e-fundresearch: Which benchmark do you adhere to?
Sung: For the Absolute Asia AM Pacific Rim Equities Fund, the benchmark that we use is the MSCI Pacific Free ex-Japan Index.
e-fundresearch: Are you also responsible for other funds at the moment?
Sung: Yes, as the CIO of Absolute Asia Asset Management, I’m responsible for overseeing all Absolute Asia Asset Management funds. However, I am the principal fund manager for a number of funds. In addition to the Absolute Asia Pacific Rim Equities fund, I also manage a number of portfolios which mirror the Absolute Asia AM Pacific Rim Equities, as well as managing the A Fund, which is a long-only absolute return fund. The A Fund is a Cayman domiciled fund that we launched in late 2007 and invests in the stock markets of all the countries in the Asia Pacific ex Japan region. It also holds cash as an asset class. In addition, I manage the Absolute Asia AM Golden Dragon Renaissance Fund, which is a small and mid cap equities fund investing in the Greater China region (Hong Kong, China and Taiwan)
e-fundresearch: What is the total volume that you manage in all your funds?
Sung: Absolute Asia Asset Management managed approximately US$400 million as of December 2008.
e-fundresearch: Regarding the performance: which performance did you achieve since the beginning of the year and in the years 2003-2008? Absolutely and relatively to the relevant benchmark?
The performance data quoted represents past performance. Past performance is not an indication of future performance, provides no guarantee for the future, and is not constant over time.
e-fundresearch: How content are you with your own performance in the last years and this year?
Sung: In as much as the Absolute Asia AM Pacific Rim Equities Fund underperformed in 2008, I was, of course, very disappointed with our performance for the year. I attribute that largely to underestimating the extent of the global credit crunch. We did not expect the US government to make the mistake of letting Lehman Brothers collapse, which generated a crisis of confidence that spread across all financial institutions and paralysed the global banking system, resulting in an abrupt stop of credit flow to the economy. Basically, the world had a” stroke” in September and the world economy stalled.
Nonetheless, for most of the period since we established the fund in 1999, I have been exceptionally proud of our performance and we have significantly outperformed our benchmark for most of the period that the fund has been in existence. Additionally, the fund has won many prestigious awards over the years for being either the top or among the top funds in its asset class.
e-fundresearch: How are you able to deliver added value for your investors with your performance?
Sung: Our fairly consistent outperformance demonstrates the value add that we bring to our investors. The source of our outperformance has come from quite a stable investment team over many years, with each member of the team bringing significant experience. The four key members of our team have an average of 18 years’ experience and three of the four have worked together for eight years.
Another way that we add value is through our investment approach. The investment approach is opportunistic and investments are not artificially limited by style or market capitalization considerations. The team’s blended approach recognizes that potential performance can come from many sources and the team seeks to leverage all of those sources, including value unlocked in financial transactions, such as mergers, acquisitions, and capital restructuring.
The strategy is designed to profit from the investment team’s conviction, demonstrated by concentrated portfolios particularly when compared to its peers. An appropriate level of concentration means that each holding can meaningfully contribute to performance. However, all bets are carefully measured for their potential additive risk; an important process that aligns this conviction with the risk that portfolios will bear in holding the stock. That means smarter decisions and the ability to make bold, but highly informed, decisions, both from a research and risk perspective.
Identifying trends that lead to investment opportunities is a key competitive strength of Absolute Asia AM and is a unique approach adopted to derive alpha. The management team’s understanding of its markets is the result of many years of investing in the region and as such has become adept at identifying the signals of emerging trends. Trends of interest today are China plays, industry consolidation, rising middle class, outsourcing, growing tourism, and health care. The focus on the interrelatedness of companies, industries, and countries is critical to understanding how growth in one part of the investment universe has implications elsewhere.
e-fundresearch: How long have you been a fund manager already?
Sung: I have been a fund manager for 22 years, and in the industry for over 25 years.
e-fundresearch: What were your biggest successes and your biggest disappointments in your career as fund manager?
Sung: One of my biggest disappointments occurred at a previous company when a major client took back a country fund that I had been managing since its launch in 1990. The Fund had been ranked number 1 in its sector over 1 year in 1994 and over 5 years in 1995 by Lipper Analytical Services. The Fund was also rated AAA by Fund Research Limited. The client, being the major shareholder in the Fund, insisted on taking back the fund in early 1996, despite our good performance.
There are many successes and I would like to share with you, but I will mention two of my biggest successes. One of them was operating the “China Fund” which I began managing at its inception in 1992, while at my previous company. Not only was it the first pure China fund ever established, it was also ranked number 1 in its sector in 1997, over a period of 1 year, 3-years and 5-years by Lipper Analytical Services. The China Fund was rated AA by Fund Research Limited.
