Fairtree Senate Group presentation
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Transcript of Fairtree Senate Group presentation
PRESENTED BY:
INSTITUTIONAL BUSINESS:
DATE:
CREATINGWEALTHTHE GENUINE,TIME-TESTEDWAY
Jean Pierre Verster
Portfolio Manager: Equities
November 2016
2
Introduction to Fairtree Capital
Current market conditions
Fairtree Protea & our Qualified Investor Hedge Fund (unit trust)
Q & A
A Hedge Fund Manager’s View of the Current Market
3
Introduction to Fairtree Capital
Current market conditions
Fairtree Protea & our Qualified Investor Hedge Fund (unit trust)
Q & A
A Hedge Fund Manager’s View of the Current Market
4
We are a leading multi strategy alternative and long only investment manager
5
AN EXEMPLARY TRACK RECORD
2 0 0 3
Andre Malan launches
First Fairtree Fund
Fairtree Market Neutral
Equity Fund
>
2 0 0 5
Symmetry Hedge Fund Awards
SA Hedge Fund of the year
Fairtree Market Neutral
Equity Fund>
2 0 0 6
Management buy-out
Fairtree Capital established through management buy-out of the business
managing Fairtree Market Neutral Equity Fund
South Africa Hedge AwardsHedge Fund of the Year
Fairtree Market Neutral Equity Fund
>
2 0 0 7
Launch
Fairtree Long Short Equity Fund
>
6
AN EXEMPLARY TRACK RECORD
2 0 0 8
South Africa Hedge Awards
SA Long Short Equity Fund of the Year
Fairtree Long Short Equity Fund
>
2 0 1 0
Launch
Fairtree Wild Fig Multi Asset Class Fund
Fairtree Fixed Income Fund
Hedge News Africa AwardsSA Fixed Income Fund of the Year
Fairtree Fixed Income Fund>
2 0 1 1
Launch
Fairtree Equity Prescient Fund, Fairtree Assegai Long Short
Equity Fund Fairtree African Blackwood
Commodity Fund
Hedge News Africa AwardsSA Fund of the Year
Fairtree Fixed Income FundSA Multi Strategy Fund of the Year
Fairtree Wild Fig Multi Asset Class Fund
New Fund of the Year
Fairtree Wild Fig Multi Asset Class Fund
>
2 0 1 2
Launch
Fairtree Woodland Multi Strategy Fund
Largest institutional investorNorges Bank Investment
Management, responsible for managing the Norwegian
Government Pension Fund
Hedge News Africa AwardsSA Fixed Income Fund of the year
Fairtree Proton Fund
>
7
AN EXEMPLARY TRACK RECORD
2 0 1 3
LaunchFairtree Flexible Balanced
Prescient Fund
Appointed Fund ManagerMetropolitan Income Plus Fund and co-manager of Momentum Income
Plus Fund
Funds renamedBadger Quant Fund renamed to
Fairtree Acacia Volatility Arbitrage Fund
Hedge News Africa AwardsSA Fixed Income Fund of the Year
Fairtree Proton Fund
>2 0 1 4
LaunchHospitality Real Estate
Private Equity Fund
Cayman Structures?
Fairtree Global Consumer Long Short Fund
>
2 0 1 5
Launch
Prescient Africa Sustainable Equity Fund
Fairtree Impact Capital FundFairtree Empowerment Fund
Fairtree Mezzanine Debt Finance Fund
>
2 0 1 6
Launch
Fairtree Protea Long Short Equity Fund
Fairtree Protea Cayman SPC
Fund changesAll South African funds transitioned
to regulated product structure
>
8
Leading multi strategy investment manager
FAIRTREE CAPITAL OVERVIEW
HIGHLIGHTS2007/2008 - Strong performance 2010 - Launched Multi Strategy funds
- Fixed Income & Commodity joins2011 - Long only equity and
directional bias fund launched2013 - Awarded NBIM mandate
- Volatility Arbitrage, Credit &International Equity join
2015 - Launch of Private equity funds2016 - Launch of Protea long short equity funds
2003STARTED
TYPELong Only R21bn (76%) Alternatives R7bn (24%)
INDUSTRY9% of SA Hedge Fund industry *
CLIENTS (BY VALUE)Non-South African 58%South African 42%
~R28BNFIRM AUM
Specialist teams across major asset classes
Small independent teams across 3 offices
World class institutional infrastructure
Large talent pool with diverse skill set
15STRATEGY TEAMS
Portfolio managersAnalystsTrading Investment support
40+INVESTMENTPROFESSIONALS
* Assets under management as at Sep’16. Industry assets from Novare Hedge Fund survey Jun’16
9
INSTITUTIONAL INFRASTRUCTURE
BOARD OF DIRECTORS
INVESTMENTS OPERATIONS DISTRIBUTION
40+ INVESTMENT PROFESSIONALS PRIMARILY OUTSOURCED
CIO
PORTFOLIO MANAGEMENT
RESEARCH
RISK MANAGEMENT
EQUITY TRADING & EXECUTION
COO
OPERATIONS
BUSINESS OPERATIONS
RISK MANAGEMENT
HEAD OF DISTRIBUTION
INSTITUTIONAL DISTRIBUTION
RETAIL DISTRIBUTION
INTERNAL
OUTSOURCED
>
10
PRODUCT OVERVIEW
HEDGE FUNDS
EQUITY FIXED INCOME COMMODITY
Market NeutralLong ShortGlobal ConsumerAssegai L/S
Protea L/S
Fixed IncomeProton
BlackwoodAcacia
MULTI STRATEGYWild Fig & Woodland
LONG ONLY
EQUITY FIXED INCOME
SA General EquitySmart BetaAfrica
Global and Fixed Income
PRIVATE EQUITY
REAL ESTATE EMPOWERMENT
Hospitality Real Estate Private Equity
Empowerment Fund 1
BBBEEHOSPITALITY
Flexible Balanced Fund
11
Introduction to Fairtree Capital
Current market conditions
Fairtree Protea & our Qualified Investor Hedge Fund (unit trust)
