strong fund performances.
Both those stocks are in the top-five holdings of TEMIT and the Templeton Emerging Markets Sicav, for example.
Mobius claimed his new firm’s focus offered more prospects for price improvement. “The research that we’ve done indicates that we can do better than the index if we are able to improve the corporate governance of the companies in which we invest. It remains to be seen, but we are going to work very hard to get the performance.”
He added that he has more freedom now than at Franklin Templeton. "If you’re in a big organisation, you have to think about the ramifications of what you are doing on the rest of the firm. For example, if we look at Alibaba, their corporate governance is terrible, but if I say the corporate governance at Alibaba is bad and another part of the organisation wants to get an allocation of shares of a new issue, I’ve got to keep quiet.”
When retiring from Franklin Templeton, Mobius said he was more of a ‘big picture’ guy than a portfolio manager per se. But he’s changed his tune. “I’ve converted from a big picture to a little picture. The three of us will comprise the investment committee and we are going to have to make decisions jointly, so I am going to be very much involved in the actual fund management aspects.”
The new firm’s three founders are equal partners. It has no other investing partners, but is likely to offer equity stakes to lure in talented individuals.
UBS in Luxembourg is the firm’s back-office services supplier for the Sicav, with global custody sub-contracted to Northern Trust.