Komodo Hedge fund bets on Indonesia building, cement companies

Komodo Hedge fund bets on Indonesia building, cement companies
Published: 03 June 2008


HB Capital Partners, manager of the first Indonesia-focused hedge fund, is betting on the nation’s construction and cement industries as provinces outside the main island of Java lead growth, co-founder James Bryson said.

Companies including PT Duta Graha Indah, a Jakarta-based construction company, are expanding outside Java to tap markets that have benefited from rising prices of coal, palm oil and other commodities, fueling demand for construction projects.

``In East Kalimantan, which is the center of the coal universe, and South Sumatra, for palm oil, there’s much higher economic growth, much higher earnings growth,’’ Bryson said in an interview in Singapore. ``For us, it’s quite interesting to find opportunities exposed to those areas of growth.’’

The Komodo Fund, managed from Jakarta, is investing as the government plans to spend IDR100trn (US$10.7bn) this year to build roads, power plants and other utilities. President Susilo Bambang Yudhoyono’s government is seeking to improve the country’s infrastructure to take advantage of the boom in commodities.

Property, construction and cement companies account for more than a quarter of the hedge fund’s investments. Bryson, who co- manages the fund with Roland Haas, declined to disclose the size of the firm’s investments.

"Outside of Java, growth is much faster," said Raymond Gin, director of investment at Jakarta-based PT Manulife Asset Management, which oversees about US$1.2bn. "That’s having a spillover effect," boosting consumption.

Companies including PT Indocement Tunggal Prakarsa, Indonesia’s second-biggest cement maker by sales, and PT Holcim Indonesia, the third largest, both based in Jakarta, are poised to boost sales outside Java, Gin said.

The Komodo Fund rose about 43 per cent in 2007, according to its newsletter, trailing the 49 per cent gain in Indonesia’s benchmark stock index in dollar terms. The fund lost almost 9.5 per cent in April, its biggest monthly decline, exceeding the 6.1 per cent drop in the Jakarta Composite Index, as inflation reached a 19-month high.

The fund, set up in November 2006, could outperform the index in the longer term as it holds so-called special situations investments including companies going through corporate events which "may act as a catalyst" and boost returns, Bryson said. Being based in Indonesia enables the manager to invest in companies that are "outside other people’s radar screens".

"`By virtue of being on the ground, we go and kick a lot of tires and see if we can find opportunities that perhaps other people haven’t noticed," Bryson said. "Our portfolio looks very different from a typical country portfolio."

Bank Indonesia lifted its key rate by a quarter of a percentage point from eight per cent on May 6, the first increase since December 2005 as inflation accelerates.

"Earnings will be impacted for companies but I don’t think you’re going to see a disaster," Bryson said. `"The difference this time round is that you have rising commodity prices, whether it’s coal, nickel, tin, coffee, which are acting as a counterbalance in terms of the spending power of the consumers.’"