What top SA hedge fund managers have learnt

What four top SA hedge fund managers have learned from their mistakes

Some of South Africa’s leading hedge fund brains reflect on turning bad experiences into good ones.

Getting it wrong in fund management is inevitable. What often separates the very best managers from the rest, however, is what they learn from their errors.

Speaking during the Asset TV Alternative Investments Conference this week, four of South Africa’s top hedge fund managers reflected on mistakes they have made and how they improved their process as a result.

‘A big thing we’ve learned is that sometimes we’ve been too conservative,’ Hurwitz said.

‘We’re very focused on protecting client capital, and we did that well in March last year. But I don’t think we were aggressive enough in redeploying capital into the market.

‘We’ve learned that we need to be more balanced in our approach and understand there’s a risk sometimes of leaving money on the table.’

While this might seem easy to say in hindsight, Hurwitz said that, even in the market turmoil of the time, they should have been more aggressive when the balance of risks shifted to the upside.

‘There was a period after some of the dust had settled in March and April when the market continuedto improve and you could see that some companies were net beneficiaries of Covid.

‘And with very little downside risk, you could have invested in these companies and done really well.We were invested there, but maybe we should have allocated more capital.’

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Matthew Pouncett
Assistant portfolio manager at Laurium Capital

‘One thing we’ve noticed through time is that we had a tendency to double down on losers,’ Pouncettsaid.

‘Effectively you buy a stock at a certain level, the share price goes against you, but you don’t change your view as you should.’

He said Laurium has worked hard at addressing this because it can be the hardest aspect of investing, when you buy a stock and it goes down. When this happens, it’s difficult to know whether you were wrong or the market is wrong.

‘Now when a stock drops to a certain level, we rotate the key analyst on that share for someone else to get a fresh view, because there is an inherent bias.

‘If you are the analyst who identified the opportunity, you are invested in that position and it’s difficult to be objective.

‘That’s something we have tried to refine and improve over time. You set an investment process and try to make it orderly, but you have to constantly do postmortems and refine that process by learning from past experience.’