Hedge Fund Monthly
Interview with Woon Lim, Fund Manager of Bali Pacific Fund (Cayman)
|Matt Schmidt, Eurekahedge
Woon Lim manages the Bali Pacific Fund (Cayman) from New
York with Thomas Murtha. Woon Lim, an ex-broker, spent 11
years with Robert Fleming and four with HSBC Securities on
their Asian sales desks in New York. The fund was launched
at the start of January 2002. The Bali Pacific Fund was 0.5%
for August 2002 and is 1.0% YTD at the end of August.
Interview with Woon Lim
- Explain the difficulties and joys of going from a
broking background to being a fund manager?
As a broker there was constant pressure to come up with
ideas everyday to generate trades. As a fund manager,
I had to learn to slow down, not to look at too many ideas
and stay focused. As a broker, I was more affected by
short-term movements in stock prices and markets and now
as a portfolio manager, I needed to stay disciplined but
yet constantly review our investment thesis for each of
the stocks in the portfolio. I certainly find being on
the buyside more intellectually stimulating and have the
ability to access more good analysts and company managements
that brokers bring through New York. I do miss the buzz
of the trading floor on the sell-side. I do not miss pushing
bad deals to clients.
- What is your take on running an Asian hedge fund from
I think the primarily advantage is that I am less affected
by the noise from the markets although I do stay up every
night to talk to company managements, sell side analysts
and sales traders. Also, I feel that being in a "neutral"
location makes me less focused on a particular market
and allows me take a more objective view of each of the
markets I am investing in. On the flipside, we do get
quite affected by what is going on in the U.S. market.
The biggest disadvantage is the inability to go and visit
companies on a timely basis although we are making a trip
to Asia once every quarter to meet with company managements.
However, we do get to see many company managements and
sell-side analysts who come through NYC on a regular basis.
Every Asian economist writes about the importance
of the U.S. consumer in supporting strong growth in Asia.
Do you think that the U.S. is over-rated in this respect?
Asia ex-Japan is still a warrant on global growth because
of its dependence on manufacturing and exports to the
OECD countries. Unfortunately, the U.S. consumer has been
shouldering the bulk of the load for global growth in
2002 and looks to be tiring. I am however sanguine about
global growth picking up slightly going into 2003 given
the extreme pessimism existing in world economies and
markets at this time. I think we need more balanced growth
across regions and across segments of the global economy
i.e. consumers, businesses and government. The U.S. consumer
had been important in 2002 but I suspect less so in 2003.
- What is your take on the current status of the U.S.
I am no economist but for what it is worth, I think
that next year will see a more stable growth path in the
U.S. economy with more balanced growth among consumer,
business and government sectors. Hopefully, the Iraq question
will be resolved early in the year and that should remove
the geopolitical risk over-hanging consumer and business
confidence. We will be one year along on corporate restructuring
and hopefully improving outlook for corporate America.
Government spending seems to be increasing but that may
lead to other concerns.
- Can you explain the team's investment philosophy?
We believe that stock selection should be the primary
determinant of performance, not market timing. Macroeconomic
factors are important and primarily direct our attention
to investment themes that help us identify prospective
long and short positions. On the long side, we focus on
identifying great companies with strong management, an
attractive business model/franchise, and improving returns
on capital. On the short side, we identify companies with
deteriorating fundamentals, selling at a significant premium
to intrinsic value because the stock price reflects unrealistic
growth expectations, and with an identifiable catalyst/event
that will correct the mispricing. In general, we like
to invest in businesses selling at a discount to intrinsic
value so that the downside risk is small and the upside
potential is very attractive because we have paid a good
price for an embedded option on the future growth of the
distributable cash flows.
Its risk management system?
We have risk parameters in terms of maximum exposure
by country and sectors. We limit our gross exposure to
no more than 150% and net exposure to 60%. In the current
volatile markets, we have 50% gross exposure and 0% net
exposure. Our historic portfolio volatility is 8%. We
monitor our portfolio on a beta-adjusted basis by country
and sector. We monitor how we correlate with our benchmark
but more importantly, we like to monitor our portfolio
volatility on a daily basis. We check our investment thesis
for our top five long and short positions, our most volatile
positions and also our most illiquid positions to see
if they still make sense. We have strict stop loss limits,
7% loss we need to assess whether to cut loss, 10% loss
we trim at least half our position and 15% loss we get
out completely. We also look at our portfolio value at
risk on a daily basis.
- What countries and sectors are you finding interesting
I believe that a number of the manufacturers based in
Korea and China are gaining market share over manufacturers
in Taiwan and the rest of Southeast Asia. I still believe
that consumer stocks in Korea, China and Thailand offer
good upside potential and are selling off now which provide
good entry points. I think that we are at the beginning
of a new credit cycle in Korea and Thailand which may
be beneficial for some banks and consumer finance companies.
The current sell-off in these stocks again make them interesting.
- Short ideas?
We continue to believe that too much growth expectations
in priced into technology stocks in Taiwan and Singapore
and we are short a number of situations there. We continue
to believe in the secular decline of property rents and
prices in Hong Kong and Singapore which is bad news for
property stocks and banks there. We think that telecom
stocks in HK, China and Singapore are ex-growth yet sport
Will the potential for a U.S. invasion of Iraq after
the mid-term elections in the U.S. have an effect on your
Yes. We feel that we need to stay low net exposure in the
face of this uncertainty. However, once that uncertainty
is resolved we would be increasing our gross and net exposure
Bali Asset Management LLC
+1 212 812 0720
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