Samena Capital talks family values

Samena Capital has been very busy in the past year or so. It launched its special situations fund in August 2008, its Japan absolute-return fund in May this year and its Asia bond fund -- in conjunction with Argyle Street management -- just last month.

In addition, in June the company acquired Vision Asia Pacific, a subsidiary of Hong Kong-based investment firm Vision Investment Management, with $75 million in assets, and in October opened an office in Hong Kong.

Samena might appear similar to a typical hedge fund, but many in the market are aware that it is anything but. Founder and president Shirish Saraf counts among his co-founding shareholders names such as: V-Nee Yeh, honorary chairman and co-founder of $5 billion Hong Kong-based hedge fund Value Partners and recently appointed member of Hong Kong's executive council; Atul Punj, chairman and founder of Punj Lloyd, one of India's leading infrastructure, engineering and construction companies; and Samir Fancy, chairman of Renaissance Services, one of the leading oil and gas business groups in the Middle East, based in Oman.

Not only is Samena's level of management experience exceptional, but Saraf, Yeh, Punj and Fancy point out that their investment approach is hardly run-of-the-mill either.

"In the hedge fund complex, we're not a typical player," says Saraf. "We're a private equity structure doing public equity investing. We're a management company that acquires other management companies. We're operators of businesses and shareholders who combine with the management team on the same terms."

V-Nee Yeh sets out in detail what differentiates Samena. "Everybody says they are a different hedge fund or private equity fund, with special expertise and skill sets," he says. "It's hard to be objective about it. But if you look at Asia, the Middle East, India, the people who have made the most money -- and this is still the case -- are the families in each locale. It's not the big banks coming in, it's the families, because they have the most in-depth understanding not just of the dynamics of the businesses, but of the relationships."

Samena's premise is that it benefits hugely from having shareholders from families with strong connections and experience of their home markets.

In the Middle East and Asia, the business environment tends to be much more opaque than in the West, Yeh says. That makes it difficult for a family in, say, China, for example, to break into another market, such as the Middle East or India, or vice versa. "What we have is an appreciation of the difficulties of doing that," he adds.

Since the Samena shareholders got together, says Yeh, they have become very comfortable with one another and the operation has become much more integrated. "As a result, my partners and I -- who are usually more familiar with China -- now have access to and an appreciation for India and the Middle East that, if we'd wanted to do it from ground zero, would have taken maybe 15 or 20 years," says Yeh. "Now that has been established in less than two years.

"This gives us an informational advantage that a typical global investment bank wouldn't have," he says. "The most important informational advantage you can have is an assessment of people -- of who your partners are, of management." Samena consequently has a better understanding of the players in a particular industry or geography, how the dynamics work and how the political doors open, adds Yeh.

The world is moving away from fancy financial engineering towards those industry players providing operational expertise, says Saraf. Consequently, it is not the household private equity names such as Blackstone or Carlyle that have made the most money in Asia, he adds. "They do a few good deals, but the typical ones you would associate with having made money are the home-grown regional firms with in-depth knowledge such as Abraaj Capital [in the Middle East], Kris Capital [in the subcontinent] and Value Partners [in China], which have access to the local families."

Punj adds: "It's a given that everybody has a great management team and analysis capabilities, but [our approach] goes beyond that."

Meanwhile, Renaissance's Fancy emphasises the importance of having active involvement from the very top management of companies. "It goes back to the time when Shirish asked me to join the board, and I said, 'if we're going to get managers of the family offices to sit on the board, then I'm not getting involved'," he says. "If the principals are coming themselves, and we can interact and feed off each other, that might interest me."

As it happens, Samena gets its name not only from 'subcontinent, Asia, Middle East and North Africa', but also from the old Buddhist script, meaning 'collectively' or 'together'.

A good example of the firm's atypical investment approach is its new Asia bond fund, seeded with $70 million. Most hedge funds in the bond space look at highly liquid assets and large-cap bond offerings, says Saraf. But "a large proportion of those yields have pretty much vanished and the markets have run ahead of themselves," he says. "So is there much opportunity there right now? Probably not what there was six months ago."

However, Samena targets the small- and mid-cap space, where it has a greater intrinsic knowledge of the companies, says Saraf. "We look at motivated or distressed sellers, but not distressed assets." For example, the firm has made three investments in energy-related company bonds in the past couple of months, one of which was in Singapore-listed offshore oilfield services company Rubicon, which has bonds of about $180 million in outstanding dollar face value.

Fancy's knowledge and expertise helped Samena in this regard. Renaissance has one of the largest offshore fleets of support vessels in the world, giving it a strong depth of knowledge of the sector. "Samir's people and management helped us assess the asset value in that space," says Saraf.

Moreover, rather than investing in the typical bonds or credit default swaps that most fund managers follow, Samena might look at a mezzanine structure, preferred note or cumulative convertible that the market doesn't follow, says Saraf. "It means [we invest in] certain things that require a longer-term perspective for workouts, but that people don't have the structures to do."

To be able to make such plays Samena imposes a two-year lock-up for investors in the bond fund. That's not to say, however, that Samena won't do shorter-term, more typical deals.

As a general rule, Samena takes a conservative approach across its funds. For example, it is currently around 50% cash in the special situations and Japan funds, and the firm doesn't use leverage in any of its funds at present, although Saraf says it will do at some point.

So far, so good. The special situations fund, for example, has an internal rate of return of 38% from August 2008 to September 2009.

It seems two -- or in this case, four -- heads are sometimes better than one.