Conor O'Mara outlines the investment processes that drive the HSBC Global Technology Fund, which was launched on 1 September 2005.
HW: What is the background to the fund?
CO'M: HSBC Alternative Investments (the hedge fund arm of HSBC Halbis Partners (UK) Limited) launched the USD 50m HSBC Global Technology Fund on 1 September 2005 with Thames River Capital as a strategic co-investor on day one.
Co-managed by Mick Dillon and myself, the fund has an EAFE market bias and is managed with a low net exposure of +/-20%. Our PMs have complementary skills and first crossed paths at Arete Research, the successful sell-side boutique spun out of Goldman Sachs in 2000. Mick and I were both partners at the firm prior to launching the fund. Our backgrounds are as follows:
• Mick Dillon, a Chartered Financial Analyst, joined HSBC Halbis Partners in August 2005. He previously researched global software and IT services companies as a partner at Arete Research LLP, an independent research boutique dedicated to technology and telecom research. From 2000 to 2002, Mick worked as a senior equity research analyst at Lehman Brothers, providing primary coverage of the global software sector and IT services. Prior to that, he was a senior consultant at Logica plc, where he managed a number of strategy consulting projects in technology and telecom companies. Mick holds first class honours degrees in engineering, as well as bachelors degrees in both commerce and science from the University of Melbourne.
• I joined HSBC Halbis Partners in August 2005 with eleven years of financial experience. I covered digital consumer and software companies as a partner of Arete Research LLP, where I worked since the company's founding in 2000. I began my career at Dresdner RCM Global Investors London where I managed USD 1bn of European and Japanese global pension assets and also researched the global technology sector. I have an MSc in finance from the London Business School and a first class honours degree in international marketing and languages from Dublin City University.
HW: How and where do you distribute the fund? What is your current and targeted client base?
CO'M: HSBC Alternative Investments' existing client base is diversified both globally and by client type. The majority of our existing investors are institutional in nature (either financial institutions or fund of funds). Thames River completes the picture with a very strong high net worth franchise. Despite the infancy of the fund, its unique nature has already generated a great deal of interest with investors - particularly those whose guidelines permit sector funds. Lastly, the low net exposure approach of the portfolio is designed to produce returns irrespective of market gyrations. This approach appears to be assuaging concerns amongst many tech investors who suffered losses in many instances with more directional tech hedge funds.
HW: What is the investment process of your fund?
CO'M: The team invests on a thematic basis, exploring top down trends in technology both across geographies and along the fragmented supply chain. Leveraging over 1,500 industry contacts and the vast resources of HSBC Halbis Partners in key markets like India and China, the team filters themes and then explores which companies will benefit and which will suffer. This in turn naturally leads to the longs and shorts in the portfolio.
HW: How do you generate ideas for your fund?
CO'M: Through a combination of themes (as above) and regular company contact.
HW: What is your approach to managing risk?
CO'M: Risk management is a core competency of HSBC Halbis Partners and one of countless reasons why the team was motivated to join the firm (they had five institutional offers). The PMs construct a matrix portfolio to address issues like geographic weights and sector slants. Independently of the team, our dedicated risk management professionals monitor the portfolio on a daily basis to make sure it complies with prospectus guidelines like maximum net exposure and single stock limits. A more complete listing of the constraints is available upon request.
HW: How/against what do you benchmark the performance of your fund?
CO'M: As this is an absolute return product, it is not managed against a benchmark - though cash would be an alternative. That said, the team knows many of their competitors intimately since they previously covered them on the sell-side. We are therefore mindful of our competition. The MSCI EAFE and Emerging Market Information Technology Index is the only long only index which warrants monitoring given that its geographic weights include the core markets in which our team invests.
HW: Has your performance so far been as per budget and expectations?
CO'M: It is premature to comment on performance since we only have one month behind us. That said, our team closed on an uptick with only 70% net exposure by the end of September.
HW: What opportunities are you looking at right now?
CO'M: A number of themes are driving the thought process of the team. One example is the shift from traditional CRT TVs to flat panel technology, which benefits companies like LG Micron. Another theme is the demand for NAND flash memory will continue to outstrip supply.
HW: What events do you expect to see in your sector in the year ahead?
CO'M: Following a period of high correlation between stocks we expect fundamentals to reassert in the coming 12 months. We expect volatility within tech to increase.
HW: How will these changes/future events impact on your own portfolios?
CO'M: In keeping with our core investment philosophy, we will maintain a tight net exposure. We expect both long and short books to perform.
HW: What differentiates you from other managers in your sector?
CO'M: The team and their complementary skills first and foremost. Mick and I bring complementary skills to the table: I managed absolute return mandates at Dresdner RCM Global before becoming a dedicated tech analyst at Arete. Mick by contrast began as a strategy consultant in the tech industry before becoming a sell-side analyst. We each have intimate knowledge of different components of the tech marketplace and a proven ability to pick stocks. Finally, our EAFE oriented portfolio is unique in the marketplace. Our ability to leverage the regional CIOs and local market analysts of HSBC Halbis Partners in core markets like India and Greater China gives us significant insight into local market drivers.
HW: Do you have any plans for similar product launches in the near future?
CO'M: This marks the first sector fund launch for HSBC Alternative Investments. Our model is predicated on giving each team of managers autonomy coupled with the luxury of resources of HSBC to draw upon. While we may launch other sector funds down the road, we have no current plans to do so. More importantly, the one and only thing in life which consumes Mick and I is the HSBC Global Technology Alpha Fund. We have no other commercial distractions.
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