Notes from the GS EM Hedge Fund Manager Conference (Bill M)

China - (JT Fund) – Larry Zhang – Senior Advisor to National Council for Social Security Fund of the PRC. Barclay’s Global PM for Asia, ex-Japan. Partner on the Fund is Harvest Asset Management (2nd largest asset manager in China – authorized by the Chinese Gov’t) http://www.fundcn.org/companies/harvest-fund-management-co-ltd/. Offices in Beijing and Hong Kong.

Insight into gov’t policy is key for any investment in China. Managers should have political contacts.
No fair disclosure in China, based solely on political contacts and size of investor (why their relationship with Harvest). Others are behind the curve.

China Outlook

• Inflation is controlled but target moved to 4%
• Inflation is top priority b/c hyper-inflation creates social instability and stability is the #1 and only priority. Gov’t will pay whatever price to maintain stability
• On the other side, gov’t knows that inflation helps with currency
  

Brazil - (Kondor Invest) – 2nd largest hedge fund in Brazil with $1.5B AUM. The team previously worked at Safra Bank. Office in Sao Paolo.

Bank Itau (largest holding in the equity fund at 12%) – I will forward analysis
Short Banco Bradesco
“Current equity markets not expensive, but not cheap either.”
Equity fund 20% cash, waiting for time to put money to work, no crash, but better entry points.

Brazil Outlook

• The next two years will be difficult in Brazil, but long term positive
• Believe the gov’t and central bank are aligned and behind the curve
• Growth is above capacity, government wages will increase 14% next year
• Central Bank inflation 4%, inflation has been 6%, Kondor’s target is 7%
• Ultimately, fiscal policy is key because higher interest rates create more money into Brazil, which increases currency and is not good for local business
• New president much the same as Lula and not showing any good signs on inflation nor long term reduction in fiscal policies which would enable lower interest rates
• Over the last several years local industry has been killed because of imports from China
• Macro fund view of Brazil – believes the market may rally over the next six months (control inflation), then they will short b/c deep problems in fiscal policy
  

Japan – (JH Whitney) – JH Whitney Japan Fund was the largest equity long/short fund in Japan, not sure if this is still the case. Office in Japan and NYC.

Over the past 10 years the Fund has been net short. This past year has seen a dramatic shift and for the first time it is difficult to find valuation shorts.

Japan Outlook

• Bullish on Macro Outlook
• Global inflation good
• Asian growth good
• Debt to GDP – a problem, but too much press. 98% owned by domestic and the gov’t has tool’s to fix. Chinese will default before Japan.
• Larger Japanese issue is population negative population growth ….. but in the shorter term the economy is still 8% of world GDP.
  

Commodities & Energy – (LuxEn Capital) – Pasha Bahadori, former portfolio manager at Ospraie (one of the largest energy hedge funds in the world before blowing up in 2008). Pasha made money in his strategy during 2008.

• His thesis - need to know commodity market fundamentals and news and money flow to invest in equities in this space
• Space is volatile
• With recent money flows, most commodities are now macro driven and less supply/demand driven, except for Natural Gas
• Natural Gas trades the closest to supply/demand and is non-correlated to any asset class

Oil View –

• $25 is already priced into the disruption in Liya, Egypt and Saudia Arabia.
• 95% probably that nothing will happen in Saudia Arabia
• Libya will come back on quickly
• Potential for strong pull back
• Risk/Reward – oil trade, Long Canadian Oil Sand companies b/c margin of safety – doesn’t matter if oil is $80 or $150

Global Macro – (CastleRock Macro) – former Fortress Global Macro team

Watch out for “macro consensus from Wall Street”.
Key Themes

• Power of the Affluent
• Wealth effects from financial assets
• Climate Change
• Climate volatility based on scientific consensus
• Population Growth
• Spread of modernity and corporate dominance
• Structural Imbalances
• Rigid exchange rates regimes
• Developed countries need to produce more, consume less

View

• AG could still run
• Oil related stocks rather than futures