Yong Rong Asset Management, a relative newcomer in Asian hedge
fund circles that racked up over 70% gains from its China
strategy in 2013, is a prime example of how young Chinese
managers are making their mark on the Asian hedge fund scene.
Yong Rong takes its name from a traditional Chinese idiom
that means "inner peace will lead to more returns", but its
culture is decidedly youthful and dynamic.
Founder Huang Yong started his investment career as a
foreign exchange and treasury dealer. Hooked on the markets,
the young manager landed himself the important role of running
a family office, a move that allowed him to hone his investment
skills and try out a number of investment ideas with
Today, Huang heads the investment and research team at Yong
Rong, and manages the $137 million China-focused Yong Rong
Global Excellence Fund, which won the trophy for the New Fund
of the Year at the AsiaHedge Awards 2013.
While several high-quality new launches have entered the
Asian hedge fund landscape recently, the clear winner for the
best new fund was the Yong Rong Global Excellence Fund - whose
12-month gain of 72.66% (over a 12-month period between
September 2012 and August 2013) and a Sharpe ratio of 2.01 were
a testament to the solid value-investing skills of its
portfolio management team.
Creating a team spirit
While Huang spends plenty of time obsessing about
cash-flows and earnings estimates of investible stocks, he
spends just as much time being with his team outside office
hours and playing ball with them on Friday, a designated sports
day at Yong Rong.
"We often gather around a big table, at lunches and dinners
like a family. Friday is sports day," says Lisa Cheung,
operations director at Yong Rong.
The time Huang spends with his team gives the hands-on
manager an opportunity to get to know his people and make his
team feel personally invested in the company. Huang believes
that people work better when they are involved in something
that they are passionate about and emotionally engaged
The firm believes that a great company requires a great
culture and great people. "The difference between ordinary and
exceptional people is so huge that it is important that we find
the right fit," says Cheung. All of Yong Rong's team members
have their own focused approach, but always have the firm's
core philosophy ingrained in their work life.
"Our analysts are in touch with people in areas they cover
and bring meaningful insights that the company can capitalise
on. That is how we come up with investment ideas. Huang also
comes up with his own ideas and works on them with the team,"
Value-based investing is key
Yong Rong is a deeply value-oriented fundamentals-driven firm.
Its strategy aims to keep volatility low by investing in
companies that can grow earnings regardless of the economic
The firm puts strong emphasis on the process it follows for
conducting research and making portfolio decisions - believing
that these research and decision-making processes are a primary
source of competitive advantage.
While many managers jump onboard market fluctuations, Yong
Rong does not do so. "Following trends takes too much time and
effort and the effects do not last. We search for the true
value of companies. About 90% of the research is done
internally. This gives us a unique perspective and enhances our
conviction levels. When you know the true value of a company,
you only need time to prove you are right," explains
Looking at the Chinese economy, there are many significant
changes taking place, but the Yong Rong team believes that it
is important to capture those events before they happen because
that is where the most significant gains will be. As a result
Yong Rong looks across many sectors. "Our best finds are the
ones whose true value has not been discovered yet," says
Yong Rong is never uneasy about keeping a stock until it
hits its true value and profit can be made. The team usually
goes for the so-called "10 baggers" rather than for
'low-hanging fruit' stocks where gains tend to be quick but
"We utilise our time searching for the 10-baggers," says
Cheung, quoting a term coined by legendary former Fidelity fund
manager Peter Lynch to describing investments that have the
potential to increase tenfold.
"We are very focused on what we do. The focus strengthens
our convictions. We go for the big win rather than spend time
generating small returns from some 'good stocks'," she
The firm invests in Hong Kong-listed shares and also looks
at global stocks with China-related themes.
"At Yong Rong, we don't limit or restrict ourselves when
searching for investment opportunities. If we believe that a
company's true value has not been recognised, we will continue
researching it no matter what its size," notes Cheung.
The team scours the vast universe of Chinese stocks in
search for opportunities that have a huge earning potential
over the long-term.
Striking the right balance
However, trading 'true-value' China companies is not
exactly a simple or straightforward thing to do. Cheung says
that 'perfect investment opportunities' take time to build. "We
need to be sure that we are confident we are doing the right
thing. It is quite impossible to be one hundred percent
confident, so you always need know how to handle the
Yong Rong is a believer in long-term investment. "It
sometimes takes time for the market to realise the value of a
company, but we are willing to wait," says Cheung.
Yong Rong follows logical steps to ensure that it adhered to
its core philosophy. It started by exploring a strategy closest
to the team's heart and skill set - a China-focused fund that
can capture alpha in sectors where few dare to tread, such as
consumers and TMT.
In the first year since inception in July 2012, the Yong
Rong fund benefited most from investing in companies that have
an exposure to China. The fund looks across many sectors and
found some great opportunities in the TMT and consumer sector.
"The global economy is constantly changing, especially for the
companies in the China space," says Cheung.
Stellar early results - a gain of over 30% in the first six
months - helped considerably to stimulate interest, but the
company also lost little time in transforming itself into the
kind of asset manager that investors can trust. Through steps
such as expanding its business footprint with the help of
globally-focused service providers, Yong Rong has worked hard
at building an institutional-quality set-up.
From a small initial figure of over $5 million when the fund
was launched in July 2012, Yong Rong's assets under management
have grown organically to $137 million in 18 months. The fund
had a great 2013, with a net positive return of above 70%.
In the meantime, says Cheung, the firm is always evolving.
"As Charles Darwin once said, it is not the strongest nor the
most intelligent of the species that survives. Rather, it is
the one that is the most adaptable to change. We believe this
is true - we need to keep on top of the game."
The firm is also in search of new talent to expand the team.
"The company is constantly developing and we are always looking
for new ideas and new talent," Cheung adds.
A long-term game plan
Value investing will remain a core feature of its
investment philosophy, but the company is also open to tweaking
strategy in line with market changes.
For now, the firm is resisting any deviation from its main
focus to keep its strategy simple, notes Cheung - adding that
it is "simplicity [in the strategy] that brings about
But the team is keeping a keen eye out to detect any changes
in the macro environment and industry climate, which may
require it to re-look at its strategy.
"We are always on the look-out for some changes in the
future. We believe there are many perfect opportunities waiting
to be discovered. We will tweak our strategies to make them
better, but I believe our core philosophy will remain the
same," Cheung concludes.