Sean Huang and Adam Schwartz are the lead and co-portfolio manager of the FM First China Fund. The fund is a partnership between First Manhattan and First Beijing that takes a value-oriented, fundamental research approach to investing in local businesses in China. First Manhattan is a venerable value investment partnership founded by Sandy Gottesman in 1964 that, as of March 31, 2020, manages over $13 billion in assets. The firm supported Sean as co-founder of First Beijing in 2009. Today, First Beijing manages a tad under a billion dollars and has compounded capital at an impressive 11.7% annualized return for clients through the end of 2019, generating over twice the return of the MSCI China Index through all kinds of market conditions over the decade.
I had a chance to sit down with Sean and Adam and hear their story. We discussed their respective backgrounds, the genesis of First Beijing, development of the research team, and application of U.S. value investing in China. We then turned to the investment process, covering sourcing of ideas, assessing management teams, verifying financial statements, conducting due diligence, making decisions, managing the portfolio, and improving the process over time. We closed with examples of inefficiencies in real estate developers, SOEs, and B share listings.