Investor Dialogue: Mark Martyrossian

The co-founder of Tiburon Partners talks to us about why he likes volatility, commodities, and rare earths, and the benefits of investing in Asia out of London.
Mark Martyrossian
Mark Martyrossian

You’re an old Asia hand now based in London. Can you tell us a little about the genesis of your suite of funds?
I’ve been investing in Asia since 1986 and spent 10 years in Hong Kong with Crosby Securities. It was a great decade to be out in Asia, with the region humming and new markets opening up. Part of my job involved the development of the firm’s China business. These were really the pioneering years for China equity, when many of the B-share prospectuses had pages of caveats and there were only lights on one side of the Bund.

I left Asia for London to start Tiburon with an old friend from law school days, Richard Pell-Ilderton, who was also a director. Our business really got cracking in 2003 with the launch of our Asian hedge fund, Tiburon Tiger. Mark Fleming, who had run British Airways’ pension fund, also joined us and in 2006 we launched the Tiburon Taipan Fund -- an Asia ex-Japan long-biased fund. It was one of the first Asian funds to be launched with a Ucits-compliant mandate. Then in 2007 came a Greater China hedge fund, Tiburon Tao.

Last year, we took on three new partners and launched a further two funds -- Tiburon Taiko, which invests in Japan and Tiburon Terra, which invests in alternative energy and natural resources companies. So we’re now up to eight partners and have some $250 million under management.

How would you describe your overall strategy?
Each of our funds has a lead manager. We believe that having one manager ultimately responsible for performance knocks spots off consensual decision-making. And while we don’t have a “Tiburon process” covering all our funds, I can say that we’re all stock pickers and select stocks on the basis of fundamentals.

Is it hard being based in the UK, but investing in Asia?
A number of us have managed money from an Asian location and we can honestly say that, given the way we invest, we have no difficulty being based in London. We travel to the region several times a year, but also get to see about 200 to 250 companies a year in London. Being in London does help to provide a better global perspective and it’s interesting to note the different perspectives here in the West. China is a good example: that it’s either inflating a massive bubble or is about to crash does sell newspapers. We believe the truth is very different and have invested accordingly to good effect.

What is that global perspective telling you now?
Having made some decent returns this year, we’re fairly cautious just now. Last year was a beta year and this one has been an alpha year with volatility haunting the markets. We think this will continue. We’re negative about the prospects for Western economies. Western consumers are completely stuffed, but the penny (about increased taxes, reduced incomes and the odd P45) is really only just beginning to drop. Central banks have fired just about every fiscal and monetary bullet they’ve got and yet job creation has been totally anaemic. There could be one more hurrah and another bout of quantitative easing, which will create some small glimmers of growth, but it will only have a temporary effect. Our view is that 2011 will be the year when the chickens come home to roost and Western consumers will finally realise that they simply have to stop spending. Asia looks very rosy in contrast.

How is this shaping your investment strategy?
Last year we told all our clients that companies would take advantage of any easing of credit to re-stock inventories. Stock markets had a phenomenal run off the back of this. This year it’s not possible to make money by simply adopting a buy-and-hold strategy. We’ve been managing our net exposure quite sharply, but as stock pickers we’ve quite liked the volatility. We’ve been able to rotate in and out of the same stocks as they’ve veered from cheap to expensive and back again, sometimes in the space of just a couple of months.

Asian property is a classic case in point. Henderson Land peaked around HK$60 ($7.73) at the beginning of the year. We sold it at that level and then bought it back again when it dropped to HK$46 in February. We then sold again in late March when it hit the high HK$50s and re-purchased it again in the low HK$40s in May when markets fell apart again.

Which sectors and stocks do you currently favour?
We’re fairly heavily invested in Australia because of our commodities and gold exposure. The former is a play on China and India, and the latter on incipient inflation.

Sectors we’re avoiding include generic tech, auto and also shipping, given our views on global trade flows. We’re trying to avoid any stocks with high exposure to Western consumers, in favour of those which play on Asian consumption. We also have a number of high-yielding infrastructure plays such as Transurban, Shenzhen Expressway and Hopewell Holdings. And we like sectors which should be fairly inured to the vagaries of global growth, such as healthcare companies like Fisher and Paykel Healthcare, and Celltrion.

What commodities stocks are you interested in?
We want to be in commodities that are in genuine short supply. We like platinum on this basis and own a stock called Platinum Australia. Rare earths are another group of commodities in dreadful short supply. It’s an investment theme we picked up on about two years ago and we have done very well from it, even though there are only a few ways to gain decent exposure. While rare earths such as lanthanum, neodymium and terbium are in pretty much every single electronic gizmo going, supply is concentrated in China. Its recent imposition of export quotas has inflamed attitudes and the recent arrest of a Chinese fishing boat in Japanese territorial waters has prompted the Chinese to threaten to cut all exports of rare earths to Japan.

We own Lynas Corp, which is listed in Australia and poised to become one of the largest producers of rare earth metals outside of China. The stock has jumped from $0.40 to $1.29 in the space of just four months. Another one is Molycorp, which listed on the NYSE in July. Its Mountain Pass mine was closed down eight years ago after a thorium leak, but recently re-opened as the US seeks to maximise what deposits of rare earths it has. The stock came during a period of market volatility, forcing a price cut in order to get the issue away. We bought on weakness after the issue at $12.60.

We also try to identify high quality assets or stories in the sector where there is some specific intellectual property. White Energy is an example of the latter. This is a clean coal company, whose proprietary technology enables sub-bituminous coal with a high moisture content and low calorific value to be turned into dry briquettes with a very low water content, which both increases its calorific nature and makes it easier to transport.

Given that strategic issues of security of supply often inflate prices paid for certain resource assets, another principle we adopt in the sector is that we want to be in companies that may be acquired rather than those which will be doing the acquiring. We were in Arrow Energy, a coal bed methane play that was taken over earlier in the year by Shell and PetroChina.

One of your overriding investment strategies appears to be finding international companies developing new energy-efficient technologies to export back to China. Why is that?
China’s growing energy usage has thrown the need to create energy-efficient technologies into the spotlight. But unlike previous manias such as dotcom, global investors don’t seem to be giving a lot of promising technologies the benefit of the doubt. There’s undue concentration on solar and wind, which still need subsidies (in an environment where Western governments are hard pressed to provide them) to make them profitable. We prefer ideas that produce energy efficiency and reduce environmental impact, but which have some sort of differentiation. Coal bed methane was a good example of this: three years ago the technology was largely dismissed, now the oil majors are all over it.

This interview was first published in the October 2010 issue of FinanceAsia magazine

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