The client: An offshore goverment linked organization

The client:

An offshore goverment linked organization  

Background Information

This firm held cash reserves mainly derived from years of accumulating commodity mining revenues. This organisation's long-term objectives were to generate a return in excess of the country's inflation rate to fund the social and economic development of the country.

In order to achieve their return target, the organization was willing to undertake a higher level of risk compared to fixed deposits. This client, along with its board of directors consisted of seasoned professionals who understood the connection between risk and return. Hence, as long as the investment process behind the security selection and portfolio management was sound, they were committed to being long-term investors. 

This organisation also had specific jurisdictional requirement limiting where investments could be made. This was probably due to certain policies within the company. Taking into account these customised requirements, we proposed a portfolio and an investment framework that could achieve their objectives. 

 

The Solution

We proposed an unhedged Asian equity portfolio. 

Since the investor’s capital was denominated in US Dollars, and at the point of inception we held a negative secular view on US Dollars, we would leave the portfolio unhedged while it was invested in a basket of Asian currency denominated equities.

We suggested Asian equities because at the point of inception, we saw an Asian equity market which provided the best risk-reward characteristics when compared against other markets like the US, Europe…etc.

Lastly, from a security selection standpoint, we noticed that specific companies within the Asia Pacific region were priced at levels that provided attractive risk-return characteristics.  Due to our historical specialisation in covering these companies, many of which we have been following for over 10 years, we were able to determine that these provided a favourable investment opportunity.