The three elements that drive exceptional investment performance (100X your money)?

Peregrine Capital, South Africa's longest-running hedge fund manager, hosted their first investor day on 16 February 2022 to share insights and learnings from two decades at the coalface of investing.

Peregrine Capital has created exceptional wealth for its clients since 1998. The company currently manages approximately R12 billion of investor assets through its two local flagship hedge funds, which are open to institutional and retail clients. They also offer a long-only offshore equity fund which launched in 2019. Their High Growth Fund is the first fund in South Africa to achieve 100X an investor’s initial investment, so a million rand invested in the fund in February 2000 is worth more than R100 million now. Their Pure Hedge Fund has never had a negative year since its inception in July 1998.

At the event, Jacques Conradie, CEO and Portfolio Manager at Peregrine Capital, discussed what he believes it takes to achieve 100x your money.?“You have to do many things consistently right to generate sustainable, strong investment returns. Our highly skilled investment team has consistently applied our unwavering?investment process since our inception, which has generated?strong risk-adjusted returns for our clients throughout Peregrine Capital’s history. In addition to this, we have been, and continue to be, invested alongside our investors, resulting in an unmatched alignment of interest that ensures we have our clients’ interests at heart at all times.”

The ingredients required to produce very strong industry-leading returns can be broadly grouped into three major categories throughout Peregrine Capital’s twenty-three years.

Firstly, attracting the right clients as partners with a long-term mindset is a vital ingredient that allows investment managers to make rational, long-term investment decisions.?“We want to partner for the long haul. Our philosophy only succeeds if our partners give us the space to invest in attractively valued companies that we think will outperform over multiple-year periods. The patience of our investors is a competitive edge for our funds, and we truly value and appreciate the faith that our investors continue to show in our process and our team,” said Conradie.

Secondly, people are vital in this business as they implement decisions and make investment calls. They will always be driven to perform and deliver superior returns with the right culture and values. Peregrine Capital’s values focus on a “Day One” mentality where speed, innovation, new ideas, client service, and meritocracy are encouraged, embraced, and lived daily. Underpinning those values are the people we have in the organisation.

Conradie commented, “Our typical model is to identify brilliant, passionate young people who love investments and then train them up in our philosophy. Bringing in young people makes it easier to mould them around how we see the world, look at investments and make decisions. We also set the business up with a very flat structure to facilitate debates and have constructive discussions from the entire team. Having that set of diverse opinions (experienced and youthful) drives insightful and speedy decision making.”

And then finally, Conradie stressed the importance of the investment philosophy and the rigorous implementation of that philosophy, which has not changed since the business started in 1998. Peregrine Capital is and will remain a fundamental bottom-up, valuation-focused investor.

“We only invest in our very best investment ideas.? We are not index huggers; we will not own a share simply because it is a specific size in the benchmark. Our team has conducted work on every company in our portfolio and the sum of these bottom-up ideas is what we think is the best risk-reward for clients at that point in time. We make sure that we only invest in businesses that we understand extremely well. We do a lot of work on the company's financials, we spend a tremendous amount of time with management, we speak to their clients and suppliers to make sure we understand the company's strategy, market position and competitive advantages. Only then do we build our models, debate them vigorously as a team, and conclude on a course of action. We make sure that we have the best possible information and knowledge required to make rational decisions. When we hit tough markets or very buoyant markets like we saw last year – we go back to our valuation-based approach our guiding light to optimise portfolio positioning”, said Conradie.

In closing, Conradie was asked what has been the outcome of this investment process, the people, and having the right client base??He responded with, “In short, the High Growth Fund is where we try to achieve maximum risk-adjusted returns for investors over the long run.? It is very pleasing to see what this fund has done over time. We are up about 115x since inception now, so we have not stopped pushing after we got across the 100x return mark, and hopefully, in a few years from here, we can stand here and chat about 200x returns for our investors.”