Small stocks, big ideas drive Value Partners boss
Cheah Cheng Hye's one-time hobby fund now manages US$5.7b
Cheah Cheng Hye had been a veteran financial journalist at such publications as the Asian Wall Street Journal and Asiaweek when he set up fund management firm Value Partners in 1993. He never thought it would become more than a diversion for him and a small circle of friends.
Fast forward to November this year: Value Partners goes public in a US$376 million initial public offering in Hong Kong that sees investors clamouring for more than 300 times the number of shares available.
It also attracted Ping An Insurance (Group), the mainland's second-largest insurance company, which took a 9 per cent stake in the firm. Value Partners has increased its assets under management 10 times since its launch to US$5.7 billion.
The company has also proved a winner with its employees. Only one fund manager has been poached by a rival and he was back at Value Partners a year later, according to Mr Cheah, who plays chess and poker to hone his strategic thinking skills.
From the start, the firm has focused on undervalued small- to mid-capitalised stocks which have strong growth potential. It has an average annualised return of 22.8 per cent.
The company branched out earlier this year when it invested US$30 million in start-up budget airline Oasis Hong Kong Airlines, which flies between London and Vancouver.
Shareholders can expect to see more such moves in the future. The company, by June 30, had about 88 per cent of the assets it manages invested in the Greater China region but plans to put more money to work in the wider Asia-Pacific. Value Partners also intends to diversify into private equity where it has US$118.4 million under management.
Mr Cheah expects that as the Chinese markets and economy grow, funds based there will eventually start punching above their weight with a few gaining entrance into the top class of international funds.
Mr Cheah became the company's single largest shareholder in 1997.
What made you decide to switch from journalism to the financial industry?
I hoped to learn something that I couldn't as a financial journalist. I didn't just want to be an observer watching the financial world but to know how it worked.
Moreover, I lost almost all of my money in foreign exchange investments because I didn't have enough risk management. That gave me the motivation and ambition to tap the fund management business to recover my losses.
Would you still enjoy working as a journalist if you didn't have a successful career as a fund manager?
Yes. Most of my best friends are still working in the media. Some of them have served the sector for a long time while others have joined the financial industry.
What kinds of valuable lessons did you learn when you were at the Standard, Asiaweek, the Far Eastern Economic Review and the Asian Wall Street Journal?
The media gave me plenty of opportunities to interview famous people. Working at famous institutions helped me get interviews.
I always assumed I was a stupid guy and asked them: 'I don't know, you teach me.' This was a famous weapon to get what I wanted.
After running the fund for more than a decade, is the current success of Value Partners what you expected?
It's been completely unexpected. [Co-founder] Yeh V-Nee and I thought it would remain a hobby when we set it up, like the little shops in Mong Kok or Wan Chai which sell model aircraft.
What other aspirations do you remember having for the fund and have they been realised?
It was me and one secretary when Value Partners was set up and it has now been running for 14 years. It has achieved an annual return of 22.5 per cent, which is a track record.
Value Partners is still in the early stages. We want it to be a world-class asset management company but we are still lagging behind our peers in the United States and Europe. China and Hong Kong could easily support up to 10 world-class asset management companies and I hope Value Partners will be one of them.
Apart from managing the fund, what do you do in your spare time?
I am really interested in playing cards and am good at poker, although I haven't had too much time recently. I also play western chess sometimes and read.
Have you considered retiring from day-to-day work after making Value Partners the largest fund company in Hong Kong?
I have no plans to retire at this moment and I am still very healthy. If I quit the job, I'll be very bored.
Our shareholder base increased by many times overnight when we went public. Total shareholders have increased from 11 initially to 70,000, giving me power to serve them with better returns.
What prospects do the Hong Kong and China financial sectors have? Where do you see the Greater China finance sector in five years?
Hong Kong has been having a good run since 1997 on the back of Chinese government support. Moreover, the city has been the gateway to China. But I do think Hong Kong cannot rest. It has to move faster to compete with other countries and economic systems in the region.
The success of an economy not only relies on cash but also talent power. There are deep concerns about human capital in Hong Kong and a much better education system is needed.
On the China side, it will remain high growth in the coming years as the market is yet to fully open. It offers huge opportunities for entrepreneurs to make money.
What is the secret of Value Partners' success?
Don't try to think about the short return. Our focus is long-term management.
Most of our key team members have worked for Value Partners a long time and some were promoted from junior posts after training for up to 10 years. It has made everybody close and [creates a] strong team spirit.
Unlike bigger companies, we concentrate on investing in undervalued small and middle-sized stocks - Asian stocks, mainly in Hong Kong and China. That has helped us to become more familiar with this sector and to find higher returns.
Was there some person or event that directed you towards what you're doing today? How did they affect your actions and attitudes towards the financial sector?
Two books - Money Masters and New Money Masters - opened my eyes and taught me how to be a real master in investment management.