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Risks and rewards: How Maso Capital’s pioneering Asia-Pacific event driven focus is paying off

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Maso Capital, an event driven and convertible arbitrage-focused hedge fund based in Hong Kong, was established in 2012 by Manoj Jain and Sohit Khurana, who previously managed money for Och-Ziff’s Asia-focused strategies. 

Maso Capital, an event driven and convertible arbitrage-focused hedge fund based in Hong Kong, was established in 2012 by Manoj Jain and Sohit Khurana, who previously managed money for Och-Ziff’s Asia-focused strategies. 

Along with merger and convertible arb strategies, the firm – which now has more than USD500 million in assets under management – has more recently built a burgeoning presence in the growing market for Special Purpose Acquisition Companies, or SPACs, in the Asia-Pacific region.

Prior to launching Maso, founders Jain and Khurana – both originally from the UK – were Managing Directors at Och-Ziff. Jain had been in New York, later relocating to Hong Kong in 2005, while Khurana joined in 2007.

“In Asia, the hedge fund industry is not very old, the foreign or international hedge fund presence is also not very old, and so the amount of capital, the number of funds, and the capital base across those funds is a fraction what it is of the US,” Jain tells Hedgeweek.

He notes how the bulk of hedge funds within the region still tend to run equity long/short strategies, many of which are focused on Chinese markets. In turn, much of Maso’s specialist expertise – corporate finance, M&A, leveraged finance and private equity – remains under-covered and under-penetrated within the hedge fund sphere, he adds.

“The impact of what we call ‘sophisticated’ capital, or hedge fund money, has not really been felt here like it has in the US – and that then creates opportunity.

“Whether its merger arbitrage, capital markets, even the idea of a SPAC, or appraisal rights – we have been among the first ones to do it. When we started the firm, we wanted to investigate and develop a lot of things that we could potentially do in the region.”

Carving out what remains somewhat of niche presence within the region has successfully paid off for Maso. This year, the fund has generated around 15 per cent since the start of January.

Geographically, Maso focuses on developed markets across the Asia-Pacific region – Australia, New Zealand, Japan, Hong Kong, China and Singapore predominantly; as well as pockets of opportunistic investments in India, Thailand, the Philippines, Taiwan and South Korea.

A global phenomenon

The firm’s 13-strong team – which spans M&A, leverage finance and private equity experience – are described by Jain as “situation-type guys” who typically zero in on the mechanics of transactions and events, rather than specialising in any one particular sector or industry. 

“There’s no particular sector that we prefer or avoid – M&A is a global phenomenon,” Jain explains. “Naturally, we prefer companies that are asset rich, because they have a hard floor to them which means you can extract a lot more value. We also look at the ability to hedge these names and how effective that hedge is.”

From a risk perspective, meanwhile, liquidity of the underlying security is key, and so Maso’s investment activity inevitably gravitates towards, and aligns with, regions and sectors where there is greater deal activity. 

“We are asset class-agnostic – we want to be nimble and to be able to innovate,” says Khurana, noting how in the past the firm has moved its merger arb, event driven, and convertibles exposures up and down according to global activity.

“But it goes in waves – if there are a series of convertible bonds being issued by Taiwanese technology companies, for instance, we may be more active there for a time period. Similarly, the chances of us looking at something in, for example, Vietnam is naturally lower than something in Hong Kong, because there’s less activity and fewer listed companies in Vietnam versus Hong Kong.

“But because we are a private partnership, we can allocate and deploy capital where the best risk-reward is – we are not beholden to allocating capital to a strategy if we don’t think the risk reward would make sense.”

Jain explains how Maso takes the principles of corporate finance well-established in the US and ultimately applies them to Asia-based companies, adding that the firm meets around 600 companies every year, “whether it’s for a pre-IPO, an IPO, capital-raising, refinancing, M&A, post-M&A.”

“The same company in Asia may often present multiple P&L opportunities for us,” he explains. “Often they are repeats – a company may come to see us this year for its IPO, and the chances are it comes back to us in six months’ time because it’s coming off lock-up and they want to market that deal to investors.

