The fund that turned R1m into R100m

BY ALAN YATES Business Development, Peregrine Capital

At Peregrine Capital, our overarching goal is to create wealth for our clients. As an asset management business, this is the essence of our existence, and we have spent the past 22 years working to achieve this. December 2020 marked a special milestone for the High Growth Fund when it became the first fund in South African history to achieve 10 000% return for investors since its inception. This means that R1m invested on 1 February 2000 would be worth more than R100m today.

The goal of the High Growth Fund has always been to deliver exceptional returns to investors, and as such, it is the fund with the most equity market exposure in our hedge fund stable. The net equity exposure in the fund is typically between 60% and 80% and is therefore very comparable to funds in the multi-asset high equity category. Over the past 21 years, the average fund in the ASISA South Africa multiasset high equity category has given investors an annualised return of around 10.3%. The High Growth Fund has delivered more than double that at 24.9% per annum.

This sort of long-term record is not something that can be achieved by simply swinging for the fences and assuming excessive risk. In fact, it can only be achieved if risk management is a cornerstone of your process. Loading up on risky bets might give a fund an exceptional once-off return, but ultimately it will sink the ship at some point on the journey. Our process always values consistency and predictability of outcomes over great short-term returns. In the 21-year life of this fund, we haven’t had a drawdown of even half the biggest drawdown on the JSE. Over the fund’s life, the fund’s maximum drawdown has been 17% vs 40% for the JSE Capped SWIX. That for us is a key measure to look at, because lower drawdowns and volatility make for much happier investors. Achieving great returns on their own is not enough. They need to come with exceptional risk management as well. Managing the risks well also makes it that much easier to generate great returns. By managing our portfolio risk well in March last year (the High Growth Fund was down 1% vs 16% for the JSE), it made it much easier for us to post a good net annual return of 17% when the JSE managed less than 1% in 2020.

While 100x capital is an achievement that we are certainly proud of, it is more a by-product of our investment process than a goal we set out to achieve. More than anything, it shows the impact of the compounding of returns over an extended period. It highlights the importance of investing for the long term and sticking with a manager that can deliver sustained returns through the consistent application of a tried-andtested investment process. We are committed to applying those principles with renewed vigour for the next 20 years, so that we continue to deliver exceptional future returns for our clients.