Cheah Cheng Hye, chairman and co-chief investment officer of Value Partners, is eyeing the vast potential in the Chinese mainland market and aiming to build a world-class company in the fund management industry. (PARKER ZHENG / CHINA DAILY)
Cheah Cheng Hye — one of the few rags-to-riches stories in the fund management industry — owes much of his hard-earned success to the attributes of overseas Chinese.
You’ll meet many people in life, especially in the financial world who can always talk eloquently because they had gone to the right colleges. Those are people who talk the talk, but we walk the walk
Cheah Cheng Hye, chairman and co-chief investment officer,Value Partners
Overseas Chinese, he says, are noted for building up something from nothing — they can wait, they don’t rest on their laurels in summer and will always have plenty of cash in hand when winter comes.
Cheah, a street urchin who took to the streets of his native Penang, Malaysia, selling pineapples after his father died when he was 9, co-founded Value Partners in 1993 and turned it into a rare, successful, home-grown Hong Kong fund house — the only asset management company listed in the SAR and is one of Asia’s largest asset managers, with assets under management (AUM) of US$17.8 billion and a focus on the Chinese mainland and Hong Kong.
Cheah, now in his 60s and remains chairman and co-chief investment officer of the company, has no plans to retire at this stage. Instead, he aims to take Value Partners to even greater heights, getting the group into the premier league to become a world-class enterprise.
He’s staking the company’s future on the continued opening-up of the vast mainland economy, confident that the world’s largest savings pool will pump up a huge demand for value investment.
After a tough year in the Asian market in 2016, Value Partners came up with handsome annual results in 2017.
Net profit, apart from a generous bonus of over HK$600 million, soared to a record HK$2.05 billion. The surge was mainly underpinned by a hike in performance fees, according to the company.
“It’s quite a big result for a medium-sized company by Hong Kong standards,” Cheah tells China Daily.
He declined to take all the credit for the performance, attributing part of it to luck as the Hong Kong stock market had a sizzling performance last year. But still, it’s not easy to outperform a good market, he says.
One of the company’s best-performing funds, Value Partners Classic Fund, with assets hand-picked by Cheah in 1993 and valued at about US$1.6 billion, returned a net 44.9-percent profit last year, handily beating the 40.1-percent gain by the benchmark Hang Seng Index in the same period. The fund has seen a return of more than 36 times since its launch as of the end of March.
Luck, determination, good timing, a good internal infrastructure and young people combined contributed to the good results, says Cheah.
Cheah disclosed that the 70-plus strong investment professionals in his team carry out around 2,500 company visits every year.
Clients’ trust crucial
Value Partners is one of the few independent asset managers which have a whole back office. Over 140 people, from compliance to IT and communicating are supporting its daily operations. The infrastructure is costing the company a big chunk of money. “I’m burning more than HK$1 million per day,” he says in jest.
Cheah is against the idea of outsourcing back office services, emphasizing the trust of his clients, many of which are major banks and insurance companies.
For Value Partners, it has undergone long summers and short winters, but winters can be very tough.
“I always have capital,” says Cheah. The company currently has HK$4 billion capital, including HK$2 billion in cash, he reveals, and that’s a key reason for its survival.
“That’s a typical overseas Chinese company. No debt and lots of cash ready to deal with any crisis.”
Cheah calls himself a contrarian investor who’s apt in taking positions against the crowd. “When people are pessimistic and worried, I’ll buy aggressively.” But, he also points out the importance of capturing the good times. “When we started off in 1993, it was a very lucky timing.”
In 1990, the Shanghai Stock Exchange had reopened after an almost 40-year hiatus. In 1993, the Chinese government allowed mainland companies to list in Hong Kong, giving rise to H-shares.
Value Partners was among the first foreign asset managers to tap into China’s onshore market, having established its Shanghai office in 2009. It’s also rare for a non-mainland asset manager to have become a full member of the Asset Management Association of China.
As of today, Cheah sees the market holding great promise as the continuing deregulation by the mainland authorities has cleared many of the barriers faced by foreign asset managers as they seek to grow.
