Value Partners Group has a reputation for being a pioneer in value investing, particularly in mainland Chinese companies. Although it does have some fixed-income investments -- typically no more than 10% of a fund -- it is best known for specialising in equities. This year, however, the fund house is branching out and expanding its product offering to include bond funds and enhanced exchange-traded funds (ETFs).
The move is in line with Value Partners' efforts to keep up with the demand of its clients, introduce innovative products, and reach its target assets under management (AUM) size of $10 billion.
As it stands, Value Partners has an AUM of $2.9 billion. That's sharply higher than the $5.6 million it managed when the Value Partners Classic Fund was first launched in April 1993, albeit a fraction of its $7 billion peak in assets in 2007. Just like any other fund house, Value Partners has been hit by the global financial crisis, which caused its flagship fund to post a performance loss of 49% in 2008. Market valuations are mainly to blame for the decline in assets. In the first three months of 2009, the fund was up 4.5%.
Cheah Cheng Hye, co-founder, chairman and chief investment officer at Value Partners, says the company's strategy is to maintain profitability despite having an underutilised headcount of 80 people (around 20 people were let go last year), branch out into bonds and enhanced ETFs, and keep plugging away on investments with a long-term goal in mind.
"One way to approach this (global financial crisis) is to cut costs like crazy and to get rid of all this surplus infrastructure," says Cheah. "But another way, which is what we are doing today, is maintain our infrastructure and prepare for the market to come back."
Value Partners has hired Fawaz Habel as a senior fund manager. He is reviving the fund house's sixth cluster of fund managers and analysts, taking over from Jacky Choi who has resigned to have some down time and pursue interests such as playing tennis. Under Habel's leadership, the cluster will not be revived as an equities cluster but as a bond cluster. He is expected to hire around four to five people to add to his team.
Habel was a partner and portfolio manager at R3 Capital Partners from June to November 2008, where he managed equity and equity-linked trading in Asia and the Middle East. Prior to joining R3, he oversaw all equity-linked trading and investments across Europe and Asia for Lehman Brothers' Global Principal Strategies. Before Lehman, he ran JP Morgan's convertible bonds proprietary books and later headed equity-linked trading for the Asia-Pacific region.
Plans are already underway for Value Partner's first ever pure bond fund, which is expected to be launched this year. The fund will have a regional focus, with emphasis on non-Chinese bond issues.
Habel is only the second fund manager to join Value Partners in recent years. Save for Choi, the original investment team of Value Partners remains intact. Prior to Habel, the fund house hired Chau Yee Man from Credit Agricole where she specialised in China and Hong Kong investments to become a cluster leader in 2005. Before Chau, Value Partners' investment team was resistant to having an outsider come on board. But Chau has worked out well and has paved the way to hiring others such as Habel.
Around two-thirds of Value Partners' AUM is invested in China-related shares, although it invests across Asia and as far away as Australia. The fund house plans to launch other products in the next six to 12 months that will not be tied to a specific geography. Although Cheah expects investments in other Asian markets to rise in the coming years, he expects investments in China-related shares to still make up at least 50% of total AUM.
Value Partners also plans to build a niche in the ETF market. The fund house now has the quantitative Asia Value Formula Fund, which has served to improve its learning curve when it comes to ETFs. The plan is to focus on enhanced ETFs that are aimed at trying to enhance performance by combining index tracking with proprietary investment strategies.
The present Asia Value Formula Fund was inspired by an article Cheah read in the CFA magazine around three years ago, where a professor looked into how picking the 50 most undervalued stocks in the S&P 500 could help outperform a normal ETF. Value Partners applied that concept to the MSCI Asia ex-Japan Index by picking the 100 most undervalued companies within the index.
Value Partners is also trying to work out the kinds of products that it believes will appeal to mainland China investors. Around 9% of the fund house is owned by one of China's biggest insurance groups, Ping An Insurance, and that offers it access to mainland investors.
"The dynamics of asset management is changing," says Cheah. "Source of funding now is moving away from US and Europe to Asia-Pacific including Hong Kong, China and Singapore and so our fund raising and product offering menu will all have to be adjusted to fit the changing consumer demand."
At the moment, more than 50% of Value Partner's clients are institutional investors. But that percentage may change as its products have recently been included in the line-up of retail products offered by HSBC, which is a major retail distributor in Hong Kong. Among the funds on offer at HSBC are the Value Partners Classic Fund, Value Partners High-Dividend Stocks Fund, and Value Partners Taiwan Fund.