Peter Kennan on Deep Value Investing and Activism in Asia

We are delighted to bring you this conversation from the MOI Global archives.

We had the pleasure of sitting down with Peter Kennan, managing partner of Black Crane Capital, in Hong Kong in 2014 for a discussion of Graham-style value investing approaches and shareholder activism in Asian equity markets.

The following transcript has been edited for space and clarity.

MOI Gobal: Your approach relies on corporate actions and a deep value focus in Asia, so I’m keen to learn how you find the best opportunities. Before we do that, tell us a bit about your background.

Peter Kennan: My background is as a chemical engineer. Originally, it was British Petroleum in Australia. I was born and educated in Australia and then moved to investment banking work in 1994 with a firm that became part of the UBS group through the acquisition of SG Warburg. I spent ten years in investment banking in Sydney with UBS, then moved to Hong Kong in 2004 and spent five years with UBS in Asia, Hong Kong in particular, which was really the start of me discovering how immature the corporate finance markets are in Asia. In 2004, it was very much the start of what’s going to be a multi-decade process of growth and corporate renovations. I left UBS in 2008. I’ve always wanted to move to the buy side, be involved in investing and also do something of an entrepreneurial nature and be involved either in my own business or in a business with a small number of partners.

Black Crane Capital was formed with a view to investing money in Asia, leveraging my background as an investment banker and corporate financier, but also investing in a way that I thought made sense for Asia, so taking advantage of this corporate finance renovation pipeline that I could see coming through, take advantage of the network and the understanding I had built of corporates and family groups in Asia, and how they behave. Also, thirdly, take advantage of a real arbitrage here, which is that most investors are looking at very different things to us. They are looking at highly liquid, large-cap stocks that are well-researched. The number of those stocks is relatively limited. There is a massive mid-cap opportunity in Asia. Mid-cap starts around $3-4 billion because the liquidity requirements of a lot of other investors are so high that we can get involved in things that they might term illiquid, but actually there’s still plenty of liquidity (it turns over $10 million a day, for instance). That’s what our strategy is all about, taking advantage of the structural growth in Asia in M&A and taking advantage of the fact that there aren’t many other people doing it.

MOI: Help us understand how Asia is different from the US and Europe. What are some of the things one needs to appreciate to be successful here?

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