Robert Bishop’s big bet on China is paying off — at least for now.
The Tiger Cub’s Impala Fund, run by New Canaan, Connecticut-based Impala Asset Management, is one of the best-performing hedge funds this year, in large part due to Bishop’s belief that China’s economic woes bottomed out late last year and the country has embarked on a new growth phase. This is a macro view that is sharply at odds with other high-profile hedge fund firms such as Kyle Bass’s Hayman Capital Management and James Chanos’s Kynikos Associates.
So far Bishop is looking prescient. The Impala Fund was up 6.23 percent in July, extending its gains for the year to 14.88 percent.
Bishop is a Tiger Cub who headed up the cyclicals and commodities groups for Julian Robertson Jr.’s Tiger Management from 1992 to 1995, before moving on to work for New York–based Kingdon Capital Management and another Tiger Cub, Lee Ainslie III’s Dallas-based Maverick Capital. He then moved on to become chief investment officer of Soros Fund Management for 16 months.
Bishop launched Impala Asset Management in 2004. The firm currently manages about $2 billion.
Last year the firm lost 6.51 percent. However, it was up 7.66 percent in 2014 and 16.83 percent the previous year. Since inception, Impala is up 256 percent compared with just 140 percent for the Standard & Poor’s 500 stock index.
Unlike most Tiger progeny, who gravitate to fast-growing, world-changing technology, Internet and media companies, Bishop at any given time favors the more evergreen economy, that is, economically sensitive industries such as airlines, energy, commodities, homebuilders and forest products companies.
It is an orientation that began during his days as a paper and packaging analyst at Salomon Brothers from 1986 through 1992, where he was an Institutional Investor All-America Research Team member, and continued at Tiger. Even at Soros, Bishop expanded the firm’s orientation toward cyclicals.
Bishop learned that it is not as important to find the very best companies in a particular sector as it is to catch the inflection point in a cycle when conditions are moving from bad to average. This is when most stocks within these economically sensitive groups rapidly move up.
In general, Impala runs its portfolio 55 percent to 80 percent net long with little leverage. At the end of June, it was 72 percent net long.
To invest in cyclicals, you also must form a strong macro view. This hilltop vantage point enabled Bishop to reduce his exposure to energy stocks to zero in the first quarter of 2015, when the price of oil more than halved.
These days Bishop has a huge bet on metals and mining stocks and other companies that benefit from infrastructure spending. And a big reason for this is his perspective on China.
In a nutshell, Bishop believes China’s economy bottomed out last November. It is now in the early stages of a multiyear expansion driven by its “one belt, one road” strategy to create a modern-day Silk Road trading system. “This will lead to an expansion of trade through Asia and the Middle East,” Bishop explains.
Bishop feels the opportunity is so immense that earlier this summer he began raising money for a new fund — the Impala Resource Fund — designed to more fully benefit from what he anticipates will be an 18- to 36-month cyclical commodity rally. He plans to cap the new fund, which began trading on August 1, at $125 million and close it on October 1. “The impetus for launching this vehicle is Bob’s desire to put additional personal capital to work in this idea,” the letter announcing the fund to investors stated. The new fund is described as a high-octane portfolio that will be substantially net long and will allocate to commodities and related companies.
Bishop’s view is that China suffered its hard landing in the fourth quarter of last year and is now on the mend, led by infrastructure spending. He argues that China has an excess of manufacturing capacity — auto parts, steel and aluminum.
It is now seeking to link trade routes to Indonesia, India, Thailand and the Middle East, and to Russia and other parts of the world. So, it needs to build transportation infrastructure, such as rail lines to get products to Europe so they don’t need to be shipped around South Africa. This will reduce transportation times from weeks and months to days. This vast project, however, will require massive amounts of commodities — steel, cement, zinc, copper, iron ore.
Meanwhile, Bishop also believes the U.S. will enjoy a big uptick in infrastructure spending whether Donald Trump or Hillary Clinton wins the presidential election, further putting upward pressure on commodities and prices.
Bishop says he is speaking to analysts on the ground in China who report strong growth in heavy-duty truck sales and in airline passengers. Electricity consumption is also growing.
He says real data points that showed an economic decline in 2011, advanced to the end of 2013, then moved sideways for two years, before showing another uptick in November 2015. “This is similar to what we are hearing from inside of China,” Bishop adds, who sees parallels between what is going on in China and the U.S. economy in February 2009, when the Great Recession is widely deemed to have bottomed.
Bishop believes the current cycle could play out over the next three to five years and as long as ten years. “If China is better, it will lift all boats in the developing world,” he explains.
What about people like Hayman’s Bass, who offer dire scenarios like the collapse of the Chinese banking system and a major devaluation of the yuan? Bishop asserts that authorities are bypassing the official banking system in providing liquidity and credit. He says the naysayers mistakenly view China as a pure private capitalistic system and that the authorities don’t control everything. “That’s a mistake people make by looking from the outside,” he adds, stressing that China doesn’t operate the way we do, working through cycles that include booms, busts, defaults and then the start of a new cycle.
“We are very aware of the issues,” Bishop says. “Now the glass is more full. They are addressing the issues and doing it with tools different than in a capitalist system.”
If he is right, Bishop will certainly be heralded as one among the new wave of smart money.
