In the 45 years that Jim Rothenberg spent as an investor with one of the world’s most consistent fund management firms, there was one key constant – periods of intense volatility and major market gyrations. Speaking to the South China Morning Post just as mainland equity markets were engulfed in their worst volatility storm in seven years, the chairman of the US$1.4 trillion Capital Group of Companies took a typically long-term view of developments and remained focused on the key thing that has made the firm he headed one of the world’s best money managers. “I don’t spend a lot of time investing in markets. I invest in companies,” Rothenberg told the Post. It was one of the last interviews the 69-year old fund chief gave before his sudden death on Tuesday from a heart attack. “Capital markets are animalistic,” Rothenberg said on a visit to the firm’s offices in Hong Kong, one of six it has in the Asia-Pacific region, as China’s stock markets were sinking towards three-week cumulative losses of some US$3.9 trillion after a rampant run spurred on by a series of interest rate cuts and pro-market reform policy statements from Beijing in previous six months that had led to a more than doubling of prices. The market unwind could be barely halfway through, with a key price-to-earnings ratio still running at roughly twice the level analysts say is fair value and some US$600 billion worth of margin debt and collateral pledges left to clear. “One of the things that Chinese regulators are going to have to get their arms around is that the more that you open these markets to achieve the objectives they are talking about, the less they are going to be able to control the outcomes. They don’t always go up, bubbles happen,” Rothenberg said. “The question is, conceptually, can you handle that volatility?” One of the things that Chinese regulators are going to have to get their arms around is that the more that you open these markets to achieve the objectives they are talking about, the less they are going to be able to control the outcomes Jim Rothenberg Beijing has said repeatedly that it wants to deepen and broaden its capital markets to improve access to funds for the small, private sector businesses that now create more jobs in China each year than state-owned enterprises, but which are generally starved of credit by government-backed banks that prefer to lend to their SOE cousins. Creating a fully functioning market mechanism and giving a greater role to markets in allocating financial and other resources has been a key policy objective of President Xi Jinping since he came to power. Pro-reformers in the government had pushed the market agenda on the basis that it was the best way to tackle the mis-allocation of capital that is dragging on economic growth and to help give mainland firms the best chance of succeeding on the global stage, transforming them from low-cost assemblers to high value-added originators to build national prosperity – the key ingredients for delivering the economic and social stability that the Communist Party says legitimise its one-party rule. The massive run-up in volatility that has accompanied the stock collapse after prices peaked on June 12 has been ringing through the corridors of power of a government obsessed with stability. Rothenberg’s advice to the authorities in Beijing was to stay the course. “It is a whole adjustment process to get your arms around that and let markets do what they do. If you can do that, then I think you get better capital allocation across the system over time. It doesn’t mean that it doesn’t get disjointed at times. But this is a process that will take years,” Rothenberg said. “It also takes years for people to move away from the notion that equities is like going to the horse track and that everything is a trade of a very short duration. The notion of long-term investing, broadly speaking across markets in Asia, is less embedded,” said Rothenberg, whose firm manages about US$16 billion in assets for clients in the region. “And that isn’t to say it is embedded in the US – there is lots of variation – but I would talk in terms of the next five or 10 years (for markets to open and gain some maturity).” Long-term investing is core to the Capital mantra. Founded in 1931, it began investing in Japan in 1956 and launched the first emerging markets growth fund in 1986 in response to the World Bank’s request for a vehicle through which institutional investors could channel funds to developing economies. The long-term approach was the best way to protect investments against volatility, Rothenberg said, citing his own experiences with periods of intense volatility and market routs in 1969-70, 1974-75, 1982, 1987, 1992, 1998, 2000-02 and 2008-09. The firm’s Capital Group New Perspective strategy, launched in 1973 after that first period of volatility, has achieved a return of 13.4 per cent a year since, compared with an 8.6 per cent for the MSCI World Index.