By Bei Hu – Jul 5, 2010
Children’s Investment Fund Director John Ho enters a meeting in Tokyo. Photographer: Toshiyuki Aizawa/Bloomberg
John Ho, former Asia head of the Children’s Investment Fund Management UK LLP, raised more than $100 million from investors for his own hedge fund which bets on rising and falling stocks in the region.
Janchor Partners Pan Asian Fund started trading in January with about $40 million, mostly from U.S. university endowments and family offices, Hong Kong-based Ho, 34, said in an interview on July 2. It returned 9.9 percent after fees through June 30, against the estimated 2 percent loss of the Eurekahedge Asia Long/Short Equities Hedge Fund Index.
The inflow into Ho’s fund contrasts with the trend of new and small Asian hedge fund managers struggling to grow assets amid heightened competition for capital. More than 90 percent of the money raised by Janchor is locked up for three years, even as global investors have demanded greater freedom to withdraw their capital in the wake of the credit crisis.
“Investor appetite for longer lockups is greatly diminished,” said Harvey Twomey, Hong Kong-based head of Deutsche Bank AG’s prime finance institutional client group in Asia-Pacific. “But for the right strategy with a compelling high-quality team, it is still possible to attract longer-dated monies.”
The lockup allows the fund to make investments over a longer period where competition is less intense, said Ho. In return, it lures investors with promises to align the managers’ interests with theirs through lower fees and a pledge to return part of the performance fees if a profitable year is followed by a losing year, he added.
“The capital that’s coming into Asia is generally shorter- term, and capital constrains investment strategy,” Ho, Janchor Partners Ltd.’s chief investment officer, said. “We only raise long-term capital because we want to focus on doing longer-term investing. The fees are a little lower to reflect that it’s long-term capital.”
Seventy-five new Asia-focused hedge fund firms started since 2009 with an average $16.9 million and now manage about $28.9 million each, according to data compiled by Eurekahedge Pte in Singapore.
Ho left London-based Children’s Investment Fund, founded by Christopher Cooper-Hohn and also known as TCI, in July 2009 to set up Janchor, a play on the initial of his first name and the word “anchor,” with four former TCI colleagues.
He led TCI’s three-year battle to press Electric Power Development Co., Japan’s largest electricity wholesaler better known as J-Power, for higher dividends, disposal of cross- shareholding and the appointment of independent board members.
Janchor, a long-short equity fund, uses research on companies’ financial and industry prospects to pick the stocks it wants to buy and short in markets including Hong Kong, China, Taiwan, Japan, Australia, South Korea and India. It doesn’t employ the activist approach often used by TCI, as in the case of J-Power, Ho said.
The top 20 stock picks will account for 90 percent of the Janchor fund’s investments, he added.
About 60 percent of Janchor’s profits in the first six months came from long investments, Ho said. It made the remaining 40 percent of profit from shorting, or selling borrowed shares expecting their prices to fall, single stocks.
Janchor selects stocks to buy in industries with high entry barriers among companies with sound business plans and good management, Ho said, declining to identify the investments. It analyses expected returns over a two- to four-year period, said Ho, who worked for Citadel Investment Group LLC in Chicago before joining TCI in 2004.
The fund shorts single stocks with a flawed business model and broken corporate governance. It seeks to generate profit from short-selling instead of using the strategy only for hedging risks of long investments, Ho said.
Concerns about the European sovereign debt crisis and higher returns in developed markets are threatening a recovery in Asian hedge fund assets. Investors took $700 million out of the $77 billion Asian industry in the first quarter, according to Chicago-based Hedge Fund Research Inc.
Almost 60 percent of the global hedge fund investors a Deutsche Bank survey released in March said they wouldn’t accept lockup of their capital for more than a year.
The Janchor fund charges a management fee of 1.6 percent of assets under management, with the rate declining when the assets base gets bigger, said Ho.
The performance fee, equivalent to 16 percent of annual profit, is paid over three years, he said. Under the arrangement, the fund manager receives one-third of the annual performance fee at the end of the year with the rest being put in an escrow account. For any annual loss within the next two years, as much as two-thirds of the accrued fee during that initial year is returned to investors.
Hedge funds, loosely regulated pools of money, often charge a 2 percent management and 20 percent performance fee.
Ho, who opened TCI’s Hong Kong office, declined to comment on his investment performances at TCI and Citadel, or his reasons for leaving because of legal agreements with his former employers.
To contact the reporter on this story: Bei Hu in Hong Kong at email@example.com