FUND MANAGEMENT. Investor Presentation: Peregrine Hedge Fund Conference 2016

Transcription

1 FUND MANAGEMENT Investor Presentation: Peregrine Hedge Fund Conference 2016

2 Index 1. An introduction to CoroCapital 2. The Investment Team 3. Track Record 4. Fund Structure 5. Investment Approach Investment Process Hedging Strategy Portfolio Construction Strategy 7. Questions 2

3 Key Take-away Points 1. New fund, but the fund managers are tried and tested 2. Trading disciplines strongly entrenched in our culture 3. Measured approach to risk 4. Investment philosophy founded on sound bottom up fundamental analysis 5. Clearly defined strategy capable of being applied on a consistent basis 3

4 An Introduction to CoroCapital Coronation Capital, formed part of the listed Coronation Holdings Group which was founded in the early 1990 s by Gavan Ryan and David Barnes Post the unbundling of Coronation Fund Managers, it continued as an independent investment house, deploying proprietary capital into Private Equity and Trading. Over the past decade, our investment approach has generated consistent and above average returns. CoroCapital has honed its investment process over many years and remains committed to maintaining: Sound research methods Trading disciplines Downside risk management techniques Culture of idea generation 4

5 An Introduction to CoroCapital (cont d) On 1 February 2016, CoroCapital launched a stand alone hedge fund management company a natural progression. Although the hedge fund is a new business, it is part of an established group: Aninvestment committee with almost 100years collective investment experience Support of a committed seed investor with a strong balance sheet Established operating infrastructure with sophisticated risk management processes and procedures A tried and tested investment approach, cultivated over many years Strong alignment of interests, shareholders and management team 5

6 The Investment Team Investment Committee PETER VOGEL (CEO) BCOM (HONS) Area of Expertise: Private Equity, Corporate Finance, Investments Experience in Financial Markets: 25 years ALLAN JOFFE BCOM (HONS) GDA CA(SA) Area of Expertise: Private Equity, Corporate Finance, Investments Experience in Private Equity and Structuring: 20 years ANDREW STAINFORTH BCOM (HONS) CA (SA) Area of Expertise: Private Equity, Corporate Finance Experience in Private Equity and Structuring: 13 years Hedge Fund Team DANIEL ROSS B BUS SCI (CUM LAUDE) CA(SA) Area of expertise: Portfolio Management, Private Equity Experience in Financial Markets: 20 years MICHAEL JACKS BCOM (HONS) CA (SA), CFA Areas of expertise: Portfolio Management, Research and Trading Experience in Financial Markets: 9 years BJORN ZIETSMAN BCOM (HONS) CA (SA) Areas of Expertise: Portfolio Management, Research and Trading Experience in Capital Markets: 4 years 6

7 Track Record Trading Division Pre-Fund Launch Financial Year End September Trading Division JSE All Share JSE Top 40 Midcap Index Smallcap Index % 3% 3% 0% 3% % 11% 12% 13% 13% % 24% 23% 12% 27% % 21% 20% 26% 23% Major Contributors to Performance 2015 Curro, Transaction Capital, Sirius, Steinhoff 2014 Curro, Hulamin, Transaction Capital, Master Drilling 2013 Alexander Forbes, Curro, Onelogix 2012 Alexander Forbes, Consolidated Infrastructure Returns based on audited financial statements adjusted for portfolio mandate limits such as individual position size limits. Past performance not a guarantee of future results. 7

8 Track Record Hedge Fund Since Inception Cumulative Return Fund Fund Returns since Inception Increase Decrease YTD Fund: +6.35% JSE: +3.49% JSE ALL SHARE Monthly 8

9 Track Record Hedge Fund Since Inception 3.00% Largest drawdowns 2.00% 1.00% 0.00% -1.00% -2.00% -3.00% -4.00% JSE All share Fund 9

10 Track Record Hedge Fund Since Inception Largest single day drawdown: -1.31% (vs market move of -1.78%) Largest market drawdown: -1.07% (vs market move of -3.56% - 24 June 2016 Brexit) Correlation to JSE All Share Index: 0.51 Feb 2016 Number of drawdowns > 1%: 4 trading days ( -1.31%, -1.31%, -1.07%, -1.17% ) Brexit Portfolio performance on 9/11/ bps (Election of Donald Trump)

11 Fund Classification Fund Name CoroCapital IDS Retail Hedge Fund * Domicile Fund Currency Legal Structure Mandate Objective Risk Level Liquidity Fees Hurdle South Africa South African Rand Trust Equity long / short with an SA focus To generate absolute returns with a low correlation to the All Share Index Moderate Monthly 1.5% and 20%, performance fees charged on outperformance only Stefi Maximum Gearing Individual Position Limit Average Number of Positions Current AUM Prime Broker Administrator & CIS Manager Risk Manager * Pending FSB CIS approval 2x NAV 10% of NAV R305 million Peregrine Investment Data Services now part of the Sanne Group Risk Café 11

12 Our Investment Philosophy Invest for the long term Outperformance over the long run is based on sound long term investment decisions Alpha is generated by getting the big calls right. augmented by getting the smaller calls right too We believe that earnings ultimately drive share prices And that managers of companies drive earnings Our strategy is to Find a core of 4 to 6 high conviction long term holdings and hold meaningful weightings in these: These often include under the radar quality companies typically under appreciated or mispriced stocks Investments are high touch Maximise returns by trading around our fair value calculation 12

