David Lee runs the Ferrell Asia fund, managed by Ferrell
Asset Management Pte Ltd, which was established in Singapore
in 1999. David Lee is the MD and CIO. He has more than 15
years' investment experience, having previously headed Fraser
Asset Management. The company has US$25m under management,
all of which is managed on an absolute return basis. The Ferrell
Asia Fund has US$5m of assets. The Ferrell Asia fund was 0.1%
for August 2002 and is 3.4% YTD at the end of August.
Interview with David Lee
- You will be making a marketing trip to Europe soon;
what are the themes regarding the Ferrell Asia Fund and
hedge funds in Asia that you will be emphasising?
Positioning Asia in a total global portfolio will be
our focus. US and European markets have been doing extremely
well for say, for the last decade or so. There was an
upward trend until recently. Fund managers saw few compelling
reasons to allocate assets to Asia. In fact, the '97 Asia
financial crisis caused further damage to confidence in
Asian assets. Transparency and liquidity in the Asian
markets have always been the key issues. Staying away
from these markets seemed the logical thing to do. Recent
events in quick succession happening in the west, however,
prompted global fund managers to consider Asia seriously.
We are not saying that US and Europe are going down and
Asia is going up from this point on, therefore you should
put your money in Asia. Rather, we emphasise diversification
geographically and the abundance of profit opportunities.
First, with the exception of Japan and Australia, tradition
and regulation in Asia creates inefficiency and opportunities
for a long/short strategy. Secondly, the cost of monitoring
risks is high due to complex situations in Asia with most
proprietary desks shrinking in size, giving hedge funds
great opportunities to profit in the absence of large
and established institutions. Thirdly, the advancement
in technology and development of new instruments allow
the use of long/short hedge funds to operate and profit
from advanced data feed and the use of derivatives. Finally,
these opportunities are not going to disappear for a long
time given the uneven growth in Asia and adding to that,
the uncertainties in economic growth give rise to more
- What investments have worked well for the Fund this
Our fund is a long/short equities fund. We believe our
success comes from our ability to manage risk, to read
both up and down trends accurately, and also to spot market
inefficiencies quickly to translate these into returns.
Given our use of information technology in risk management,
we are able to implement strict and clear stop-loss rules
for predictable results. We were able to achieve a return
of over 2% in September alone last year. For this year,
our returns came mostly from the net long and hedged positions
in the first half. We were trading mostly in Korea, Thailand,
Malaysia, Singapore and Hong Kong. For the second half
of the year to date, most of the gains were from short
positions in technology stocks and long positions in gold-related
What are the positives in running a hedge fund out
of Singapore? How do you make investors in Europe and
the United States feel comfortable investing in the Fund?
Singapore has the infrastructure and the backing of a
solid regulatory environment provided by the MAS (Monetary
Authority of Singapore). We are enjoying very efficient
telecommunication services, timely data services, a good
supply of talented finance and legal professionals and
also, supportive and proactive attitudes from MAS. Singapore
is considered by many to be the "no-nonsense"
city-state. Besides being registered in Singapore, Ferrell
is also regulated by the Hong Kong Securities and Futures
We also work with eminent US and European investment consultants
in Singapore, when necessary. For those who require an
independent evaluation and monitoring, employing the service
of an investment consultant would provide another layer
We are only 12 hours by flight to London and less than
18 hours to the west coast of America. We have never allowed
the distance to deter our business-development unit from
visiting our clients on short notice.
- What sectors are you positive on in Singapore?
Upscale services could be the star sector going forward.
Those with the talents, expertise and professionalism
to provide services for the working communities here and
the surrounding region will have a higher chance of success.
Manufacturing might be on the downtrend here but other
important processes of bringing products to customers
can still be done out of Singapore. Research, education,
healthcare, marketing, business development, delivery,
distribution, after-sales services are some examples.
Singapore has many local talented individuals and knowledge
management is the key to future success. Given the comfortable
and familiar living environment for most foreigners, it
has the conditions and ability to attract foreign talents
to re-locate here.
However, our strategy in Singapore would be to search
for opportunities for hedged trades among traditional
industries that are going through a difficult time in
re-adjusting and re-structuring themselves and long positions
in industries that are more protected and fairly insulated
from the global slowdown.
- What other countries and sectors in Asia are you finding
interesting on both the long and short side?
In the short term, it is going to be a difficult call
for long positions because of the uncertainties of war
in the Middle East and the fear of a double dip in the
US economy. Although we are still on the bullish side
for Korea and Thailand, we remain cautious as things could
change very quickly. KOSPI was at a high of 900 plus in
April and now the index is hovering around the 700 region.
Gold and gold-related stocks could be an attractive alternative
asset class. There are also good opportunities for directional
trade in a sector like gaming, which has surprised analysts
on the upside. Given the diversity of the Asian markets,
however, it is not difficult to find long/short ideas
in the same sector. Indeed, different markets have different
characteristics and are at different stages of development.
Even in the technology sector, we see good opportunities
for pair trading in semiconductor stocks.
What do you think the role of Asian proprietary desks
will be like in five years time?
Asian proprietary desks will probably have a lesser impact
in 5 years time. Given that there could be further growth
in North Asia and uneven growth in South Asia, the cost
of monitoring risk from the headquarters for proprietary
desks are likely to outweigh the benefits of such operations.
On the contrary, hedge funds, being specialised would
have lower costs, and thereby be able to achieve better
"risk adjusted" returns. There is a strong case
for adopting the fund of funds approach for proprietary
funds for Asia. The complexity and volatility of managing
the funds from outside Asia would be than direct exposure
to equities and fixed income, and yet retain flexibility.
- What is the environment for short selling in Singapore
like? Also, generally in Southeast Asia?
There is no specific obstacle to short selling in Singapore.
The prime broker should be able to provide this service
with ease. The environment for securities borrowing and
lending has improved tremendously in the last few years.
The same can be said of Japan, Australia, Thailand, Korea
and Hong Kong. However, short selling is prohibited in
Malaysia and the low liquidity in Indonesia and the Philippines
makes short selling less attractive in those places.
- What do you see the role of the directors of the Fund
Risk management and focusing on meeting the investment
objectives. We are not aiming for unrealistic returns.
Even if potential returns are present in a particular
investment, we always look at the risk involved. Is the
investment worth the risk taken? Most of the time, we
prefer to stick to our mission of providing a "smooth"
absolute return for our fund. We feel that it is important
that the fund is well diversified in terms of geography,
industry, sector, and that we avoid all concentration/event
The Fund is not allowed to leverage up; why was this
In Asia, it is important to avoid disastrous event risk,
which is at its highest when liquidity dries up. If we were
leveraged and on the wrong side, it would impact negatively
on the portfolio, especially if we could not hold on to
current positions. Again, we do not need to take unnecessary
risk to achieve the required returns of 20% in the medium-
to long-term. Leverage works both ways on the up and down
side. Further to the restrictions of no leverage, we manage
liquidity risk by ensuring that we trade only in liquid
stocks with good daily trading volumes. The gross exposure
of the fund will never exceed 100%. We will not exceed net
short of 30% and net long of 85%. Despite the strict risk
management parameters, attaining the expected returns of
20% is achievable. We avoid taking on unnecessary leverage
Ferrell Asset Management Pte Ltd
+65 6536 6623