The psychology of risk, value of diversification, & quest for resilience
Apollo Asia Fund: the manager's report for 1Q23

NAV of the Apollo Asia Fund rose 0.8% in the first quarter, to US$2,611.38 (Series A). That's up just 0.7% year-on-year, but compares to an 11% fall for the MSCI all-country Far East ex-Japan index. It's up 24% since December 2019, and 63% since the end of March 2020, when global markets had begun to rally after the initial pandemic slump. Over the 25-plus years since inception, compound annual growth has been 17%, and the NAV has multiplied 54-fold.

The relative tranquillity of markets was remarkable, against a flow of disconcerting global news with potentially significant investment ramifications, notably the escalating ecological and climate crises, and rising political tensions within and between superpowers.

It was a quarter in which many people ceased to think about COVID-19, unless rudely reminded by infection, and about possible linkages with the increased incidence or lived experience of other health problems. Availability of manpower, and productivity of the workforce, seem threatened to some extent, although hard to quantify. Many governments discontinued reporting of COVID-19 statistics, so are now flying blind, which leaves public health policy in a state of confusion and not optimally placed for new variants and challenges. The psychology of the pandemic has been very interesting, and shows how difficult it is now to reach and maintain consensus on an effective response to crises. This will be a problem for society if challenges continue to multiply and intensify, but there may perhaps be investment opportunities in the growing number of fields for which consensus seems unrealistic and risk appraisal inefficient; we will look out for these.

Our last quarterly report recommended Duncan Austin's explanation of the need to change some of our old mental models; his latest post eloquently expresses the dangers of being 'In Thrall to the Infallible Hand'.

The increasing volatility of climate in many parts of the world could be a metaphor for the business environment. Some of our companies have experienced wild swings in performance, not necessarily when or in the manner expected. Profits at our largest holdings performed well, boosted by windfalls in some cases, offsetting setbacks elsewhere; the value of a diversified portfolio remains clear.

Our investment team has made organisational changes in recent months, improving stability and resilience. Apollo Asia Fund has been managed since inception by AIMS Asset Management Sdn Bhd (AIMS), a Malaysian company. The active shareholders of AIMS have established Seraya Investment Pte Ltd (Seraya), a Singapore company. Seraya received its fund management licence in 2022, and took over from AIMS as manager of Panah Fund in November; in March it became co-manager of Phoenix Gold Fund. Panah's investment team (Andrew Limond, Romain Rigby, and Varun Dutt) are now employed by Seraya, as is Larry Hill, the co-manager of Phoenix. David Watt, Nik Hanim and I remain at AIMS, along with our experienced operations, admin and compliance colleagues. The new structure provides investors in the participating funds with the additional assurance of Singapore's well-regarded regulatory regime, without any of the challenges that would face an unsupported start-up there; it has given new confidence to staff and investors alike.

We now propose a co-management agreement for Apollo Asia Fund, with effect from 1st July (or as soon as practicable thereafter). This is desirable for continuity, to maintain our relationship with colleagues of long standing who are now spread between the two firms. We will be writing individually to our investors soon, to seek approvals and the assurances required by Singapore regulation. We hope you will all see this as positively as we do, so please get in touch if you have any questions.

Claire Barnes, 16 April 2023