FountainCap extends flagship China strategy to Europe with UCITS launch
Hong Kong-based asset manager FountainCap Research and Investment is opening its doors to European investors with the launch of the Dublin-domiciled FountainCap Greater China Select UCITS Fund.
Built through the Aravis Funds (Ireland) ICAV structure, the all-China, all-cap, all-sector, long-only China-focused fund will leverage the manager’s expertise in China research and stock selection.
FountainCap was founded in 2014 by Frank Ding, formerly of Capital Group, who has over 27 years’ experience investing in China. Ding is Chairman and Chief Investment Officer, as well as majority shareholder of the firm, alongside various senior staff members who also have equity in the business. The manager’s flagship strategy was launched in April 2015 with USD20m seed and as of end Q2 2021, has grown to USD1.6 billion of assets under management. These assets are split across the USD445m Cayman-domiciled Global China Opportunity Master Fund and various separate mandates, such as the recent contract to manage half of the China-focused equity assets for the UK’s USD49 billion Border to Coast public sector pension fund.
The new FountainCap Greater China Select UCITS Fund, which launched on 27 July with USD40m will employ the same investment process as the Cayman flagship (table above) and will replicate the strategy as closely as possible whilst investing only in opportunities within Greater China, benchmarking against the MSCI China All Share Total Return Index. Both strategies seek out long-term investment opportunities, employing a bottom-up stock picking approach that focuses on conducting thorough fundamental research.
Recognising the massive transformation taking place across the Chinese economy, FountainCap aims to select and hold onto winners benefiting from the on-going growth of China supported by three megatrends:
• Technology innovation
• Transition to a clean economy
• Middle-class consumption boom
• Companies brought into the portfolio will typically meet three criteria:
Profile: companies the team believes have differentiated products, strong market positioning and the ability to generate sustainable earnings growth
Value: companies whose share prices trade at a significant discount to present value
Restructuring: companies that enhance competitive positioning and earnings growth, while unlocking hidden value through significant restructuring and changes
Ding and his team also use proprietary ‘backpack research’ to validate existing investment theses and unearth less crowded investment opportunities. This involves travelling to China’s lower-tier cities to conduct primary research and on-the-ground due diligence. Such a process helps the team generate non-consensus ideas across the market capitalisation spectrum by discovering earlier-stage companies that look to demonstrate sustainable growth potential to meet the fund’s long-term objectives.
Average turnover on the original strategy has been 35 per cent since inception, with a typical holding period of between three and five years. The ‘3+3+1’ approach ensures a high level of active share versus the UCITS benchmark, the MSCI China All Share Index.
Ding says: “We think our grassroots backpack research gives us our edge in selecting long-term winners. We believe China is one of the most fascinating markets because it is so far from a homogenous entity. Each province in China is at a different and uneven level of social and economic development, which can equate to inefficient investment opportunities compared with the developed markets, and therefore requiring an on-the-ground specialist for investment.”
Distributed by Aravis Capital, preferential terms will be offered in perpetuity to early-stage investors who commit more than USD5 million in the first 90-days post fund launch.
Aravis Capital Director Kit Sanford says: “Aravis has spent over a decade working with a select group of owner-managed boutique asset managers; all of them are domiciled in the region in which they invest, are at the top of their respective peer group and available in UCITS format. We’re delighted to be adding a market leading China manager to our UCITS roster.”