Cornelius Zeeman: Global investors eye SA, but sceptical of Ramaphoria 2.0 and mining growth

In this insightful interview, Fairtree portfolio manager Cornelius Zeeman discusses the firm’s growth, their global investor base, and the challenges of investing in South African markets. He highlights the scepticism foreign investors have following the “Ramaphoria” era, emphasizing the need for sustained economic growth and policy certainty. Zeeman also shares views on opportunities in cyclical companies and the cautious optimism surrounding the mining sector. Zeeman spoke to BizNews editor Alec Hogg.

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Edited transcript of the interview ___STEADY_PAYWALL___

00:00:08:08 – 00:00:39:13
Alec Hogg:
Every month, I talk to David Bacher from Corion, and it’s always an interesting conversation because he picks up the best-performing asset managers in the country. Regularly, Fairtree is there. We haven’t had a chance for a while to talk to anyone from Fairtree, but we’re changing that today. Cornelius Zeeman is on the equities side. He’s a portfolio manager at Fairtree, and he is today’s market commentator.

00:00:39:15 – 00:01:00:22
Alec Hogg:
Nice to talk with you, Cornelius. Fairtree has actually been pretty low-profile. You guys don’t advertise at airports, and I don’t see billboards about you. Is that a deliberate approach? Because you’ve got a lot to shout about. I see, time and time again, you’re right up on the performance tables.

00:01:01:00 – 00:01:25:15
Cornelius Zeeman:
You know, I suppose it’s a factor of our journey. We started out as a hedge fund business, which catered more to sophisticated investors. In that space, you really market based on your returns and whether they think that is sustainable. Over the years, we’ve grown a very successful equity franchise.

00:01:25:15 – 00:01:53:11
Cornelius Zeeman:
But we also have very successful fixed income capabilities, and that is now flowing through to our balanced fund, which has grown. Five years ago, we started our venture into global equities and emerging market equities, and we’ve been fortunate enough to be recognized across the board, winning awards from Raging Bull and Morningstar, etc. We’ve grown to about R50 billion in assets.

00:01:53:13 – 00:02:20:00
Cornelius Zeeman:
I think when I started ten years ago, we were at R20 billion. Today, 40% of our investor base is global, mostly sovereign wealth funds, which recognize our performance and capabilities. Our next quest is to raise our profile further in South Africa, specifically within the retail market, so we can become more of a household name.

00:02:20:00 – 00:02:20:16
Cornelius Zeeman:
Thank you for that.

00:02:20:21 – 00:02:28:08
Alec Hogg:
It’s a big number—40% from sovereign funds. Can you tell us which countries they come from?

00:02:28:10 – 00:02:56:16
Cornelius Zeeman:
So, there’s the Nordics, and quite a few countries in the Middle East. We also have support from North America, specifically Canada, and also in Asia. So, it’s really a broad spectrum of global investors. That’s mostly in equity-only mandates, as they typically choose country managers.

00:02:56:19 – 00:03:21:10
Cornelius Zeeman:
But we are having fruitful conversations now about running an emerging markets fund for them because you can actually add a lot of alpha by allocating to different countries. The divergence in performance is massive in emerging markets. For example, Mexico, Brazil, and Korea have sold off quite a bit, while China is now in vogue.

00:03:21:10 – 00:03:44:04
Cornelius Zeeman:
And we know India has been on fire for the last five years, benefiting a lot from people moving out of China. In the last couple of years, a lot of money has moved from China into India. So, if you can spot those moves and react to them, you can actually add significant returns to your allocation—not just securities selection alpha, which has typically been our strength.

00:03:44:06 – 00:04:14:00
Alec Hogg:
That, I suppose, begs the next question. We’ve heard a lot about the government of national unity and the positive vibes in South Africa. Our partners at The Economist and the Financial Times of London have been beating those drums. But when the rubber hits the road, where you guys see the money coming in, is there more interest from those investors who would use you to come into this market?

00:04:14:02 – 00:04:42:05
Cornelius Zeeman:
The conversations have really picked up since the election. Attending conferences with local companies and foreign investors, I definitely sense more interest now. But we haven’t yet seen foreign capital flowing into the local market. You must remember that South Africa is strong in various benchmarks like MSCI.

00:04:42:06 – 00:05:08:17
Cornelius Zeeman:
Foreign investors manage large checkbooks, so when they’re moving a couple of billion dollars, they want to ensure they’re investing in a sustainable trend and not just good vibes. They’ve been burned before—Ramaphoria taught them that. So, they’re happy to miss out on this 20% rally we’ve seen in the local market since the election. They want to see real change and sustained economic growth of 2–3% before they dive in. So, it’s mostly local managers who have benefited from the rally.

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00:05:08:17 – 00:05:27:00
Alec Hogg:
It’s interesting that you say they were burned during Ramaphoria. I suppose, “Fool me once, shame on you. Fool me twice, shame on me.” They’re taking a more conservative approach. Today, we had results from equities coming out…

00:05:50:16 – 00:06:01:20
Alec Hogg:
How much attention do you pay to the SENS reports? Do you see if you can perhaps gain an advantage by getting the news first?

