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In this interview with BizNews editor-at-large Jackie Cameron, Protea Capital Management Founder and CEO Jean Pierre Verster talks about the intricacies of the hedge fund industry. Jean Pierre, best known for his successful shorts of African Bank and Steinhoff, gives his insights on the local and offshore equity markets, where valuations seem to be frothy. The maestro hedge fund manager has even managed to successfully short Tesla, which is no mean feat given the meteoric rise of the electric vehicle producer’s share price over the past twelve months. – Justin Rowe-Roberts
On what to look out for in a typical short-sell:
Well, I do think that when you think about typical shorts, you can you can think about them in terms of the three ‘F’s’ – fads, frauds and failures. And when it comes to frauds, those are actually quite rare. You don’t get a lot of companies that grow to a very large size on the back of fraud. So they haven’t been any of those recently. There are always some fads and some failures. And the last few months has actually been quite tough for a short-seller, I would say, since vaccine Monday in early November. Because a lot of companies that we think are failures or don’t create a lot of value over the long-term have now benefited from a lot of cheap money, a lot of liquidity. And that means that companies that otherwise might not have done well have done quite well, and therefore the share prices have done quite well in the last few months. So it hasn’t been easy being a short-seller.
On Neal Froneman’s comments around a Sibanye-Stillwater, AngloGold Ashanti and Gold Fields merger:
It’s an interesting one. So I think firstly, Neal Froneman is known for deal making. If you go back a few years ago with Uranium One, he wasn’t very successful, but he has been very successful with Sibanye-Stillwater. When you look at the three big gold companies, a company like AngloGold Ashanti doesn’t really have any South African gold mining exposure and a company like Goldfields only has South Deep. So I can’t see where it makes strategic sense for them when they don’t really have a South African footprint footprint versus a bunch of still water, that it does have a significant South African footprint. So Mr. Froneman will need to come to shareholders and explain to them why this makes sense and what the synergies would be.
On US equity market valuations, specifically companies on the technology heavy Nasdaq:
Yes, I would say that the way that we manage portfolios is we never take a one way bet. So in this case, where we felt like last year that some of the shares were expensive, we cut a lot of our long holdings, but we are still long tech stocks. It just was a case of some of these companies, which are great companies that compound value at a very high rate, got so expensive that we felt that a lot of the value that they do create was already discounted in their share prices. So we haven’t flipped all the way from being long tech shares to being short, but we are a lot less long tech shares.
On whether the market is in a bubble:
It seems like the bubble is quite broad and some people have called it the ‘everything bubble’ this time around, which I wouldn’t go so far as to say everything. I would say most things are in bubble territory. So whether it’s the tech shares, which are high quality companies that are very expensive, currently, they’ve come back a little bit, but they’re still on the expensive side or whether it’s the low quality companies that have seen a doubling in the share price. In the airline sector or the hospitality sector or the oil and gas sector, their share prices are back to where they were pre-Covid a year ago, which is quite unbelievable. They also look expensive now. And there are pockets of opportunity, I would say, for instance, the US health care sector.
On shorting Tesla:
Yes, we have been short Tesla twice over the last few years, and I’m happy to report that we made money on both those occasions we were short. The most recent one was roughly a month ago, right at that at the height of the of the the Fed, the excitement of things like buying Bitcoin, we shorted Tesla on a balance of probabilities. We felt that was a good risk return payoff.
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