Heather Manners 1986: Graduated with a degree in psychology from Exeter University. 1986: Joined Henderson as a trainee fund manager for Asian products. 1996: Promoted to head of the Asian team. 2000: Stepped down as head of the Asian team to concentrate on running money including a hedge fund. CAN LEOPARDS CHANGE their spots? Heather Manners believes at least some of them can. The leopards the fund manager at Henderson Global Investors is talking about are Asian companies. The veteran investor is particularly gratified that since the Asian financial crisis she has been finding some regional executives who are running their firms more in line with the interests of shareholders. A key gauge for Ms Manners is return on equity, something which Western executives were benchmarked by but was largely ignored in Asia before the crisis. 'There's more upside in Asia because it is not something management has been focusing on until recently,' she said. 'Actually, for the first time ever, return on equity [in Asia] rose faster than industrial production. 'Return on equity is a measure of the quality of management. It is a measure of the profitability of the business.' The trend of improving return on equity since the crisis could be a powerful underpinning factor for an extended rally in the region, similar to the one which Western markets enjoyed in the 1990s, rather than just a brief cyclical upturn which investors have become used to. Ms Manners says a good example of a leopard changing its spots is Tong Yang Confectionary in South Korea. The company has cut out unprofitable product lines, consolidated its warehouses and even dropped some of its clients. The result is the once second-tier chaebol firm is starting to show improvements in financial efficiency and return on equity. Some of the improvement in return on equity across the region is the result of the Asian financial crisis clearing out crowded playing fields. In Thailand, about 2,000 property developers have been reduced to just 20. Industry leader Land and Houses is turning in a return on equity of 17 per cent. Homes used to be bought off plans in Thailand but the crisis left many buyers out of pocket for their deposit and without a home when developers went bust. That forced Land and Houses to adopt a pre-built model for sales, which improved asset turnover. Asia is continuing to benefit from being an outsourcing centre despite the global economic downturn, Ms Manners said. Western companies are under pressure on pricing and margins. Farming out work to Asian companies benefiting from cheap labour and plenty of spare capacity can help. 'Chinese basic materials makers are already unseasonably busy,' Ms Manners said. 'There is a positive story for Asia whether we have a recovery in the United States or not.' Five years on, Asia may finally be shrugging off the effects of the crisis and seeing the start of a credit upcycle, which would create a powerful domestic demand story and allow the region to be looked on as an economic story in its own right rather than a geared play on the US. Korea has led the way with stellar growth in consumer lending. On the flipside the savings rate has dropped from 41 per cent in 1988 to 32 per cent last year. There was evidence that domestic demand in other parts of the region was stirring, Ms Manners said. Thailand saw strong growth in finance company loans last year and car sales shot up 45 per cent year on year in January. Ms Manners likes to construct her portfolios looking at the regional investment scene from a top-down macro-economic view. She is one of eight investment professionals on Henderson's Asia team, which manages US$2.5 billion. The team allocates money on a country basis, then looks at sectors and finally individual stocks. Meetings on each level of the investment process are held on separate days each week. 'Risk management is very important to us. We not only want to outperform our peers but also do it with low volatility,' Ms Manners said. Henderson, which is the fund management arm of Australia's AMP, has gone overweight in the markets with the best domestic demand stories, Thailand, Singapore and Korea. Singapore, in particular, had realised the folly of relying too much on exports to drive growth. Even Indonesia, which has been a pariah in the investment world since the Asian crisis, is winning some of Henderson's money. Telekomunikasi Indonesia is the key holding of Henderson's Pacific Equity Fund, which invests in Asia including Australia but excluding Japan. The house is underweight in Australia and Hong Kong. Henderson holds 10 per cent of its money in SAR stocks against 18 per cent for its benchmark. 'Hong Kong is in the clutches of major deflation, which is caused by being next door to China and partly down to the peg. It is hard to see Hong Kong getting out of it,' Ms Manners said. The Pacific Equity Fund, managed by Ms Manners and her colleague John Crawford, has gained 3.62 per cent this year to March 1, against 3.47 per cent for the benchmark MSCI Asia ex-Japan index, according to Lipper Asia. For the three years to March 1 the fund was ninth out of 72 funds in its category, gaining 39.21 per cent against 6.24 per cent for the benchmark. Ms Manners relinquished her role as head of the Asia team in 2000 so she could concentrate on running money and oversee the start up of an Asian hedge fund for Henderson. She still controls the Henderson Asia Pacific Absolute Return Fund, which can take short positions and invest in derivatives to hedge out market risk. The fund gained 7.86 per cent last year, according to Henderson.