In this episode of China Money Network, Dalton Investments' Shanghai-based portfolio manager, Tony Hsu, explains how to execute the playbook of Warren Buffett in China, the reasons why Dalton's Asian equity strategy has consistently beat the market and his outlook for the markets in 2013.

Listen to the full interview in the audio podcast, watch an abbreviated video version, or read an excerpt below.

Q: First, give us a brief introduction of Dalton Investments and Dalton's Asian equity strategy?

A: Dalton Investments was founded on the opportunities that arose from the Asia Financial Crisis in the late 1990s. Dalton is a value-oriented investment management firm with a focus on capital preservation and long-term growth. Today, we manage about $2 billion in separate accounts in hedge fund strategies for a number of pension funds, endowments, foundations and family offices.

Our main strategies include global equities, Asian equities, distressed debt and distressed mortgages. About 50% of our total assets are in Asian equities. We run a Dalton Asia Hedged Strategy, which was launched in the beginning of 2008. Since the inception, the Dalton Asia Hedged Strategy is up nearly 50% while the MSCI Asia Index is down nearly 20%. As of the end of this February, the strategy is up over 6% while the MSCI Asia Index is up 4%.

Q: Your Asian strategy uses long-short tactics. What kinds of stocks do you normally short?

A: From the long side, we want to invest in entrepreneur-led undervalued companies. On the short side, it is exactly the opposite. Our short book is mostly filled with state-owned enterprises (SOEs) where senior executives tend to be former politicians or state appointees.

One of our current short positions is a state-owned oil and gas exploration company in Thailand. The company was pressured by the government to expand aggressively overseas and has made a series of over-priced acquisitions in Canada and Africa. Since 2010, their intangible assets have grown 20 times. We believe if the goodwill gets written down – and we think it will – it will hurt the share price.

Q: Within the Asian equities market universe, how attractive do you find the H-share market right now?

A: We generally invest in the H-share market and do not invest in the A-share market. There are far more entrepreneur-led companies listed in Hong Kong that are focused on increasing shareholder value, while the Shanghai (Stock Exchange) is filled with SOEs. Currently, we are running about a 30% net long exposure in China through Hong Kong listed stocks.

Q: Among your China-themed investments, do you favor any particularly industry?

A: We don't. We do, however, favor those family holding companies that are trading at a large discount to Net Asset Value (NAV).

Family-led and entrepreneur-led companies in Hong Kong tend to have a pyramid structure. The holding companies at the top own controlling stakes in the groups of operating companies below. The families or entrepreneurs have a lot of their personal wealth tied to the holding company. We want to be as close as possible to the top of the pyramid.

Also, many operating companies trade at a discount to their intrinsic value. So, if you are buying the holding company at a discount, and each of the subsidiaries trade at a discount, you are getting a discount upon discount by investing at the top of the pyramid.

Q: What are some other valuation metrics you look at?

A: We look at many other metrics such as price-to-book and EV (enterprise value)-to-EBITDA (earnings before interest, taxes, depreciation and amortization) on a regular basis.

Q: Surely, your due diligence process goes beyond the computer screen?

A: Absolutely.

In this episode of China Money Network, founder and CEO of Palico, Antoine Dréan, shares what he sees the fundraising environment will be for China-focused private equity funds this year, and why secondary transactions of Chinese private equity fund stakes among Limited Partners (LPs) will likely double in 2013.

Listen to the full interview in the audio podcast, or read an interview excerpt below.

Q: First, give us a brief introduction of Palico and Triago, two companies you founded and currently hold positions in?

A: I started Triago over twenty years ago. The objective back then was to help private equity fund managers in Europe to raise money from limited partners (LPs) in the U.S. Triago, (as a placement agent), has grown to be one of the market leaders in both fundraising and secondary transfers (meaning we help LPs sell their stakes in private equity funds to other LPs). I am still chairman of Triago, but am no longer involved in the daily operations.

I am now very involved in the daily operations of Palico, which is an online "dating service" for private equity GPs (general partners), LPs and service providers such as placement agents or lawyers. We will soon reach 1,000 members from 60 different countries with many blue-chip LPs and GPs.

Q: What has Palico achieved in attracting China-focused private equity GPs and LPs?

A: Actually, fund managers and investors based in China account for about 14% of our membership base. That is a much higher percentage point compared to their weighting in total fund number and asset-under-management globally. We estimate China represents about 6% of the $3 trillion asset-under-management out there globally.