00:06:01:22 – 00:06:29:22
Cornelius Zeeman:
Yes, effectively. We come from a fund background, so we are extremely active across all our equity mandates, whether it’s hedge or long-only. We definitely believe one of our competitive advantages is processing information quickly and reacting to it. The only limitation is that many of the asset companies have become quite illiquid.

00:06:30:00 – 00:07:00:04
Cornelius Zeeman:
Liquidity on the JSE in general has dropped off by about 30% over the last few years, so it’s becoming increasingly difficult to react quickly and make a few extra percent through that. It’s mostly about understanding the trends in earnings and then seeing opportunity in valuation. But as news comes out, we process it and adjust the portfolio accordingly.

00:07:00:07 – 00:07:00:19
Cornelius Zeeman:
What do you mean?

00:07:01:00 – 00:07:22:16
Alec Hogg:
Today, there were two bits of news I found interesting on the Stock Exchange News Service. The first was the interims from Equites, and I’d be very interested to know if you have a view on that. The second was a notification of an investor day by Attacq, with a presentation they’re presumably taking around Waterfall.

00:07:22:16 – 00:07:49:22
Alec Hogg:
Retail investors can’t attend these events but can certainly read what companies like Equites put out on the Stock Exchange News Service. However, we don’t get the inside picture like professional investors do. Would you go along to presentations like the one Attacq is hosting, given that it’s also a property company?

00:07:50:00 – 00:08:14:10
Cornelius Zeeman:
Yes, we definitely do site visits and attend these investor days. We’re not attending the specific one at Waterfall, but I see there is a YouTube broadcast, so the public can also access it. Obviously, we don’t have access to any inside information at these events. It’s important to hear directly from management what their plans are, especially since Waterfall is 70% of Attacq’s asset base and accounts for 60% of their earnings.

00:08:14:12 – 00:08:40:02
Cornelius Zeeman:
I remember 7 or 8 years ago being taken around in a golf cart by management at Mall of Africa—very impressive asset. Attacq reported strong results a month ago, and the share has performed very well this year, up more than 45% year-to-date. The Equites result was rather mediocre, but as expected. They raised the dividend by about 1%, tracking in line with full-year guidance, which also projects 1% growth in distributable earnings.

00:08:40:04 – 00:09:11:16
Cornelius Zeeman:
Their loan-to-value ratio increased from 39% to 41%, but they have a plan to bring it down to 38% by the end of FY25 by disposing of some non-core assets. Their share price has performed well, up around 17% since May, and their dividend yield is around 9%, which is attractive. However, this is similar to what you can get from other REITs like Fortress Income or Resilient, which are much more liquid, so it depends on the type of exposure you want in your portfolio.

00:09:11:18 – 00:09:35:00
Cornelius Zeeman:
We like to focus on large caps. Even when we were small, we were very vocal about predominantly investing in large caps because we want to stay nimble and change our positions when the facts change.

00:09:35:00 – 00:10:04:12
Alec Hogg:
It sounds to me like Fairtree is quite a bit like 36One, where you scan the whole market. Do you also avoid being labeled as value, growth, or momentum investors?

00:10:04:14 – 00:10:19:19
Cornelius Zeeman:
Yes, we are style-agnostic. The ideal investment for us is a high-quality company with high growth, but you have to be disciplined with the valuation you pay. Where we differ from some other managers in South Africa is that we are not shy about investing in cyclical companies.

00:10:59:21 – 00:11:26:06
Cornelius Zeeman:
You can actually make the most money and also leverage the most when you invest in cyclical companies because those companies tend to overperform and underperform, and things tend to overshoot and undershoot. So, we pride ourselves on trying to get the cycles right. But essentially, we are open to investing in any type of company—everything has a price.

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00:11:26:08 – 00:11:49:20
Cornelius Zeeman:
The ideal companies are high-quality businesses at a cheap valuation, but those are few and far between, as you would agree. Some of the best companies on the JSE, like Clicks, Capitec, and Shoprite, are trading at quite high multiples. Value managers might shy away from those companies based on their multiples, but we are happy to do our own valuations and decide what is a reasonable range for each company.

00:11:49:22 – 00:11:57:12
Cornelius Zeeman:
We’re very happy to make that determination on our side and not just rely on price multiples.

00:11:57:14 – 00:12:10:05
Alec Hogg:
You mentioned cyclical companies. I’ve been watching ArcelorMittal’s performance over the past few days, and it seems to be going up almost in a straight line. Is that too small for you guys to get involved in?

00:12:10:06 – 00:12:46:05
Cornelius Zeeman:
Yes, Arcelor is a bit too small for us. It’s a very difficult sector to operate in as they have a cost-of-production disadvantage versus companies in China. Chinese companies also have a high tolerance for making losses for strategic reasons, so it’s a tough space for Arcelor to compete. That said, Arcelor is relevant for us to monitor because they are a key client of a company like Afrimat, which we like. We saw this with Afrimat’s recent results—they struggled when Arcelor struggled.

