Tue, 31/10/2006 - 05:59
Angus Coupland discusses the investment discipline that drives the performance of the CC Asia Absolute Return Fund.
HW: What is the background to your fund?
AC: CC Asia Absolute Return Fund is an equity long short fund. It was launched on 1 July 2005 and is listed on the Irish Stock Exchange. The core members of the investment team are myself, having spent my entire career with JF Asset management in Asia, Charlie Dutton, former deputy head of research marketing at JP Morgan Securities Asia and Jinesh Patel, a long term Telecoms analyst and most recently head of the event driven sales desk at UBS. Current AUM is USD 305m, as at 1 September 2006.
HW: Who are your service providers?
AC: Our auditors are RSM Robson Rhodes, Our UK lawyers are Katten Muchin Rosenman Cornish LLP, in the Cayman Islands we use Conyers Dill & Pearman. Our Administrators are Citco Fund Services (Dublin) Ltd and our prime Broker is Morgan Stanley.
HW: How and where do you distribute the funds? What is the profile of your current and targeted client base?
AC: The fund is distributed by Coupland Cardiff Asset Management LLP to professional investors such as Private Banks, Family offices and other Institutional investors.
HW: What is the investment process of your fund?
AC: The process is a disciplined bottom-up fundamental research driven process. The portfolio is split into three books. The first, Fundamental Opportunities, focus on larger cap, longer-term names on both the long and the short side where those companies have some industry advantage or monopolistic position. The second is the Special Situation book, which are shorter term catalyst driven opportunities where we identify the catalyst and then position ourselves accordingly. The third is the GEMS book, which is a dedicated long only segment of the fund and focuses on small to mid cap companies that are under researched. We feel that these three separate books give us excellent portfolio diversification resulting in a portfolio which is style and market cap agnostic.
HW: How do you generate ideas for the fund?
AC: We generate ideas from three sources, quantitative screening, company announcements and knowledge built up over a number of years in the region along with our own proprietary research database, complemented by repeated company contact.
HW: What is your approach to managing risk?
AC: Some of the largest risks in the region relate to liquidity, here we set liquidity limits for all new positions assuming a third of daily volume and these positions are monitored on a daily basis. Management misinformation, which we endeavour to reduce through a combination of relying on our extensive experience of the local markets and operators within them, as well as repeated company contact both via trips to the region and conference calls with management. From a portfolio perspective the process is designed to allow long term ideas to remain in the portfolio even during periods of turbulence as we seek to only use index futures to hedge risk in the fundamental opportunities book and do not try to use them to hedge small/mid cap exposure. Position sizing is also critical and revolves around individual stock volatility and liquidity. Added to this we set country limits at both the gross and net level as well as maximum position sizes. VaR is monitored using the Morgan Stanley Clientlink system, while we monitor it there is always a degree of unreliability regarding the numbers and we use it more from an interest perspective. Clientlink also allows us to carry out stress tests on the portfolio as well as monitoring liquidity. These factors sit alongside the risk reviews that are carried out on the portfolio internally by our compliance and risk team.
HW: Has your performance been as per budget and expectations?
AC: Performance attribution over the first 15 months came out as we expected given the prevailing market conditions.
HW: What opportunities are you looking at right now?
AC: We increased our exposure to our Fundamental Opportunities book in the middle of June and have continued to add as prices have come back and we are happy to be increasing exposure at the expense of Gems and Special Situations. We continue to find yield attractive in the current market environment and given the very bottom up process we have, there are currently no themes or country/sector biases evident in the portfolio.
HW: What events do you expect to see in your sector in the year ahead?
AC: We expect to see more money flow into the region from overseas as investors appreciate the opportunities that are available in the region particularly relative to the slowing Western markets. Whilst this may pose problems for some exporters, the domestic environment remains robust. The Asian economies remain strong and considerably more resilient than they were in the mid to late 90's.
HW: How will these changes/future events impact on your own portfolio?
AC: The changing macro environment may mean that the indices track sideways to up, but within that there will be considerable dispersion in returns between stocks and sectors. We feel that this environment will be very conducive to investors with our type of strategy.
HW: What differentiates you from other managers in your sector?
AC: Given the teams' extensive local experience, we feel that our tailored investment process for Asian markets, and the disciplined implementation of it, will assist in achieving the target return. CCAM has ensured that the investment team is able to spend as much time as possible focused on research with all back and middle office functions, marketing and business management handled by separate teams within the Group. We have strived to develop from the very beginning an institutional framework in all areas of the business to ensure compliance with the most demanding of clients and to be at the forefront of best practice.
HW: Do you have any plans for similar/other product launches in the near future?
AC: We have recently hired Jonathan Dobson from JP Morgan Asset Management/JF Asset Management to run Japanese equity funds for CCAM and we are looking to launch our first Japan fund in Q1 2007.
(Angus Coupland was interviewed in September 2006)
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