Q: In 2012, the volume of China-focused private equity fundraising has dropped by 50%, mostly due to the decline of RMB fundraising, but USD fundraising also suffered. How have LPs changed their mindset about allocating to Chinese private equity funds?

A: According to Palico's own database, fundraising (both RMB and USD fundraising) in China has dropped about one third last year from 2011's all-time high. So the severity of the decline depends on which source you look at. Though a one-third drop is still high, at about $11 billion in total funds raised, 2012 still represents the third best year ever for China fundraising, following 2011 and 2008.

Considering growing interests among our LP members and what will be available for global fundraising as private equity "dry powder" (see explanation below) expires, we expect at least the same amount (of last year's fundraising total) will be raised for China funds this year.

We estimate there is $100 billion of "dry powder" in Chinese funds, meaning money that GPs haven't invested and that they can still draw down from their investors. This is one eighth of the global private equity "dry powder" of $800 billion. We feel China should take a greater share of global fundraising in coming years as the Chinese economy recovers. Those well structured USD and RMB denominated China funds with good track records will continue to raise funds with ease in 2013.........

In this episode of China Money Network, chairman of global markets, China at J.P. Morgan, Jing Ulrich shares her thoughts on where China's economic recovery is headed next, what policies the government is likely to take to contain potential property sector overheating, and if Chinese state-owned enterprises will contribute more to help build up China's social welfare systems.

She made the comments during a press briefing held by the Foreign Correspondents' Club Of China (FCCC) in Beijing on Monday, Feburary 25, 2013. Listen to the full interview in the audio podcast, or read a summary below.

On China's economic recovery and its key drivers:

We've certainly had a rebound since late November (last year). The recovery has been underway for a good three months now. It's important to keep in mind why we've had this recovery. I think the key reason is a significant increase in liquidity. There has been so much money pumped into the economy during the past several months. In January, aggregate social financing went to an all-time high of 2.54 trillion RMB. Total bank lending also surged to over 1 trillion RMB, meaning bank lending has become less important to the overall liquidity picture in China. But now three months into the recovery, we already have some concerns about overheating.

On potential overheating of the Chinese property sector:

It's becoming more apparent that the property market is running into potential overheating territory (as indicated by price increases, transaction volumes and aggressive expansions by property developers). Sometime over the next few months, we could have some government measures to restrict the increase of property prices.

One, restriction policies on home purchases will be more strictly implemented. Those measures were never removed, but the implementation became a bit more relaxed since mid-2012. Secondly, other cities (currently with no purchase restrictions) could be subject to the same tightening rules if their property prices are seen as rising too fast. Then, on the financing side, especially for second or third mortgages, the cost and availability of financing will also become more hostile to home buyers. Lastly, recurring property tax will be rolled out to a larger number of cities from just Shanghai or Chongqing today.

On how China's infrastructure investment will evolve in the future:

In the last ten to fifteen years, China's infrastructure investment was focused on supporting its export-manufacturing sector. In the next ten years, infrastructure investment will shift to support Chinese people's livelihood, such as urban subways, light rail and environmental improvement. The amount of money the government will spend on these will be still humongous.

On if China's state-owned enterprises will pay more dividend to support China's social welfare build-up:

There is an unspoken rule that state-owned companies listed on the domestic A-share market should pay 30% or 40% of their profits in the form of dividends. The listed companies pay dividends to their parent company. The parent company is owned by the State-owned Assets Supervision and Administration Commission (SASAC), which is under the State Council.

Take China Mobile for an example. China Mobile Hong Kong (CMHK) pays dividend to its parent company, China Mobile Holdings. Other shareholders also get the same dividend. China Mobile Holdings pays the money to SASAC. SASAC reallocates those dividends from companies that are successful to companies that perhaps need cash. Some cyclical industries, such as aluminum smelting or shipping, are loss-making right now. So there is some reallocation of resources among the SOEs. But I think it's a fare assumption that China will expect the large SOEs to contribute more to the broad social welfare agenda. But for now,

In this episode of China Money Network, S&P analyst Bei Fu discusses the outlook for China's property sector, potential policy moves and property sales predictions. She made the following comments during a teleconference call held by Standard & Poors.

Listen to the full interview in the audio podcast, or read an summary below.

Will China's property market return to the path of recovery this year?

S&P released a report today to upgrade the outlook for the Chinese property sector from negative to stable. This is in consideration of the following three phenomena that we have observed from the thirty or so large listed Chinese property firms that we cover.

