Ex-Temasek Manager Welch Starts Asia-Focused Midcap Hedge Fund

Mathew Welch, a former Temasek Holdings Pte managing director, is starting a hedge fund that invests in small and midcap firms in Asia’s developing markets where he said companies are undervalued.

The ACA Asia Dorset Fund already has commitments of $45 million and targets assets under management of $100 million within the first year, Welch said. The long-short fund will allocate between 70 percent and 90 percent of its assets to equities and the remainder to bonds, he added.

“Economic growth in many Asian countries will outpace the rest of the world over the coming years as the population is young, investment from abroad will increase and the way companies are run is improving rapidly,” Welch, 50, said in an interview in Singapore Aug. 7. “Many small and medium-sized companies will benefit from those developments disproportionately as they are often still undervalued and under-researched.”

Growth in developing Asia will increase to 6.7 percent in 2015 from 6.4 percent this year, according to International Monetary Fund forecasts. That’s more than the 2.4 percent growth rate projected for developed economies in the coming year and the 4 percent forecast for 2015 global growth.

While the current funds are being raised from family offices, friends and high-net-worth individuals, the Asia Dorset Fund expects to approach institutional investors at a later stage, Welch said.

“We will need a two-to-three-year track record and $100 million of assets under management to approach institutional investors,” Welch said, adding that the fund targets annual returns of between 8 percent and 12 percent.

Southeast Asia

As much as 30 percent of the equity investments can be in large-cap companies, Welch said.

Welch was a managing director in the investments group of Temasek, Singapore’s state-owned investment firm, from 2007 to 2008. After leaving, he worked as head of financial institutions Asia in the banking division of ING Groep NV and head of Asia ex Japan banks at Daiwa Securities Group Inc. Before Temasek, he was at Standard Chartered Plc, Merrill Lynch & Co., which was acquired by Bank of America Corp., and McKinsey & Co.

The Asia Dorset Fund’s management company is Asia Capital & Advisors Pte, started in 2011 by Chairman Francis Rozario, who also worked at Temasek.

Asian hedge-fund startups have raised an average $20 million each in the first half of 2014, more than the average $15 million raised in 2013, according to Singapore-based data provider Eurekahedge Pte.

Thailand, Indonesia

Among Asian economies, Welch favors Thailand, Indonesia and the Philippines. In Thailand, the number of well-run companies is increasing as the military government brings stability to the country, he said. He particularly likes infrastructure projects in the Southeast Asian nation, he said.

In Indonesia, where the offshore oil and gas firms are among Welch’s favorites, the election of Jakarta Governor Joko Widodo as President is creating a sense of optimism, he said.

The Philippines is benefiting from huge advances in the way the country is run, Welch said.

“Investors are becoming more cautious about China and we are seeing more investments flowing into Southeast Asia,” he said.

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