Extreme Value Hedging: How Activist Hedge Fund Managers Are Taking on the World

Chapter 21

East Meets West: Hedge Activism Goes Global to Emerging Markets

Jin Jiang International hotels, a Chinese chain comparable to Marriott Courtyard or Red Roof Inn in the United States, recently got into the fried chicken business.

Managers at the hotel chain decided to set up Kentucky Fried Chicken franchises in the Peoples Republic of China. Business is good, fried chicken is selling well, and Jin Jiang now owns about 150 to 200 Kentucky Fried Chicken franchises across the country.

Enter Aaron Boesky, director of activist hedge fund Marco Polo Pure China Fund. Boesky, based in Hong Kong, invests in stocks listed on the Shenzhen and Shanghai stock exchanges in China. After carefully evaluating Jin Jiang and the Chinese market, Boesky and his team quietly began encouraging the company to devote more finances to its KFC business, based on its profitability projections, and allocate less capital to the hotel division. “We saw that the profit margins in the KFC chain are so much better than with the hotel business,” Boesky says. “We've been pressing them to invest more heavily in the KFC business.”

The advice Boesky offered up to Jin Jiang is typical of the kind of business analysis and guidance Marco Polo Pure China Fund managers give dozens of its portfolio companies. Boesky, a graduate of Beijing Foreign Affairs College for studies in language and economics, is fluent in Mandarin and since 2001 has concentrated his efforts on understanding the transforming Chinese market. ...