Woon Lim manages the Bali Pacific Fund (Cayman) from New York with Thomas Murtha. Woon Lim, an ex-broker, spent 11 years with Robert Fleming and four with HSBC Securities on their Asian sales desks in New York. The fund was launched at the start of January 2002. The Bali Pacific Fund was 0.5% for August 2002 and is 1.0% YTD at the end of August.
Interview with Woon Lim
- Explain the difficulties and joys of going from a broking background to being a fund manager?
As a broker there was constant pressure to come up with ideas everyday to generate trades. As a fund manager, I had to learn to slow down, not to look at too many ideas and stay focused. As a broker, I was more affected by short-term movements in stock prices and markets and now as a portfolio manager, I needed to stay disciplined but yet constantly review our investment thesis for each of the stocks in the portfolio. I certainly find being on the buyside more intellectually stimulating and have the ability to access more good analysts and company managements that brokers bring through New York. I do miss the buzz of the trading floor on the sell-side. I do not miss pushing bad deals to clients.
- What is your take on running an Asian hedge fund from New York?
I think the primarily advantage is that I am less affected by the noise from the markets although I do stay up every night to talk to company managements, sell side analysts and sales traders. Also, I feel that being in a "neutral" location makes me less focused on a particular market and allows me take a more objective view of each of the markets I am investing in. On the flipside, we do get quite affected by what is going on in the U.S. market. The biggest disadvantage is the inability to go and visit companies on a timely basis although we are making a trip to Asia once every quarter to meet with company managements. However, we do get to see many company managements and sell-side analysts who come through NYC on a regular basis.
Every Asian economist writes about the importance of the U.S. consumer in supporting strong growth in Asia. Do you think that the U.S. is over-rated in this respect?
Asia ex-Japan is still a warrant on global growth because of its dependence on manufacturing and exports to the OECD countries. Unfortunately, the U.S. consumer has been shouldering the bulk of the load for global growth in 2002 and looks to be tiring. I am however sanguine about global growth picking up slightly going into 2003 given the extreme pessimism existing in world economies and markets at this time. I think we need more balanced growth across regions and across segments of the global economy i.e. consumers, businesses and government. The U.S. consumer had been important in 2002 but I suspect less so in 2003.
- What is your take on the current status of the U.S. economy?
I am no economist but for what it is worth, I think that next year will see a more stable growth path in the U.S. economy with more balanced growth among consumer, business and government sectors. Hopefully, the Iraq question will be resolved early in the year and that should remove the geopolitical risk over-hanging consumer and business confidence. We will be one year along on corporate restructuring and hopefully improving outlook for corporate America. Government spending seems to be increasing but that may lead to other concerns.
- Can you explain the team's investment philosophy?
We believe that stock selection should be the primary determinant of performance, not market timing. Macroeconomic factors are important and primarily direct our attention to investment themes that help us identify prospective long and short positions. On the long side, we focus on identifying great companies with strong management, an attractive business model/franchise, and improving returns on capital. On the short side, we identify companies with deteriorating fundamentals, selling at a significant premium to intrinsic value because the stock price reflects unrealistic growth expectations, and with an identifiable catalyst/event that will correct the mispricing. In general, we like to invest in businesses selling at a discount to intrinsic value so that the downside risk is small and the upside potential is very attractive because we have paid a good price for an embedded option on the future growth of the distributable cash flows.
Its risk management system?
We have risk parameters in terms of maximum exposure by country and sectors. We limit our gross exposure to no more than 150% and net exposure to 60%. In the current volatile markets, we have 50% gross exposure and 0% net exposure. Our historic portfolio volatility is 8%. We monitor our portfolio on a beta-adjusted basis by country and sector. We monitor how we correlate with our benchmark but more importantly, we like to monitor our portfolio volatility on a daily basis. We check our investment thesis for our top five long and short positions, our most volatile positions and also our most illiquid positions to see if they still make sense. We have strict stop loss limits, 7% loss we need to assess whether to cut loss, 10% loss we trim at least half our position and 15% loss we get out completely. We also look at our portfolio value at risk on a daily basis.
- What countries and sectors are you finding interesting long ideas?
I believe that a number of the manufacturers based in Korea and China are gaining market share over manufacturers in Taiwan and the rest of Southeast Asia. I still believe that consumer stocks in Korea, China and Thailand offer good upside potential and are selling off now which provide good entry points. I think that we are at the beginning of a new credit cycle in Korea and Thailand which may be beneficial for some banks and consumer finance companies. The current sell-off in these stocks again make them interesting.
- Short ideas?
We continue to believe that too much growth expectations in priced into technology stocks in Taiwan and Singapore and we are short a number of situations there. We continue to believe in the secular decline of property rents and prices in Hong Kong and Singapore which is bad news for property stocks and banks there. We think that telecom stocks in HK, China and Singapore are ex-growth yet sport growth multiples.
Will the potential for a U.S. invasion of Iraq after the mid-term elections in the U.S. have an effect on your investment philosophy?Yes. We feel that we need to stay low net exposure in the face of this uncertainty. However, once that uncertainty is resolved we would be increasing our gross and net exposure aggressively.
Bali Asset Management LLC
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