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Peregrine Capital delivers strong fund performance in 2023 amidst local and global challenges

02 February 2024 Peregrine Capital
Jacques Conradie

Jacques Conradie

Peregrine Capital announced its 2023 performance for its two flagship funds, with the High Growth Fund and Pure Hedge Fund achieving impressive returns of 14.7% and 12.5%*, respectively. The fund returns continue to have a low correlation with peers and the overall market, due to their unique portfolio construction and identification of opportunities that are not simply linked with the overall index.

Global economic resilience: Navigating challenges and seizing opportunities
As markets rebounded strongly in 2023 after a challenging 2022, Peregrine Capital closely monitored global economic trends. The primary concern was whether central banks could effectively address soaring inflation while balancing aggressive rate hikes to protect economic growth. Surprisingly, inflation fell consistently throughout the year, thanks to decisive actions by central banks, including the Federal Reserve.

The resilience of the global economy in the face of higher interest rates was remarkable in 2023. While the full impact of interest rate increases may still materialize in 2024, the rapid decline in inflation has provided central banks with tools to offset potential economic weakness.

South African market resilience and optimism for the future
The South African market faced challenges in 2023, particularly with loadshedding at Stage 6. Eskom's failures had a significant impact on domestic companies listed on the JSE in the first half of the year. However, Peregrine Capital's analysis suggested improvements in the power situation in the second half of 2023 and meaningful progress into 2024 and 2025. Private solar generation and government’s renewed collaboration with the private sector are indicative of further progress on the electricity front.. The collapse of Transnet, crime prevention, and challenges with water infrastructure remain of concern and are likely to persist in the year ahead. Peregrine Capital continues to find value in resilient South African companies as seen in 2023's fund performance.

Fund performance and lessons learned
Entering 2023 cautiously, Peregrine Capital successfully navigated the year with below-average market risk. Limited losing positions, coupled with strategic responses to economic and company-level data, contributed to the funds' overall success. Key lessons learned include the importance of distinguishing between temporary and structural changes when assessing falling stock values.

Reflecting on missed opportunities, Peregrine Capital acknowledged the potential of engaging more aggressively with opportunities like Meta at the end of 2022. The positive outcomes from active engagement and position building during uncertainties were evident in the successes with Pinduoduo and Adyen.

Success Stories: Pinduoduo and Fortress
Pinduoduo’s innovative e-commerce model, coupled with attractive valuations, led to substantial returns. The strategic decision to actively engage and build positions during market pullbacks contributed to the success of Pinduoduo and other winners in 2023.

Collaboration played a crucial role in achieving positive outcomes beyond market trends. The case of Fortress Real Estate Investment showcased Peregrine Capital's engaging approach to resolving complex company situations. By collaborating with other shareholders, a “win-win” solution was devised to eliminate the dual-class share structure into a single-share structure, unlocking significant value for all shareholders and supporting the highly successful operating business and management team.

Looking ahead to 2024: Navigating elections and geopolitical tensions
As 49% of the world population heads to the polls in 2024, Peregrine Capital remains vigilant about opportunities and risks arising from elections, particularly in South Africa and the US. Geopolitical tensions, exemplified by ongoing conflicts, will continue to be closely monitored for their impact on markets.

Click here to read the full 2024 annual Investor Letter.

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