Number one, property sales have been robust since the second quarter of last year. In January 2013 in particular, we have seen those firms posting very strong sales. Two, the funding channels for Chinese property developers have been favorable, and funding costs appear to be lowering. Lastly, many companies have shown discipline in terms of expansion and financial management.

Our upgrade today meant that in 2013, S&P won't have as many negative rating actions as we did last year. We will even possibly have some rating upgrades this year. Of course, these are the large listed developers that we cover. For small-and-medium sized developers, their situations might not be so smooth.

Outlook for property sales and policy

In 2012, the roughly thirty developers that we rate have posted strong sales. Most companies exceeded their annual target, and on average, sales were 12% over target. Compared to 2011 levels, on the whole, sales were up 23%. Some companies even realized growth of 50%

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Overall, we see the Chinese property sector under less pressure and staying steady this year.

Our Guest Today:

Bei Fu is a Hong Kong-based analyst at American rating firm, Standard & Poors. She is responsible for the analysis and rating of the Chinese property sector and its developers.

In this special Chinese New Year's edition of China Money Network, we look at the fortunes of the Chinese stock …

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In this episode of China Money Network, guest Paul Gillis, professor of accounting at the Guanghua School of Management at Peking University in Beijing, discusses Caterpillar's $580 million write-down in its acquisition of Zhengzhou Siwei. Prof. Gillis explains the three most common accounting tactics Chinese companies use to cheat and defraud foreign investors, and what can foreign investors do to prevent themselves from being duped.

Listen to the full interview in the audio podcast, or read an excerpt.

Q: Caterpillar is taking a $580 million write-down on its acquisition of Chinese mining company, Zhengzhou Siwei, after discovering a "deliberate, multi-year, coordinated accounting misconduct."

Key background: 1, What Caterpillar bought for roughly $700 million was Hong Kong-listed ERA Mining Machinery, which is a shell company that owns Zhengzhou Siwei, a Henan province-based mining equipment maker. 2, Zhengzhou Siwei was absorbed by ERA through a reverse merger in 2010 and never went through a formal IPO process.

So Paul, can you use your imagination, and picture what you think happened when Caterpillar's CFO told the CEO about this massive loss in their C-suit?

A: I imagine that was a pretty awkward situation. It's very embarrassing for anyone at Caterpillar to be involved in a deal like this. I'm sure there is a search for the guilty parties on the way.

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About Paul Gillis:

Paul GillisPaul Gillis is professor of accounting at the Guanghua School of Management, Peking University in Beijing, China. Gillis is a member of the Public Company Accounting Oversight Board (PCAOB)'s Standing Advisory Group. PCAOB is a nonprofit corporation established by the U.S. Congress to oversee the audits of public companies. Gillis also authors China Accounting Blog.

Visit http://www.chinamoneynetwork.com for more great interviews!

In this episode of China Money Network, guest Chenggang Jerry Wu, principal investment officer of IFC's (International Finance Corporation) climate change fund, discusses IFC's commitment to Chinese private equity funds in the climate change sector, the new opportunities arising from China's pollution treatment efforts, and what he looks for in a first-time fund manager.

Listen to the full interview in the audio podcast, watch an abbreviated video version, or read an excerpt.

Q: Can you first give us a brief introduction of IFC's climate change fund and your role in managing the fund?

A: IFC is the largest multilateral organization focused on emerging markets' private sectors. We invest more than $10 billion a year into private sectors across emerging markets. We started investing in private equity funds in 2000, and have invested in more than 130 funds in emerging markets. I believe IFC invested in roughly 10% of all the private equity funds ever existed in emerging markets. We currently have an active portfolio of more than $2 billion.

Clean tech and energy efficiency is one of our focuses in our private equity investments. IFC started investing in these areas in 2007. Up until now, we have invested in 17 funds in total, and on average we invest in three to four funds per year. The main focus includes traditional clean tech, renewable energy (both upstream manufacturing and downstream power generation), and all sorts of resource efficiency and environmental services (such as recycling, water efficiency, sustainable agriculture and sustainable forestry).

IFC has a subsidiary called IFC Asset Management Co., which is a fund manager that leverages IFC's own expertise and resources with the capacity to raise funds from third party investors. IFC Asset Management Co. set up a Fund of Funds (officially called the Climate Catalyst Fund), which just had its first closing of $500 million, to invest in climate change funds. IFC put $75 million into it, and it will do further fundraising in the future.

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visit http://www.chinamoneynetwork.com for more great content.