00:12:46:06 – 00:12:59:02
Cornelius Zeeman:
So, we need to monitor everything happening in the market, whether it has a direct or indirect influence on our investment cases.

00:12:59:04 – 00:13:21:05
Alec Hogg:
Afrimat is interesting. I spoke to Andries van Heerden, the CEO, yesterday. I’ve been following his story for the last two decades, and he described the six months ending in August as the worst in the last 20 years. Yet, despite that, the share price, after a brief dip, bounced back quickly.

00:13:21:07 – 00:13:27:04
Alec Hogg:
I guess it’s a reflection of good communication, and shareholders didn’t abandon them.

00:13:27:06 – 00:14:07:06
Cornelius Zeeman:
Yes, Andries and the team are very transparent. We attended a conference with them a couple of weeks ago, and they made it clear that it was a very tough period. The earnings announcement was even worse than expected, but it seems that others had already factored this into their estimates. Investors are willing to look past a tough result because they understand the company’s strategy and long-term mindset. Afrimat has proven its strategy works over time, and investors are willing to accept short-term sacrifices for long-term gains.

00:14:07:06 – 00:14:16:22
Cornelius Zeeman:
It looks like things are picking up versus the interim period, and the long-term prospects still remain solid.

00:14:17:00 – 00:14:37:21
Alec Hogg:
Andries was one of the stars at the Joburg Mining Indaba last week. Bernard Swanepoel, who hosts it, mentioned he feels a sense of optimism at last for mining. How are you seeing the prospects for South African miners?

00:14:37:23 – 00:15:04:12
Cornelius Zeeman:
There’s definitely optimism across the board in South Africa when speaking to corporates. However, we’re not yet seeing green shoots in terms of activity levels picking up, especially in mining. South Africa is endowed with fantastic natural resources, but environmental regulations and other requirements make it a tough place to operate. Mining is a very long-term game—you’re sinking billions in capital expenditure and will only see returns five or ten years from now.

00:15:04:14 – 00:15:27:18
Cornelius Zeeman:
So, you need a lot of policy certainty when making these decisions. Additionally, you’re dealing with large labor forces, and handling labor unions can be difficult. We haven’t seen much new exploration or many new greenfield projects in South Africa. This presents an opportunity for a company like Afrimat, which is smaller than the traditional miners, as they can pick up assets cheaply when others shut down operations during tough times.

00:15:58:04 – 00:16:30:13
Cornelius Zeeman:
So, we see it in other companies too, like African Rainbow Minerals. They picked up the Akani Platinum Mine. We had our reservations about that, and we still think they overpaid for it and did so at the wrong part of the cycle. But there are a lot of assets sitting on the sidelines that other companies, with stronger balance sheets and a longer-term horizon, can pick up at a few prices, hopefully yielding good returns.

00:16:30:15 – 00:16:37:07
Cornelius Zeeman:
But in terms of new investments, I’m not very optimistic that we are at a point of inflection yet.

00:16:37:09 – 00:17:04:15
Alec Hogg:
You know, I get the feeling from everything you’ve said that South Africa really needs to prove itself again. Both the government of national unity and the regulations in the mining sector—which has carried this country for decades—have been stagnating for a long time. And it’s not going to come right until there’s confidence that this time will be different.

00:17:04:17 – 00:17:06:06
Alec Hogg:
Would you say that’s accurate?

00:17:06:07 – 00:17:36:13
Cornelius Zeeman:
Yes, certainly. There are so many factors that go into making a 10- or 20-year decision when starting a project. Firstly, you need energy security, which thankfully has improved dramatically over the last couple of months. But we still don’t have guarantees of an abundance of cheap energy five years from now. I think Andries, in your interview, mentioned that Transnet is at least a two-year project to turn around.

00:17:36:15 – 00:17:58:03
Cornelius Zeeman:
It doesn’t help if you can get the commodity out of the ground, but then you can’t ship it to the ports and sell it. And then there’s the other regulations and approvals that I touched on earlier. So, the network industries definitely need to improve sustainably for people to regain confidence in the sector.

00:17:58:05 – 00:18:03:10
Alec Hogg:
A very rational perspective. Cornelius, is there any upside in all of this?

00:18:03:12 – 00:18:27:21
Cornelius Zeeman:
Yes, I suppose. The fact is that the people who currently own operational assets are at least producing, and they’re not going to face competition from new production. This bodes well because if there’s growing demand for their commodities, prices will react positively, and those companies will generate good free cash flows and earnings growth going forward.

00:18:27:23 – 00:18:39:20
Alec Hogg:
So that’s, I suppose, another reason why Afrimat is so popular among professional investors like yourself. Cornelius Zeeman is portfolio manager at Fairtree, and I’m Alec Hogg from BizNews.com.

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