I consider my other major success the Absolute Asia AM Pacific Rim Equities fund which as noted above has consistently been a top performer in its class based on a solid investment process and many good non-consensus calls. Those calls were as a result of successful identification of up and coming trends, ranging from the property sector in Singapore and China to resources and energy in Australia far in advance of most of the rest of the market.
e-fundresearch: What kind of capital market situation do we have at the moment? How do you act in this environment?
Sung: At the moment we have one of the most challenging capital market environments in decades, with tight credit, low liquidity, extreme market volatility, and nervous fund managers and investors who are seeking perceived safe havens.
Nonetheless, for the Absolute Asia Pacific Rim Equities, we have continued to pursue our standard investment process. The only changes, which are slight, include a modest shortening of our investment horizon, a more careful scrutiny of the cash positions of the companies we hold and a slightly more defensive tilt, including raising the level of cash that the fund holds for the first time since the fund was launched. We have also had to focus on slightly larger market capitalization stocks. But, for the most part, the way that we approach management of the fund remains unchanged. We continue, with I’m pleased to say a reasonable degree of success, to identify and take advantage of a growing number of trends that are arising from the current global financial crisis. Even though we underperformed in 2008, I believe that we were astute in when and how we positioned ourselves in a number of sectors including consumer staples, gold, energy, soft commodities, and property. I anticipate that this positioning will pay off in 2009.
e-fundresearch: What are the special challenges in this environment?
Sung: The challenges are the global nature and magnitude of the economic and financial crisis that we are currently facing, the threat to the viability of the global financial system, volatility of the market, low liquidity, the sudden and unpredictable intervention of government authorities, and the fear that this crisis has sparked among investors. One of the difficulties that we face is that despite the fact that Asian economies are significantly healthier and, in our opinion, far better managed than those in the West, Asian stock markets have still suffered as much, if not more, than those in the West and have seen massive outflows, which we do not believe are justified. Given the volatility of the markets, the massive fund outflows and redemptions, and the uncertainty of bank funding for even good quality companies, it has definitely been more challenging to take advantage of a number of appealing investment opportunities. We have had to sit on the sidelines more than we might have intended or desired.
e-fundresearch: What objectives do you have till the end of the year and in the mid term for the upcoming 3 to 5 years?
Sung: I believe that 2009 will probably be another challenging year. In this kind of environment, I think that we will set relatively modest objectives of performing in line with the benchmark, while certainly hoping to do better. I also intend to spend even more time reviewing our existing trends and identifying new ones as well as enhancing our trend analysis process.
For the next three to five years, I want Absolute Asia to continue to grow to become one of the most recognized and successful boutique fund management houses globally, specializing in Asian ex Japan funds with a reputation for outstanding performance, a stable and motivated staff, unique products, and satisfied investors.
e-fundresearch: Do you model yourself on someone? Any ideals?
Sung: I model my approach to investment management based on interacting with a number of close friends who have achieved great business success. I observed that they have repeatedly established major new business ventures after identifying the start of a new business trend, whether it was outsourcing to China or the rapid increase in consumption in Asia based on growing affluence. So, I am trying to apply their principles of identifying major business trends to fund management. Rather than setting up a business, I look for listed companies that fit within evolving business trends and invest in those companies. My objective is to invest in businesses, preferably for the long term.
My ideal is to do the best possible job that I can for our investors and to motivate my team to do the same.
e-fundresearch: What motivates you in your job?
Sung: I am motivated by consistently achieving top performance for the funds I manage and generating strong returns for my investors, thereby garnering the trust and respect from my investors and professional peers. I am also driven to identify investible trends at a very early stage of their development and to pinpoint investment opportunities that are often overlooked by other investors. But, I think that the ultimate source of my motivation is the satisfaction that I receive from the due diligence that I perform on companies that I am considering investing in. This includes reviewing financial statements, meeting with corporate management, selecting the stocks for inclusion in the portfolio and monitoring their progress and, hopefully, success.
e-fundresearch: What else do you want to achieve or do you have any further aims as a fund manager?
Sung: I want to continue to achieve top tier performance for all of the funds that Absolute Asia manages and provide excellent returns for investors in Asia ex Japan equities. I also wish to continue to create more long only absolute return funds and other strategies that we manage. Despite the turmoil in the market, which has hit hedge funds quite hard, I do believe that investors will increasingly look for products that will provide absolute return over relative return. We hope to introduce a number of products that are designed to do just that. I also want to nurture the next generation of analysts and fund managers.
e-fundresearch: What other profession would you have taken interest in, apart from becoming a fund manager?
Sung: Although I was a philosophy major with an economics minor as an undergraduate, I love being a fund manager and cannot imagine doing anything else. Throughout my years in school I always dreamt of being a fund manager and when the opportunity presented itself, I leapt at the opportunity. This is the most exciting, intellectually stimulating and financially rewarding career that I can imagine. I feel very fortunate to have the career that I do and hope that I never have to retire. If one day I do retire, I hope that I will be able to go back to school to study history and later to devote myself to help non-profit organizations either to manage their investments more successfully or to do fund raising.
e-fundresearch: Thank your for the interview!