In this episode of China Money Network, guest Sam Gupta, CEO of Grand Trunk Capital, explains why he is bullish on the Indian economy and markets, why Indian banks will consolidate in the next two years, and the reason why he prefers to work with the management team.

Listen to the full interview in the audio podcast, watch an abbreviated video version, or read an excerpt.

Q: First give us a brief introduction of Grand Trunk Capital?

A: Grand Trunk Capital is a private investment partnership, (managing money) for institutions and family offices. We focus on special investments in India. Previously I managed a fairly large fund in partnership with Soros Management called QIF Management. QIF Management was at points in time the largest overseas investment fund in India.

The strategy (of Grand Trunk Capital) is to focus on five or ten best investment ideas across sectors and geographies within the Indian markets. We are not a trading fund. We tend to take longer term and focused positions in Indian companies where we think there is sufficient mispricing and where we see sufficient upside down the road. Our strategy is very search based, value driven and focused on catalysts.

Q: Can you talk about the performance of the (Grand Trunk Capital) fund?

A: The fund was up 42% in 2012. We had a very bullish view on the banking system in India, and started buying some Indian banks towards the middle of the summer. That worked really well for us. We also took opportunities in the media space because of the catalyst of regulatory changes. One of our largest investments, (United Spirits), was bought out by Diageo, the world's largest liquor maker, at a significant premium. That's an investment we got into in early 2012.

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In this episode of China Money Network, guest Prof. Chen Zhiwu, professor of finance at Yale University, discusses why he is an overall pessimist when it comes to China's long-term economic prospects, why he is worried about the economic spillover from China and Japan's dispute over Diaoyu Island for 2013, and why he thinks inflation will run rampant in China for the next ten years.

Listen to the full interview in the audio podcast, watch an abbreviated video version, or read an excerpt.

Q: Economists are generally optimistic about China's growth this year — you included. What are some potential roadblocks that could surprise us all on the down side?

A: I think whatever domestic economic challenges there may be in 2013, the Chinese government will be able to use policy tools, or if necessary, accelerate infrastructure spending, to fight them off on a temporary basis. But whatever they do for the short-term benefit can create structural problems that will be difficult to overcome down the road.

For 2013, the geopolitical risk may surprise people, especially given the noise from Japan and China over the disputed islands. Such hot button geopolitical factors tend to be underestimated by financial market participants. So I'm personally concerned for its impact on the economy.

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In this episode of China Money Network, listen to Kevin Carter, co-founder and CEO of California-based Baochuan Capital Management, and Kenny Li, CEO of Shanghai-based KKM Capital discuss the pros and cons of international hedge funds investing in China's A-share market through the QFII program; and how international hedge funds can raise money from China's wealthy individuals and giant institutional investors.

The comments are made at a joint event held by the Hedge Fund Association and Bloomberg on Jan 5, 2013, in Shanghai.

Listen to the full interview in the audio podcast, subscribe to our podcast in iTunes, or read an excerpt.

Kevin Carter on investing in Chinese equities outside of the QFII program:

I spend a lot of time with some of the largest QFII holders in the world, most of which are long-term US institutional investors. Whether they are actively trading or not, they are not moving in or out of the QFII system. The Bill and Melinda Gates Foundation said to me that they can take the money out, but if they try to, they are worried about the political ramifications.

If you look at the market capitalization of all Chinese equities, you can probably divide it as 60% A-share and 40% Hong Kong and New York-listed. So you can invest in almost half of the Chinese stock market without getting QFII quota, (which is what we do). Some U.S. investors don't understand this.

I spoke with a number of U.S. university endowments that wanted to have QFII (quotas). I asked them if they have invested in any Chinese stocks in Hong Kong or New York. They said: No. When asked why, they replied with a blank face: We are not sure. A-share sounded more "Chinese." I pointed out to them that big Chinese names like China Mobile and Tencent are not available in the A-share market.

Of course, the argument for investing directly in the A-share market is that there are great consumer names that are unavailable elsewhere, such as Guizhou Maotai or Wuliangye. But the risks are that the A-share market is a more speculative and manipulative market.

Kevin Carter on the high cost of short selling Chinese stocks:

Though stocks for short selling will become more available in the future, it's still very expensive. Cost of borrowing Chinese stocks to short can often be 8% to 10%. As a person who spent most of my career in shorting, I can say that it is a tough business. The most you can make is 100% if a stock price goes from $10 to 0. But if it goes against you, unlike a long position where your exposure gets smaller, your exposure gets bigger. So when A-share market becomes easier to short, investors should be very careful because it is a fast way to lose money.......