Big Opportunities In Small-Cap Companies, Says Veteran Fund Manager

Aug 16 2010 - Voxy.co.nz

Australasian equities may currently be out of favour with many analysts and investors, but the founder of a fund launching on August 26 says they continue to offer considerable opportunities for the canny.

Having spent the past three years as portfolio manager for the Australian and Asian investments of James Packer's Ellerston Capital, veteran investment manager James Ring is returning to his roots with the launch of the Quotient Emerging Companies Fund.

The Emerging Companies Fund will target ASX-listed companies outside the top 50 and companies listed on the New Zealand exchange, an investment area in which Ring has compiled an outstanding track record over two decades.

Ring began his investment management career in 1985 with National Bank subsidiary Southpac, leaving in 1994 to co-found Coronet Asset Management, one of the first and most successful of the boutique funds launched in the 1990s.

In 2000, Ring set up the award-winning Challenger Smaller Companies Fund. Over a five year period, he built a $A750 million dollar portfolio, while at the same time achieving a compound annual average return of 30 percent.

Ring says he is enthusiastic about the prospects for the new fund, which will be managed by Quotient Asset Management (QAM), a joint venture between Ring and Co-Investor Capital Partners. Co- Investor Managing Director Roger Sharp, another New Zealander with a stellar track record in banking and investment around the world, will chair QAM.

"A number of small to medium Australian and New Zealand listed companies are set to take off over the next 10 years. However, the overall market is going to be less forgiving than in the past, so selecting the right investment is going to be increasingly important - and increasingly difficult," says Ring.

Ring believes Quotient's approach to investment is perfectly suited to the present environment. "We have always based our investment decisions on a detailed analysis of the individual business, while at the same time keeping a weather eye on broader economic trends. We also stick to sectors we know and understand, rather than diluting our advantage by accumulating numerous small holdings in the name of diversity.

This approach has worked particularly well for investing in small and medium sized companies across Australasia.  "Our focus is on absolute investor returns and on increasing investor value, rather than on maximising the size of the fund, or out-performing an arbitrary index. That, along with our willingness to hold a position for a longer term, allows us to invest in the type of company that will be beneath the radar of a lot of other fund managers and analysts," says Ring.

"In the current financial environment, good companies with excellent prospects can struggle to attract capital - particularly if their structure or the industry in which they operate is not geared towards delivering an immediate return. That creates opportunities for a fund like ours, which is willing to look over the horizon."