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Bonsai Partners second quarter letter to shareholders(The write up on Greentown management is very interesting)


ZachM512
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I like Andrew from Bonsai Partners. He does some great write ups. His write up on Micron was top notch and I see he's still holding. I took a small position in PushPay from of his write ups and have taken a beating from it. Greentown Management also seems interesting but I've also taken a China beating with BABA too. so I guess adding more China companies just sounds hard right now... who  knows could turn out great. I'll definitely keep reading his letters in the future. 

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  • 3 weeks later...

I think that Greentown Management is pretty resilient from the Chinese government.

 

Andrew explains the reason quite clearly:

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Every investment in China involves an implicit partnership with the Chinese Government. If a company I invest in is misaligned with the objectives of the Government, that business faces significant risks, as seen over the past few months.

 

The hardest part of navigating Chinese regulation is that the rules of the game are constantly changing, and this makes it difficult to predict if a company will be on the right side of history. However, I believe there is an approach that may insulate us from a significant amount of this risk. If a company makes money while also putting the interests of society at the heart of what they do (win-win relationships), that investment is safer. This highlights the importance of focusing on businesses that add value rather than extract it from others, especially in China. Companies that foster win-win relationships are more likely to have endurance than those that benefit at someone else’s expense.

 

Over the past few weeks (and months) the Chinese Government cracked down on several industries: from technology, to education, to real estate. In the area of real estate, in particular, the push for additional regulation so far centered around increasing the quality of new construction and promoting new affordable housing.

 

Since Greentown Management is the largest service provider to the affordable housing construction industry in China, and it has a heritage of quality construction, it appears that Greentown Management is very well aligned with this effort.

 

Although I believe Greentown Management is well aligned at present, regulatory changes in China are notoriously hard to predict, and investors also can misunderstand how these changes might impact a company in the short term anyway. Ironically, these government mandates may prove to be a tailwind for Greentown Management’s growth despite the recent market noise. Only time will tell.

 

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