BOUTIQUE ASSET MANAGERS SUPPLEMENT
30 April 2020
IDENTIFYING AND UNDERSTANDING DOWNSIDE RISK advantage of mispriced securities. This ensures a sufficient margin of safety so that we don’t overpay for assets. This process ruffle Asset Management is an and philosophy, when combined with the independent, dynamic and ownernumerous benefits of being a boutique asset managed boutique with a 10-year manager, has enabled us to generate markettrack record of industry-beating returns. beating returns over the long term. Truffle’s funds rank in the top decile in their One of the defining aspects of our process various categories over numerous time is Truffle’s obsession with identifying and periods. At Truffle, we pride ourselves on understanding potential downside risk. We our inclusive, accountable and professional continuously test our investment theses to try culture, which flows from our idea and quantify the potential risk to the price meritocracy. The best ideas in the business of any asset in the event that our base-case are recognised, encouraging continuous assumptions do not materialise. learning and improvement. This helps us We spend just as much time trying to to meet client expectations in all that we understand the downside and tail risks as we do – from our administrative efficiency to do on the our client-servicing capability, and most upside of our LIMITING importantly, our ability to deliver the marketinvestment beating returns that ensure our clients are DRAWDOWNS IS case. This able to reach their financial goals. has helped us AS IMPORTANT As a boutique manager, we have many avoid many advantages over our larger peers. We have value traps TO US AS a wider investible universe, which means OUTPERFORMING and ‘bombs’ we can allocate capital to ideas that bigger that were not THE TARGETED managers are precluded from because of obvious at their large asset bases. In addition, we can the time, and BENCHMARK take advantage of market volatility by being has made a able to build and exit meaningful difference in putting our clients positions much faster. one step closer to achieving their financial At Truffle, we see goals. Protecting investors in difficult markets volatility as an and limiting drawdowns is as important to us additional source of as outperforming the targeted benchmark. alpha, as it gives us Despite the increased headwinds facing more opportunities active asset managers, such as regulatory to deploy capital requirements, growing competition and the where we see value. uncertain economic environment, nimble Truffle leverages firms that are able to combine their passion off our rigorous for investing with keeping clients’ interests at and disciplined the centre of their business will continue to process. We take market share from their larger peers. I focus on urge you to consider boutiques when looking establishing the for investment managers who have the ability intrinsic value to deliver consistently strong returns. of a business Superior risk-adjusted returns are not only so that we a function of picking the winning stocks but can identify also about avoiding value traps or ‘bombs’ Truffle MM Advert_FINAL.pdf and take1 2020/02/18 where08:39 investors suffer permanent capital loss. BY IAIN POWER Chief Investment Officer, Truffle AM
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KEVIN HINTON Director, The Collaborative Exchange
#NewWorldDisorder:
WHAT DOES IT MEAN FOR INVESTMENT BOUTIQUES
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he COVID-19 events unfolding over the past few weeks in financial markets have been of epic proportions and will create a new set of opportunities in which the ‘winners of the future’ will be defined and new characteristics will emerge. In times like these, it is the bold entrepreneurs – perhaps Facebook and Amazon – that will turn adversity into opportunity and a new realm of asset managers will arise. I do think that there will be asset managers today that will not be around in the next five years. This won’t necessarily be boutiques. It could be, but it could also be large asset managers. No longer will an adviser look at fund managers in the same way. The concept of risk vs return has brought on a whole new meaning and the standard risk metrics will no longer be valid. Advisers and asset allocators will now look brutally at fund managers with a new lens. This lens will now incorporate new principles that were never considered in the past. The old marketing adage that “we have the best investment philosophy, investment process, research methodology and employ the smartest investment talent, Sortino ratios, standard deviations, market drawdowns, etc” will all bring about new risk metrics. Investment distribution and content dissemination will have to be done in a completely different way with technology playing an ever-increasing role in the way marketing is done. Balance sheets will be weakened throughout all industries and increasing scrutiny will need to be done on every rand that is spent on customer and adviser engagement. Some asset managers already have implemented the capabilities to respond to their customers by the nanosecond. Yet, we see many fund managers that have not adapted the better and more efficient use of technology. Some large asset managers with big balance sheets and strong cash reserves may prosper and adapt. Some small boutiques may have held up better than their peers during this market decline, as they would have been nimble and flexible to adapt to market conditions. One thing that we do know, is that the bifurcation between ‘alpha’ and ‘indexation’ will now be accelerated and the #NewWorldDisorder will accentuate a new wave of innovation. In SA, when we have bushfires, the grass always grows back greener – but some trees never survive and are destined to ashes!
The value of experience.
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Truffle Asset Management is an authorised FSP. Full details and basis of the award are available from the manager.
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