Every day, Ranmore Fund Management’s founder and chief investment officer Sean Peche uses what he learned during many years at the proverbial knee of SA’s greatest money manager, the late Dr Simon Marais. Those lessons include applying a tried and tested process of uncovering value – and working hard to avoid sectoral disasters. The result has been Ranmore’s consistent outperformance over the past decade and a half, catapulting its fund into the world’s top 1% performers. Now comes the best possible kind of recognition from SA peer Piet Viljoen, who is entrusting his firm’s $27m global value fund to Peche’s management. Peche spoke to BizNews editor Alec Hogg.
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Relevant timestamps from the interview
- 00:00 – Introduction
- 01:58 – How Sean Peche achieves his high returns
- 05:15 – On Andrew Lapping
- 07:15 – Cheap investments
- 10:09 – On British American Tobacco
- 11:39 – His deal with Piet Viljoen
- 16:06 – What happens if the deal doesn’t do well
- 18:40 – Aligning with Merchant West
- 21:18 – What’s holding Ranmore back
- 21:55 – Conclusions
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An edited transcript of the interview between Alec Hogg and Sean Peche
Alec Hogg: Sean Peche is the founder and chief investment officer of Ranmore. Today, we’re discussing a significant development involving Sean and his company that promises exciting opportunities for two prominent money managers. We’ll also delve into recent developments and explore how Sean consistently outperforms.
So, Sean, I spoke to David Bacher earlier this month about the Korean report in global funds. The best-performing global fund in the last year was the Fang’s index of Signia, with the Masi BCI Global Equity Feeder Fund following closely. Your BCI Ranmore Global Value Fund performed exceptionally well at 38%. Typically, value funds aren’t expected to achieve such returns. How do you manage this?
Sean Peche: Thank you, Alec. If we look at the latest year, the world index is up 19%, with values up only six and a half, growth up 32, and quality at 27. However, when we combine 22 and 23, the world index is up only 2%, growth is down three, and values are up 26%. We have the advantage of picking stocks globally, allowing us to find a few great ideas and avoid disasters.
I remember the late Simon Marais saying, “Find a few great ideas and avoid disasters,” and that’s precisely what we’ve done. We steered clear of US banks, metal and mining companies, and struggling consumer brands. Our approach involves having numerous small winners, ensuring performance isn’t dependent on one thing. We follow a disciplined process, screening stocks and maintaining a diverse portfolio.
For instance, we invested in Macy’s when it hit rock bottom in October, buying at $12, and today it’s received a bid at $21. It’s about capitalizing on opportunities and avoiding pitfalls. Our process is working, as seen with stocks like Expedia, which went up 40% last month.
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Alec Hogg: That’s impressive. You’re essentially following the advice of Simon Marais to find great ideas and avoid disasters. What about Andrew Lapping? Tell us more about him.
Sean Peche: Andrew is a top-notch individual and my Charlie Munger. I’ve known him for over 20 years, and he’s been involved with our fund for many years. Andrew’s insights and contributions are invaluable, and together we continue to navigate the ever-changing market landscape.
Andrew and I have regular meetings, even more so now. We connect every day at 2 o’clock for our discussions. I suggested to Andrew that since we’re always in communication, he should join us. Luckily, he agreed. Andrew is a superstar, and it’s a pleasure working with him. We have a fantastic dynamic, complemented by our team of analysts. It’s evident that our collaboration is yielding positive results. I jokingly told Andrew that it’s a free option for him; if things go well, everyone credits him, and if they don’t, he can attribute it to me. The truth probably lies somewhere in the middle.
Alec Hogg: I appreciate the partnership you and Andrew have. It’s refreshing to hear about your collaboration. Many investors express conviction in sectors like US banks or resources shares, believing they’re inherently cheap. However, you emphasise that being cheap doesn’t guarantee it will stay that way. Not everyone puts in the effort to find genuinely valuable companies; some opt for exchange-traded funds or neglect the necessary research.
Sean Peche: Exactly, Alec. Simply buying stocks with low PE ratios isn’t the answer. Many of those companies are cheap for valid reasons. Take British American Tobacco as an example—a significant value trap. The stock is down 24% in the last year, and it faces challenges with a considerable debt of $38 billion. Their business model, reliant on increasing prices, is struggling in the current tough economy, leading to declining volume and a potential switch to vaping. Active management becomes crucial in avoiding such traps and making informed investment decisions.
