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January 1, 2005

The New Indian Raj: Spurs Growth, But Asia's Embrace Of Capitalism Challenges West

By Kathryn M. Welling

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  • The New Indian Raj: Spurs Growth, But Asia's Embrace Of Capitalism Challenges West
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Jon Thorn doesn't claim perfect market timing. Indeed, consternation is evident in his voice as he recalls how a decade ago, after years of painstaking research, he and his former partner launched their baby, then called the India Smaller Companies Fund Ltd. It began just a matter of days after India's BSE30 index scaled a peak it didn't come close to approaching again for 10 years. A peak that still looms for dollar-based investors (like Jon's fund) in India's equities market.

Nonetheless, Jon and the fund, which were restructured, rechristened and re-launched as the India Capital Fund in 2001, have managed to survive and thrive. In large part, through Jon's adherence to old-fashioned investment principles and ignoring benchmarks. But it has also helped, Jon notes, that the fee structure he adopted for the fund isn't the annual "2 and 20." Instead, he uses a more modest plan that aligns his interests with his investors. The upshot: Jon, who watched many a rival fund manager implode during India's long bear, is now the longest-serving portfolio manager of an India-only fund. He can also boast of his fund's long-term 8.4 percent CAGR. That trounces the BSE30 over the last decade by 900 basis points - a stretch in which some competitors lagged the index by as much as 700 basis points. However, his goal is absolute, not relative, returns. India Capital Management, the fund's management company, is Jon's company. He is the managing principal, the sole portfolio manager - and the only trader - of India Capital Fund. Meaningful as the fund's 123 percent gain since inception is to Jon, he is also aware of how much patience on his part - and on his investors'- was required as the fund navigated India's turbulent market between 1994 and its big double-digit return last year. The fund, whose assets - for years on end before 2003 - bumped along below $20 million, doubled last year. It shot up to $140 million recently. But Jon is determined not to let success change his ways. He's adamant, for example, about resisting unbridled asset growth. Hence, he is contemplating closing India Capital to new investors. He won't even consider taking money from leveraged funds of funds.

Jon has managed to learn quite a few very useful things about the investment business. This despite a checkered early career that includes a Ph.D. at the London School of Economics as well as stints on a Drexel desk and as a trade journalist in Asia.

I met Jon not long after he started India Capital, and was delighted to talk to him in New York a couple of weeks back. -KMW

You're obviously a hard man to discourage, Jon-