Meet the manager of SA’s best-performing fund

You can also listen to this podcast on here.

This interview, which originally aired on RSG Geldsake on 8 December, has been translated from Afrikaans into English in the transcript below.

RYK VAN NIEKERK: It’s Thursday evening and that means that I’ll be chatting again to a well-respected South African in business. We discuss their careers, the businesses and companies in which they are involved, as well as what they do after hours to shake off some of the stress.

My guest tonight is Jacques Conradie, the chief executive and portfolio manager at Peregrine Capital. Peregrine Capital was founded in 1998 and it’s the oldest hedge-fund manager in the country. Jacques joined Peregrine in 2007, and we will shortly chat about what he has achieved with some of the funds.

But Jacques, a warm welcome to the programme. As I said, we are going to chat about Peregrine but first tell us where you have come from and when it was that you decided you wanted to be an asset manager?

JACQUES CONRADIE: Hello, Ryk. Good evening and it’s a pleasure to chat with you. I grew up in the Cape, in a small town called Kuilsrivier close to Stellenbosch. At school I enjoyed mathematics and I concentrated seriously on my academic studies, since my parents taught me from an early age to work very hard at anything you set your mind to. So I focused on that at school and then went to study actuarial science at Stellenbosch, which I enjoyed very much.

After that I went to work for Old Mutual in project development. After some 18 months there, I sat for the CFA exams and realised that I far preferred investments. So to some extent I managed both my father’s and my own money after university and enjoyed that. One of the main things driving me in that direction is that I love learning new things. One of my life philosophies is to be a lifelong student. I realised that in the insurance industry there would always be new things to learn quickly.

One of the wonderful things about the investment industry is that every day there is new news, there are always new companies to look into, and I realised that this would be something that would excite me, which could potentially develop into a passion for the rest of my life.

RYK VAN NIEKERK: Did I understand you correctly? Did you manage your father’s money while you we still at university? Was that his savings and retirement money, or was it just an amount of money he gave you to keep you busy?

JACQUES CONRADIE: He still had  his pension fund money in the pension scheme, but I think he gave me most of his other loose money to manage, and I had some money that I had won in mathematics olympiads over the years, which I added to the money he gave me to manage.

So that was something, giving me responsibility at a young age, and it fortunately worked out well for both of us.

RYK VAN NIEKERK: That’s interesting. Let’s chat about you as an actuary. To many people, especially a couple of decades ago, an actuary was someone wearing grey shoes and working in a back office at an insurer. The industry has changed completely, and we see more and more actuaries managing money, involved in asset management – not simply calculating the fine print of policies. Does that make a big difference to you as to how you look at potential investments – perhaps examining them from an actuarial point of view, rather than from an arithmetic or charted accountant’s point of view?

JACQUES CONRADIE: I think it definitely gives one a somewhat different way of looking at things. The important thing when you are looking at investments is that you should be intelligent, but you should also be hungry to seek information to find things that others don’t see. So certainly the actuarial aspect gives you a somewhat different way of approaching something.

And for a large number of our asset managers at Peregrine in particular, the object is to look at the risk angle – and as actuaries most of what we learnt at university is to manage risk.

Our view is always that if you can protect investors’ capital, then you are already far ahead at the start of the year. If you can avoid large losses, you will have opportunities to make money.

So I think that ability, in particular to recognise the risks in any investment and in the market as a whole, gives one a somewhat different perspective.

We also of course have accountants in out team. I think it makes for a good balance to have actuaries and accountants, with perhaps a few engineers.

RYK VAN NIEKERK: Let’s chat about your Peregrine Capital High Growth Fund. It started in 2012, and today it is the fund with the highest yield rate since its inception. It’s the best-performing fund and, if I correctly understand your documentation, if you had invested R10 000 in this fund in 2000, you would today have R1.2 million in it. Am I correct?

JACQUES CONRADIE: Yes, that’s right. That’s a return of about 120 times from where we started 20 years ago.

RYK VAN NIEKERK: But briefly tell us about this fund and why it’s so successful.

JACQUES CONRADIE: Ryk, I think there are a couple of things that one has to do properly to make good money for investors. There are not just one or two things, but a whole handful of things you need to do correctly.

So, as I said, the first thing is to protect your capital and ensure that you never lose a great amount of investors’ money. So if the market falls a lot, make sure that your fund is protected because in such times people become emotional, and controlling one’s emotions is a major part of being a successful fund manager.

We are all human. When everything is falling and going down, the typical person just wants to sell. They want to exit; they want to be in cash and feel safe. That’s when there are the best opportunities. So if you can protect investors in the downs, then you are ahead when there are outstanding opportunities, and then you can put capital into the market at the best possible time. So that’s of course one of your protections during those periods.

