Laurium’s new Enhanced Growth retail hedge fund, a long-biased long/short fund with an unconstrained mandate, has added more than 24% since launch in March, offering international access to South African alpha opportunities. The Laurium Enhanced Growth Prescient RI Hedge Feeder Fund invests primarily in listed South African equities but has an international flavour in that it may invest in select global equities. It feeds into an Irish-domiciled, dollar-denominated UCITS fund, and can therefore be accessed directly by investors who would like to invest offshore, in US dollars.
The mandate largely mirrors Laurium’s long-running aggressive long/short fund, structured as a QIF, although it may allocate to select international equities. Structured as a retail investor hedge fund, financial advisors (IFAs) and discretionary fund managers (DFMs) will be able to access this fund via LISP platforms.
“Given where the world is, many IFA clients have a lot of offshore exposure. The S&P has been a phenomenal market in recent years, with exceptional growth from developed markets,” says Matthew Pouncett, who co-manages Laurium’s equity-focused hedge funds with co-founders Gavin Vorwerg and Murray Winckler. “Clients want to access the alpha opportunity in South Africa but they don’t want to bring back their rands. They are prepared to pay away the interest-rate differential to eliminate volatility.”
“For those with the ability to invest in dollars, investing in the UCITS fund directly and from offshore has notable benefits, most importantly that the underlying portfolio is fully hedged against rand weakness. Returns are reported and measured in US dollars, with no impact from potential rand volatility.”
Laurium has been managing hedge funds since 2008. The Laurium Aggressive Long Short Prescient QI Hedge Fund was launched in 2013 and has an annualised return since inception on January 1, 2013 to September 30, 2024 of a net 15% in rand versus the equity market (Capped SWIX) return of 9.1%, with similar volatility. The Enhanced Growth RIF has a minimum investment of R20,000, with daily liquidity. The Aggressive Long Short is available only to qualified investors with a minimum investment of R1 million, and trades monthly.
“While our flagship aggressive fund is structured as a QIF, we realised that we were not bumping up against the RIF mandate limits, such as 200% gross exposure,” Pouncett adds. “Some clients want the qualified fund and others require a retail product. The strategy and approach are very much the same.”
The fund is Section 65 approved under the Collective Investment Schemes Control Act (No. 45 of 2002) for South African investors. As with all Laurium’s hedge funds, Enhanced Growth uses fundamental bottom-up research with a value bias to generate a concentrated portfolio. Leverage and derivatives are used where appropriate to enhance yield, protect asset values and minimise volatility.
The Enhanced Growth RIF has returned 24.9% in the seven months since launch in March, while the UCITS fund, which launched in December, has added 18.8% year to date. The fund aims to provide consistent real returns, seeking to deliver at least 10% per annum greater than the SA Consumer Price Index on a rolling three-year basis with medium volatility relative to the JSE ALSI and a medium risk of capital loss.
Laurium has deep internal research expertise, with an investment team of 18, building views that feed across all its portfolios. It believes there are clear risk/return benefits of blending South African and global equities, developing a strong in-house global capability in recent years and offering two long-only global equity funds with assets of R5 billion.
“Our hedge funds are equity-centric but we have great flexibility in our mandates. That is the beauty of hedge. Adding offshore exposure will dampen risk. It gives us access to more themes and different ideas,” notes Pouncett. Pouncett notes that Laurium’s hedge funds have benefited this year from a macro view on bonds. “We have had somewhat unique positioning in that we have held a large position in long-dated South African bonds. Our funds are equity-centric but we took a view that bonds had a great risk-return. We could get high-level equity-like returns if things went well and, conversely, would see limited absolute downside if yields continued to widen.”
The funds traded SA Inc counters profitably around the mid-year election, and have also benefited this year from trading Prosus/Naspers as well as platinum and gold holdings, which have been helped by recent Chinese stimulus measures. “We have had exposure in SA domestic banks and mid-cap industrials which we partly hedged through rand short futures, which didn’t cost much. A mix of individual stock-picks such as Momentum have served us well, and we have limited losses when necessary,” says Pouncett.
The team has been more cautious ahead of the US election, with strong 12-month numbers from many developed markets bringing multiple re-ratings while inflation is still running hot. The S&P is trading at 22 times earnings. They remain “cautiously optimistic” on the SA market, with the infrastructure reform story taking hold even before the new government came to power, benefiting a lot of shares.
“The infrastructure story has wide-ranging benefits. Banks are part of the credit creation, and we see opportunities on the corporate investment side. We are wary on the consumer front.”
He notes that while food inflation has come down for the mass market, mortgage rates remain high alongside increasing utility costs and downward pressure on wages, and could cause a lag in results for consumer companies. One concern is that the South African Reserve Bank is still tight on monetary policy. Real rates are high and that puts a burden on the ability for risk assets to rally, in an environment where cash is returning 4.5% real and bonds around 10.5%.
“The Reserve Bank has indicated that they don’t want to move ahead of the Fed [on interest rates],” says Pouncett. “Post-G20 we had a big relief rally, but from here on we see more moderate returns largely from dividend yields and steady earnings growth, but not necessarily multiple re-rating. Earnings are still quite depressed so a bull case will see that change.”
Out of total company AUM of R58 billion, Laurium now manages R3.8 billion in hedge funds with capacity for up to R8 billion. “Our capacity across our hedge fund mandates is based on where we see liquidity on the JSE now,” says Pouncett. “The capacity constraint is on the short book, not on the long side. We only short if we can cover a position within days; we have very tight liquidity rules. For us, it’s a risk-reducing tool. It is very difficult to make absolute money on shorts in isolation, especially in a trending market.”
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