A barbell strategy for China-India, where bottom up & uniquely entrepreneurial approach is utilized for private deals or very small stocks while a macro driven top down or unique quantitative approach is taken for the large caps or market at large.

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A unique "Book Smart" plus "Street Smart" approach makes our investment strategies unique. Our investment strategies both in the private and listed markets are plays on the emergence of China and India cross border flows with American linkages. The broad themes of our strategies are as follows:

"Private to Public", the future wealth engines

The BRIC together with other econometric studies projects that by 2030, China and India will have over 30% of world equity market capitalization. According to Professor Jeremy Siegel, one of the most respected stock market historians and finance professor from The Wharton School, bulk of this increase in market capitalization in China and India will come from private companies going public, and not from existing listed companies significantly increasing their market values. Silver Spring Capital concurs with this view and believes that over the next decade, amazing amount of wealth will be created in China and India from this "private to public" strategy.

Asymmetric developments and factor arbitrage

The IMF's Ginni Coefficient shows that despite the rapid growth, China and India are seeing a highly skewed income distribution, not just in demographics but also in geographic developments. The long term transition of both the economies to full free market economies will create in the interim, asymmetric pockets of the "relatively resource rich" verses the "relatively resource starved" businesses based on scale and influence. These will provide growth capital in the private markets in China and India with high degrees of information, capital and resource asymmetries. Access to street smart entrepreuners, harnessing information asymmetry, regulatory and liquidity arbitrage will dictate the alpha more than the conventional corporate finance approach to asset allocation.

Chindia the defining economic relationship of the century

With trades between China and India growing at four times the GDP growth, what China and India do with each other, might become more important for growth seekers than what they do individually. Large part of infrastructure growth in India specially in the power sector will be made in China with also provisions of RMB backed financing. Such exim credit backed investment opportunities supported by the respective governments will provide private investments which will on a risk adjusted basis appear like "high yielding sovereign".

Correlations at the top, and quantitative overlays

The typical Asian hedge fund has been a levered beta play masquerading as an absolute return hedge fund. Excluding the private markets or very small micro cap stocks, the two markets will largely remain macro directional trades with high correlations among the larger capitalized assets. Stock picking or bottom up asset selection will give value mostly in private markets or very small cap stocks. For most larger assets, top down macro overlay strategies or unique quantitative strategies will drive the performance.