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Chris Chapel

Fund's fortunes have vastly improved since its launch at peak of Asian crisis

At the peak of the Asian financial crisis in 1998, Credit Agricole's  Ray Jovanovich headed the relaunch of a restructured Indocam sub-fund which had been renamed the Asian Renaissance Fund. Its stated aim was 'to participate in the cyclical and structural revival of the Asian corporate sector'.

'When we rolled it out at the height of the crisis, there was very little interest in it. We only raised US$3 million when we brought it to market,' says Mr Jovanovich, the company's director and chief investment officer, Asia.

However, the fund, managed by Linda Csellak, Credit Agricole's director of investments and head of sector research, has turned out to be a star performer.

Investing in stocks in Asia, including Japan, the Renaissance Fund returned 29.4 per cent in the year to date to August 31, compared with the benchmark's 21.5 per cent movement. Over one year, the fund returned 12.4 per cent compared with  11.7 per cent, and over five years, 118.9 per cent compared with the benchmark's 32.8 per cent.

'We named the fund 'Renaissance' rather than 'Recovery' because we felt Asian recovery would take at least 10 years. We are now in year six since the crisis, and we are seeing the reality of that.'

Mr Jovanovich says much of the Renaissance Fund's outperformance was due to careful selection of Japanese small to medium-sized company stocks.

'Japan offers a smorgasbord of 'alpha' [outperformance relative to benchmark]. That is how we present it to clients. Our person who manages Japan spends one week a month there, but not in Tokyo, visiting obscure companies we feel are not researched efficiently. That is how we generated 800 basis points of outperformance so far this year.'

From its disappointing beginnings,  the fund has now amassed  US$88 million in investment, predominantly from European pension funds and insurance firms.

Another of Credit Agricole's flagship funds, the Asian Growth Fund, invests in Asia ex-Japan. It has a much longer track record, having been launched in 1984. The Asian Growth Fund was showing a 29.8 per cent return year to date as of  August 31, slightly above the benchmark's 28.3 per cent. Over one year, the fund returned 15.5 per cent, compared with the benchmark's 17.2 per cent, and over three years, minus  12.4 per cent compared with minus 11.8 per cent.

Mr Jovanovich says the performance of the Growth Fund showed it had 'finally turned the corner'.

'We have had five years of suboptimal performance, where the fund was essentially performing in line with the MSCI benchmark. Finally, this year we are generating a good deal of outperformance with the Asian Growth Fund.'

The Credit Agricole Hong Kong Fund has been another outperformer, returning 41.9 per cent year to date compared with the benchmark's 20 per cent, and 32.9 per cent over one year against 12.7 per cent as of  August 31.

'Our Hong Kong fund is perennially one of the best-performing Hong Kong funds available,' Mr Jovanovich says. 'It is always in the top quartile. Our Thai fund, the top performing Thai fund last year, was up 32 per cent for the month of August.'

Patrick Chia, Singapore-based associate director, fixed income, for Credit Agricole, is responsible for the company's global fixed-income investments on behalf of Asian clients. Among his responsibilities, he manages the US dollar Asian Income Fund, with about US$16 million in investments. As of  August 31, this fund had returned 6.8 per cent in the year to date (compared with the benchmark return of 3.9 per cent), 11.1 per cent over one year (8 per cent), and 39.5 per cent over three years.

Mr Chia also runs what Mr Jovanovich describes as the company's most significant growth driver over the past 18 months - global fixed-income investment mandates on behalf of Asian governments and quasi government entities. Clients include central banks and state-owned banks from China, Korea, Taiwan and Vietnam. These are run as segregated accounts.

Mr Chia says Asian corporate bonds  are better buys than government securities in the prevailing economic environment, given the recent run-up in US treasury yields.

'With Asian corporate bonds or equity market bonds rather than straight government bonds, you get a higher yield and protection against a rising rate environment. You get a much better rate than with a government bond. For example, this year the treasury rate to date is negative but most Asian [corporate] bonds are still positive. So, hopefully, you will get more bang for your buck with these kinds of bonds.'

For institutional investors worried about the possibility of rising rates, Mr Chia says Credit Agricole has developed a product suited to a bear market in bonds. Targeting a return of 4 per cent over Libor (London Interbank Offered Rate) over four years, the CA-AM VaR8 USD fund can invest in futures, swaps and warrants in addition to government and corporate bonds.

'This product has been designed to deliver a positive return even in a rising interest rate environment. We have the ability to short and we can also take currency positions,' he says.

Mr Jovanovich says Credit Agricole has taken a fundamentally negative position on the US economy for the past three years.  'We maintain that view for 2003.'

He says it would be  unreasonable to expect the US to continue to do 'the heavy lifting in the global economy'.

'It is just not reasonable to expect the US economy to continue to deliver 40 per cent of global economic growth as it did in the 1990s, compared with 20 per cent to 23 per cent in the 1980s. The rest of the world has to get their economic house in order to  take some of the pressure off the US economy. Everyone has, as their number one economic priority, exports to the US. The Japanese do, the EU does, China does, but bottom line is that, going forward, it is not  realistic to expect the US to continue to shoulder the burden.

'If the US really begins to stagger, it has enormous implications for the global economy. The Europeans and the Japanese need to get their domestic houses in order.'



Slow starter now a star performer