Interview With Charles Mautz, Managing Member and Chief Investment Officer, Chinus Asset Management (CHAM)
As founder and Managing Member of Chinus Asset Management (CHAM), Mr. Mautz leads CHAM’s strategy and activities. He also oversees all investment activities including research, allocation and manager selection. Mr. Mautz developed the firm’s focus on investing with locally-based managers throughout Asia and travels there frequently to identify the next rising stars.
From 2005 to 2008, Mr. Mautz was a Managing Partner at an emerging growth company accelerator and a Managing Director at Aequitas Capital Management, where he led the firm’s efforts to form new fund products and oversaw its fund management activities. Prior to 2004, Mr. Mautz held various strategic, financial and M&A roles in Los Angeles and New York. From 1999–2004, he was in charge of strategy and M&A at CMS, a leader in financial research distribution. While at CMS, he played an integral role in their expansion into Europe (via acquisition) and Asia. Prior to CMS, Mr. Mautz oversaw subsidiaries and identified new acquisition opportunities for a $1.8 billion division of Itochu, a leading Japanese trading company. Mr. Mautz is a 1989 cum laude graduate of Harvard University.
Q&A With Charles Mautz
Khai Nguyen: I’m here with Charles Mautz, founder and CIO of Chinus Asset Management. Chinus Asset Management (CHAM) is a U.S. West Coast-based asset management firm founded in 2008 that provides investors exposure to the alpha-generating growth in China, India, South Korea and Southeast Asia, by utilizing an active investment strategy and local managers in each region. BarclayHedge, Eurekahedge and Corporate Livewire have consistently recognized the firm over the past several years for its industry leading returns. Charles, welcome and thank you for joining us.
Can you begin by telling us your background and how you got started in the world of investing?
Charles Mautz: Hi Khai, it’s great to be speaking with you. I initially got started in investing after joining Itochu, a large Japanese trading company out of college. My mandate was to identify business and investment opportunities with U.S. companies for Itochu. Generally, we would commence a business relationship with a company first, get to know it, and then seek to acquire that company if it fit into our global trading network. Through this process I quickly realized the importance of “knowing” a company before investing in it.
Khai Nguyen: You founded CHAM in 2008. What is the history of the firm and what value did you see that CHAM could bring to investors?
Charles Mautz: Pete Nickerson and I founded Chinus Asset Management in 2008 to provide investors with a better way to access the tremendous wealth that was being created in China and the rest of emerging Asia. We recognized that U.S. investment managers frequently underestimated the vast differences in culture and business practices between the U.S. and emerging Asia. Conventional investment methods that were appropriate for developed country markets were unsuitable for this part of the world. As a result, these strategies turned out to be riskier than anticipated and often missed out on the most lucrative opportunities.
We felt that the best way to access these markets was to do so through leading managers in China, India, Southeast Asia and Korea that had a deep knowledge of local companies and markets. We seek out managers with the expertise and resources to independently evaluate the companies in which they invest. This process typically includes comprehensive, on-the-ground due diligence that helps to expose fraud. Through this process, our managers develop a much more accurate understanding of a company’s intrinsic value. This information edge enables them to make better investment decisions and generate substantial long term alpha.
So, our value proposition is to provide investors with access to the leading local managers in emerging Asia. We are pleased that our strategies have consistently generated industry leading returns.
Khai Nguyen: Can you explain your fund of hedge funds strategy and the areas you focus on?
Charles Mautz: Of course. Our investment strategy consists of three key components:
1) Manager selection: Our investment team has an established track record of identifying leading local managers across China, India, Southeast Asia and South Korea that often aren’t widely known by investors outside their home countries. In many cases, we have been amongst the first foreign investors into many of these managers.
2) Allocation strategy: We actively allocate between regions and investment strategies to optimize our portfolios to current market conditions. Often, our portfolio positioning is contrarian to Western media assumptions and takes cues from our deep network across Asia.
3) Direct investments: We selectively invest in compelling direct investment opportunities. These may include investing alongside our managers in their most attractive positions, in less liquid vehicles, and in the management companies of our managers. All three components of our investment strategy have contributed to our funds’ substantial outperformance thus far.
Khai Nguyen: How do approach your due diligence process for the managers you pick?
Charles Mautz: We are quite discriminating in the types of managers that we invest with. We look for the following five key characteristics in a manager:
1) The key differentiator that we look for in any manager is that they have the expertise and resources to independently evaluate and validate the companies in which they invest by conducting fundamental analysis and thorough on-the-ground due diligence.
2) Emerging Asian markets have historically been more volatile than developed country markets. We closely scrutinize manager investment strategies to ensure that they provide downside risk protection. This may be accomplished through shorting strategies or by the quality/nature of their portfolio companies.
3) U.S. investors generally cannot directly invest in companies listed in China and India. In addition, investors accessing Asia through ETFs and index funds typically only get exposure to large blue-chip companies. We prefer managers that have access to, and the ability to invest in, the entire spectrum of emerging Asian companies across all sectors and market capitalizations.
4) We prefer managers who have significant “skin in the game.” Oftentimes, the principals own a significant stake in their funds, creating a strong alignment of interest with investors.
5) In virtually all cases, we select funds that employ internationally recognized prime brokers, custodians, administrators and auditors. Applying these criteria to the universe of emerging Asian hedge funds eliminates approximately three-fourths of the managers. We then spend time getting to know the principals of the managers we are considering. This qualitative aspect of our due diligence process enables us to distinguish between managers with true competitive advantages that will enable them to generate substantial long term outperformance, and those who happened to be in the right sectors of the market at the right time.
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