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Justin Kendrick is one of the three Principals and the Head
of Business Development at Binjai Hill Asset Management (BHAM),
based in Singapore. BHAM will advise the BINJAI HILL ASIAN
ACORNS FUND, an Asian ex-Japan long/short equities fund with
a long bias and focused on smaller-to-mid cap stocks. The
BINJAI HILL ASIAN ACORNS FUND is scheduled to launch on August
10th and is aiming for moderate volatility and an absolute
return of 20-25% per annum.
The investment team is led by Syed Adlan who will be responsible
for the management of the fund, supported by Steven Wong,
BHAM's Head of Research. Justin will focus on marketing, client
relationships and risk management and prior to co-founding
BHAM, he was Head of Regional Sales at ABN AMRO Asia Securities
in Singapore.
- How long have you known Syed and Steven and why did
the three of you want to start Binjai Hill?
Steven and I used to work together at ABN AMRO and we
have known each other for over 12 years. I started broking
to Syed in 1997 when he was in London and Steven more
recently; we got to know Syed on a more personal level
when he moved to Singapore three years ago.
About 18 months ago, Steven approached me and we started
thinking about how we could start a fund of our own. We
spent a considerable amount of time meeting a number of
industry players and service providers. Both of us felt
that while we had the marketing and research skills between
us, we needed a successful fund manager with a track record
to round off the team. Right from the start, we talked
about focusing on smaller-to-mid sized companies. Steven
and I had worked for CLSA and Crosby respectively, both
leading smaller company brokers in Asia; so it seemed
natural for us to leverage off this experience.
When we looked at who could join us, Syed's name came
up almost immediately. Not only did he have an excellent
track record with managing a smaller-to-mid cap fund,
but more importantly, he was someone we both felt we could
work with and whose views we respected. Many more months
- mainly evenings and weekends - were spent thrashing
out the bones of the strategy but once we felt we had
nailed it down we were eager to move ahead; in mid-February
this year, both Syed and Steven resigned from their positions
at Deutsche Asset Management and the Singapore Government
Investment Corporation (GIC).
Three reasons drove our interest in setting up BHAM. Firstly, we believe in Asia's
structurally superior growth that provides a wealth of
under-researched companies that are relatively undervalued.
Binjai Hill's strategy is based on the philosophy that
it can achieve absolute-performance through a rigorous,
bottom-up investment process resulting in long/short strategies,
referenced to major macro and political themes.
Secondly, we felt that our complementary professional
and cultural backgrounds were an excellent fit and would
give us an 'edge' in running this strategy. We think a
combination of 35 years of investment experience and an
intimate knowledge of Asian markets is quite rare and
distinguishes us. In addition, we have all held senior
positions at leading 'best practice' institutions and
have excellent contacts in the industry.
Thirdly and most importantly, Syed, Steven and I felt
that it was a fantastic opportunity to create something
from scratch. I have previously been involved in the setting
up of two financial start-ups and nothing beats the thrill
and satisfaction of making a go of something you believe
in. There are no half-measures when you build something
from the ground up; you've got to be fully committed and
as an indication of our commitment, we are putting substantial
amounts of our own money into the fund.
- You have spent a lot of time marketing the BINJAI
HILL ASIAN ACORNS FUND over the past four months. Do you
have an idea how much the fund will officially launch with
on August 10th? What is your goal for asset size by the
end of the year?
We have undertaken four global marketing trips since
January targeting institutional investors, high net worth
individuals, fund-of-funds and family offices. We are
looking at between US$5-$10 million by the end of August.
It has been a more difficult time to raise assets given
global macro concerns and reduced inflows to fund-of-funds
but hopefully a better time to start investing! Ideally,
we would like to increase this to over US$30 million within
the first year and ultimately to around US$300 million
depending on sufficient market liquidity.
-
After your initial screening process of the Asian
stock universe, how does the investment process work?