British American Tobacco’s recent drop emphasises the risks. Some value managers may feel compelled to include it in their portfolios due to tradition, but it’s essential to evaluate the changing landscape. Your insights into actively managing investments resonate well, especially when dealing with companies facing evolving challenges like British American Tobacco.
Alec Hogg: You often emphasise the importance of common sense in investing, a quality that’s surprisingly uncommon in the financial world. Let’s shift gears to a significant development: the deal you’ve made. At the BNC#6 in March next year, you and Piet Viljoen will share insights into the global investment universe. Tell us about this collaboration and how it unfolded.
Sean Peche: Certainly, Alec. Piet and I have known each other for about six or seven years. In the depths of the value winter, Piet reached out to me, expressing interest in cycling over to our UK office. We even toyed with the idea of forming a value supporters group for mutual emotional support during challenging times. Over the years, we’ve explored ways to collaborate, considering options like merging funds, but the complexities involved made it challenging.
We want investors in our fund, not managing segregated accounts, as it helps lower fees for everyone due to the fixed cost element. Last year, when discussing balance funds and performance fees, our fund was smaller, resulting in higher fees. However, as our fund has grown, the burden has decreased, and fees are now much lower.
I also have longstanding relationships with individuals like Paul Stewart and Brian Pyle at Merchant West, having worked together at Old Mutual early in my career. Paul proposed converting their Guernsey Fund into a feeder fund that connects to our fund. It’s a win-win, offering more scale and reducing high fee components. As part of the deal, they’ll also market us to South African institutions, benefiting both parties.
Importantly, there’s no change in shareholding or equity, keeping things uncomplicated. We stay focused on performance, avoiding interference. It’s an exciting development, with the potential for new products on the horizon. So, that’s the second leg, and the third involves exploring new opportunities.”
Read more: Exposed: The hollow promise of ‘Long-Term Sustainable Growth’ in the corporate world – Sean Peche
Alec Hogg: Let’s delve into the basics of the recent deal. If you’re invested in Piet’s global value fund, previously managed by Piet, now you’ll have Sean overseeing it in real simple terms. However, your money will now be directed into the Merchant West Global Value Fund, which, as a feeder, channels directly into the Ranmore fund that achieved a remarkable 38% return in the past year. Am I understanding this correctly?
Sean Peche: Absolutely, Alec. The money is consolidated into one pot. If you’re invested in Piet’s fund, it will be seamlessly transitioned into the Merchant West Global Value Fund, acting as a feeder into our Ranmore fund, which has shown strong performance.
Alec Hogg: And if the returns don’t match expectations, is there a mechanism to redirect the funds elsewhere?
Sean Peche: Our approach is akin to relationships; if it doesn’t work for the investors down the line, they have the flexibility to switch. However, we believe this alignment is a good solution for everyone involved.
Alec Hogg: I’m curious about the rationale behind this collaboration. Is it based on mutual trust or shared philosophies between you and Piet?
Sean Peche: Indeed, Alec. It’s beneficial for all parties involved. Clients gain exposure to a dedicated offshore team of eight individuals, allowing Merchant West to concentrate on the local market. The collaboration is a win-win, providing a focused offshore team at a lower cost.
Alec Hogg: Your explanation makes sense. It appears that the shared philosophy and regular communication contribute to a seamless partnership. Moving beyond the collaboration, being based outside of South Africa, how does aligning with Merchant West help you gain visibility and potential investors in the country?
Sean Peche: Aligning with Merchant West opens up new doors. It addresses concerns some investors may have had about the size and longevity of our fund. This collaboration provides more scale without the need for additional marketing expenses. It allows us to tell our story to a broader audience, potentially tapping into a new channel and capitalising on opportunities in South Africa.
Alec Hogg: Considering this positive development, are there plans for additional joint ventures or perhaps the introduction of new funds?
Sean Peche: There are early discussions about potential joint ventures. One idea is to explore a global value balanced fund, a cost-effective alternative to existing balanced funds. This product would involve trusted names like Merchant West and Ranmore, offering a low-cost solution without performance fees. It’s an exciting prospect that could reshape the market.
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