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Monthly Archives: July 2011
Toru Ueda, CEO and CIO, Firebrick Capital Management
Can you tell us a bit about Firebrick Capital Management?
The company was established earlier this year in Singapore, and we focus on Pan-Asia Mid-Cap Equity Long/Short strategy. Apart from me, the senior team consists of Simon Peladeau, Jae Kim and Emiliano Ragnini, all having previously worked as fund managers and analysts of global or Asia focused hedge funds before.
Describe your investment strategy and why it differs from what other fund managers are doing.
For a start, there are not that many mid-cap managers around, we also work with a relatively small investment universe consisting mainly of undiversified, cyclical, and growth cyclical companies. We
think that in a world where there is a great deal of noise, focusing on companies with share price drivers, which are for us clear and predictable, enables us to apply our research edge.
What investment themes in Asia do you see as the most attractive at the moment?
Currently we appear be in a battle between cheap valuation and in headwind for economic momentum and policy for most parts in Asia Pacific, within a backdrop of sub-par economic growth in the US, Europe and Japan, which are coping with various incarnations of over leverage. This is the third year into an economic recovery and countries and regions are becoming desynchronised for a change, which at times can be quite confusing but at the same time, strangely result in relative stability at the global level, and that should allow more semi-macro or micro-based themes to come through. It may well be less interesting for macro investors, while I suppose the flip side can be said for bottom-up investors. Other than to say that we too believe the secular growth story of our region but are aware that given certain conditions, growth recessions are perfectly possible and can be quite painful at times, even if rates of growth are high compared with other parts of the world. Just look what happened to Japan in the 1950-60s, which enjoyed long periods of very high economic growth, which were periodically punctuated by very sharp, and deep set-backs. Overdependence on fixed capital formation as an engine of growth as in China has its drawbacks, because of its opportunistic nature. Consumption and services are therefore secular themes for us, while some leading growth themes up to now are worth questioning as possibly completed from a stock market perspective, e.g. the China steel story. It consumes ½ tonne of steel per capita and is
now above the per capita consumption in OECD. Per capita production is around 1 tonne in some countries but they are all big exporters of autos, machinery or shipbuilding and China is not likely to become one of them soon so steel production growth from here will lag economic growth. Steel demand in other emerging economies will continue to be strong, but it is hard to replace China who saw its steel production rise six fold during the past decade. Else we see electronics industries as maturing as well because innovations enabled markets to effectively to leapfrog legacy infrastructure impediments, such that diffusion rates in Asia are now much higher than say for autos, which still lagging well behind. For now we are focusing on the larger markets in Asia Pacific except India, but that has more to do with focus of internal resources rather than preference from an investment point of view.
How has your approach to risk management changed in recent times?
Risk management is evolving. In my previous incarnation of Hachiman, our risk management improved over time, such that we avoided a drawdown in 2008, a year which recorded the greatest levels of systematic stress. The risk management we now have in place here at Firebrick, are based on the previous experiences but have also been enhanced further. Generally speaking rules are useful and shall be applied but in order to genuinely protect the interest of investors, the key decisions in my experience are actually made in the phases prior to say such two or three standard deviation events, which risk management try to contain from turning into three, four or five standard
deviation events. However hard and at the same time not depriving oneself of a rebound, the focus is therefore increasingly on how not to hit such risk limits, because once risk limits are being hit, by definition subsequent actions becomes automatic, and by then most of the damage has already been incurred and recovery can take time.
Do you see changes in regulation as a threat or an opportunity?
Relatively speaking, regulations tend to favour larger, established incumbents and as such the likes of us are likely to regard regulations as an hurdle, which gets raised. As an example, increasing regulation require more reporting and will lead to cost increase as companies are ensuring compliance.
Fundraising in Asia: as Asian investors increase their hedge fund allocations, do you think Asian managers will start to benefit more or will big global fund managers get most of the assets?
I certainly hope for the former but the latter with better recognition and reach among fund investors will certainly continue to be a force.
Why have you chosen to operate from Singapore?
As a Pan-Asia manager, Singapore is an optimal location from and investment and business perspective. The other obvious location is Hong Kong but I prefer Singapore because of legacy but I also as a family friendly location.
What would you have done if you hadn’t been a fund manager?
No real clue except that the idea of figuring out what will happen in the future I think is fascinating so I would certainly be involved with that. Also, most likely I would have been involved in nvestment
decisions of some sort, either in some other related professional capacity or personally.
The top five managers of Institutional Investor’s sixth annual Asia Hedge Fund 25 ranking looks like this:
1. Value Partners (Hong Kong), US$8.6bn
2. Sparx Group (Tokyo), US$8.1bn
3. Hillhouse Capital Management (Beijing), US$5bn
4. Arisaig Partners (Singapore), US$2.4BN
5. Ortus Capital (Hong Kong), US$2.3bn
As of 1 April, the top 25 managers in Asia managed a total of US$47.5bn.
Carl Huttenlocher, formerly Asian PM at Highbridge Capital Management, has hired Scott Gaynor from Morgan Stanley as COO for a new hedge fund venture called Myriad. Myriad is expected to start trading in September and may open to external investors early next year.
On 1 August, Jimmy Phoon will take over as CEO of Seatown Holdings in Singapore, the hedge fund set up by Temasek. Phoon is now Temasek’s head of strategy and he will keep that role in addition to his new Seatown gig.
Suzi-kay Jacoel, who last year left Zeal Asset Management to join the prime brokerage of UBS, has now joined Hong Kong-based hedge fund manager Senrigan Capital in an investor relations role.
Tomoyasu Kimura has left King Street Capital Management’s Tokyo office.
Following two years of poor returns, Singapore-based LionRock Capital, an Asian equity long/short hedge fund set up by Hari Kumar (ex-TPG-Axon) and Julian Snaith (ex-TPG-Axon, Goldman Sachs), is changing its investment strategy into a long-term, concentrated fundamental investment style. The firm will return all outside capital and just manage the founders’ money.
According to a survey by AsiaHedge, Asian hedge funds are now launching with bigger AUMs than they did last year. The average Asian hedge fund size in 2011 so far is US$119m, up from US$40m in 2010.
US -based Monsoon Capital, founded by Gautam Prakash, has launched a pan-Asia equity futures CTA strategy.
Hedge fund investment analyst Jingfei Tan has left Cambridge Associates in Singapore to do a two-year MBA degree at Kellogg School of Management.
Wilson Chen has rejoined Cambridge Associates in Singapore as a research consultant after a stint doing manager research at Merrill Lynch.
The Eurekahedge Japan Hedge Fund Index for June was an estimated +0.22% which brings the YTD number to +0.95%.
The Eurekahedge Asia ex-Japan Hedge Fund Index for June was an estimated -1.42%. The YTD number is -0.96%.
Christophe Lee, chair of AIMA’s Hong Kong chapter, has left FrontPoint Partners. He joined FrontPoint in September last year. Earlier in his career he was CEO at SHK Fund Management and also worked at Goldman Sachs.
Co-CEOs Charles Ong and Nasser Ahmad are stepping down from Seatown, a fund set up by
Singapore’s sovereign wealth fund Temasek last year.