Cheah Cheng Hye acknowledges that 2008 was his worst investment year since he and a partner created Hong Kong–based Value Partners Group some 16 years ago. After recording steady gains following its launch in 1993, Cheah’s flagship Classic Fund plunged by 47.9 percent in 2008 (the Hang Seng index, by comparison, was off 46.5 percent). The Value Partners chairman and CEO admits that he completely failed to foresee the credit crisis of 2008.
The firm will not announce an exact figure for redemptions for some months to come, but Cheah says that since October “steady” redemptions are the main reason for the drop in assets under management at Value Partners, which had $4 billion in assets at the end of November, down from $7.2 billion in the fall of 2007 (see “The Master of Values,” February 2008).
Value Partners has been ranked by Alpha as the second-biggest Asia-based hedge fund firm for two years running, and its Classic Fund returned 20.3 percent on average annually over the past ten years. Much of its success has come from finding undervalued companies in China. Cheah says he has not barred investors from pulling out of Value Partners and that he holds as much as a quarter of assets in cash. He remains bullish on China, where he thinks the economy will continue to grow, international economic strife aside: “Eight percent is doable. China is not in crisis, and we think the worst may be over.”
There is opportunity, for example, in Shanghai, where stocks fell by 65.7 percent in 2008. But there are limits to Cheah’s optimism. He worries about unemployment in China and says that “by 2015 or so the country will start to feel the impact of an aging population.”
He notes, however, that China overtook Germany to become the world’s third-largest economy in 2007 and projects that it will eventually surpass Japan and the U.S.