13 Our Investment Philosophy Our strategy is to (cont d) Establish a second tier of high conviction long positions and hold a smaller weighting in these: Typically high conviction positions but with shorter earnings visibility or lower levels of liquidity Shorter holding periods. A third tier which aims to capitalize on trading opportunities. Hedge our exposure where appropriate Utilising short positions in stocks that we believe are overvalued relative to their prospects or have business models that we believe to be flawed Making use of portfolio instruments such as index shorts or buying options on volatility As a last resort seeking safe haven asset classes for protection during times of market turmoil 13

14 HOLDING PERIOD INCREASES Portfolio Construction LONG POSTIONS WEIGHT As % NAV WEIGHT As % NAV SHORT POSITIONS Trading Opportunities (10 20 positions) 10-20% -10 to -20% Tactical Short Positions (5 to 10 positions) t Tactical Long Positions (5 10 positions) 15-50% Strategic Long Positions (4 to 6 positions) 40-60% 0 to -15% Portfolio Hedge LONG POSITIONS 65 to 130% -10% to -35% 14 SHORT POSITIONS NETT 55 to 120% 14

15 The Investment Process Research Bottom up research focus with a high degree of emphasis on the quality of management. Management Interactions Numerous and regular interactions with management, industry players as well as site visits. Expertise Access to a team of six investment professionals with multi disciplinary skill sets. Resources Willingness and ability to spend money on research such as due diligence exercises, travel and engagement of external experts. Market Intelligence Interactions with other market & industry participants, gauging market views and concerns. 15

16 The Investment Process (cont d) Financial Modelling In-house creation and maintenance of detailed financial models. Trading capabilities Adding alpha by taking advantage of periods of market volatility. Trading Disciplines Carefully defining entry and exit levels based on market momentum indicators, shareholder changes and flows, nationality of shareholders and technical analysis. Oversight Monthly and ad-hoc investment committee meetings, includes evaluation of current exposures and risk, new ideas sharing and feedback on current workflow. 16

17 The Investment Process A Framework IDEA PIPELINE (50 to 100 stocks) Financial Modelling Management Interaction & Site Visits RESEARCH PHASE Macro Analysis Industry Experts Market Participants INVESTMENT THESIS Earnings Outlook Valuation vs. Rating Market & Economic Factors Quality of Management Liquidity & Marketability ONGOING ANALYSIS YES INVESTMENT COMMITTEE DECISION NO Entry/exit based on market ratings & technicals Remains in our database or counter is shorted 17

18 Past Learnings Quality companies outperform over time. Quality is an alignment of fundamental factors which drive earnings. Mediocre management teams often oversee mediocre results. Strong managers find ways to mitigate against tough market conditions and able to execute on growth strategies. Trade execution is critical, paying attention to market momentum and flows. Adherence to predefined stop losses is important. Benefits of seeking outside professional opinions far outweighs the upfront cost. 18

19 Investment Themes for 2017 Macro Environment 1. Commodity outlook stronger Supply demand fundamentals for selected commodities improving: - Chrome, iron ore, copper, thermal coal, PGM s markets - Global fiscal policy & US infrastructure spend makes China less important - Gold: a hedge against increasing political uncertainty and expected inflation How we are expressing our views: - Resource company share prices have priced a lot of this in - Downstream industries have not chemicals, mining services, equipment & parts - Some resources companies are still undervalued - Gold stocks are to be traded 19

20 Investment Themes for 2017 Macro Environment 2. Businesses exposed to 2015/2016 El Nino are coming off a low base Farmers will spend more on seeds, feeds, chemicals and equipment - Outlook for chemical companies supplying into Agri sector much improved - Machinery & parts suppliers will benefit - Food inflation will moderate in months time, a dampener for food retailers How we are expressing our views: - Companies exposed to exports of agricultural produce will have tail winds - Industrials supplying farmers with equipment and aftermarket parts will benefit - Suppliers of seeds, growth stimulants, feeds etc will have a much better year 20

21 Investment Themes for 2017 Macro Environment 3. Private sector solutions for public sector shortcomings Absence of quality basic services provides opportunities for the private sector - Basic and tertiary education remains vastly under serviced - Power generation across the African continent is inadequate - Low levels of economic particpation creates opportunities for servicing the informal economy How we are expressing our views: - Affordable private schooling and properly accredited tertiary offerings - Companies involved in power infrastructure projects - Businesses that are able to tap into the cash economy 21

22 Investment Themes for 2017 Macro Environment (cont d) 4. Political events in SA will drive the currency and some domestic stock prices Probability of a downgrade still > 50% - Currency & bond prices will fall sharply but will largely reverse in 6 12 months as seen with other EM downgrades in the past - Stocks likely to be worst hit are banks and retailers A market friendly successor to Jacob Zuma will lead to ZAR strength - However, probability of recall or impeachment in 6-12 months low How we are expressing our views: - What if scenario: balance of risks for ZAR still to downside - Focus on companies with sufficient geographical diversification and rand hedge qualities 22

23 Key Take-away Points 1. New fund, but the fund managers are tried and tested 2. Trading disciplines strongly entrenched in our culture 3. Measured approach to risk 4. Investment philosophy founded on sound bottom up fundamental analysis 5. Clearly defined strategy capable of being applied on a consistent basis 23

24 Contact Details address: Website address: Telephone: