The world is changing fast and to keep up you need local knowledge with global context.
During BNC#5, Ranmore founder Sean Peche was quizzed on a variety of topics, starting off with how he intends keeping his fund among the top 1% performers globally. He was in conversation with Alec Hogg and members of the BizNews tribe.
Timestamps for the Q&A below:
- Sean Peche on being in the top 1% of global performers – 01:20
- On ‘liberating’ financial advisors – 03:45
- On being an active fund manager – 05:50
- On European Banks – 07:10
- On opportunities in the South African market and his exposure to SA stocks – 18:25
- On how they’re incentivised – 21:45
Some extracts from the Q&A:
Sean Peche on being in the top 1% of global performers
We were only in the top 1% because we stuck to our guns. We said that this doesn’t make sense. We are not going to participate in Tesla and Peloton and Zoom and all of that. It doesn’t make financial sense. That 1% is not our focus. Our focus is just doing sensible things with people’s savings and wherever we end up, well, that’s where we end up. But we can’t chase 1% – that’s just the results. From a value perspective, the pressure to change was enormous. If I’d been at anywhere other than maybe Investec, I would have been fired, no doubt about it, because to underperform for three years – you’re out, you’re done. And so that is what the pressure is on normal fund managers. But we’ve seen through it and the wind has shifted. I’d be surprised if Microsoft’s growth starts accelerating. We saw Hewlett-Packard come out with results, and I think revenue was down 19%. So things are always changing – it’s an ever moving world. So, buy and hold. We saw Warren Buffett and Berkshire Hathaway – they sold Taiwan Semiconductors. They’ve taken the view that the Chinese risk is not is not worth having, so they’re going to act. And we like that. I spend every waking moment and most of my sleepy moments thinking about the portfolio: Is this right? Have I got too much? Is the risk there? All that sort of stuff.
On ‘liberating’ financial advisors
I would just encourage people to liberate your advisors, say, ‘well, if you are only going to give me the names of the big companies, I know those guys, I don’t need to pay for advice from you. I could do it myself. But go find me these boutiques who are going to outperform because that’s when you really add value.
So we are going to tell people what we do and we only want investors who agree with how we manage money and they think it makes sense and we are going to go and find those undiscovered jewels and wait until they become jewels. And if they don’t become jewels and we suddenly find out, actually, this is a piece of rock, not a diamond. Well, we want to be able to exit and we can exit because we’re not stuck in something that doesn’t move.
On opportunities in the South African market and his exposure to SA stocks
We only have a 1% position in a company in South Africa and that is Thungela. We did very well on Thungela on the way up and have been nibbling after the substantial pullback. We do have the luxury of looking around the world. So I can go buy the European food retailer and then I can buy the American food retailer because that’s attractively priced and I can buy the European car manufacturer and I can buy the South African coal mine. So that is the luxury that we have. We can cherry-pick.
There are some South African banks that sound attractive but Santander’s has six times earnings, so I can buy a six times earnings company in South Africa or Santander. Santander would be more liquid and I won’t have to worry about the currency as much. So that, I think, is a factor. Now, you could argue that the South African companies make a higher return on equity than Santander. Yes, but I think Santanders will be working off a lower base, etc. So, I think I have the luxury of being an international investor and I can choose to invest wherever. Would I rather buy Sasol? No ways. Petrobras over Sasol every day of the week because the Brazilian government has 50% of Petrobras. So they have an incentive in making sure this business is profitable. The South African government does not own 50% in Sasol. And, who knows, we could wake up tomorrow and the basic fuel price levy formula has changed.
On how they’re incentivised
Asset management is very lucrative, but not if you’re a tiny boutique like we are. Hopefully at one point it will be lucrative and what we’ve publicly said in our prospectus has just been revised up: as we grow our fees are coming down. There’s a sliding scale in the prospectus. So we trying to do that. There’s a thing called active share that I think everybody should look at. How different are you from the index if you have low active share and you’re very similar to the index, invest in the passive. If you have high active share well I’m offering something different. So if I’m offering something different, then why must investors pay the rates of the passive. The problem is that in theory it’s great but then you charge performance fees- but over what period? And what’s the mechanism? They’re very complex things. If you’re a daily dealing fund, like we are, do you have a new series for every investor every day. Because if you invest today and it goes up, will you have watermarks different to the guy who invested yesterday? So you’ve got to have a new mechanism. It can get really complex from an administrator. And that’s why many hedge funds only deal monthly so that you have a different series for each month. And then when they all hit high watermark, they all convert etc. So, all we’re going to do is charge a fair fee. If I charged a performance fee based on my peers, I think, the peer benchmark would have been 5% last year and we didn’t. So I just want to charge a fair fee and we’re not getting rich, I can promise you. And when we do, it’s all going to go back – 25% of our revenue is going to go to charitable causes that our clients are going to choose.
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