How is the world debt crisis affecting your investment decisions?

It really doesn't play too much of a direct role in our evaluation of individual companies. This is not a problem that "snuck up" on us in the last few months. We've been aware of the high debt levels around the world for quite some time, so Europe's problems don't really come as a surprise. While ever mindful of the macro picture, our analysis is centered at the company level. Sell-offs triggered by systemic crises often present buying opportunities and that is exactly what we are seeing today.

What kind of opportunities has recent volatility been creating?

I think volatility is here to stay. It's something we'll have to live with. As a result, we are seeing attractive opportunities emerge across the micro-cap spectrum, particularly in U.S.-listed Chinese companies. Our Hong Kong-listed holdings have actually held up quite well but are finally starting to come in a bit, so we are slowly adding to these names.

You were the first of Royce's investment staff to look closely at the Asian markets, and China in particular. What first drew your attention there?

Even five or six years ago it was clear that there was tremendous potential in China. It was difficult to know where to begin, so we started out with Chinese companies that were listed on the American exchanges. We soon resolved to go directly to the Hong Kong market, though, in order to talk to the people who are more in the know. Now we have a team of analysts covering Asia, and we visit several times a year to talk directly with the senior management teams of these Asian companies. We have learned a lot about this investment universe and have built up a comprehensive database on these companies that we can draw from.

How is the housing slump in China affecting Asian stock markets?

Real estate prices are adjusting mainly due to the government's efforts to slow things down and discourage speculation. However there are several things to note here. First, real estate prices have been hurt most in big tier one cities like Beijing and Shanghai. There are many other tier two, three and four cities that are quite large. In fact, there are 22 cities in China with over five million people, 71 with two to five million, and 121 cities with at least one million people.* These lower tier cities have not seen real estate prices escalate to the extent they have in the bigger cities. Furthermore, there's not a lot of leverage in the system. Healthy down payments of 30-70% are often required, and 100% cash payments are not uncommon. The final thing to note here is that in terms of the equity markets it's been the Chinese A-shares that have been hit the hardest. This is essentially a closed market, since these are shares in mainland China-based companies that trade on Chinese stock exchanges, and are held almost exclusively by Chinese nationals. For sure, companies listed on Hong Kong have declined as well, but not nearly to the same extent as the A shares.

What lessons did you learn from each of the portfolio managers with whom you've worked—Chuck Royce, Charlie Dreifus and Buzz Zaino?

While they all share a common denominator in being pioneers in small cap investing, there are certainly nuances in their respective styles. Chuck introduced me to the core tenets of the Royce approach; thinking about how companies generate returns on their capital, the importance of healthy balance sheets, identifying the characteristics of good businesses, etc. In working with Buzz over the past eight years I've gained exposure to his singular opportunistic style, and an appreciation for some unique investment themes. Attractive opportunities often exist in turnarounds, busted IPOs and hidden asset plays. I learned from Charlie the importance of having a deep knowledge base of what a company does. He and I have travelled throughout the country visiting companies on-site to uncover what it is that enables them to consistently achieve high returns on capital. I use some of what I learned from each of them in my work every day.

* International Strategy and Investment Report, April 14, 2010.