TOMORR OW’ S TITANS 2023


Founder and Chief Investment Officer Orlog Capital Hong Kong


J


ohn Qiu founded Orlog Capital in January 2022 with the name based on the Anglo-Norse belief in a recursive, fluid and probabilistic fate. It has significance both in the investment approach of the fund, as well as the way the business is operated.


Qiu’s educational background in biochemistry and molecular biology (as part of a double degree including finance) has influenced his use of the scientific method in stock analysis – start with a few key core hypotheses and constantly challenge them using collected data. Evolutionary biology is another major influence and he considers the ideas behind evolutionary theory to be a base framework for understanding the world. Despite his background (or because of it), Qiu does not invest in early-stage biotech, explaining it as: “My background can provide understanding, but does not give me any edge in predicting a drug’s success rate. I would rather look at firms where their competitive edge can be clearly defined”.


Qiu views the stock market as a zero-sum game, like poker: “Somebody else has to be making a mistake for me to win at the game. My contrarian, fundamental and long-term approach gives me more optionality to exploit market biases”.


Former employers and fund model Qiu spent 15 years at two very different asset managers before launching his own firm. In 2007, fresh out of university, he joined the recently launched Orbis/Allan Gray Australia. Later, after relocating to Hong Kong in 2013, he joined Overlook Investments as one of a five-member investment team. Both dates were momentous in timing, the first coinciding with the beginning of the global financial crisis, and the later with the beginning of significant western capital flows into domestic and offshore Chinese equities. These events left a deep impression on Qiu’s approach to investing.


Orlog’s investment philosophy and business model takes elements from both investment managers. Allan Gray taught him the deep-value, contrarian investment approach, which worked extremely well in the aftermath of the global financial crisis, while Overlook provided insights into long-term, high quality, compound growth investing. Qiu describes his own approach as contrarian, fundamental, long term and high conviction: “I am more deep value and contrarian than Overlook but generally speaking, require more growth as a driver of returns compared to Allan Gray Australia”. Equally, Qiu owns some companies he could not envisage either of his


50


John Qiu


Contrarian, fundamental, long term, aligned equity investing


former employers owning, such as China’s on- demand platform, Dada Nexus, whose share price has been very volatile. Qiu has actively traded around the volatility, top slicing the position in January 2023 and now buying back shares, illustrating his adherence to a clearly defined valuation range, no matter how bright he thinks their long-term prospects are.


Qiu deliberately hires from outside the investment industry, which is something also commonly practiced at Orbis/Allan Gray. Qiu looks for people with 3-5 years of work experience and often from non-finance related academic backgrounds such as maths, science and accounting. They are required to complete the CFA to get up to speed on finance. Past hires have included a lawyer, tech startup employee and biotech private equity analyst. The remuneration structure is similar to Overlook where the bonus, based on individual investment contributions, is the key feature.


Portfolio structure Qiu has the mentality of a private markets buyer and limits his portfolio to 15-25 names; the top five of which could make up 50% or more of the book. He only invests once he has a deep understanding of the company and industry, focusing most of his attention on the supply side and competition dynamics. This often leads him to avoid certain companies or situations: “We are not confident about predicting competitive dynamics in EVs and could not build enough confidence understanding how content competition and the transition from linear to streaming model would affect future profits at Netflix, Disney and Paramount: we simply wouldn’t know what to do if their share price fell another -20-30% lower”. This is important because if the price falls and the core thesis hasn’t changed, Qiu will generally buy more shares in the company (assuming relative returns versus other opportunities has also improved).


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