The sudden departure
of Roger Ellis as Chief Investment Officer of JF Funds in Hong
Kong jolted the local fund management community. Ellis insisted
he was leaving the firm for personal reasons, but the rumour
mill linked his departure with that of Blair Pickerell, who
had exited as chairman just weeks before Ellis.
Critics within the industry seized on the two departures
as proof that, not for the first time, the culture of British
style managers (both Ellis and Pickerell are British) just
did not fit in with those of the United States. The merger
of JF Funds (British) and JP Morgan Chase (American) was proving
another example of oil and water, ran the argument.
Investors in the funds run by Roger Ellis had other concerns
- who would be looking after their money now? In particular,
who would run the JF Asia Absolute Fund (AARF), one of the
departing Ellis's star vehicles, and one of the investment
group's two hedge funds authorised for retail sale in Hong
Step up Miles Geldard, who is now responsible for the fund
which has produced annualized returns of 40% since 1998, and
consistently provided positive returns, whatever the market
He dismisses the culture clash story, and sees his promotion
as a practical rebuttal of the rumours:
"We work as a team here. Victor Lee, who has been working
with Roger on the fund has also been doing a very good job
running the Pacific Technology fund, and is effectively the
senior analyst in AARF. The continuity is very much in place".
Geldard was recruited into JF in 1998 by Ellis himself -
they were school friends - after what he calls "a long
time" in derivatives and currency management, including
a spell at the former James Capel broking operation in Tokyo.
There was even a "sabbatical' in Botswana, where Geldard
helped to run the country's significant foreign exchange account.
At JF his principal task before taking over AARF was running
the group's fixed interest business in Asia, which also included
the group's lower risk type vehicles, as well as looking after
convertible operations, where his previous experience in derivatives
has been brought into play.
"I found myself becoming more and more involved with
Roger on all his funds. Obviously, AARF has some of the largest
positions, given the difficulties of equity markets, some
of those have been currency positions, so I had been effectively
giving input into that. My derivatives background was also
useful," explained Geldard.
Despite his long association with the hedge fund, Geldard
finds himself with a large pair of boots to fill. (Within
days of his departure Ellis was in ski boots, jumping out
of helicopters on to black runs in Canada).
Since Ellis took over the fund in October 1998, it has never
had a red calendar year, and only two 12 month periods when
it lost money. In the 12 months to January end, AARF returned
+6.30%, when most conventional funds in Asian equities were
losing money. The legendary year for the fund was 1999, when
it returned +455% as Ellis tapped into JF's remarkable stock
picking spell which generated huge returns from Japanese technology
plays and smaller companies.
Not surprisingly the current strategy is much more conservative,
and Geldard has no plans for any early shifts.
A switch away from the heavy equity exposure of previous
years has already taken place, he explained, and there has
been a temporary stepping back from markets as a reaction
to Ellis' departure, he admitted.
"Our positions were cut down prior to Roger leaving.
They have been approximately halved from December end levels,
which is normal because when a fund changes managers you want
a period of stability as you decide what to do next. Inevitably
there will be people who want to leave. That's very normal,
and we wouldn't be surprised by that."
What he plans is to build on the current experience of the
team. "People looking after the fund now are not new,
they have had a lot of time with Roger, and we would not envisage
any radical changes to policy. We have already made some modest
changes to the portfolio, but the broad approach and management
style will not materially change. There will be slight variations.
Obviously, I have a background in derivatives so we may incorporate
more in that area.
"This is a fund which must respond to market environments,
so for the last couple of years we have had a very difficult
equity environment, but there have been attractive opportunities
for reward in the currency markets and that is why we took
larger currency positions than previously. I am not saying
we will continue to do that, but we will if the opportunity
arises, and the risk/reward is attractive. We are seeking
maximum positive rewards for the risk we are taking."
The last quarterly report to investors from Ellis showed
a heavy bias towards long position in the Euro. Short term
prudence has seen some of those unwound, but Geldard remains
a long term bear on the US dollar.
"We took the view that we have had a good run in currencies,
and so it was appropriate to reduce that exposure on the basis
that the risk/reward was less attractive. For example, the
Australian dollar was a big performer and had a tremendous
"While we have cut back on the Euro, and that was fortunate
timing, we remain long term negative on the US dollar. It
is our principal view that the arguments for a weaker US dollar
are hugely compelling."
The Euro will remain a fundamental building block of the
AARF, but largely as a flipside of the downside potential
on the US dollar rather than on its own merits, admitted Geldard.
"Domestically the Euro is in bad shape, but from an
export competitive view, it is not quite so bad. Euro-land
is likely to have a slightly higher currency by virtue of
the imported inflation effect and the Euro can take up a lot
of the global currency adjustments."
So, is equity off the screen at AARF now that Ellis is no
longer at the controls?
Absolutely not, says Geldard. "All our positions could
be equity, whether short or long, it's not as if we have to
have currency exposure. It was just felt that the arguments
in favour of an increase in currencies were so compelling."
Now the arguments in favour of equities are beginning to appear
on the horizon, he said. "In Asia ex-Japan, the equity
valuations are becoming extremely attractive, from a range
of valuation parameters. The difficulty at the present time
is the big markets. Asia is still correlated with them and
can't avoid weakness coming from abroad. Asia ex-Japan is
"There will be significant opportunities in Asian equities
and in Japan on a very specific basis. While it is currently
very challenging, a lot of babies are being thrown out with
the bathwater, but there is still a lot of bathwater. The
reason our position size is small is that geopolitical factors
could cause markets to move significantly in any direction.
In a few months time we will be looking at some extremely
The big test for JF Funds, Miles Geldard, AARF and its investors,
is whether they can reproduce the equity magic that made Roger