We are very much a bottom-up, value driven fund. Our
investment processes looks for strong company fundamentals,
a viable business model, management quality and good corporate
governance. When analysing financial statements, we focus
on valuation measures (PE, dividend yield) and free cashflow
through the business cycle and growth prospects. In a
sense, we are looking for stocks that are capable of doubling
in three years. We require hard catalysts to take place
within 3 to 6 months for "long" positions and
within 1 month for "shorts" to enable re-rating/de-ratings.
We also place a strong emphasis on in-house proprietary
research and company visits and expect to visit between
250-300 companies in a year. Given the relatively low
turnover of stock names and concentrated portfolio, this
suggests that for every 10 visits we make, we may find
one company that makes it into our portfolio.
- Japanese small capitalisation stocks have had a great
run during this year, would you ever consider expanding
your investment mandate into Japan?
We have no plans to do so currently. The market dynamics
are very different and we do not have the expertise or
experience in the Japanese market.
- How actively will the investment team short individual
stocks, or will most of the short exposure be index futures
to mitigate specific market risk?
Short borrows will not be a main strategy for the foreseeable
future due to availability, cost and event risk but we
will be opportunistic when we see the chance to do so.
This is driven by our view Asia provides considerably
greater opportunities on the 'long' side but should Asia
become overvalued we may well have a much greater number
of individual stock shorts. Pair trades will be more common
and we will be much more aggressive with index futures
to manage our net position and minimise volatility.
-
The team will be using the TRADAR system for its
risk management. Can you explain how the system works
and how it will lower the fund's volatility?
TRADAR is an operational desktop solution catered specifically
for the hedge fund industry to aid in execution and risk
management. The heart of the TRADAR solution is a position-keeping
engine with a built-in interface with Bloomberg. We looked
at numerous systems before we settled on TRADAR; it is
easily the most user-friendly system we have come across
and is able to track positions, reconcile trades and generate
all the necessary reports.
- Long-biased investors in Asia are often particularly
vulnerable to macro events which can cause unexpected market
meltdowns with correlation convergence within and across
sectors. How will the investment team protect capital in
the fund from these 'macro' risks?
Turning the equation around, our main focus is to deliver
absolute returns. We aim to achieve that by identifying
and extracting alpha at the stock level through a rigorous
bottom-up research process. We use beta and volatility
in the markets to our advantage for our entry and exit
points on individual stocks. We also pay close attention
to top-down macro, political and socio-economic events
in each country, in the region and globally in order to
move our net exposure between 0-100%. This is achieved
through use of index futures and cash to protect the fund
against volatility and downside in order to deliver our
ultimate aim of absolute returns.
To assist us in understanding what is happening on the
macro side, we have an investment advisory committee chaired
by a well known economist and comprising of a regional
strategist, a regional micro strategist and a recently
retired regional CIO. We consult with the advisory committee
every quarter and it advises us on global macro developments
and their implications for Asia, down to the individual
country level with an explicit focus on potential political
risk.
- You mentioned in the firm's June monthly letter that
easy money in Asia has been made this year but there still
exists many opportunities at the fundamental, stock-picking
level. Where and what are you focusing on now?
We are very aware and do take advantage of thematic trends
globally and in the region. Asia is at the beginning of
a sustained period of structural growth and this is particularly
evident in domestic sectors which have been through a
long restructuring and recovery period since the Asian
crisis.
In the next 12 months, we see the largest gains coming
from the 'forgotten' South-East Asian equity markets and
this will probably have a relatively high weighting in
our portfolio. India has very attractive dynamics but
the market over-extended itself last year and is going
through a consolidation phase with concerns over a cyclical
slowdown and a weak coalition government. Fundamentally
China has, and will continue to be, a dominant growth
driver in the region. However, the equity markets there
are relatively underdeveloped and volatile and we prefer
to capitalise on China plays listed elsewhere in the region.
We can find considerable value in Korean consumer plays
but they could well provide cheaper entry levels later
in the year or in 2005.
Contact Details
Binjai Hill Asset Management
Tel + 65 6438 4158
Fax + 65 6438 4156
Email:
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