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Value Partners caught out as HK airline fails

HONG KONG, April 9 (Reuters) - Sometimes even the best fund managers have bad timing.

Cheah Cheng Hye, chairman of Value Partners Ltd 0806.HK and one of the few home-grown star managers in Asia, found himself addressing a scheduled journalist organisation event on Wednesday -- the same day Oasis Hong Kong Airlines, one of his higher-profile holdings, stopped flying and sought investors.

A former journalist himself, Cheah said he was disappointed, but kept the potential loss in perspective after a $150 million private equity fund run by Value Partners was on the hook for a $30 million convertible bond investment in Oasis.

(For a related story click [ID:nHKG175840])

“How can I not be disappointed? Of course I’m disappointed. But life goes on,” 54-year-old Cheah, whose firm manages about $6.5 billion, told reporters.

He said the investment management business is fraught with calls that ultimately go bad.

“One-third of everything we do in hindsight turns out to be a stupid mistake,” the Malaysia native told a lunch of the Foreign Correspondents’ Club of Hong Kong.

Cheah, who dislikes marketing and says he’d rather spend his time reading, noted that his funds have returned 22 percent a year on average over the past 15 years.

Value Partners, which focuses on small-cap stocks and the greater China region, went public in November and has been ranked as Asia's second-largest hedge fund manager, behind Japan's Sparx Group Ltd 8739.Q. Cheah owns more than one-third of the firm, which has a market value of $1.17 billion.

Sparx and Value Partners are Asia’s only two large listed fund companies.

Value Partners shares fell 2.5 percent on Wednesday, underperforming the broader market selloff, and are down 24 percent since their November trading debut shortly after the peak of the 2007 market rally.

Cheah, who co-founded the firm in 1993 after a 17-year career as a journalist and is also its chief investment officer, said the Greater China region alone could eventually support five fund management companies the size of U.S. giants Fidelity Investments or the Templeton arm of Franklin Resources BEN.N.

He said the Value Partners investment in Oasis, a long-haul budget carrier that began flying in October 2006, was protected by several layers of guarantees.

“We have been advised that there is a very reasonable chance that we will get our money back,” Cheah said.

CHINA RECOVERY

Despite recent market volatility, he said net redemptions by investors in his funds had been small. He also said that the sell-off in China region stocks should reverse when sentiment improves.

“There is a disconnect in my market, which is greater China, because the reality on the ground level is not too bad, but people are behaving as though things are going to be really awful,” Cheah said.

Hong Kong's Hang Seng Index .HSI is 25 percent below its late October peak, while the Shanghai composite index .SSEC is off by 44 percent from its all-time high.

“The disconnect is that share prices, which have last year overshot the fundamentals, they went ahead of the fundamentals, and this year they have fallen behind the fundamentals,” he said.

“At some point when investor sentiment improves, I’m expecting a rebound and this is especially true with the context of the negative interest rates that we are experiencing both in Hong Kong and in mainland China,” he said. (Editing by Anshuman Daga)

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