James P. Rooney is among Korea's leading asset managers. He was dispatched to Korea to establish the country's first foreign-invested trust company by the Templeton Franklin Group, a United States-based investment management company with over $200 billion worth of assets worldwide. He is now president and chief executive officer of Seoul-based Templeton Investment Trust Management Co. Ltd., formerly Ssangyong Templeton ITMC. He assisted the Ministry of Finance & Economy on the development of mutual funds and participated in 1999 Korea Caravan, a series of seminars on portfolio investment in Korea held in the U.S. under the aegis of the Korea Security Dealers Association. He co-authored the One Million Jobs (OMJ) Project, a report on how supporting small and  medium sized companies (SMEs) will help sustain economic recovery. He subsequently launched the OMJ Fund designed to facilitate investment in SMEs.

He also manages the Mukoongwha Restructuring Fund, assisting promising Korean SMEs restructure their balance sheets and access the capital markets. Below, he shares with KT&I his views on investing in Korea and the opportunities it holds.

You are one of Korea's top asset managers. What is the secret of your success?

First, we stand by the philosophy of our founder,  Sir John Templeton which has stood the test time around the world for 50 years. Second, very objectively and pragmatically, we focus on company and industry fundamentals to understand the market's real characteristics, not all of which I would call rational. Third, since the crisis and the era of IMF control, we also focus here on economic fundementals to get inside what's happening in Korea. This is a little unusual  for us since Templeton, when investing around the world, usually focuses on corporate fundamentals.

We tend to be contrarians. When everyone is miserable, we look for the best bargains; when everyone is too excited, we often find it is time to sell. As Sir John put it, "the time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell." The trick is to find the stocks of those companies that will have fundemental value in the future. Volatility is not important over the long term. Our OMJ Fund is ahead of the market and independent of it. The Korea Active Fund experienced the roller  coaster emotion of the market but recovered and has  outperformed the Korea Stock Exchange Price Index (KOSPI) by 77 percent since its launch in October 1996.

How do you evaluate those companies that become investment prospects?

We analyze a company using 10 years of financial statements to understand how it works. We talk to management and industry consultants and find out how the company has performed. We understand the people run it and who competes with it. We look at  the company on a "normalized" basis and discount  the highs and lows. Also, we prefer stand-alone  companies because of the potential for problems associated with interlocking corporate guarantees.  The real skill is in turning historical data into information, gaining insights as to how future performance might behave. Our approach allows us to look at the  company as a shareholder, basing share value on   earnings per share. We calculate value using the  EBITDA principle (Earnings Before Interest, Taxes, Depreciation and Amortization).  We then work out what earnings are going to be and apply a multiple to gauge what the company's stock will be worth in the future. Then we often have to wait to buy until the price dips to get a good return.

What did you do when the market  collapsed at the time of the crisis?

We bought. We bought stocks of sound companies which is the only kind of stock we buy. Our buying list contains all the stocks we are tracking - we have a buy and sell price for each of them together with a holding target which might be achieved in five years or less. In the crash we got a lot of "buy" signals since some 85 percent of stocks were off. That's what bargain hunting is - waiting for sale days. In some cases if we don't have enough cash, we sell those stocks which are high in their categories. When Korea appeared to go down the tubes, you had to ask yourself: are there fundamental problems with the economy, or, is this a temporary feature driven by interest rates at 30 percent? Our analysis was that the crash was a short term temporary blip.

Do you consider the present rally on the Korea Stock Exchange sustainable?

We think the market is very volatile. In January I predicted the KOSPI would be up at 800 and then down to 400 during this year. It was then at 600 and we have since seen both extremes. It has been in the 800s twice. I feel it will be down and up again before the year's end. With regard to whether it is sustainable, I think the more interesting question is: Where could it go? When you look at the stocks of a lot of "blue chip" companies, the price maybe too high or they're fully valued. Less obvious are a lot of  other companies, SMEs, that are not  fully valued and to which investors are not paying attention.

You visit Japan regularly to attract investment into Korea through your Korea Active Fund. Why is Japan so attractive in this regard?

It's right next door and very well aware of Korea, plus there's a lot  of similarity in thought processes. There's an appetite to invest in  Korea from Japan. We find them ready and willing as there are not many opportunities for investment  in Japan where there is only a 1 to 2 percent bond return. Also, most countries in Asia are not as wealthy as Japan. The Japanese are the highest profile target market for us as there are very few ways in Japan to invest in Korea, and our fund is the best performing Korean fund in Japan, even taking into account currency fluctuations.
Why don't we seek investment from elsewhere? Because through our Templeton global parent, a lot of capital has already been attracted here from elsewhere. Templeton had $3 billion invested here as of last summer and is the largest portfolio investor in Korea, having been investing in the country for 20 years. Templeton even has a Korea fund through which it funnels investments from countries outside the United States and Canada. It has many bases covered but Japan was not covered.

You've undertaken many initiatives on behalf of Korea, the OMJ project being just one of them. What motivates you?

One of the things that drives  me more than anything else is spotting things nobody else is paying attention to. When I see something that people are not paying attention to - a regulatory problem or in this case an economic problem - if nothing is done there can be a great deal  of pain. The second consideration is a pragmatic one. Would you rather spend your career in a  place that's in the dumps or work in an economy that's using all its potential to be where it could be? Unemployment is not only painful, it takes away from  GDP. Adding jobs means adding to GDP. It's enlightened self-interest. Besides, it's a lot more fun being able to help people to reach their true potential.

by Charles Duerden