Best Emerging Markets Hedge Fund: Winner

Best Long/Short Equity Hedge Fund: Shortlisted

Hedge Fund of the Year: Shortlisted

Fund managers of the Martin Currie China Hedge Fund, Chris Ruffle and Ke Shifeng, have a strict buy discipline. Top of the list is that they do not invest in companies they have not visited. This is a discipline that requires visits to around 1000 companies a year.

Since the fund has a long book bias and focuses on small- and mid-cap entrepreneurial companies in the Greater China area, this policy is sensible. First, say the managers, there can often be a dislocation between the real economy and what is reflected in the stock markets.

The quality and availability of research in China is poor, so there is a lot of reliance on original and own research. China also has what they term a 'good news' culture, so there is no substitute for actually getting out and visiting a factory and talking to people working in the company.

Using a bottom-up approach Ruffle and Ke invest in companies they think will grow faster and recover more rapidly than market expectations. Such companies have undiscovered value about to be realised or will benefit from economic or regulatory changes in a way not yet anticipated by other investors.

In particular they take advantage of the underdeveloped information infrastructure – the gap between investor perceptions of a company and the real situation. Hence the emphatic belief in face-to-face company visits.

The managers are located in Shanghai, where Martin Currie has had a presence since 1997 and the fund has access to an 11-strong team with over 110 years combined investment experience. The managers themselves have worked together for 13 years.

Alongside the extensive programme of company visits and calls, the managers use ideas generated by local analysts and apply global themes highlighted by colleagues within the Martin Currie investment management team.

The Martin Currie approach to risk management within its hedge fund range is to use portfolio-risk models not as infallible forecasting tools, but as an essential complement to the judgement of the fund managers.

"We believe they are a departure point rather than a destination, They should be used to frame questions rather than be relied on to provide definitive answers," says Paul Hughes, director and head of risk.

While concentrating on Chinese companies doing business in China, the fund has no country or sector restrictions, so is free to invest where the managers determine the best ideas lie. So it trades on different stock exchanges, including China A and B shares, Hong Kong, Taiwan, Singapore and the Nasdaq. The managers single out Taiwan as offering low risk access to China.

The fund typically has 30-70 holdings, with from 10-50 stocks as long holdings and up to 20 in the short portfolio.

While the Chinese investment universe consists of around 5,000 companies, spread across several stock markets and headquartered across the country, few but the largest state-owned companies are covered by bank analysts. However, the managers generally avoid state-owned companies which represent a declining portion of the economy. Instead they concentrate in capital-intensive sectors.

The managers point out that management of state owned enterprises can have a different agenda to that required by shareholders. The companies can be asked to do ‘national service'.

The fund concentrates its investments in management-owned companies where the managers say they feel there is a community of interest between minority investors and management.

Once they find a good opportunity and have secured an investment by the fund, it then helps the company to publicise itself, explain te managers.

"Chris and Shifeng have worked together for 13 years and are two of the world's most experienced and respected managers in the region. They have a unique perspective on the issues and opportunities in China which gives us a distinctive advantage over our competitors," says Andy Sowerby, managing director responsible for sales, marketing and client service.

Alongside the performance of the fund, as a company Martin Currie focuses on maintaining a high standard of investor relations with communication duirng difficult times being a priority. "One of the things we are most proud of is that, over the past three years, over 50% of our new business has come from existing clients. This is testament to the good job we have done for our clients and the confidence they have in Martin Currie as a business," says Sowerby.

Fund facts: Martin Currie China Hedge Fund

Name of manager: Martin Currie Investment Management
Full name of fund: Martin Currie China Hedge Fund
Contact: Rachel Smith (+44 (0)131 479 5925; rsmith@martincurrie.com)
Launch date: 2002
Portfolio size: $111 million (at March 31, 2010)
Average annualised return: 15.7% (at March 31, 2010)
Average annualised volatility: 15.9% (at March 31, 2010)
Share classes: US dollar and euro
Administrator: BNY Mellon Fund Services
Auditor: Ernst & Young
Prime broker: UBS
Listing: Irish Stock Exchange
Management fee: 1.5%
Performance fee: 20% subject to a high water mark
Minimum investment: $250,000
Lock-in/up: none
Redemption period: monthly with 90 days notice