Laurium Capital has launched an offshore UCITS version of its aggressive long/short hedge fund, known as the Enhanced Growth Fund, broadening the investor base of those who can access its hedge fund capabilities.
The fund went live in ecember and sits on the Prescient Global Funds ICA platform in Ireland. It primarily invests in South African-based assets, and may also take limited exposure to other jurisdictions where growth opportunities present themselves.
Laurium has also applied for FSCA approval for a rand-based RIF feeder fund into the strategy. The fund largely mirrors the Laurium Aggressive Long Short Prescient I Hedge Fund, which launched in anuary 2013 and has been Laurium’s best performing fund over time. It has delivered a net annualised 14.3% since inception versus 8% from the SE All Share market.
Laurium’s Murray Winckler, who manages its hedge funds with Gavin orwerg and Matthew Pouncett, notes that 2023 was a tough year for its domestic hedge funds, which don’t include an international component, while their global equity strategy performed strongly, adding 25% in US dollars.
“As a team we have debated at length whether it is possible to have an edge in global markets. Our long-only global strategy is doing well and we will be slowly adding some global positions to our hedge fund strategy,” he said. Laurium has invested internationally for some time, boosted by the 2020 acquisition of Tantalum Capital, which brought Rob Oellermann on to the team. Oellermann runs a long-only active global equity fund as well as an 180 million global equity strategy managed for Thornbridge Investment Management. After two years of stellar returns, Laurium’s South African hedge funds were muted in 2023, delivering between 3% and -3%. “As a house, our best estimate for 2023 was that the global markets would return around 5%, and in the end they did 22%.
In SA, we thought we might get 15% but the market added just %,” said Winckler. “It was not a good year for SA Inc. Emerging markets were under pressure and commodities companies took a hit, so it was a tough year for performance.” The Laurium Aggressive Long Short Prescient I Hedge Fund dipped -2.05% for the year, with a three-year net annualised 22.01% and a strong 11-year track record of 14.3% annualised. “We see our aggressive fund as a replacement for a portion of equity exposure within a portfolio,” says Winckler. “Since inception, it has returned just under double the market with the same volatility. It is a good place to enhance equity returns while protecting against risks.”
The Laurium Long Short Prescient RI Hedge Fund declined by -3.48% in 2023, returning a net annualised 14.45% over three years. It has added 9.9% annualised since launch in August 2008, achieving its target of delivering two-thirds of the market upside with one-third of the downside. The Laurium Market Neutral Prescient RI Hedge Fund added 2.64% last year, and has gained a net annualised 14.32% over three years, or 9.88% since its January 2009 inception with a 6% standard deviation. “In general, hedge funds with international exposure did well in 2023.
We are domestically focused with some international hedging in place via index futures and put protection. In the end, that cost us a bit in 2023 but we believe it was important to hedge against potential risks,” says Winckler. He notes that while the MSCI ACWI Index ended 2023 with a total return of 22.2%, US market performance was driven by the so-called “Magnificent Seven” stocks Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla and Meta Platforms. It was a year of “significant divergent performance” between equity sectors and geographies, with large cap and US tech shares driving gains while “old economy” sectors such as energy and cyclicals lagged. “Globally we remain cautious on valuations,” said Winckler. “Global markets are still full, particularly in the US.
The S&P is trading at one-year forward multiples of 20 times.” “We do expect interest rates to come down this year but the market sees a probability of 150 basis points in cuts by December. We think we will only get that if the US is really struggling and unemployment is going up. The market is too optimistic and a lot has already been priced in. Markets are likely to struggle for the past two years, they have been underpinned by decreasing rates.” In South Africa, Laurium’s best estimate is for a 100-basis-point cut in rates this year, with G P growth at 1.5%. “South Africa needs to get through this year’s election with no big surprises,” says Winckler. “Loadshedding should improve by year-end, although ports and logistics remain challenging.”
“Bond yields remain attractive on a risk adjusted basis and our multi-strategy funds have a lot of fixed income exposure. Some SA stocks are very cheap – including banks and platinum shares. With just a little bit of good news, there is the potential for a big bounce in emerging markets. So there is reason to be optimistic on the SA side. Valuations are low and a lot of big structural problems have already been priced in.”
The team’s best estimate for the S P this year is for a 5% gain, while it expects 15% from the SA market in rands and the currency to remain at around R18.50 to the US dollar.
On the business and operational side, Laurium has moved the jurisdiction of its global equity offering to Ireland. The move adds a further Irish-domiciled UCITS fund to the firm’s offering, after launching the Laurium Africa US Bond Fund on the Prescient Global Funds ICA platform back in April 2021. “We believe Irish UCITS offers a better long-term structure,” says Winckler. Out of total assets of R52 billion, largely in South African strategies, and a team of 36 people, Laurium now manages R5 billion internationally, and R4 billion in hedge funds, where it sees significant scope for growth. In its most recent quarterly hedge fund commentary, Laurium notes that globally, geopolitical risks remain elevated going into 2024 with no near-term resolutions in sight for either the Russia/Ukraine or Israel/ Hamas conflicts.
Looking back, it notes that the tech heavy Nasdaq index appreciated by 43% last year, whilst London’s FTSE-100 – which is dominated by mining, energy, and banking – rose less than 4%. Small and mid-cap shares – across geographies – also performed poorly on a relative basis. China was particularly weak, with the ongoing property slump, geopolitical tensions and extremely negative sentiment weighing on share price performance. “However, we enter 2024 optimistic about the upside in our portfolio,” they said.
“The significant dislocations and wide performance divergence which took place in 2023 has presented us with very compelling outright, as well as relative, trade ideas. We are of the view that without taking significant risk or high beta exposure, the strategies can produce strong positive returns in 2024.”
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