Manager Research

Bridge:

A major change in the business was the announcement that Bridge entered into an agreement to sell their private client and stock broking business to Sanlam Private Wealth (SPW). This has relatively minimal impact on the fund management side. The transaction will result in the migration of several portfolio managers and all private clients from Bridge to SPW. Bridge retains the fund management business (including their Payers & Growers brand) and the Manco. The transaction is still in the process of being finalised but is expected to be completed before the end of the year.

We aren’t concerned with the change for several reasons. Firstly, the departing portfolio managers weren’t involved in the management of the unit trusts at all, so there is no impact on the funds. Secondly, the remaining fund management business remains financially sustainable despite a reduction in the AUM due to clients being migrated to SPW. Lastly, the change actually results in a more focused asset management business.

We have retained our ratings on the funds reviewed as follows:

Foord:

We reviewed all of Foord’s local funds in September, spending time with William Fraser, co-manager of the Balanced fund, and deputy-CIO Darryl Owen.

Foord has recently been tested by a period of poor performance, where several of their equity calls have detracted from performance. Despite this, we aren’t concerned with the extent and depth to which they cover local equities. A consequence of their performance has been a sustained period of outflows. However, Foord remains a substantial and sustainable business, so we aren’t concerned with this costing clients over the short to medium term.

Our primary concern remains the development of the broader team and the full range of competencies across the team outside of Dave, especially in terms of asset allocation. Dave is a skilled global asset allocator, and this is difficult to impart on the next generation. The development of the team is something that we are monitoring closely.

We retained our ratings on the funds reviewed as follows:

Allan Gray:

There were a few updates that came out of our recent review of Allan Gray’s fund range. The most material change to the business over the last year was Simon Raubenheimer resigning in July, which we commented on here. Despite the loss of institutional memory with Simon leaving, Allan Gray remains great at managing succession and we don’t have any material concerns with the gap he leaves behind. They have a broad team of portfolio managers and analysts with significant depth and experience.

We have been noticing nuanced changes to the way the objectives have been implemented in Allan Gray Stable over the last 5 years, particularly since Andrew Lapping took over as CIO. Not so much in philosophy or process, but rather in the team’s perception of the risk profile of the fund. For example, the unhedged equity and offshore positions in the fund are much higher than before. Their exposure to Africa and property is also higher than before. The result is that we expect the performance profile to be slightly more volatile going forward.

We have retained our ratings on the funds reviewed as follows*:

Prescient:

The business has gone through numerous structural changes over the last 5 years, which has been an ongoing concern we’ve been paying close attention to. The most recent changes include Stellar selling its stake in the business to Thabo Dloti’s new venture Sithega holdings, and shares being allocated to key staff that didn’t previously own shares. After spending time with the team, our assessment of the changes is positive, from a capital structure and staff incentivisation perspective. However, the ongoing changes continue to serve as a distraction to the investment team regardless of whether the outcome is positive of negative. This continues to concern us, and we’ll need to see a level of stability in the business structure going forward.

Farzana Bayat, Ryan van Breda and Teresa Lu left to set up their own business and JP du Plessis resigned recently to join Laurium. We see these changes as a by-product of the instability and historical remuneration structure in the business. While their departure is a major loss of experience and institutional knowledge in the team, Guy Toms is still the final trigger puller on Prescient Income Provider, which gives us a sense of comfort that there won’t be any disruptions to the process. Despite the loss to the team, there is still adequate research coverage in the broader team and they have also hired to replace those that left. Our long-term concern remains around succession in that there isn’t an obvious replacement for Guy at the moment, however they are aware of the risk and are actively planning towards succession in the next 3-5 years.

Our ratings on the funds we reviewed* are as follows:

We downgraded Positive Return QuantPlus as a reflection of our broader business and team concerns. The instability and succession risk play a bigger part in funds with a longer investment time horizon. The fund remains investable in our view and the portfolio manager, Bastian Teichgreeber, impressed us in his understanding and implementation of the derivative strategies in this fund.