By James Dennin for Kapitall.
Christopher Tsai has the kind of romantic, multi-faceted
biography that is the very stuff of a good profile.
His family's financial tradition goes back to World War II,
when his grandmother was
one of the first women to trade securities
on the Shanghai stock exchange before the Cultural Revolution. His
father is often cited as one of the main people responsible for
bringing the company
to its current might.
Tsai didn't waste time getting into the family business. He
began managing money for local businesses at 16 and, successful in
those endeavors, started his own hedge fund at 22.
Though still youthful at 39, Tsai has already built up a
reputation for his circumspect, long-term approach. He focuses
heavily on multinationals with lots of exposure to Asian markets,
which he sees as one of the most attractive long-term opportunites.
We sat down with him to elaborate.
K: Your company's philosophy is one wherein you try to
maintain your holdings as long as possible, if not indefinitely.
How have you applied this in China?
CT: The trend we're monitoring closely is the growth of China's
middle class. It's expected to grow from 525 million to about 3.3
billion by 2030. We're trying to make a portfolio with exposure to
all that new purchasing power.
K: Could you give an example?
CT: One of the companies we're doing that with is
Jardine Matheson (OTC:
. They own Dairy Farms, which is a very popular chain of
stores, and also the Mandarin Oriental, which was the first luxury
hotel in Hong Kong… People, as they get more wealthy, want a higher
quality of life. To most people, where that starts is by eating
better, eating more protein and more meat; or travelling and having
a nice place to stay.
Another might be
Platform Specialty Products (
, which makes pesticides and coatings for manufactured
products. It was founded in 1922, and we like companies with
long operating histories. Specialty chemicals aren't that "sexy" an
industry, but we see it as having exposure to the long-term
trend of global warming, which we also follow very closely.
Going forward, farmers are going to have to find new ways to
preserve their yield per acre, and this is a pretty uncompromising
situation. People need to eat, and bugs tend to like the heat.
K: Certain practices in China have been in the news
lately that could pose risks to these investments, like
the shadow banking sector. Are you worried about
CT: We are concerned about the large shadow banking system in
China right now, where you're starting to get companies that are
lending to each other … Interest rates on high-yield bonds have
soared, and that the spread between those and benchmark bonds keeps
widening suggests some distress among Chinese lenders and Chinese
borrowers. And we hedge against that by taking some short positions
K: Speaking of short positions, your company has taken
rather few for a long/short broker. What is your thinking behind
CT: There's this thinking that if you're a long/short broker you
should always have a relatively consistent mix of short and long
positions. I don't think that's true if the Fed is buying assets… A
rising tide lifts all boats… If you're fortunate, you come across a
name which you want, but which also has some long-term potential.
The longer you stay with it, the longer it compounds … There have
been a couple times when we bought an investment, sold it, and then
bought it back again at a higher price. That taught me
that usually, when you buy something and you bought it for the
right reasons, it doesn't make sense to sell it.
K: Could you give an example of a time you bought a
company back after selling?
CT: One such stock is
Colgate Palmolive (
. They're a large company with the distribution and the business
savvy but which also has leverage in Asia. We sold it for a nice
profit but ended up buying the shares back. That's really what we
prefer to do is find multinationals with large exposure to Asia and
other emerging markets. Those companies are easier to learn about:
their accounting is more robust and transparent. The management is
well defined. So in that case, our fund is global from multiple
standpoints. We hold several American companies but about
two-thirds of our revenues come from overseas.
K: Do you think the economy is in a good place for
finding these companies?
CT: The recovery is slow, but it definitely has legs, and we
think the Fed has done a remarkable job of balancing a lot of
needs… We actually think the market is fair-valued. Right now, it
trades about at 16 times forward earnings, which is about in line
with the historical average. So from that standpoint, equities look
quite reasonable; it's just a little harder to find great
opportunities than it was a couple years ago.
K: Thank you for your time, Mr. Tsai.
1. Colgate-Palmolive Co.
): Together with its subsidiaries, manufactures and markets
consumer products worldwide. Market cap at $62.86B, most recent
closing price at $669.43.
2. Platform Specialty Products Corporation
): Develops, produces, and markets a range of specialty chemical
and printing products in the Americas, Asia, and Europe. Market cap
at $3.25B, most recent closing price at $26.49.
3. Visa, Inc.
): Operates retail electronic payments network worldwide. Market
cap at $131.78B, most recent closing price at $210.32.
List compiled by James Dennin and Ben Levine based on the
holdings in Tsai Capital. Data sourced from Zacks Investment
Research. You can read more about the
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