Value Partners Launching Greater China Debt Vulture Fund

I first posted about Value Partners in 2006 and again when the company went public in Hong Kong in 2007. Now the fund management company is planning a fund to buy bonds and other debt sold off by banks and hedge funds amid the financial crisis:

“Global deleveraging and the concentration of hedge funds holding convertible bonds and other credit instruments have resulted in indiscriminate selling and extreme price dislocation,” Value Partners said. “The current environment represents an extraordinary opportunity for value investors.”

Forced liquidations pushed the prices of otherwise sound instruments from quality companies to extremely cheap levels, it said. New restrictions on selling borrowed stocks have also made the traditional convertible arbitrage hedge fund strategy, which involves so-called short selling of stocks, ineffective.

The linked report states that Value Partners launched in 1993 to pick stocks in the manner of Warren Buffett and John Templeton. As pointed out in my earlier psots on the firm, John Templeton actually put $100 million into the firm at one point.

But a market washout impacts everyone. Value Partners shares are down 80% since the IPO.

Comments

[nk]

They may try to invest like Buffett, but they certainly do not compensate themselves like Buffett. The HK stocks are ready for a Templeton approach of buying a basket of cheap net nets and waiting for a few years.

[John]

nk: Sounds like a smart thing to me.

I'd be interested to know if management and employees at Value Partners invest their personal money in the funds, the way Longleaf Partners does.

[nk]

Management (Cheah Cheng Hye, Choi Nga Chung) owns around 50% of the fund which is listed on HKEX (0806).

In the news today, they have dropped plans for this new fund. There was a 58% drop in assets, which means a corresponding drop in management fee revenue and book value as they invest in their own funds. They've recently issued a profit warning and fired some low cost staff. Sadly, the chairman's cash bonus from last year (14% of assets) is more than the sum of the life time salaries of the employees they fired. I expect their management fees to halve and their performance fees to zero this year. They have a goal of distributing 25% of profits to employees - how does their model compare to Longleaf Partners?

Investing in the companies where they are forced to liquidate their positions in could work.

From scmp.com:

"Value Partners Group (SEHK: 0806), an asset manager backed by the mainland's second-largest insurer, has cancelled plans to start a fund to buy Asian bonds sold off by banks and hedge funds.

"Many of the extraordinary value opportunities identified by our investment team in preparation for this fund launch have diminished significantly over the past few days," said spokesman Teresa Yu yesterday.

Value Partners decided to shelve the fund on Monday, Ms Yu said, without elaborating. "

...

"The group's assets under management fell 28 per cent last month to US$3.1 billion, it said, extending the drop this year to 58 per cent."