Here's a bit of positive spin on MPL
As he mentions, if you take a 3-5 year view MPL should do very well.
Why Janchor Partners' John Ho likes Medibank Private
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John Ho, chief investment officer at Janchor Partners in Hong Kong, is a big believer in Medibank Private.
by
Tony Boyd
The fund manager who made a five-fold return on investment from backing Chinese internet retail giant Alibaba is now making a long term bet on Medibank Private.
John Ho, who is chief investment officer at Janchor Partners in Hong Kong, believes the former government owned health insurer will be a huge beneficiary of reform to the Australian health system.
Ho's other big call in relation to Australia is to challenge the big four Australian banks to invest in innovation and technology disruption as a source of long-term opportunity.
He spoke to
The Australian Financial Review ahead of the Sohn Australia Hearts & Mind Investment Leaders Conference on November 11 at the Sydney Opera House.
The global investment charity event was set up in memory of a young Wall Street trader who died of cancer.
Ho is one of many star stock pickers appearing at the event. He will be able to stand tall next to other leading fund managers including Oaktree's Howard Marks and Lizard Investment's Leah Zell because Janchor Partners has delivered annual compound returns of 19 per cent since inception in 2010.
Ho migrated to Australia with his parents at age 12. He attended James Ruse Agricultural High School before completing a maths and finance degree at the University of NSW.
He worked for Boston Consulting Group before joining the hedge fund industry including roles at Citadel and the Children's Investment Fund.
Structural growth, good business models
Ho's investment philosophy at Janchor Partners is quite straight forward.
"If you look down the barrel over multi-year periods we look for sectors and areas that have structural growth and have good business models," he said in a telephone interview.
"In other words you look for companies that can build a competitive advantage, build moats around their business and are on the right side of government regulation.
"If you can find areas like that with big tailwinds then the three to five-year view is going to be really clear."
His investment in
Alibaba was made in 2012 when Yahoo sold down its stake in the company. Ho picked up the stock at $US18 a share. It later listed in New York in an IPO priced at $US68. The stock this week traded at $US100.
"What we saw was the power of a very large B2C platform which creates a huge scale," he said.
"Imagine it like a giant shopping mall that has little friction.
"It is one of those businesses where the winner takes all. The more consumers that go on the site the more merchants and brands want to be there and the more that merchants go on there the more that consumers want to be there because they have more products and selection.
"It is a virtuous circle."
'Secular trend is undisputable'
Ho's interest in healthcare is driven by the structural growth caused by the aging population and the desire of old and young people to spend proportionately more on health as they get wealthier.
"If you pick on areas where the secular trend is undisputable you can be very confident in spite of the short term," he said.
Janchor Partners owns a number of healthcare companies in Australia but the main one is Medibank Private.
"It is one of our biggest holdings," he said.
Ho said the Australian healthcare system is ripe for fundamental reform including putting an end to fee-for-service and reversing the asymmetry of information between doctors and patients.
"Australia needs to develop an effective patient-centric health care system," he said.
"Health is one of these really interesting things where the user of the health care is not the payer for the service.
"If you buy a car you decide or if you go on holidays you choose and pay for that. In healthcare, it's your health, it's your well being but you don't directly pay for it.
"It's paid for by Medicare or your health insurer. That creates inefficiencies.
"Interestingly, the user is also not the most knowledgeable person – the doctor is the most knowledgeable person.
"In healthcare you consult the doctor and you more or less you just do what the doctor tells you and you also don't pay for the service, not directly anyway.
"It creates a very different dynamic. It is a fee for service mentality.
"So the more you see the doctor the more doctors get paid or the more procedures you have the more the service providers get paid.
"This dynamic has created inefficiencies in the system.
"There are potential moral hazard issues because if it's free people think let's do it anyway."
Ho said
Medibank Private is aligned with the "opportunity to improve the efficiency of the health care system".
"They are a payer alongside the government," he said.
'Very exciting' time for health
"I think Australia over the next five years is going to move much more into the fee-for-outcomes instead of fee-for-service. Another way to look at it is fee-for-quality or fee-for-value.
"So in other words every time you get a medical procedure done, the question will be asked: did you get a good outcome? Are you well? Did you get the right advice in terms of how you are going to be treated?
"We think it's a very exciting area of gaining efficiency in the healthcare system.
"Those who are innovative about improving the efficiency of the system will benefit.
"Those that are not thinking about innovation and continue to have the old way of doing business will lose value.Ho said it is inevitable that the Australian healthcare system will "move away from pure treating diseases and body systems to enhancing the well-being of the person."
"It's a very different mindset and Medibank and other healthcare players will need to build their strategy around that," he said.
"When we move to that model over the next five to seven years they can be huge beneficiaries."
Banks must 'lift their game'
Ho's concerns about the Australian banks are based on their lack of track-record on true innovation.
"Australian banks have substantial ability to reinvest in innovation and use technology to disrupt their own business model to create long-term value, though they haven't done it yet given a concentrated oligopolistic structure and lack of credible external stimulus," he said.
"But this is a feature of the Australian market. If this changes, I would put a lot of capital in them."
Ho said the advent of smart phones meant that each person now had the equivalent of a mainframe computer in their pocket.
"The potential of that thing to transform industries is huge," he said.
"There is a massive opportunity for efficiencies in Australian financial services. The banks really have an opportunity to lift their game."
Ho said he has some concerns about the governance of Australian public companies.
"Corporate directors in Australia have traditionally focused more on compliance and governance, than real strategic value creation," he said.
"Hence, Australian companies tend to be shorter-term and inward-focused on meeting results and dividend expectations.
"We encourage boards to focus on being much more outward. They should develop a real strategic insight, long-term innovation agenda and support management to grow a long-term value creation mindset".
'A different lens' on China
Finally, Ho addressed the perennial question about China's economic prospects and how it affected his investment decisions.
"Western investors are really worried about China's macro economy," he said.
"They worry about the government, they worry about debt and they worry about the sustainability of the housing market.
"But if you think about investing in healthcare none of these are real worries. It's the same if you are investing in consumer or technology and internet disruption, none of these are real worries.
"We apply a very different lens – in fact we take a contrarian view that when people are really worried we are really excited about those times.
"If you pick the right area and have the right conviction and, most importantly, have that longer term horizon of three to five years then you are able to look through the macro uncertainties."
(20min delay)