QIC Inside Investor Relations Volume 36: Foreign institutional investor series - Matthews Asia

Jack Lin 2022-02-23

Source: Matthews Asia

For any listed company and its IRO, knowing who the investors are, their investment strategies and styles are crucial for investors targeting or preparing for an effective investor meeting. In our previous volume we introduced some of the major foreign shareholders in Taiwan including Schroders, Franklin Templeton Investments, Allianz Global Investors and in this volume of Inside Investor Relations we will introduce another international investment company - Matthews Asia.

Founded in 1991 and headquartered in San Francisco, Matthews Asia is an independent, privately owned asset manager and the largest dedicated Asia investment specialist in the US, with approximately US$23.7 billion under management (as of 31 January 2022). The company was founded three decades ago on the conviction that Asia’s growth would outpace the rest of the world and would one day be the primary driver of the global the economy. Over the years, their specialized focus on Asia has enabled the company to develop deep insights into respective markets and companies in the region.

Mathews Asia offers a broad range of investment solutions addressing different asset allocation needs and growth opportunities in Asia and other emerging markets. Its investment strategies include Fixed Income, Growth and Income, Asia Growth, and Asia Small Company. Taiwan as a major market in the Asia region, has been invested among the funds circled in red. In particular, Taiwan is among the top 3 investment markets in Asia ex Japan Dividend Fund, Pacific Tiger Fund, and Asia Small Companies Fund. Matthews Asia are particularly interested in sectors including Information Technologies, Financials, Consumer Discretionary, Healthcare, and Industrials. The average weighted market cap for its Asia Small Companies Fund is US$5 billion, although majorities of invested companies have a market cap below US$3 billion. However, they will also look at companies with market in the US$ 1 billion or below range. Matthew Asia’s funds performance typically benchmark MSCI Asia Index, Asia Ex-Japan Index, Asia Ex-Japan Smaller Cap Index, China Index, China Smaller Cap Index. A typical holding period for Mathews Asia fund are over a 3-5 years period.

Investment Strategy

Mathews Asia is a strong believer in fundamental research and active management, hance they are a long-only fund. In order to capitalize on Asia’s opportunities, they believe it requires a long-term perspective, patience and confidence, grounded in relentless research. They like to drill down into lesser-known business, including assessing financial positions, resource allocation decisions, incentive structure, ownership history, governance practices to identify long-term opportunities that may not be visible to others. They believe this is the key to the outperformance of their portfolios vs. the benchmark. To achieve this, they are particularly keen in conducting in-person, on-the-ground research, including meetings with the CEOs and decision-makers, or visits to the production sites and warehouses. Their on-the-ground analysis would also extend to supply-chain partners, competitors, industry and economic experts, and even local government and central bank officials. Prior to Covid-19, they conducted 2,600 company meetings in 2019, including over 1,000 on-site visits in different locations in Asia.

ESG Investing at Matthews

As a responsible investor and engaged shareholder, ESG considerations are embedded throughout the investment process. At Matthews Asia, there’s a Corporate Governance and Stewardship Sub-Committee in charged with implementing Matthews Asia’s responsible investment activities, active ownership principles, stewardship, and ESG integration. Together with the Proxy Working Group, this group also oversees the proxy voting process.

When assessing corporate governance, Matthews Asia likes to look at how well a company articulates and execute its long-term vision, as well as how transparent the disclosures are. The investment team typically consider a company’s:

Track record for allocating capital

Board quality, diversity and composition

Alignment of incentives for controlling shareholders, minority shareholders and management

History of protecting minority stakeholder rights, especially in a crisis

Ability to attract and retain talent

Exposure to regulatory, market and other risks

Management of material environmental and social risk

Potential for successfully entering new areas of business by leveraging existing strengths

Poor corporate governance will likely exclude a company from consideration for its investment portfolios. The investment team at Matthews Asia will also consider third party ESG Scores as part of their assessment. A low third-party ESG score does not necessarily exclude a company from a portfolio’s investable universe, however, on a monthly basis, the Risk and ESG team would send an “ESG & Reputational Risk Report” to the investment team, which highlights the reputational risk index trend and third party ESG ratings.

Voting at Matthews Asia

When it comes to voting, Matthews Asia typically would vote according proxy advisors’ (i.e. ISS) recommendations. In 2018, Matthews Asia voted against benchmark ISS voting recommendations at less than 1% (5 of 908 votable meetings). In 2020, this increased to almost 6% (49 of 855 votable meetings). This increasing overrides signals greater scrutiny over the agenda items. The majority of the individual agenda item overrides done in 2020 was due to a differentiated view on each proposal. In some cases, Matthews Asia will also look into consideration the recommendations of specialized, domestic proxy advisors in each respective markets.

Matthews Asia’s holdings in Taiwan

According to our database, Matthews Asia owns 34 names in Taiwan, spanning from large cap to small cap. The top three holdings in Taiwan are TSMC (US$955mn), E Ink Holdings (U$205mn), and Chailease Holding Company (US$202mn).

Source: Matthews Asia and QIC Database

QIC advisors consist of experienced professionals that have worked in major sell-side and buy-side companies. Leveraging our knowledge in industries and relationships with investors, we assist companies and investors to achieve effective two-way communication to enhance shareholder value. QIC also supports our clients with our many years of experience in corporate access services. We plan, schedule and execute tailor-made roadshows and targeted investor events for high-quality corporate clients. If you are interested in learning more about Matthews Asia or our services, you are welcome to contact us.

Contact: yvonnehuang@qtumic.com

Jack Lin

Jack oversees the firm's Value Creation and ESG & Proxy Advisory businesses. In this role, Jack is responsible for expanding, innovating, and driving QIC's differentiated research, methodologies, services, and impact. In his advisory role, Jack has been influential in growing the firm's non-tech practice. He combines deep capital markets experiences with vast knowledge of the consumer, retail, and accessories sectors. He has been highly effective in unlocking shareholder value for clients through the articulation of concise corporate strategies to investors and analysts that are transparent and consistent over time. At QIC, Jack has led investor relations programs for many well-known consumer names and small-cap champions. Some of his notable works include crisis management that helped rebuild confidence in Taiwan's largest health supplement company, value creation for a leading Taiwan restaurant chain that resulted in the successful closing of its NT$800 million convertible bond offering, capital market narrative transition for the largest Taiwan building material company into a green & renewable play and helped to grow their ESG-based institutional investors, and successful navigation through several strategic acquisitions, leading to the delisting of Taiwan's largest electrical engineering company.