In 2016, the mainland opened up its private fund market to foreign asset managers, allowing asset managers from around the world to register as onshore private fund houses.
Value Partners obtained its private fund management (PFM) license in November last year and started off work immediately. Its first PFM fund launched in January this year raised more than 100 million yuan (US$15.91 million). A substantial chunk of the initial funds raised came from high-net-worth clients. Cheah plans to launch at least two PFM funds this year, with more to follow.
Value Partners’ Shenzhen subsidiary has obtained a Qualified Foreign Limited Partnership license, which lets foreign institutional investors raise money both offshore and onshore to invest in domestic private-equity projects. Cheah says the company is also preparing to launch a private-equity business in Shenzhen.
The market opening-up was delayed for two years by the country’s anti-corruption campaign and derisking efforts to fortify the financial stability, Cheah says. Yet, apart from cutting out shadow banking and the tighter controls on local government debt, the main theme of the mainland is opening-up.
For the longer term, Cheah hopes Chinese regulators will continue to deregulate and expand he mutual fund access to foreign asset managers as well. He believes this would be conducive to both foreign asset managers and the mainland, as private wealth continues to grow. Competition will offer mainland people more options in choosing quality asset management products and curb wasteful investment.
Cheah predicts there will be five to six Chinese-brand companies in the region – the Chinese mainland, Hong Kong and Taiwan — that will become world-class, and it will happen in the next five to 10 years.
Value Partners, which aspires to be one of them, also aims to double its AUM in the next three to five years.
“You can call it luck or being in the right place at the right time.”
A life-long learner who never stops learning, and puts knowledge to use
Cheah Cheng Hye’s rise from a former financial journalist to one of Asia’s prominent asset management pundits serves as a role model for those in his former profession aspiring for a stake in entrepreneurship.
He started off as a newspaper folder for the Malaysian newspaper The Star, where its editor later gave Cheah a reporter’s job, putting him on crime beat, which involved throwing him into the “not illegal” practice of tuning in to the police radio and trying to get to a crime scene faster than the police themselves.
Cheah came to Hong Kong to further pursue his career as a newsman when he was 20 — using the cheapest transportation mode, a cargo ship. When he landed in Yau Ma Tei, his plan was nothing grandeur than to earn enough money to return to Malaysia and buy a home.
Armed with just a secondary school certificate, he taught himself accounting skills, plus other solid finance knowledge that he thought could rival that of a finance professional.
He was the first reporter to break the news that the Hong Kong dollar has been pegged to the US dollar in 1983. After 17 years as a journalist, he rose through the ranks to become financial editor for The Asian Wall Street Journal in 1983.
Cheah calls himself a life-long learner. “My grandparents were from Fujian province in China and their culture was much well-founded. For myself, I’m all the time fighting with knowledge, my mission is: Never stop learning, and put knowledge to use.”
Valuing investing has been etched in his company’ name from Day 1.
As revealed in his book, Living Value Investing: The Story of Cheah Cheng Hye, when Cheah called it quits in his journalism career and joined Morgan Grenfell, a British investment bank, as head of equities research in the late 1980s, it was a very dull period in Hong Kong’s asset management sector, with asset managers used to taking two-hour lunch breaks and buying the same blue chips to stay with the Hang Seng Index.
Cheah led his team in scouring undervalued second and third-liners that investors paid little heed to. When he was authorized to trade in a small amount of proprietary capital, he grew the pool into a sizable amount before he started his own brand.
Though value investing is not favored by the market all the time, out of seven of 25 years, his Classic Fund had been in the red. And, for the “short-term” business, as Cheah jokingly puts it, where “your clients might make angry calls if you underperform for two weeks”, he believes in holding the fund’s value until it get rerated rather than chasing the momentum. This has remained unchanged.
Despite his hard won fortune, Cheah chooses to stay humble. He says he still feels strange when he sees people not finishing their food on the plate and, in the book, it’s revealed that he will only buy suits when there’re discounts. “I’m not programmed to anything above middle class,” said Cheah.
“You’ll meet many people in life, especially in the financial world who can always talk eloquently because they had gone to the right colleges. Those are people who talk the talk, but we walk the walk.”