APS Asset Management Pte, which oversees eight Asia-Pacific equity funds, raised more than $1 billion last year, driven by demand for its biggest one that invests in undervalued Chinese securities.
APS increased assets to $3.1 billion, with more than 80 percent of the 2013 inflows going into the APS China A Share Fund and related accounts under the same strategy, Managing Director Adrien Gheur said. The fund returned 10.6 percent in 2013 before declining 4.1 percent in January, he said. The Shanghai Composite Index lost 6.8 percent last year and extended the slide with a 3.9 percent drop in January.
The increase in demand for Singapore-based APS’s China fund underscores rising appetite from investors seeking to profit from the cheapest among the top 10 stock markets globally after shares fell amid concerns growth in the world’s second-biggest economy may falter. China’s economic expansion will slow to 7.2 percent next year, almost half the growth rate in 2007, according to data compiled by Bloomberg.
“We are bullish on the China market,” Gheur, 39, said in an interview in the island-state on Feb. 25. “We find the valuations interesting.”
Chinese stocks have become attractive particularly after the announcement of government reforms in November, Gheur said, citing changes in the country’s system of residence permits, known as “hukou,” and pollution regulation. Hukou, the household registrations that limit labor mobility established under Mao Zedong in 1958, will be gradually relaxed, according to the communique from the third full meeting of the Chinese Communist Party’s 18th Central Committee in November.
“In China, once reforms are announced, they get done,” Gheur said. “We look at companies that will benefit from this urbanization.”
Infrastructure, consumer companies and utilities are industries which will capitalize on the reforms, Gheur said.
The Shanghai Composite Index is trading at 10.3 times reported earnings, the lowest among the 10 biggest markets in Asia and almost half the multiple for the MSCI World Index.
Founded in 1995, APS has 51 employees and mainly serves institutional investors like pension funds, endowments, foundations, family offices, funds of funds, and sovereign wealth funds, Gheur said. More than half of the investors are based in North America, with the remainder evenly split between Asia, Europe and Australia, he said.
The China A Shares fund, a long-only product that bets on rising prices, was set up in 2004 and has returned an annualized 21 percent since inception, Gheur said. The strategy has capacity of as much as $5 billion, he added.
APS has a license from Chinese authorities to invest under the Qualified Foreign Institutional Investor, or QFII, program. APS currently has a $300 million quota, Gheur said, adding that the firm also has submitted an application for a similar amount under the yuan-denominated QFII program. APS also manages some of its clients’ quotas, he added.
All of the eight funds APS manages invest in equities in the Asia-Pacific region and pursue returns by employing a long-only or long-short strategy, Gheur said.
The firm’s second-biggest fund is the APS Asia-Pacific Hedge Fund with $300 million, Gheur said. The long-short fund returned 2.1 percent net of fees in January after a 12.4 percent increase in 2013, he said. That compares with a 19 percent return by the Eurekahedge Asia Long Short Equities Index last year. Over the past six years, the fund returned an annualized 20 percent, Gheur said.
Shorting involves selling borrowed stocks in anticipation of buying them back for a profit when their prices fall.
The return for the long-short fund last year mainly came from stocks trading in Hong Kong, including China’s second-largest home appliance retailer Gome Electrical Appliances Holding Ltd., Gheur said.
“We see enormous growth in Asia -- growth rates we can’t see in other developed markets,” Gheur said. “Especially in the markets where investors may be less certain about the macroeconomic picture, they need to find stock-pickers.”