Institutional Investor's Alpha Magazine - July/August 2008 - (Page 44)

S ixteen years ago Christopher Wood, then a British journalist based in Tokyo, wrote a book about the events that led to the collapse of the Japanese economic bubble. Today, Wood works as a topranked equity strategist for Hong Kong–based brokerage ﬁrm CLSA Asia-Paciﬁc Markets and is focused on the upsurge he expects in Asia’s ﬁnancial centers. Although this year is proving tough for investors in the region — the MSCI Asia-Paciﬁc ex-Japan index fell 18.8 percent through June, as oil rocketed past $140 a barrel — Wood sees much better times ahead. “This year’s oil-driven sell-off in Asian equities amounts in the longer term to a fantastic buying opportunity,” he says. “The global economy will move inevitably to a new equilibrium, where growing Asian consumption will be a key — if not the key — driver of growth.” As evidence of his thesis, Wood points to the arrival and expanding presence in Asia of such high-proﬁle U.S. hedge fund ﬁrms as Och-Ziff Capital Management Group and Avenue Capital Group. Peter Douglas, the founder of GFIA, a Singapore-based consulting ﬁrm and data gatherer, estimates that there are 1,200 hedge funds focused on Asia, up from 500 in 2004. He says that about half are based in the region itself (for a list of the 25 biggest Asia-based hedge fund ﬁrms, see “The Asian Sensations,” page 47). For most global banks hedge funds represent at least 40 percent of Asian equity income, and the contest for their business has never been more ﬁerce. “This competition is heating up, and you can trace that to the past few years,” says Hung Yeuk Yan Renee, a senior fund manager at Value Partners, a $5.9 billion hedge fund ﬁrm in Hong Kong. A few years ago, Hung explains, brokerage commissions were about 25 basis points, but these days they vary widely from ﬁrm to ﬁrm and from stock to stock, as banks jockey for position. Providing top-notch investment research is critical. To ﬁnd out which brokerages are doing just that, we recalculated the results from our sister publication Institutional Investor’s 2008 All-Asia Research Team survey — which polls a broad cross-section of money managers — using only the votes from hedge funds. Goldman Sachs (Asia), which led the Alpha ranking a year ago by a narrow margin, is No. 1 for the third straight year — but this time shares the winner’s podium with Citi Investment Research. With 20 analyst team positions each among the 25 industry, country and macro sectors, Goldman and Citi easily outdistance UBS and JPMorgan Securities, in third and fourth place, respectively, with 16 and 14 team positions. Like last year, Goldman dominates, with nine ﬁrst-teamers — as many as Citi, UBS and JPMorgan combined. Not that Goldman is resting on its laurels. The ﬁrm beefed up its Asian equity research team to 64 publishing analysts and is expanding its stock coverage, according to Joseph Lee and Paul Bernard, co-heads of pan-Asian equity research in Hong Kong. Goldman recently hired two senior analysts from UBS: Keith Neruda, who covers telecommunications companies out of Singapore, and Eric Lin, a semiconductors specialist based in Taiwan. Goldman plans to boosts its coverage from 573 stocks to about 700 by early next year. Still, Goldman executives say that their ﬁrm makes no special provisions for hedge fund clients. “Our product is not geared nor has it changed speciﬁcally for hedge fund clients during the recent market turmoil,” says Bernard. Clients are shown a “Conviction List” — the May selection included 42 stocks, with 12 sells and the rest buys — that gathers the best ideas the ﬁrm’s analysts can ﬁnd in the market. Thomas Kim, who heads Goldman’s top-ranked Transportation team, made his mark this year with a report on Cathay Paciﬁc Airways. Kim posted a sell on the airline stock in February, despite regarding Cathay as one of the strongest carriers in the industry. His reasoning? Cathay’s fuel costs would shoot up. The stock fell 13.6 percent after the downgrade, through the end of June. Goldman rival Citi has climbed hard in the past three years under the leadership of Adrian Faure, director of AsiaPaciﬁc equity research. When Faure moved to Citi in May The Leaders Rank 2008 2007 1 1 3 4 5 6 7 8 9 10 11 11 2 1 3 4 5 10 7 9 5 8 — 11 Firm Citi Investment Research Goldman Sachs (Asia) UBS JPMorgan Securities Morgan Stanley Credit Suisse Merrill Lynch CLSA Asia-Paciﬁc Markets Lehman Brothers Asia Deutsche Bank BNP Paribas Securities (Asia) Macquarie Securities Asia Total team positions 2008 2007 20 20 16 14 13 12 10 8 7 4 1 1 16 17 15 12 9 4 8 6 9 7 0 3 First team 2008 2007 4 9 2 3 3 2 1 1 0 0 0 0 4 7 4 1 2 1 1 2 1 0 0 0 Second team 2008 2007 6 6 3 1 3 2 2 0 1 0 0 0 1 4 1 3 3 0 1 0 5 2 0 0 Third team 2008 2007 5 2 4 2 3 2 1 2 0 1 0 1 8 1 1 3 2 2 0 1 2 0 0 0 Runners-up 2008 2007 5 3 7 8 4 6 6 5 6 3 1 0 3 5 9 5 2 1 6 3 1 5 0 3 44 • INSTITUTIONAL INVESTOR’S ALPHA • JULY/AUGUST 2008

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - July/August 2008

Institutional Investor's Alpha Magazine - July/August 2008 Contents Letter from the Editor Longs & Shorts Pension Corner: Mr. Big Goes Small The Good Guys: Adopt This School! Interview: Man's Great Hope Cover Story: The Gentleman Activist Strategies: The New Bankers Profile: Staying Alive Research Center: The Best of the East The Asian Sensations Alpha Bytes: Into the Light Unhedged: Commentary: Speculating on Washington

Institutional Investor's Alpha Magazine - July/August 2008

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