Hedge Fund

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Leading fund manager Platinum Asset Management’s CEO is betting big on China, in spite of recent warnings from credit rating agencies.
Kerr Neilson, the chief executive and founder of Platinum Asset Management, has four times more money invested in China than the United States as he thinks country’s debt problems would impact the economy but not “stop it dead".
Platinum has invested more than a quarter of its $23.9 billion funds under management into China-related stocks.
"China is very much like the '60s and '70s in America when it had a can-do attitude and there was a lot of money going into investments and they led the world in many industries," Neilson was quoted by The Australian Financial Review as saying.
He has ignored recent downgrades from credit rating agencies and warnings about the growing risk of a banking crisis.
The veteran fund manager's bet on China helped his flagship Platinum International Share fund return 18 per cent net of fees over the past year, compared with 11 per cent for the index.
Since its inception 22 years ago, the fund has returned 12.8 per cent annually, around double the benchmark.
Neilson explained his rationale for investing heavily in China, citing the stable macro-economic outlook, a more profitable industrial sector and an unreliable stockmarket, which often leads to companies being mispriced.
"The locals, who account for 70 per cent of the volumes, tend to be much attracted to shiny new things," he said. "They will pay huge prices for what we regard as transient growth or overpay for the growth they are buying.
“We have been bewildered by the number of quite wonderful companies which we can buy quite cheaply," he added.
Platinum is focussing on companies in more traditional sectors with cheaper offerings and reduced its exposure to internet giants such as Alibaba, Tencent and Baidu
Neilson believes there is more value to invest in companies such as gas distributor ENN, which Platinum expects will grow at more than 15 per cent over the next few years as China moves towards cleaner energy.
It has also bought into Hong Kong-listed Anta Sports, which has doubled in price over the past 18 months.
Despite the rally, Neilson said it was "not an expensive stock given its exposure to the rising spending power of the Chinese consumer".
Platinum has about $6.5 billion invested in Chinese companies, either listed on the mainland, in Hong Kong or on markets around the world such as New York, compared with $1.5 billion in US stocks.
Platinum's strategy goes against conventional stock market wisdom. The US market has a 54 per cent weighting in the MSCI, the benchmark global index, to just around 6 per cent for greater China markets.
"In terms of its economic significance, that's pitiful," he said.
Neilson justified his choice saying China makes twice as many automobiles as the US and eight times as much steel and also leads the world in science, technology, engineering and mathematics graduates, with 4.7 million last year. That compared to 2.6 million for India and just over half a million each for the US and Russia.
He is also confident in the country's macro-economic outlook, a confidence that many others don't share.
In September, Standard &amp; Poor's followed the two other major ratings agencies in downgrading China's sovereign debt, citing a sustained period of credit growth, which had increased "financial and economic risks" on the mainland.
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Kerr Neilson, Platinum Asset Management boss bets on China for financial returns

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Glenn Stevens is much sought after by hedge funds, with the former Reserve Bank governor joining hedge fund investor NWQ as a member of its investment committee.
A few weeks back, Stevens also took on an advisory role at Ellerston Capital's macro hedge fund.
Taking on board Stevens is part of the Perth-based NWQ fund’s move to attract offshore investors to the Australian hedge fund scene.
"Glenn will add important insights with regards to global economic conditions, the state of risk factors that will influence our strategy allocations and ultimately our manager selections," Jonathan Horton, the managing partner of NWQ Capital Management, was quoted as saying by The Australian Financial Review.
Horton, who has known Stevens for 25 years, said the former RBA boss would focus on "top down" or macro analysis.  
"Glenn is most interested in this type of work with those few he has a high level of comfort with."
Earlier this year, it was also announced that Stevens would advise the NSW government on ways to improve housing affordability which Premier Gladys Berejiklian has said was one of her priorities.
NWQ has set up an office in New York to cash in on the growing interest in Australian hedge fund managers from US family offices, pension funds and insurers, the AFR reported.
It has also recruited former Regal Funds Management chief operating officer Stephen Baldwin to the investment committee. 
Horton was optimistic about US groups showing interest in Australian hedge funds.
"There is strong international interest – US-centric – in Australian-based hedged equity managers, particularly market neutral," Horton said.
"Given the contestable size and relative poor performance of many US and other international hedged equity funds we become an attractive solution for those investors wanting a fiduciary centric portfolio or fund of funds."
Several Australian hedge funds already have significant or majority investments from US and other international investors, he added.
Many of the nation's top-performing hedge funds have become frustrated at the lack of interest from domestic investors while emerging funds have taken time to attract funds even if they have delivered consistently strong performance.  
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Former RBA boss Glenn Stevens takes on new role at hedge fund

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GUEST OBSERVER
There is a big difference in most world cities between rents paid by a creative or digital scale-up and a hedge fund, although the gap is closing. In June 2015 the total annual office rent paid for each member of staff in a hedge fund averaged $22,399 across the 12 world cities covered in this report. This compares to $10,453 per person for a small digital scale-up or creative company, which represents just 47% of the financial sector office rent. This ‘digital discount’ has eroded since 2008. At the end of 2008 the digital and creative industry paid, on average, 42% of what a hedge fund would pay in rent.
The difference between these rents clearly reflects a different scale of revenue between a financial company and a creative company, but we expect the gap to continue to close. This is because the size of the digital and creative sector is growing faster than the finance industry in many of the world cities we monitor, meaning rental growth is higher too.
Meanwhile, it takes time for the nature and location of office stock to change from the type of large, floor-plate corporate premises required for banking to smaller, flexible and altogether more dynamic spaces required by creative and digital occupiers. This means that scarcity value also increases rents.
In some cities the importance of the digital and creative industry would already seem to have overtaken finance. In Sydney, for example, creative industry companies are paying more per person for office rents than finance companies are. Local supply and demand factors will clearly have an impact here. Relatively low demand for financial offices in Sydney means the city has some of the cheapest rents for this sector among our world cities, paying well below the world average per person.
Globally, the average growth of office rents we monitor among our 12 cities was just 1.7% between December 2008 and June 2015. But this average disguises a big difference between the financial sector and creative and digital sector. While office rents in the financial sector fell by an average of 1.8%, the creative sector offices saw growth of 8.6% over the same period. 
 
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Yolande Barnes is director, Savills World Research Team and can be contacted <a href="https://www.savills.com/research/" target="_blank">here</a>. 
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