Past performance is no guarantee for future results. While certainly true, you can be sure that Value Partners wonÆt be stressing that common disclaimer when it kicks off its long-awaited initial public offering with a Hong Kong lunch today.

On the contrary, the management of this home-grown Hong Kong fund manager with a focus on the Greater China markets will likely be pushing its track-record on returns, earnings and growth of assets under management as something investors should consider when deciding whether to invest in its IPO.

The company is looking to raise up to HK$2.91 billion ($376 million) by selling 23.9% of its share capital through an offering that is expected to draw a lot of attention from retail investors in particular. Institutional investors are also said to be interested, not least because of the investment skills demonstrated through the years by Value Partners co-founder Cheah Cheng Hye, who still serves as chairman and chief investment officer. However, some say they may be less inclined to invest in a company that operates in the same industry as they do.

Whatever happens, Ping An Insurance has already taken up close to 40% of the deal in the form of a strategic investment. As a result, there will be very few shares left for other institutions, especially if the retail demand is strong enough to trigger a full clawback.

Potential investors are likely to be told that Value Partners will benefit from the long-term performance of China's stockmarkets as well as the rising demand for wealth management services in Hong Kong. However, the future for this listing candidate is a lot harder to project than for your average market newcomer, given that its entire business depends on the performance of the stockmarkets and how well it is able to pick the winners.

This means that the past may play a greater role for Value Partners than for a company that is seeking a listing on the back of an aggressive expansion plan, ChinaÆs urbanisation and growing middle class, or projections of strong demand for its products or services.

And Value Partners certainly has nothing to be ashamed of in that regard. Started in 1993 with $5.6 million under management, it has grown into the second largest hedge fund manager in Asia after Sparx Group, according to Alpha Magazine, with $5.7 billion under management as of the end of June. It currently has seven funds that are authorised by the Hong Kong regulators and also manages funds for third parties, either under the other partyÆs name or on a co-branded basis. On top of that, it handles about $960 million through managed accounts for seven investors.

While most people wouldnÆt categorise the company as a hedge fund manager, given its bias for long equity investments, its fee structure is similar to that of a hedge fund in the sense that about 80% of its revenues come from performance fees. Importantly, Value Partners is also able to short stocks and its aim is to deliver positive absolute returns whatever the direction of the market. The average return across its funds of close to 40% since 2002 indicates that it was able to make money on behalf of its investors even during the equity market downturn in 2002 and 2003.

According to syndicate research, Value Partners is also one of the most profitable asset managers globally with an AUM margin (measured as net profit divided by assets under management) of 3.1% in 2006, a return-on-equity of 114% in that same year, and a net earnings CAGR of 126% between 2004 and 2006. In the first half of 2007, its net profit reached HK$335 million, up 163% from HK$127 million in the first six months of 2006.

The firm also has a reputation for being able to spot good small- and mid-cap companies that have been overlooked by the market and turn them into highly profitable investments. Its stock purchases are often copied on a smaller scale by retail investors.
The company is offering 381.6 million shares at a price between HK$6.78 and HK$7.63. Unusually for a Hong Kong IPO, all the shares are secondary. The split between the institutional and retail tranches will be the usual 90:10, however, and standard clawback triggers also apply. The latter could boost the retail tranche to as much as 50% of the total deal size in case of strong demand.

Assuming this will happen, and taking into account the Ping An investment, the institutional tranche will shrink to only $40 million, which isnÆt much considering that this will be the only asset manager dedicated to Hong Kong/China with a stockmarket listing. It will be the second listed fund manager in Asia after Sparx, which trades in Tokyo.

The greenshoe could add a few more shares, but accounting for only 7.8% of the base deal size even this wonÆt make a big difference. If the shoe is fully exercised, the total deal size could increase to as much as $405 million.

JPMorgan and Morgan Stanley are joint bookrunners for the offering.

While limiting the chance for other investors to get a meaningful allocation, Ping AnÆs investment into the company could become an important driver of growth for Value Partner in the future. So far, nothing has been announced, but the speculation is that Value Partners will get to manage the money Ping An can invest outside the Mainland through the qualified domestic institutional investor scheme. Ping An will hold a 9% stake in the company after the IPO.

According to a source, the price range puts the company in line with the average 2008 price-to-earnings multiple of 14 times for other global alternative asset managers. One syndicate research report lists the closest comparables as being Sparx Group, RAB Capital, Platinum, BlueBay and Fortress Investment Group, and argues that Value Partners ought to trade at a premium to these because of its much higher AUM margin. According to the report, aside from Value Partners with 3.1%, only Man Group and Blackstone had AUM margins above 2% last year among a sample group of 29 asset managers.

Like all other fund managers, however, Value Partners earnings are highly dependent on market performance and sceptics worry that the listing may be coming at the top of the market, with the Hang Seng Index recently breaking above the 31,000-point mark. And Value Partners could be extra vulnerable to a downturn since it gets a higher proportion of its income from performance fees than from management fees. The fact that virtually all its investments are in the Greater China region also makes it very exposed to a downturn here.

The same research report notes that the strong gains in the Hong Kong and China markets over the past couple of years have attracted a lot of new fund manager start-ups and capital to the region which ômay crowd out those deep-value lesser known investment opportunities that are central to the investment strategy of Value Partnersö.

Another key thing will be whether the listing candidate can retain its five senior fund managers who have been with the company for an average of more than eight years and who are obviously highly integral to the performance of its funds.

Given the small deal size, the bookrunners have decided to compress the entire roadshow into just one week. This means the management will spend only two days meeting potential investors in Hong Kong, one day in Singapore and one day in London. They will skip the US altogether, although onshore US investors will be able to submit orders should they wish to do so.

The Hong Kong public offering will launch tomorrow and the books will close on November 13.