Reliable Returns in a Freewheeling Market

Value Partners earned the top ranking by seeking out strong management

For investment partners, they're an odd couple. One is the son of a bookmaker. The other is the scion of a construction magnate. After his father died when he was 12, Cheah Cheng Hye supported himself by selling pineapples at roadside stands in Malaysia. He never went to college, but worked as a financial reporter and stock analyst in Hong Kong. His partner, V-Nee Yeh, went to top schools in Hong Kong and the U.S. and began his career at Lazard LLC in New York.

Despite their yin-and-yang backgrounds, this duo has emerged as one of Asia's most successful investment teams. They met in 1990 when Cheah covered Yeh's family business as an analyst. The two struck up a friendship and opened for business three years later. Their flagship Value Partners Ltd. "A" Fund topped the list of Standard & Poor's best-performing offshore funds for the quarter, turning in a 12.25% gain. The success was no fluke. Since the fund was founded 10 years ago, it has racked up average annual returns of 17.2%.

Cheah and Yeh are value investors who target stocks with strong cash flows, high dividend yields, and low prices. They also put an emphasis on strong management -- something especially important in Asia's freewheeling markets. Cheah, who supervises the fund on a day-to-day basis, looks for stocks with dividends of at least 5% and sustainable earnings increases of 10% annually.

More than three-quarters of Value Partners' investments are in China-related stocks. One bet that paid off big in the first quarter was shipping company Orient Overseas International Ltd. Its share price has nearly doubled since the fund bought in last year. Another was Fountain Set Holdings Ltd., a Hong Kong-based company that has become one of the world's largest producers of cotton-knit fabric used in polo shirts and other casual wear. Of course, investing in China can be perilous. Last year, Value Partners wrote down its investment in Euro-Asia Agricultural Co. Ltd. to zero after the agriculture firm collapsed amidst fraud allegations.

Will success spoil Cheah and Yeh's party? Compared to its peers, the Value Partners A Fund is now a relatively large $223 million. To find places to park that money, the managers have been forced to shift some funds to bigger companies, which could reduce returns. But many other money managers would feel lucky to have that problem.

By Mark L. Clifford in Hong Kong

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