The new boutique

Two Lloyd George fund managers set up a Hong Kong equities boutique.

Scobie Ward and Peter Ferry’s new venture, Ward Ferry Management, has begun making its first investments around the region. The two founders of the new fund management company left Hong Kong-based Lloyd George Asset Management in September. Ward had been CIO at Lloyd George as well as one of its original founders since 1992, and had helped the firm grow from a start-up to a $2 billion player.

ScobieWardThe move for him was to return to what he enjoys best: investing in small-cap stocks and visiting companies around the Asia Pacific region. “I have an enthusiasm for investing in smaller companies,” he says. He had found the constraints of managing large sums too limiting, forcing him to stick to the same large-cap stocks that everyone was following. He and Ferry will each visit around 150 companies each year.

Ward Ferry’s specialization is stock picking. So far the firm has invested less than 30% of the initial $18.5 million it raised in December from clients around the world into companies in Hong Kong, Japan, Korea and New Zealand. It’s an offshore fund that isn’t distributed in Hong Kong. Ward Ferry charges a 1.5% management fee.

Ward says the tough part about raising cash was clients’ concerns that the corporate and financial restructuring of 1999 didn’t carry over into 2000, except in China. But the US, which had been such a magnet for investment in the 1990s, is no longer so compelling.

Ward Ferry is looking for small-cap companies with good growth prospects, which tend to be exporters with growing offshore markets, or domestic producers with large internal markets. They need a high return on equity and a strong cash flow, which generally means the firm is skipping any company with a lot of debt. Ward says South Korea is the most interesting and controversial market in the region: it is liquid and its companies offer attractive valuations, but ongoing restructuring problems and weakness in the financial sector raise the spectre of negative surprises over indebtedness.

Consolidation in the global investment industry means there are fewer investors chasing small caps in Asia, Ward says. But there are many investors who will buy these companies as they grow, so the firm hopes to eventually sell off these growth stories as they become larger. Ward Ferry itself intends to remain small and nimble, however.

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