Q & A
A Hedge Fund Manager’s View of the Current Market
12
Forecasting the future is too difficult a task, preference is to analyse the recent past
Extensive use of quantitative tools to guard against behavioural biases (more on this later)
Top-down macro analysis is useful for risk management, less so for investment calls
Remember: Hedge Funds can take advantage of both cheap and expensive shares
A Hedge Fund Manager’s View of the Current Market
13
A Hedge Fund Manager’s View of the Current Market
FTSE/JSE All Share Index
Current market level
All seems calm for the past 2.5 years, but below the surface…
14
A Hedge Fund Manager’s View of the Current Market
FTSE/JSE Resources Index
Current market level
…commodities have had a wild ride
15
A Hedge Fund Manager’s View of the Current Market
China macro economic conditions
Current market level
…commodities have had a wild ride (China)
Source: MRB Partners
16
A Hedge Fund Manager’s View of the Current Market
FTSE/JSE Financials Index vs Price-to-Book ratio
Current market level
…financials have been under pressure (politics, ratings & real growth rates), and now seem very cheap or are correctly pricing in a very gloomy future
17
A Hedge Fund Manager’s View of the Current Market
FTSE/JSE Industrials Index vs Naspers
Current market level
…and Industrials Index has been driven by Naspers, which is now about a quarter of the Industrials Index (will be even more after December index review)
Not a conducive environment in which to make money, especially not if one prefers to be long companies with ‘moats’ and be short price-takers
18
A Hedge Fund Manager’s View of the Current Market
Top & Bottom returns over 1 year Top & Bottom returns over 2 years
Where have recent returns come from?
The source of above-average returns is specific stocks/situations, not market averages
19
Current investment opportunities:
- Long select financial stocks
- Long & short individual shares in various sectors for specific reasons
- Special situations / arbitrage
- No big bets, but rather a portfolio of smaller bets given current binary environment
- Be aware of implicit currency exposure
A Hedge Fund Manager’s View of the Current Market
20
Introduction to Fairtree Capital
Current market conditions
Fairtree Protea & our Qualified Investor Hedge Fund (unit trust)
Q & A
A Hedge Fund Manager’s View of the Current Market
21
FAIRTREE PROTEA
Philosophy
Warren Buffett – Buy great business rather than cigar butts, limit your downside
Charlie Munger – Have a multi-disciplinary approach, look for lollapaloozas
George Soros – Identify reflexivity (price-value loops), manage risk relative to probabilities
Jim Simons – Automate and look for predictive patterns in data
Seth Klarman – Seek non-linear situations and a margin of safety (loss a little, win a lot)
Jim Rogers – Always be curious, work hard and have a global mindset
David Dreman – Be aware of market psychology and biases, think differently/contrarian
Michael Steinhardt – You need a variant perception, always question yourself
Sir John Templeton – Reject dogma, be intellectually humble and diversify
Peter Lynch – Kick the tyres, be alert to opportunity at all times and graph the price vs value
Philip Fisher – Use scuttlebutt, seek long-term compounders and quality management
Joel Greenblatt – Combine cheapness & quality (ROIC) formulas, exploit special situations
Learning from the Great Minds of investing
22
Combining the qualitative with the quantitative = “QUANTAMENTAL”
FAIRTREE PROTEA
• Read, read & read – Newspapers, business magazines, trade publications, sell-side analyst reports, buyside analysis, annual reports, investigative websites, regulatory releases
• Meet the Management team – Assess the people involved: their aptitude, attitude, shareholder-orientation, logic, reason, drive, strategic thinking, capital allocation skills, risk appetite, incentives, ambition and authenticity
• Know the product/service and where it fits in the economic ecology – Analyse competitors, suppliers, customers, threats, opportunities….classic Porter 5-forces
• Scuttlebutt & mosaic theory – Seek opinions far and wide and connect the dots / fill the gaps through abductive reasoning
• Be aware of psychological biases – Use common sense and don’t fool yourself, know you don’t know
• Think – Have time and space that is conducive for thinking deeply and clearly, get in the ‘flow’
• Financial Data – Use Bloomberg to pull in full historical financial statements automatically into excel master model. Adjust data if necessary
• Use algorithms – Forecast each line item of the financials for the next 4 years, using proprietary statistical techniques (reversion, momentum & linked formulas). Automatic base case.
