The Hedgeweek Interview: Henry Thornton and Rob Brewis, BDT Investment Management Limited: Anticipating a correction in Asia
BDT Investment Management co-founders Henry Thornton and Rob Brewis outline the investment thinking that will drive their new BDT Invest Asia Fund.
Henry Thornton joined Thornton Management (Asia) in 1985. He was appointed investment director of Royal Asia Trust Asset Management (Asia) in 1989 and he retained this position during subsequent acquisitions by Credit Lyonnais International Asset Management and Nicholas Applegate Capital Management. In 1999 he was appointed head of emerging markets at Colonial First State Investments and in April 2000 he set up BDT Investment Management Limited.
Rob Brewis joined Thornton Management in 1988 as a trainee fund manager. In 1989 he joined Royal Trust Asset Management as a Far Eastern fund manager, a position he retained during subsequent acquisitions by Credit Lyonnais International Asset Management and Nicholas Applegate Capital Management. In 1999 he worked as a senior fund manager at Colonial First State Investments along with Henry Thornton in the Global Emerging Markets Team. Rob resigned in 2000 to set up BDT Investment Management Limited.
HW: What is the background to the fund?
HT & RB: BDT Invest was founded by Rob Brewis, Simon Dobson and Henry Thornton in 2000. Assets under management exceed USD 1bn. BDT Invest specialises in absolute return equity products investing in Japan, Asia and Emerging Markets. The company is based in London and also has a Tokyo presence.
The BDT Invest Asia Fund launches at the end of April 2006 with Henry Thornton and Rob Brewis as co-managers. The two Managers have enjoyed a successful, unbroken partnership in Asian asset management since 1989. The Fund will be seeded internally and is expected to launch with assets in excess of USD 5mn.
HW: How and where do you distribute the fund? What is your current and targeted client base?
HT & RB: Our internal sales team distributes all BDT Invest products including our long/short strategies. The main geographic focus is UK, Europe and North America and the client base that we have developed includes Family Offices, Private Banks, Fund of Funds, Private Client Managers and some Pension Funds. We are also experiencing increasing interest from Far Eastern and Japanese investors, principally Family Offices and Fund of Funds.
HW: What is the investment process of your fund?
HT & RB: BDT Invest employs a bottom up stock picking process and the principal investment driver of this Fund will be our ability to find individual stock ideas on both the long and the short side. Each position is chosen on its own money making potential, it is not our intention to look for pair trades or engage in other arbitrage positions.
HW: How do you generate ideas for your fund?
HT & RB: Ideas come from a variety of sources. We visit the region extensively and many ideas are generated from these research trips. We also look to our contacts in the region to generate ideas.
HW: What is your approach to managing risk?
HT & RB: The bottom up nature of the portfolio requires a top down 'check and control' process to monitor our country and sector exposure at a gross and net level. We also have a number of self-imposed limits in place to ensure reasonable diversification. For example maximum individual limits of 5% for long positions and 3% for shorts. Small Cap exposure is limited to 25%. We will also operate a hard cut loss of 20% for shorts. We believe that risk management is more about common sense than statistics and our risk management processes have worked effectively during the five years we have been in operation.
HW: How/against what do you benchmark the performance of your fund?
HT & RB: After three years of strong returns we believe Asian equity markets are set up to disappoint and, for the first period of the Fund's life, we will be extremely focused on generating positive returns with a neutral or short net exposure. If we are right, and successful, this will produce a strong return compared to the peer group against which, over the long term, we believe most investors will measure us.
HW: Has your performance been as per budget and expectations? Do you expect your performance or style to change going forward?
HT & RB: Fund at launch stage
HW: What opportunities are you looking at right now?
HT & RB: During the past three years Asian equity markets have moved from outcasts to the belle of the ball in the investment world. Fund flows are running at record levels and the valuation discount to developed markets has disappeared. While continued strong economic growth in China and the US continues to propel both earnings and the enthusiasm of investors, the regional markets are susceptible to the eventual maturing of this cycle. In consequence, we believe that significant shorting opportunities are developing across the regional markets for the first time since 2000.
HW: What events do you expect to see in your sector in the year ahead?
HT & RB: We suspect that a significant correction in Asian markets lies ahead at some point in 2006. While we remain optimistic of the region's prospects over the longer term, driven by the continued integration of the Chinese and Indian economies into the global economy, the combination of rising interest rates and the mature nature of the current global economic upswing is likely to prove a toxic combination for Asian equities at some point later this year.
HW: How will these changes/future events impact on your own portfolio?
HT & RB: We expect to mange the Fund with a neutral net exposure and perhaps even net short position if our worst fears are realised during 2006.
HW: What differentiates you from other managers in your sector?
HT & RB: Most Asia ex-Japan long/short funds run substantial, and arguably structural, net long positions. Historically they have done this with good reason but, for the reasons outlined earlier, this is likely to lead to increasingly volatile and unpredictable returns.
HW: Do you have any plans for similar/other product launches in the near future?
HT & RB: In addition to our stable of long only absolute return funds, BDT launched its first long/short fund, the BDT Invest Japan Fund, in 2003. We are in the process of launching our second, the BDT Invest Asia Fund. We have no immediate plans for further product launches.
(Henry Thornton and Rob Brewis were interviewed on 24 April 2006)
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