Manager Research

We recently reviewed the Perpetua SCI Equity Fund and have concluded on a Tier 2 rating. This represents a downgrade for the fund from its previous Tier 1 rating. While we remain positive on the fund, there are a number of items which underpin a more cautious outlook on the fund prospects.

We share these below:

Business Growth

Perpetua is one of the few new entrants to the asset management industry which has developed a fully staffed team and in many respects developed their business ahead of the curve.  While early client and asset growth was encouraging, over the past few years this has been slower.  A higher growth rate in clients we see being needed to reinforce the positive business steps they have taken earlier on, to maintain business momentum and to retain staff.

Team Stability

While the core portfolio management team at Perpetua has been stable, the broader team has seen a large degree of turnover over the past five years. This being across both the investment and operations teams. We need to see this settle down and some team stability being evidenced for us to gain full confidence.  A key competency for asset managers is the ability to retain good staff with the investment industry being a human capital business before all else.

Past Investment Actions

While the Perpetua investment process is articulated in an impressive manner, there has been a lack of compelling evidence of its value-add in the track record since the inception of the fund. This has resulted in difficulty when corresponding the  investment process through to end investor outcomes. We originally gained comfort around the team’s stock selection skills by being more reliant on the qualitative aspects of their process. However, the track record is beginning to reach the point where outcomes can be measured and we find evidence somewhat lacking. A mitigating factor to consider is that the period since inception of the fund (2014) has generally been a difficult time for value orientated managers. There have been very few drivers of returns over this period, with a stock such as Naspers accounting for a large proportion of market returns.

These items require us to be more conservative in our outlook for the fund which is in line with our Tier 2 fund rating.