Reporter: Dae Jong Lee
Date: Jun. 17, 2013
[Translation]
"V&S Investment Management boasts of cumulative return of 160% even after the financial crisis
92% of clients renew contracts over the past five years ...Focusing on value stocks and event-driven strategy"
V&S Investment Manager is not widely known to the public but a leading outperformer in the market. Going through the financial crisis in 2008, it boasts of a few accounts whose cumulative investment return is 100% or more. Its name, “V&S” means “Value” and “Special Situations,” which clearly attests to the company’s investment style focusing on value stocks and event-driven strategies.
(Ideal mixture of value investment and event-driven strategy to outperform the Kospi by 140% over the past seven years)
V&S Investment Management launched its first fund, "V&S No. 1," in October 2007. As of June 7, its rates of one-year, two-year and three-year return on investment stand at 34.7%, 41.2%, and 74.5%, respectively. Its overall rate of return has reached 132.8% since it was launched. The investment manager has six more profit-making accounts like this. All of them are showing strong performance for almost seven years, posting the maximum 200% in the overall return or outperforming the Kospi index by 200%.
All of these accounts went through the financial crisis but their rate of return averages over 168% and they all outperform the Kospi index by 140%. On the back of its impressive performance V&S Investment Management became famous among institutional investors who are now willing to trust their money to the investment manager. Now it has a fund worth KRW 290 billion under its management, out of which KRW 200 billion came from institutions.
A company has to get through three stages to be included in V&S Investment Management's portfolio. First, the company’s special event is identified by the investment manager or it is selected through the invest manager's screening model. Second, it is evaluated by the investment manager’s unique valuation tools. Third, it is visited by the investment manager’s analyst(s) or a qualitative research is conducted on its competitors and suppliers. After these three rigorous stages, the investment manager decides whether to include the company in its portfolio or not.
The most salient example of V&S Investment Management's event-driven investment strategy should be Hyundai Engineering & Construction (HEC). It was counted as one of Korea’s best construction companies but remained undervalued simply because there was no “real owner.” The investment manager did not miss the opportunity and invested on the construction company from the second quarter of 2010 to the first quarter of 2011. The event-driven strategy finally paid off and it posted a 50% return in its investment on HEC.
Like other investment managers, it relies on value investing and identifies undervalued companies based on PER or PBR. In the second stage of the above-mentioned screening process, the company uses the valuation tools based on discounted cash flow analysis.
Discounted cash flow analysis is a method of valuing a company’s future earnings for next five or ten years by discounting all of its future cash flows to give their present values. It is widely used in investment finance as one of the conservative investment methods to generate a steady stream of return. Mostly it is used to assess a company’s capability to maintain its market status and profitability based on its cash flows of the past ten years.
Second, discounted cash flow analysis can be adopted as a sensitivity analysis to examine a company’s future sales growth and operating profit margin in different scenarios. In this way it can give the company’s minimal value. Co-CEO Chaewon Ri said: “Predicting future is like playing God. We pretend to believe that our target company is going to achieve no growth in the future and then focus only on its current value. That is our investment principle.”
He predicted that value stocks would lead the market for next two years. As the domestic economy slides into a low-growth phase, the market is not counting on growth stocks any more. On the contrary, value stocks remained weak in the US stock market and the global market for the past five years but they began to rally from mid-2012 and many believe that they will remain strong for a while.
(Focusing on steady returns – 92% of clients renewing their contract for five years)
V&S Investment Management has two co-CEOs Namho Lee and Chaewon Ri. The two studied together at the Department of Business Administration in Seoul National University. Co-CEO Namho Lee received the MBA from University of Pennsylvania and co-CEO Chaewon Ri from University of Chicago. They worked for big names such as Citibank and JP Morgan and set up the investment manager in 2006.
V&S Investment Management’s investment products require the minimum entry of KRW 200 million with the annual target return of 15%. The subscriber can terminate the contract one year after the conclusion of the contract. The annual basic remuneration is 1.3% of the total amount under management and the performance-based remuneration is set at 15% of each 10% yield of the year.
The investment manager currently has over 80 items in its investment portfolio. Given that an investment advisor usually has about ten companies under management, its portfolio size is much larger than that of ordinary investment managers. Co-CEO Ri said that it was necessary to cope with uncertainties, adding: “We lagged a little behind other investment managers when stocks of automobile, chemistry and refinery industries drove the price increase in 2010. But most of our investments are outperforming the market these days and helping us to outperform the market.”
V&S Investment Management has eight institutions including pension funds and insurance companies as business clients and manages the wrap accounts of major securities companies such as Samsung Securities, Daewoo Securities and Mirae Asset Securities. On the back of its brisk performance, 92% of its clients have renewed their contracts with the investment manager over the past five years.
Home > Investor Relations > 보도자료
