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Invitation to the Initial Launch Offering of the Hidden Champions Fund

Dear Valued Entrepreneurs Investing in Entrepreneurs

We achieved an important business milestone in April 2017 as 8 Capital Pte Ltd, a wholly-owned subsidiary of 8I Holdings (ASX: 8IH), has obtained approval from the Singapore regulator Monetary Authority of Singapore (MAS) to operate as a Registered Fund Management Companies (RFMC).

Having delivered a credible absolute gain of 21% since our inception in September 2015 from the permanent capital provided by 8IH to an AUM (Assets under Management) size of over S$26 million, we are excited in opening the Hidden Champions Fund to qualifying external investors.

Salient highlights of the Hidden Champions Fund:

Why Invest in Hidden Champions: The investment objective is to invest in early staged or tipping-point staged innovative Hidden Champions in Asia, usually overlooked with an underappreciated wide-moat and a long-term growth trajectory path. They are market leaders in hard-to-imitate products and valuable critical niches that are indispensable to the well-being of our everyday life. These Hidden Champions weather crises and recession to deliver outperformance often not linked to general economic conditions, thus offering de-correlated and resilient investment returns. Join us and participate in the journey of these outstanding and hardworking founders and owner-operators invested by our Fund – including Jeff Ellison of Australia’s Sealink Travel, Yoshiyuki Okamoto of Japan’s Okamoto Industries, Akio Nitori of “Japan’s IKEA” Nitori Holdings, the husband-wife team Makrand and Rinku Appalwar of India’s woven sack and technical textile specialist Emmbi Industries, the trio Guo Qiuli, Chen Jianlong and Lin Mengyi of Taiwan’s innovative fabless IC designer Nyquest Technology, and so on – who have and are likely to continue to outperform and deliver compounding returns over the long-term.

• High-Conviction Investment Strategy with Transparency: We adopt a high-conviction investment strategy of investing in 20 to 30 Hidden Champions. The Fund employs zero leverage in its investments;

Top 20 Shareholder in Under-Researched Quality Firms: We are a Top 20 Shareholder for 4 of these Hidden Champions. We aim to be a Top 20 Shareholder of the companies we invest in as a demonstration of our conviction and transparency in the investment process. We look to become a substantial shareholder with a 5% stake as they continue to deliver in their business fundamentals. We can be a Top 20 shareholder in some of these Hidden Champions who are at a tipping point stage for an upward re-rating in valuation because: (1) they are under-researched despite their quality and growth; (2) we are one of the earlier foreign institutional investors and our Hidden Champions are poised to enjoy greater quality institutional sponsorship as they continue to deliver on their fundamentals; (3) founding owner-operator and promoter group have a substantial equity stake to provide stability in the shareholder base, and we have a rigorous systematic investment process to eliminate entrenched controlling owners who treat the business as their personal ATM and abuse minority shareholders;

Resilient Structural Growth in Quality Earnings with Robust Returns on Equity: Our portfolio stock characteristics displayed excellent and improving fundamentals with many of our portfolio companies delivering record profits on the back of innovative products and services. Our portfolio weighted market capitalisation is US$636 million and weighted revenue grew by 18.2% over the past three years, generating increasing returns to scale with a 52.8% growth in operating profit with weighted return on equity (ROE) of 26.1% (Dec 16: 23.9%). This is due to the scalability of the business model forged by an indestructible intangible knowhow accumulated over the years to create new categories of growth for their targeted customers and compound growth with resilience in a difficult business environment;

Value-to-Quality (VQ) ratio of Hidden Champions Fund is 77% Superior than Market Comparable: When we compare the weighted profits of our portfolio companies in the Fund to 370 Asia Pacific companies with a similar operating profit range of US$40-70 million, our weighted portfolio return on assets (ROA) and return on equity (ROE) are around 60% and 45% better than the comparable Asian companies of comparable profit scale, yet the valuations in terms of EV/EBIT is around 18% cheaper. With the VQ ratio of our Hidden Champions Fund presently superior by 77% than the market comparable, we believe the Fund is significantly undervalued relative to its intrinsic value and the downside risks are limited to protect investors.

Guided by this, we will open the Fund to external clients in an initial subscription for a limited window period before soft closure. More details will be shared later. As an added disclosure, both senior management of 8IH and the entire Hidden Champions Fund investment team have invested our own personal capital into the Fund to commit our skin – and more importantly, our soul – in the Fund alongside our clients on the same terms and fees.

Outlook: We expect to outperform as the current market hype over the “flight to junk” carry trade that’s groping for yield subsides and the overall market retreats – our Fund tends to do better when the overall market is tepid and lacklustre.

Presentation of Hidden Champions Fund

We are organizing an Investor’s Presentation for our privileged clients, and would like to invite you to join us on the 9th June 2017 (Friday), 3:00pm @ Goldbell Towers, 47 Scotts Road, #05-01, Singapore 228233. We look forward to seeing you.

Warm regards,
KEE Koon Boon | Chief Investment Officer & CEO
Hidden Champions Fund
8 Capital Pte Ltd


Under MAS regulation for RFMC, the Hidden Champions Fund is currently only available to Accredited Investors*.

