Winner: Best global emerging markets focused hedge fund

Paul Bate brings 30 years of investment experience as portfolio manager of the long/short emerging markets-focused Matterhorn Breithorn Fund.

Bate is a firm believer in the potential investment opportunities in emerging markets, "particularly in the markets that are going through a transformation where the countries are going to be very different in the future from what they are today. There's a lot of unclaimed territory in these commercial markets," he says.

This means investing in what he describes as the satellite emerging markets such as Turkey, Oman, Poland and Indonesia rather than Brazil, Russia, India and China, the Bric countries. These, he says, are less followed, more interesting, have more competition and fewer monopolies.

By contrast he thinks Europe is "completely occupied, growth is stagnant and every bit of commercial opportunity has been seized by some company or another. In these emerging markets you have potential for firms to come from relative obscurity to become massive market leaders in a growing field over five to seven years."

Bate spurns broker research as it tends to focus solely on large-cap stocks. Instead, his team does bottom-up research, meeting companies and forming their own reviews. According to Bate, this ensures original and independent research.

The Breithorn team focuses on mid-cap companies in the $1 billion to $5 billion range. Once a company has a bit of traction, good management and established itself, the individuals running them tend to be highly driven and keen to prove something, says Bate. "If you can get to know them and stay in contact with those types of companies, it is an incredibly fertile pool to fish in," he notes.

Bate believes one of Breithorn's great advantages is its "process obsessed" structural approach. "In everything we do we define the steps that have to be followed to get to a point where you can recommend a stock," he explains.

These steps include meeting with companies and their management, preferably on location in their offices or operations base – factory, mine, showroom or shop. Breithorn's team visits selected company operations independently and talks to line workers, suppliers and service providers. This helps give the team an insight into operations as well as first-hand comments and insights by management.

The Breithorn team prepares research trip packs containing a company summary, top-line financials and key questions defined in advance for every meeting. Analysts upload their research into a system named Matterhorn interactive supportive technology (MIST) at the end of every day on the trip.

Bates believes such rigorous research techniques can be quantified by the distances Matterhorn's analysts travel, the number of countries they visit (including relatively obscure locations such as Columbia, Congo, Ethiopia and the Yamal peninsula) and number of companies met with, typically 1,200 a year, 70% of which are onsite.

The distances Bate's team covers and the colourful locations they investigate are documented in video format and put on YouTube for investors to watch. An interesting and engaging way to inform investors of what the team is doing and how they do it as well as relate some of their conclusions.

This is part of Matterhorn's wider philosophy of enabling younger employees to travel, carry out their own research and write reports.

"I do believe we must be at the top end of firms in our ability to trust young people. You find keen, smart, honest young people, give them a vision, give them the resources, trust them and let them go for it," Bate affirms.

The fund's portfolio is deliberately concentrated to ensure the team can cope with the number of stocks in the portfolio and cover them all in detail. At times this may mean there are as few as 15 stocks on the long side.

Although the fund is managed from a bottom-up perspective, Matterhorn also has teams looking at macro and market risks such as interest rates or industries. "If we feel that the factor risk is increasing in, for example, Indian financials, however much we like them, we will scale back, reduce the position sizes and work harder to get a number of shorts on. We think very carefully and strategically about what can go wrong with a stock," Bate explains.

Just as the manager of any successful sports team has a reserve squad in case of injury or a player falling out of favour, Bate has what he calls a "reserve bench" of stocks. "We just don't rush to put them into the portfolio right away. Some of those stocks on the reserve bench may reach an attractive entry point and if we can understand why and are comfortable with it, we will put them into the portfolio. At the same time we will try to see if there is a stock we want to take out," he says.

Bate is clearly passionate about this fund, declaring, "wherever we go we are just fascinated by getting under the skin of a country and understanding how it works – peeling off layer after layer of the onion until we get to the core of what is going on."

Fund facts
Full name of fund: Matterhorn Breithorn Fund
Name of portfolio manager: Paul Bate
Name of investment/management company: Matterhorn Investment Management
Contact information: Scott Stevens, investor relations, Matterhorn Investment Management, 29 Queen Anne's Gate, London SW1H 9BU (+44 (0)20 7340 2802; scott@matterhorninvestment.com; www.matterhorninvestment.com)
Launch date: August 1, 2007
Assets under management: $387 million (December 31, 2010)
Net cumulative performance since inception: 58%
Annualised return: 13%
Annualised volatility: 15.2%
Sharpe ratio: 0.5
Strategy: long/short global emerging market equity
Share classes: US dollar
Administrator: Goldman Sachs Administration
Auditor: Ernst & Young
Custodians: Goldman Sachs, Credit Suisse, Morgan Stanley
Prime brokers: Goldman Sachs, Credit Suisse, Morgan Stanley
Legal counsel: Ogier
Domicile: Cayman Islands
Management fee: 1.5%
Performance fee: 20%
Minimum investment: $5 million
Lock-in: none
Redemption/liquidity terms: subscriptions monthly, redemptions quarterly with six months' notice