ALTERNATIVES 5Q&A

48 AsianInvestor April 2010

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Sanjiv Garg✲ Lead portfolio manager ✲ Winnington Capital

T rophy LV is an equitylong/short Asia fundand was created inApril 2007. The fund

is sponsored by Winnington,one of Asia's independent fundmanagement platforms, withover nine years in operation.Winnington now manages over$1.1 billion in assets. KennethHung, the founder and owner,launched Winnington with theTrophy Fund, a long biasedlong/short fund which hasreturned 800% since itsinception in 2001.

What’s the idea behind the LVfund?The LV concept was designedto appeal to institutionalinvestors with low volatilityand absolute returns whilstleveraging off the stock

picking skills and success ofthe Trophy Fund.

What is the strategy?Trophy LV is an equitylong/short Asia fund focusedon capital preservation,targeting a 20% annualizedreturn, while maintaining a lowvolatility of below 10%.

LV maintains net exposure of-30 to +30%, although theselimits can be breached withlong option positions. We willcap our loss in any one monthto around 3% through reducingnet exposure to zero andshrinking the gross book oncewe lose more than that.

How do you handle risk?All our potential investmentstrategies are put through arigorous checklist and run

What has the fund’sperformance been?Since inception in April 2007,LV has returned about +25% incontrast to the MSCI AsiaIndex, which is down 21%.

How much of that was skillversus luck?In 2009, our return was 34%,which was 5% higher than MSCIAsia for the year. We had aSharpe ratio of 2.1. As ouraverage net exposure was 9.9%long during 2009, 90% of ourreturns were generatedthrough alpha.

How did you fare theprevious year?In 2008, we were down 28%and the bulk of the losses camefrom two strategies, convertiblebond arbitrage and small cap

through our proprietaryvaluation, mean reversion andtrend analysis models. Enoughdata points are accumulated –through our models,conversations withmanagement and analysts,macro and sector analysis – towarrant the execution of thefirst part of the strategy andunless predetermined, we donot add to the position unlessthe market confirms thevalidity of our thesis.

Has this always been thecase?Yes. We updated and back-tested our risk-managementsystem in October 2008 for thefinancial crisis. It relies on hardstop limits and is automated.Portfolio managers have oneday to remedy breaches.

ALTERNATIVES 6Q&A

April 2010 AsianInvestor 49

EDUCATION2007-to date Winnington Capital, PM2006-07 Argent Financial Group, senior PM2003-06 Unifund SA, senior PM2002-03 Fimat Derivatives Product Group, vp1998-2002 Coastal Investment, fund manager

CAREER1987 Chartered accountant, UK

SANJIV GARG’S CVoverlap with our other fund.These strategies were closeddown at the end of October2008, shortly after I took overas the lead portfolio managerof the LV fund.

Our 2009 volatility was15.7%, which is considerablyhigher than the target of 10%.We shall achieve this target inthe next few months.

What is the target size of thefund and how do you goabout reaching it?The current size is considerablyless than the peak AUMachieved in early 2008 and weare seeking to raise capital forthe fund in the next two-to-three quarters. With the currentinvestment team andinfrastructure, the capacity ofthe fund is around $500 million.

How big is the team now?At the moment, we have threeportfolio managers, twoanalysts and one dealer.

And what’s investorsentiment like?

At the end of last year, we metwith investors in Japan andSingapore where there wasconsiderable interest givenour returns with low netexposure levels. During thenext few months, we areplanning to meet investors inEurope and US.

What is the dialogue withinvestors?That we must be paid to takerisk. There is no point in takingrisk if the risk/reward ratiodoesn’t justify it on aprobability-adjusted basis.

Our edge is our unemotional

How about your sectorpreferences?We like banking andinfrastructure, especially steelat the moment. In India, thesmaller public sector banks inour portfolio are valued at 1.1xtimes price to book with ROE ofaround 18-20%.

We like Japanese banksbecause the downside is verylimited whilst the Chinesebanks have had a decentcorrection and are back atreasonable valuations. In thesteel sector, particularly inIndia, stocks will experiencestrong volume growth givencapacity additions over thenext few years.

Steel demand is alsoprojected to grow 10% perannum in that time. Propertyand domestic consumptionbecome attractive at lowerlevels, while we dislike basemetals and other resourcestocks as they are theprimary beneficiary of anearly cycle rally and are atrisk from a slowdown ingrowth ahead. ■

investment process coupledwith a calibrated riskmanagement system and weseek to reduce uncertainty inour portfolio. In that context, weare excited if we can make ourprocess as boring as possible.

What are your geographicalpreferences and dislikes?Our geographical preferencesare driven by valuations andmacro considerations. At themoment, we prefer China HongKong and Korea and are non-committal on Taiwan andJapan. India looks good from alonger-term point of view.