Manager Research

Allan Gray announced a series of changes to the investment team in July 2020 which can be reviewed here. While changes to any investment team are expected over time, we need to ensure we evaluate the implications of the changes, to what extent the organisation has adequately prepared for these changes, and whether this results in a change in outlook for the management of the funds in question.

The changes involve the following team members: CIO, Andrew Lapping, will be relocating overseas and leaving the industry; fixed income portfolio manager, Mark Dunley-Owen, is relocating to Bermuda to join Allan Gray’s sister organisation Orbis; and Stable Fund portfolio manager, Leonard Krüger, resigned to take up a role in the equity team at Prudential.

With Allan Gray, we have historically been very comfortable with the succession processes in place. Their multi-counsellor investment approach, analyst training and development programme as well as their narrow focus within investments means that they have in the past had sufficient breadth to cover any departures, particularly amongst senior members. 

Recently we have had a higher degree of concern than usual, in part informed by a current trend towards emigration, but also where it has appeared as though the ability for Allan Gray to replace their senior team members seems more stretched than usual.

With this background in mind, we have recently concluded our fund review with the team and business. Over numerous sessions we tested all areas which are relevant to forming a view of the future of their fund management capability.

Our final ratings on the funds are shown in the table below:

Allan Gray Bond

We have downgraded this fund from Tier 1 to Tier 2. The fund is a unique offering in the bond space in that the duration is managed on a flexible basis where they aim primarily for absolute, rather than relative returns. Most peer funds don’t take meaningful positions away from the benchmark. This approach creates a burden on the portfolio manager to demonstrate a mature duration management competency, which is a skill that takes time to develop.

We had two meetings with the new portfolio manager, Londa Nxumalo. She has been a credit analyst in the fixed income team since 2017 (and within Ninety One prior to that) and has been a co-manager on the Bond fund for almost a year. Londa is a strong credit analyst and is highly rated by the rest of the investment team and the new CIO. She is supported by the broader fixed income team, which includes senior fixed income manager Sandy McGregor, money market manager Thalia Petousis, and the broader investment team.

Allan Gray promotes a culture of accountability, which is a positive, but it also means that investment decisions are ultimately driven by the portfolio manager. We felt that Londa needs more experience to demonstrate the full range of portfolio management competencies as the sole decision maker in the fund, which helps inform the Tier 2 rating.

Allan Gray Stable

The new portfolio managers on the fund are Duncan Artus (new-CIO), Sean Munsie and Tim Acker, who take over from Andrew, Mark and Leonard. Both Sean and Tim are new to portfolio management, having only managed notional portfolios in the past. Both came across well, where they demonstrated a clear understanding of the mandates, the components of the fund and how it all fits together.

Allan Gray's funds are managed on a multi-counsel basis, where each fund manager is responsible for their own slice of the portfolio. Given Sean and Tim's lack of fixed income and asset allocation portfolio management experience, we would be concerned if they were given a material slice of the portfolio to manage too quickly. This is, however, not the case and Duncan will manage the vast majority of the fund as Sean and Tim build experience.

While Duncan is new to the fund, he has been involved with the Stable Fund for 20 years He has participated in all the policy group meetings, he has a good understanding of the mandate and talks through the portfolio with comfort. He has also managed fixed income as the portfolio manager of Allan Gray’s institutional absolute return offering. Duncan is a natural sceptic and has a conservative portfolio management style which is well suited to this mandate.

We are comfortable that the fund will be managed consistently on a forward-looking basis, despite the changes, which is why we have retained the Tier 1 rating on the fund.

Allan Gray Balanced

The Balanced fund is more equity-centric by design and is managed slightly differently to the Stable fund in that the fixed income component is outsourced to the fixed income portfolio managers (consisting of Londa, Thalia and Sandy), while the fixed income component in Stable is managed by the portfolio managers of the fund. The impact of the team changes in the Balanced fund are therefore considered on the fund level, where Tim Acker and Rory Kutisker-Jacobson have been added as portfolio managers and Andrew has left, and also within the fixed income component, where Londa and Thalia have taken over from Andrew and Mark.

The Orbis component offshore does remain an area we have raised concerns with previously.  As the offshore investments have migrated towards the Orbis Global Balanced Fund (Tier 2) we have needed to assess how the general Allan Gray – Orbis relationship is functioning. At this point, while the structure is not perfect (outsourcing of decisions), there are sufficient benefits to the local team to gain comfort here.

We are comfortable with the team changes on the fund level. Three of the current portfolio managers of the fund remain (Duncan, Ruan Stander and Jacques Plaut), which ensures continuity in the process. A key role of the CIO in the fund is to manage their slice to ensure that the allocation of the overall portfolio is sensible to prevent unintended biases. We'll evaluate how Duncan implements this over time. The new portfolio managers, Tim and Rory, have managed notional portfolios in the past and come in with limited asset allocation experience, but their slices remain small as they build experience. Rory has direct fund management experience where he has managed the Frontier Markets equity fund since 2017.

The fixed income component within the fund is managed in equal weights by the fixed income portfolio managers consisting of Londa, Thalia and Sandy. While the loss of Andrew and Mark’s input here is material, we gain comfort for several reasons: Sandy is incredibly experienced and remains a key fixed income resource; Londa and Thalia are both strong analysts; the fixed income component in the fund is quite vanilla; and the portfolio managers of the fund have a keen interest in the exposure of the fixed income slice they allocate to, which ensures sufficient oversight. We will monitor how the team develops over time.

The combination of the above considerations has informed our Tier 1 rating on the fund.

Allan Gray Equity and SA Equity

Our comment and outlook on the team changes in these funds are the same as on the Balanced fund, with Tim and Rory being added as Andrew leaves. We are comfortable with the team and retain a Tier 1 rating.

To conclude, the general outcome of the review was overwhelmingly positive where the depth of investment capabilities has been shown to be the product of a conscious effort to build these over a long period of time. Allan Gray has been an employer of choice for some time and it shows in the calibre of people they have been able to develop. A few minor issues remain at business level but not enough to meaningfully detract from our outlook on the funds. The core of the business remains well focussed and strongly investment led, which is a strong basis from which to manage investments.