“So we want to maintain that constructive dialogue and partnership with them. It truly is value-add, we have skin-in-the-game, and it’s different from in the US.”

The Asia event driven space is unique compared to Europe and the US, adds Sam Joshi, Maso’s head of business development and investor relations.

“Asia event driven has historically been prop-desk types of individuals that have been running relative value portfolios rather than real traditional event-driven portfolios. The approach that we’ve taken at Maso is in partnering with companies and saying, ‘Here are 10 value levers you can pull, these are within your control and it will help your stock re-rate’.”

Significant value

One key area of focus for the firm recently has been SPACs, which have enjoyed a surge in interest over the past 18 months, with hedge funds in particular helping to fuel the boom in the US and Europe this year.

SPACs aim to raise capital from investors through IPOs in order to buy shares in private companies, with a view to taking them public, usually through a merger with the publicly-traded SPAC. Shareholders can then choose to retain or redeem their shares following a takeover, while if no takeover targets are found within two years, the SPAC dissolves, with cash returned to investors.

“When we look at event driven investments, they range from IPOs – a very simple capital market event – through demergers, spin-offs, share buy-backs, special dividends, sale and lease-backs, opco/propcos, and divestments of non-core divisions,” says Jain.

“Similarly, if you think about what a SPAC is, there are various different stages of it as well. This is how we have become more versed and more active in the area.

“Each stage has a different risk/reward profile. We often get asked – ‘Should I buy SPACs?’  To me, that’s like asking ‘Should I buy equities?’ or ‘Should I buy bonds?’. That’s a valid question, but it’s not the right question. Instead, you should go through the SPACs universe, as you would with equities, where you can buy tech, healthcare, REITs, yield, China, Asia, Japan, US, UK. 

“With SPACs it’s similar It’s a far more complex question – there’s the merger, the newco, the synergies, where the newco trades. Once the SPAC IPOs, within about 50 days the unit splits into the common and the warrant, and there’s an opportunity for what’s called SPAC-arb.”

Expanding on this point, he continues: “What’s the nature of the SPAC? What’s the quality of the sponsor? What’s the structure? What’s the track record? As with equities, not all SPACs are created equally – that’s a very important differentiator. This has offered significant value for us – complexity is often our friend, because that creates opportunity where something needs to be priced for that complexity.”

An incredible opportunity

Maso’s opportunistic and idiosyncratic approach to event driven investing has also seen it take a unique path in using the Cayman Islands’ courts and legal system to improve the value of Chinese delistings. 

Jain explains how many of the Chinese companies that launch IPOs in the US do so via American Depositary Receipts (ADRs). Subsequently, many have delisted and returned to Asia via various avenues. Since 2014, there has been a wave of such offerings, with high-profiles such as Focus Media and Qihoo 360. 

He says: “With further investigation, we realised there is a rule in the Cayman Islands – where such companies are incorporated – called section 238, which allows shareholders such as ourselves to exercise our right to get fair value via the court process. 

“When we went down this route, people thought we were crazy. But since we started doing it in 2015, it has been an incredible opportunity for us – we’ve done it over a dozen times, and we’ve had successful outcomes in every single case. 

“As with what we are doing in SPACs, it’s uncorrelated, it’s different – it requires a lot of intellectual horsepower. It’s not long/short by any stretch, and as a result it brings some lumpiness to the return profiles, because if you win a case, you need duration on your side since some of these cases may take two or three years to resolve.”

It’s an approach that chimes with Maso’s broader strategy of delving deep into deal documentation and determining the drivers and the motivations behind a deal, reflects Khurana.

“If you can work that out, it gives you an insight into pricing a deal and working out the appropriate risk,” he says.

Joshi adds: “The people that our strategy has resonated best with are asset owners with long-duration capital – it’s endowments, foundations, sovereign wealth funds, people have generally seen the corporate finance landscape change historically, and understand the Asia’s undergoing its own corporate finance revolution, albeit on a slower time scale.”

“For us, the pros and cons of the investor conversation has changed over time. Initially people wanted beta exposure to Asia.  Now they’ve realised that there’s more of an intellectual conversation to be had.”

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