INTERVIEW The value of consistency and predictability David Fraser co-founded Peregrine Capital in 1998 and is a portfolio manager and executive chairman of Peregrine Capital. Blue Chip spoke to him about hedge funds. What is Peregrine Capital’s investment philosophy? We are fundamental, bottom-up, valuationfocused investors. The value of an asset today is the present value of expected future cash flows. We do not narrowly associate value investing with paying a low price earnings multiple, given that mediumterm growth expectations are often mispriced by the market. We actively look for investment ideas that are both unique and valuable. What is the High Growth Fund’s objective? The objective of the High Growth Fund is to deliver exceptional returns to investors, and as such it is the fund with the most equity market exposure in our hedge fund stable. The net equity exposure in the fund is typically between 60% and 80% and is therefore comparable to funds in the multi-asset high equity category. Who should consider investing in the High Growth Fund? While our investors have traditionally been limited to large institutional clients and high net-worth individuals, our fund strategies are now available to everyone, owing to affordable minimum investment values. In addition, our funds are now available on all major LISP platforms, which improves access for our IFA partners. Investors in the High Growth Fund are looking for exceptional long-term capital growth with risk metrics that are similar to that of your average balanced fund. Over the past 22 years, the average fund in the ASISA South Africa multi-asset high equity category has given investors an annualised return of around 10.5%. The High Growth Fund has delivered more than double that at 24.8% per annum. Please tell us about the special milestone that the Fund achieved last year. December 2020 marked a special milestone for the High Growth Fund, when it became the first fund in South African history to achieve 10 000% return for investors since its inception, according to our research. This means that R1-million invested on 1 February 2000 is worth more than R100-million today. The Fund has delivered exceptional future returns for its clients for 22 years. What are the Fund’s core competencies? Our competitive advantage as investment managers is our ability to identify superior and inferior business models and management teams, to estimate the expected return from those companies and instruments, and to rationally buy or sell securities according to those return expectations. We conduct detailed qualitative and quantitative assessments of companies we choose to invest in, to enhance the degree of confidence that we have in our investments. We embrace situations that are difficult to analyse, or that require considerable work, as this often gives us an edge against competitors. Enduring long-term performance cannot be achieved by “swinging for the fences” and assuming excessive risk. In fact, this can only be achieved if risk management is a cornerstone of the investment process. Our process always values consistency and predictability of outcomes ahead of great shortterm returns. Achieving great returns on their own is not enough, they need to be accompanied by exceptional risk management. DAVID FRASER Executive Chairman and Portfolio Manager Prior to forming Peregrine Capital, Fraser was at Liberty Asset Management, where he was principally involved in nonconsumer industrial company research and was appointed sector head for this area in 1998. Fraser is a chartered accountant, having studied his B.Com and B.Acc at the University of the Witwatersrand. COMPANY BACKGROUND Peregrine Capital was established in 1998 by David Fraser and Clive Nates, as the first hedge fund business in South Africa. While markets conditions have fluctuated wildly over this period, Peregrine Capital’s investment philosophy has remained constant. The company seeks to enhance its process each year to fulfill its mission, which is to create wealth for its clients over the medium to long term. OVERVIEW OF INDUSTRY The South African hedge fund industry manages approximately R60bn of investor assets, a figure which has been fairly stagnant for the past three years. Peregrine Capital believes the industry is poised for growth, owing to regulatory changes that have allowed for equivalent classification as unit trust investments, and significantly lower minimum investment amounts for investors. While it has been a challenge getting funds onto LISP platforms for the past two years to provide access to the IFA market, the industry has made significant progress in this regard. Peregrine remains optimistic about the future of the industry and believe that well-established South African hedge funds generally show a better risk/ return profile than their “long only” competitors.
CORPORATE PROFILE Distinctive asset management PEREGRINE CAPITAL Peregrine Capital was founded in 1998 and is the longest-running hedge fund manager in South Africa. We have been there from the beginning, helping to protect and grow the wealth of our clients. We have built an exceptional team of investment professionals who are solely focused on refining our investment process each day, to deliver superior risk-adjusted returns for our clients. Our process is built on the foundations of honesty, integrity, and an unerring pursuit of the truth, so that investment decisions are based on facts rather than feelings. We are cumulatively a top five investor in our funds and staff own 75% of our business. The investment team has a significant proportion of their own liquid wealth invested in the Peregrine Capital funds because we believe our funds are the best long-term investments that we can own. Investing heavily in our own funds ensures that our interests are fully aligned with those of our clients. This alignment guarantees that our team endeavours to always act in the best interest of the funds. Our value proposition can be summarised into three key points: • Exceptional long-term returns • At lower levels of risk • With the diversification benefits of low correlation. OUR INVESTMENT PHILOSOPHY • We believe that a disciplined and consistent application of our investment process will result in the generation of superior returns for our clients over the medium to long term. • We believe that consistent outperformance can only be achieved through superior knowledge of companies and their securities, not through attempts at predicting what is in store for the economy, currencies, interest rates or the overall level of markets • We work very hard to identify great investments, and are never willing to just follow the herd, so that investment decisions are based on facts rather than feelings • We actively look for optionality in company earnings that the rest of the market does not see, appreciate or value • We are highly skilled at analysing special situations that require huge amounts of work, detailed modelling and intricate analysis skills, which gives us an edge against our competitors • We constantly strive to improve our investment process by embracing inevitable change and acknowledging that the learning process never ends. Peregrine Capital's Portfolio Managers, from left to right: Justin Cousins, David Fraser and Jacques Conradie. OUR FUNDS We offer three funds that cover the risk spectrum: the Peregrine Capital Pure Hedge Fund (low risk), the Peregrine Capital High Growth Fund (moderate to high risk) and the Peregrine Capital Global Equity Fund (high risk). All our hedge funds are FSCA regulated unit trusts. The Global Equity Fund is a UCITS fund authorised by the Central Bank of Ireland and is also authorised by the FSCA under Section 65 of the CISCA. The recent launch of our Global Equity Fund gave us an opportunity to offer our clients exposure to diversified international equities and therefore another avenue for providing long-term capital growth. The team will apply the same investment philosophy to manage the Peregrine Capital Global Equity Fund that has been consistently applied to generate exceptional investment returns for our clients since 1998. We have been there from the beginning, helping to protect and grow the wealth of our clients. To invest in any of our hedge funds, you can either invest directly at www.peregrinecapital.co.za, or through all the major LISP platforms. The Global Equity Fund is available for investment in USD, or in ZAR via the Peregrine Capital Global Equity Prescient Feeder Fund at www.peregrinecapital.co.za. Invest with us today and gain access to Peregrine Capital’s decades-long track record of exceptional returns. For more information visit www.peregrinecapital.co.za www.bluechipdigital.co.za 41