*An accredited investor is defined as either an individual whose net personal assets exceed SS2 million or whose income in the preceding 12 months is not less than S$300,000; or a corporation with net assets (based on its most recent audited balance sheet) exceeding SS10 million.

The Fund is also available to qualified offshore investors.


 


Click on the images to download our Fund Factsheet and Fund Presentation, or download via the hyperlink: Factsheet, Fund Presentation.
Below are the links to our latest and previous investment letters:
(1) [NEW!] Annual Letter FY2017 – Just Monozukuri It Like the Hidden Champions: Finding Investment Resilience in a Wild World;
(2) Interim Letter FY2017 – The Insurgent Mission of Hidden Champions: Willingness to be Misunderstood and Travel Light to Journey Far;
(3) Annual Letter FY2016 – Hidden Champions: Our North Star Investment Strategy to Navigate Turbulent & Fragile Markets;
(4) Interim Letter FY2016 – Investing with Conviction to Outperform in Times of Volatility and Uncertainty.


Our Team

From L to R of the Hidden Champions Fund team, with each holding a talking smart toy, possibly given a voice by Taiwan’s fabless IC designer Nyquest Technology (IR Slides, IR Video), the Hidden Champion portfolio company in our Fund commanding market leadership in the growing niche market for consumer ICs, voice-synthesizer ICs and MCUs (microcontrollers) for smart toys and appliances riding the structural rising tide of demand in IoT (Internet-of-Things):

Investment Managers Joshua Zhang Yaolin and Richard Sim Zhipeng, CIO KB Kee, Business Development Analyst Tho Jinliang, and Investment Analyst Joyce Pang.


Our Story

With over a decade-plus in the Asian capital markets, Koon Boon, our Chief Investment Officer, has witnessed many investors, including family and friends, be taken in by the popular mantra: “Ride the Asian Growth Story!” stories and invest their hard-earned money, only to find themselves subject to emotional upheavals when these stocks turn out to be inherently sick and prey to economic vicissitudes. They may seem to grow faster initially, but the sustainability of their returns is far too uncertain to be the subject of a wise investment. Worse still, some turned out to be involved in accounting frauds, where financial numbers were “propped up” artificially to lure in more funds from investors, and the previous assessed asset value had already been “tunnelled out” or expropriated. This issue is compounded as western-based fraud detection tools and techniques have not been adapted to the Asian context to avoid these traps. It is disheartening to witness many fraud perpetrators go away scot-free and live a life of super luxury, on these unsuspecting minority investors’ hard-earned money.

Hidden Champions Fund was set up with a simple philosophy: Invest in hardworking Asian entrepreneurs and capital allocators who are serious in building a wide-moat business, and avoid these dubious companies. We have always been fascinated by why and how even under the most austere of conditions and environment, wide-moat business models remain resilient and continue to compound value. Some of these companies are dominant global players that focuses on sophisticated, hard-to-imitate niche products and valuable critical niches, but are largely invisible to the average consumer. Investing at an earlier stage or the tipping point in the long-term growth trajectory path of Hidden Champions has been proven rewarding. We aim to grow with these Hidden Champions by investing in these owner-operators, and grow our clients’ wealth together while making a difference in the world.


The Fund logo symbolizes that Hidden Champions are rooted by a greater Purpose, Inner Compass and values system to navigate the inevitable adversities and difficult times to serve their targeted customers and solve their most burning problems better than any competitors to generate growth resiliently; like a lotus growing up with determination, rising from the murky water, removing obstacles and remaining unstained and pure, with the lovely blooms of the lotus typifying a chaste and noble heart, opening to the light of value creation in the Asian capital jungles.

And the more muddy and opaque the water, the more beautiful the Lotus flower when it emerges; the tougher the economic environment, the more it never gives up, never quitting when things seem difficult, the more resilient it will grow to create and compound value.

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About bambooinnovator
KB Kee is the Managing Editor of the Moat Report Asia (www.moatreport.com), a research service focused exclusively on highlighting undervalued wide-moat businesses in Asia; subscribers from North America, Europe, the Oceania and Asia include professional value investors with over $20 billion in asset under management in equities, some of the world’s biggest secretive global hedge fund giants, and savvy private individual investors who are lifelong learners in the art of value investing. KB has been rooted in the principles of value investing for over a decade as an analyst in Asian capital markets. He was head of research and fund manager at a Singapore-based value investment firm. As a member of the investment committee, he helped the firm’s Asia-focused equity funds significantly outperform the benchmark index. He was previously the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. KB has trained CEOs, entrepreneurs, CFOs, management executives in business strategy, value investing, macroeconomic and industry trends, and detecting accounting frauds in Singapore, HK and China. KB was a faculty (accounting) at SMU teaching accounting courses. KB is currently the Chief Investment Officer at an ASX-listed investment holdings company since September 2015, helping to manage the listed Asian equities investments in the Hidden Champions Fund. Disclaimer: This article is for discussion purposes only and does not constitute an offer, recommendation or solicitation to buy or sell any investments, securities, futures or options. All articles in the website reflect the personal opinions of the writer.

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