Investment: New growth dawns as sums rise in the East

THE STRONG recovery in the Far East has renewed interest in the stock markets of the region. Given the recent volatility, fund managers with first- hand knowledge of Far Eastern markets should have a distinct advantage when it comes to selecting the right stocks.

Henry Ho, managing director of the Hong Kong office of regional specialists Atlantis Investment Management, has been dealing with Asian companies for more than 20 years. "I was an accountant in Hong Kong from 1978 and moved into fund management in 1983, first with Solis and then Baring Asset Management, where I was head of the Greater China Team," he says. "I joined Atlantis earlier this year."

The firm was established in London in 1994 to provide a specific style of investment management, concentrating initially on funds invested in the Far East (it has subsidiary companies in Seoul and Tokyo). The key features are its independence (the firm is owned by its fund managers) and its policy of limiting the size and number of accounts under its management, so its fund managers do not spread their efforts too thinly across funds.

"Atlantis has a partnership structure and each individual will have a limited number of accounts to manage," says Mr Ho. "We decide on the optimal size of a fund and cap it when it reaches this level. For example, with the new fund, we have capped it at 10 million shares. It has been fully taken up, so the fund is capped at US$100m. From February there will be weekly dealings. This means that, as fund managers, we can listen to the market, rather than to the marketing department."

This "new fund" is the Atlantis Asian Recovery Fund, which will be managed by Mr Ho and his team. Although set up as an open-ended investment company (OEIC) registered in Dublin, the cap will mean that, in effect, it will operate as a closed-end fund, similar to an investment trust.

He says: "The investment objective of the fund is to achieve long-term capital appreciation through an actively managed portfolio of equities, or equity-related instruments, in Asia, excluding Japan. The group already has a retail fund investing in Japan, and we decided we needed to have a product that would cover the whole of the rest of Asia."

Atlantis Asian Recovery is unusual among retail offerings available to UK investors, because Atlantis will be paid, in part at least, on a performance related basis. "We have adopted a fee structure that tells investors that we are standing on their side," says Mr Ho. "It is performance-related, although there is a set 1.25 per cent annual charge for the first year.

"Then, starting in the 53rd week, fees are linked to performance against the MSCI Far East (ex-Japan) Free Index. We will get an extra 10 basis points (0.1 per cent) for every 1 per cent by which we outperform the index, subject to a maximum of 1.75 per cent, but we will lose 20 basis points (0.2 per cent), for each 1 per cent by which we underperform, down to a total minimum fee of 0.75 per cent. If the asset value of the fund falls, but it still outperforms the index, we will receive no increase in performance fee."

All Atlantis funds start with an assessment of individual companies and their managements, says Mr Ho. "I have a team of six and we rely a lot on direct contacts with companies. Very simply, Atlantis has always been a bottom-up manager. Our portfolios do not relate to the index weightings of particular sectors and markets and our fund managers have complete freedom to decide on the merits of individual holdings."

Mr Ho regards the Far East's economic crisis as like a wake-up call for the region. "It was telling company managements that they had concentrated too much on growth and not enough on total return," he says.

The recent experience of most of the markets of the Far East will have a direct impact on Mr Ho's approach to stock selection. "Throughout the region, the cost of capital has increased and the availability of capital has reduced. This will force restructuring, a process that must end with an improvement in return for shareholders. The new fund will concentrate on those companies which are restructuring and will be delivering these benefits for investors."

The Asian recovery story has been building for some time, but Mr Ho is confident there is much further to go. "We think the timing is right," he says. "The cyclical recovery in Asia, excluding Japan, has, to an extent, already been discounted. But the real corporate restructuring is just beginning - and this is where the real opportunities will be for long- term recovery in earnings.

"Over the last couple of years companies have focused more on restructuring their corporate debt than their underlying businesses, so there is still plenty of scope for value to be realised."

Fundamental Facts

Fund Manager: Henry Ho (left)

Age: 41

Fund: Atlantis Asian Recovery

Size of Fund: Capped at US$100m (pounds 61.8m)

Fund Launched: 11 October 1999

Manager of Fund: Since Launch

Current Yield: n/a

Initial Charge: variable*

Annual Charge: 1.25% for first year (subsequently 0.75% to 1.75% depending upon performance)

Current Bid/Offer Spread: n/a

Minimum Investment: US$ 5,000 (pounds 3,100)

Minimum Monthly Savings: n/a

Standard & Poor's Micropal Rating: (maximum *****): n/a

Fund performance: n/a

* Closed to new investment until mid-February, when the fund will operate weekly dealing. Level of charges negotiable via financial adviser