It is much easier to understand small caps, if you do a bit of research on a small cap, quite quickly you can know just as much as anyone else about that company. A large-cap such as BP will have 25 broker reports on it, but a small company might have just two or three. The disadvantages are that small caps tend to be more volatile and you have to sometimes take a shorter-term view.
It was a big risk starting all over again in China. After such a successful career didn't you worry you were tempting fate?
It's not the way I look at life ? lots of people said: "You're risking your reputation." I didn't want to retire and think: "Why didn't I do it?" I think this will be the most exciting time in my career.
If I hadn't been optimistic I wouldn't have done it. It's nearly a year in and I still feel as strongly now as when I launched the fund. We are living in a two-speed world; the developed world is not growing at the same rate as the emerging markets.
I first came to China in 2003, when I gave up my Europe fund to concentrate on Special Situations. I had given up a lot in terms of responsibility and I was looking for something new.
I knew Hong Kong was an interesting place, but I didn't quite understand until I came here ? it's like living on the line where two tectonic plates meet ? the slow old culture and the new fast-paced world.
Does this mean you have given up on the West?
The West is in for a few years of anaemic growth and I think we just have to ride it out. To quote a fund manager I admire, Jeremy Grantham, who quoted the Bible in his blog ? we had seven fat years and now we're having seven lean ones. I don't think it will be as long as seven years of slow growth, but I'd say the UK was two years into a five-year cycle.
I originally started to look at China to understand its influence to help my UK stock picking. To call China an emerging market is wrong ? it has emerged in my view. We are witnessing the birth of a super power, China will be the most dominant market in Asia for some time, and even the world one day.
Did you worry about your lack of experience in investing in China?
When I started investing in Europe in the Seventies and Eighties, companies were much less efficient. Over time the research and analysis available on these companies improved, and I see a lot of similarities with China in that.
Investing in China, you're not competing as much with other investors for companies, the quality of the broker research is not as comprehensive, so there is a greater chance of finding a great, undervalued company.
The basics of investing are the same ? 80pc is transferable, 20pc is different.
My philosophy and style is still there but I have got a group of stocks that have tighter valuations that I typically would hold ? they are quite GARPy [growth at a reasonable price].
I've been using my experiences ? looking for similar companies to those I have invested in the past, but at an earlier stage in development. I am not the Chinese expert ? but I wasn't green when I launched this fund. I have been coming to Hong Kong for many years.
What are your concerns about China?
In the short term? Credit in China grew pretty fast last year, there was a target of Yuan7.5trn, and business borrowing over shot to Yuan 7.9trn. There are positives to credit ? it buoys growth but has inflationary effects and creates bad debt, but things happen slower than people say they do ? as long as you keep an eye on the situation you can react.
The Chinese government has to be careful about inflation ? food inflation has created political unrest in the past, but they are able to control prices centrally. Longer term, China needs to be careful about its relationship with the United States. It is bad for the world if that is jeopardised.
The government has more control out here, but the bigger challenge is corporate governance and working out who I can trust. I go into all dealings with my eyes open.
Is this your last hurrah?
At the time, I said I would do this for two years, but I have just extended that to three. I am not going to do this forever, but I am enjoying it. I have been totally upfront and open ? I have not said I was going to be here for years and years. Some people said at the launch you're not committing for long enough, investors will not want to make a commitment if you don't, but it doesn't seem to have put investors off.
When I leave, I will choose someone from this team ? who are great ? with a similar style. I don't like it when managers disappear overnight ? I don't think that is fair to investors.
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