But another thing is to be truly hungry to find unique opportunities. You basically have to look through a company’s financial statements, through their results, offerings, and seek out the clues that other people miss. Our whole model is to work harder than anyone else in the market, and try to find investments that others miss, or discover them before the market does, because a year later or five years later people will see the good opportunities.

You have to find the (opportunities) before the market does, when there are no more than clues. Once everyone sees them, it’s too late, the share price is too high.

RYK VAN NIEKERK: Quickly mention one or two that you picked up in, say, the past ten years.

JACQUES CONRADIE: I would say my favourite story was Capitec, which I began to look at just after 2008. At that stage they had only 100 000 clients, and I think they have close to 20 million clients now. So it’s incredible to think back to how small they were. And that stage I went to see the company; I went to see the CEO saw at that stage, stepping on eggshells. No one really looked at the company at the time, because it was a small company. Only a couple of people in Stellenbosch owned the shares. Part of my method is to go and use the company’s products.

So we closed my wife’s Absa account, at R100 a month, and said ‘Let’s go to Capitec, it’s R5 a month’. After a month she said, “It’s unbelievable. I get exactly the same product for R5 instead of R100”. And something interesting that partly explained the investment for me was that, if she was paying at Woolies or a Pick n Pay with that card at that stage, then the teller would say, “I see you use Capitec. I have a friend who opened [an account] and likes it. What do you think of it?” You could see that Capitec users, the clients really made use of the brand and discussed it among themselves. It was just apparent that this would be a huge success story.

RYK VAN NIEKERK: Did you pay your wife a commission?

JACQUES CONRADIE: I bought her a few Capitec shares. So she gained much more than her bank fees. I think the share was at R40 or something when I first looked into it. One would never have thought it would get to R2 000/share, and our model is to sell a share when it gets to the right price – we probably sold at R1 100/2 000, but it still delivered a 10 times yield, which was incredible. In our model you do the research, you test the product, and you try to see something that others can’t see.  I think that was a good one.

And in this year Thungela Coal was our big winner. That, again, was  one of those stories. We bought the share last year when no one wanted to own coal, and everyone considered it was a dead industry. So, once again, go and look where no one else is looking, and discover it before everyone does.

RYK VAN NIEKERK: It is stressful managing portfolios in South Africa, to manage people’s savings and retirement money. What do you do to relax after shutting the door behind you on a Friday afternoon?

JACQUES CONRADIE:  I have a wife and three young children aged six, four and two. So my favourite thing is to spend time with my wife and the children, and for young children in particular it’s an outstanding way to shake off the stress of the market when you get home. They don’t care what is happening in the world or the company or in South Africa. They just want to play with a ball and run about. It’s wonderful to see the world through their eyes and to switch your attention away from what is happening elsewhere in the world. So that’s my favourite thing to do.

Then I’m crazy about reading. There is so much to learn in the world – how everything works, how different companies work, how the world works. And reading is the best way of acquiring that knowledge.

So many wise people came before me, and what better way is there to learn than to read their books? I always feel I’d rather learn from others’ mistakes than make my own.

It would save us much over time.

RYK VAN NIEKERK: What are you currently reading?

JACQUES CONRADIE: I’ve read a number of good books this year, to understand what is happening politically in the world at present. In places like America and Europe in particular the Democrats and the Republicans are largely divorced from one another, and I wanted to understand the capitalist system versus a socialist view of the world; why people have such divergent outlooks; and if there is any hope of reconciling things; and if we perhaps go through cycles from capitalism to a degree of socialism in the world. It’s of course very interesting.

Then of course I love to listen to and read investors’ books, books by well-known investors.

RYK VAN NIEKERK: Just lastly, in 30 seconds, here is a SMS asking: “What does Jacques think of the outlook for the local market over the next two years?” Thirty seconds.

JACQUES CONRADIE: Ryk, we think the market is fairly cheap.

We currently see better value in SA than in overseas markets, but we think there are big risks of interest rates rising more than people might think, and inflation remaining elevated. So our view is to sit in cash, but if the market falls 15%, maybe put bit of cash in the market.

So I would say we are fairly neutral for now, but I feel you want to sit with extra cash to give yourself the opportunity to put it to work if things become ugly. There is a fair chance of a 20%-something drop somewhere over the next while.

RYK VAN NIEKERK: Hold your powder dry. Jacques, thank you for your time tonight. That was Jacques Conradie, the chief executive of Peregrine Capital.

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