Thursday, 11 February 2016
Last updated 8 hours ago
Jun 25 2013 | 10:24am ET
An old China hand is set to launch a hedge fund investing in Chinese companies listed in the U.S.
Paul Conway is seeking about US$60 million for his China Revaluation U.S. Fund. His thesis is simple: China bears like Muddy Waters' Carson Block have already taken out most of the allegedly fraudulent Chinese firms listed in North America, leaving behind about 150 strong—and undervalued—businesses.
"I have seen everything: the good, bad and ugly of China," Conway told Reuters. "And I am still extremely encouraged."
From 2010 through last year, some 70 Chinese companies trading on U.S. markets were hit with class-action lawsuits, seeing their market-capitalizations plummet by US$26.5 billion. And that doesn't include the most spectacular Western-listed Chinese implosion, that of Sino Forest Corp., whose shares cratered after Block accused the firm of overstating its timber holdings in China. Sino Forest, which was listed in Canada, cost hedge fund Paulson & Co., once one of its largest shareholders, hundreds of millions of dollars.
In addition, a new agreement between the U.S. and China will give regulators access to Chinese companies' audit documents.
"A lot of companies went public that shouldn't have," Conway said.
The new fund, managed by Fidelity Investments veteran Paul Jackson, will invest in between 15 and 20 stocks. Conway, a former Oppenheimer & Co. banker who does not speak Mandarin, has also brought on Chien Lee, co-founder of China's 7 Days Group Holdings hotel chain; Paul Keung, another Oppenheimer veteran; and Eddie Woo of Mascotte Holdings. The latter two will serve on China Revaluation's advisory board.