• Du Pont / Gordon Growth model – ’Translate’ future full financials into fair value using robust valuation principles
• Assess outcome/fit – Graph Price vs Value, evaluate past ‘fit’ and projections for reasonability
• Toggle variables – Adjust inputs using common sense, model allows for multiple input toggles
• Rank – Rank the various valuation metrics of companies in the universe to compare expected returns in real-time
Qualitative fundamentals Quantitative
23
Manager track-record
FAIRTREE PROTEA
5-Year Relative Performance: Almost double the market (Mar ’11 – Aug‘16)
Source: Standard Bank Securities, Nedbank Wealth Stockbrokers, Sanlam iTrade, Anglorand Securities & Fairtree Capital
CAGR from 1 March ‘11 to Feb ‘16 (5 yrs)- 32.5% CAGR = Actual before any fees- 30.4% CAGR = Gross after base & other fees, but before performance fee- 23.6% CAGR = Net after performance and other fees
Assumed fees:- base fee van 1% + VAT.- performance fee van 20% + VAT (from zero)- other fees van 0.4% incl VAT (admin, middle office, audit)
Protea: 23.6% p.a.vsALSI TR: 14.5% p.a.
24
Current investment opportunity
FAIRTREE PROTEA
Segregated portfolios since June, QIHF launched 1 Sep 2016
Pro forma: Capital weighted returns used; June return for a partial month
Protea 0.43% 0.22% 0.30% -1.62% -0.32% Fairtree Capital
ALSI -3.02% 1.16% 0.27% -0.94% -2.49% Tel: +27 21 943 3760
diff 3.45% -0.94% 0.03% -0.68% 2.17% [email protected]
Oct Contact DetailsJun Jul Aug Sep
Current name: “Fairtree Sequoia Macro IDS QI Hedge Fund” – change of name pending
Minimum investment: R1m
Gearing: Net long of 50-70% at most times; gross gearing limit of 200%
Fees: 1% p.a. management fee and 20% performance fee conditional on cash (JIBAR) return
Also available on the RMB Equity-linked note platform with a R250,000 minimum & additional 0.65% p.a. cost
Founders Fee class available for minimum R50m investment before end 2016:Zero management fee & 25% performance fee above cash-plus-2% hard hurdle and a total fee cap of 4%
25
Different Perspectives create unique results
As an owner-managed asset manager we encourage independent thinking
WHY FAIRTREE CAPITAL?
26
Thank you
Q & A
27
Fairtree Capital (Pty) Ltd is a registered fund manager with the FinancialServices Board. The partnerships managed by Fairtree Capital (Pty) Ltd arenot regulated or approved financial services products in South Africa.Fairtree Capital (Pty) Ltd’s registration with the Financial Services Boarddoes not cover its management of such products.
Past performance is no guarantee of future results. Current returns shownrepresent past returns and may not be indicative of future returns. Theperformance of the fund is dependent on the making of correctassessments of the price movements of individual securities and otherinvestments. Financial markets have historically exhibited high levels ofvolatility and negative movements that have affected the price of all assetswithin a specific class. The fund’s investments will thus be subject to marketrisk. Through financial gearing via the Long/ Short process, the fund may beleveraged. This will mean enhanced positive gains but conversely can meanmagnified losses. No taxation has been deducted in the computation ofreturns. The taxation treatment of returns is the investor’s responsibility. Allreturns are disclosed net of performance fees.
We believe the information displayed is accurate and reliable, but nowarranty of accuracy or reliability is given and no responsibility arising in anyway for errors and omissions (including by way of negligence) is accepted byFairtree Capital (Pty) Ltd.
This information is not intended to provide advice to, or take into accountindividual investors objectives, or circumstances. This material should notbe construed to represent a solicitation to invest in the partnership and isdisclosed for reporting purposes only.
DISCLAIMER