Qualified investor hedge fund · South Africa
RECM Flexible Value Prescient QIF
A flexible mandate that moves capital to wherever value is most abundant, with no benchmark to hug and no obligation to be invested.
The mandate
The fund has a strong value bias and a patient approach to finding the right opportunity. It uses a South African “hedge fund” structure, but a value strategy still requires a stomach for volatility: mispriced assets can take a frustratingly long time to correct.
The structure is deliberate, giving the widest possible investment universe in a tax-efficient vehicle. The opportunity set runs well beyond equities, into fixed income, commodities and currencies, with the use of derivatives.
The bulk of the fund is the personal wealth of the portfolio manager and associates, so investors are fully aligned with the manager.
Fees are set for the same alignment, and we pay them too: an annual fee of 1.0% (excl. VAT) and a performance fee of 20% of returns above the hurdle, measured on a rolling five-year basis. The hurdle is the JSE All Share Total Return Index + 2.5%, so by the time a performance fee is charged, investors have already outperformed the market.
Objective and opportunity
Our objective is to generate medium- to long-term capital growth for investors through achieving attractive returns. As discussed in Our choice of benchmark, we measure our performance relative to the JSE All Share Total Return Index. Notably, the performance fee hurdle is the JSE All Share Total Return Index + 2.5%, i.e. we do not earn any performance fees unless that hurdle is beaten on a five-year rolling basis.
Our opportunity is to achieve this result through a structure with maximum flexibility. It has been set up to take advantage of the following:
- The legal structure of the investment entity (a South African Qualified Investor Hedge Fund) means that income taxes and capital gains taxes are deferred for an indefinite period within the fund.
- The relatively small size of the fund means we can make meaningful allocations to opportunities not available to larger investors, both from an impact and a timing perspective. We invest patient capital from an investor base with a long-term view and a three-month notice period for redemptions. This allows us to invest in less liquid companies that larger funds are forced to avoid.
- We do not trade for the sake of it. Churn is kept to a minimum, as we only transact when it makes sense to do so. We don’t ever have to do anything to justify the fund’s existence.
- As a management team, we are also involved day to day with a range of other businesses in South Africa, giving us on-the-ground information and experience of business conditions. This helps us source investment opportunities and understand the real underlying economics of most companies.
- The structure is able to make private or unlisted investments, which we execute sparingly and only where we have intimate knowledge of the underlying entity.
By operating through the right structure, we believe we have the optimal platform through which to execute our various long and short strategies across a broad range of asset classes.
Core strategies
The fund combines long and short strategies. There is no targeted allocation to any of them: capital goes where the opportunity is most attractive, and waits in cash when none is.
Long portfolio
Profitable businesses whose management teams reinvest our share of the profits, compounding the investment on our behalf.
Shares or debt trading at such depressed valuations that the potential return is multiples of the purchase price.
Temporary price dislocations driven by rules, regulations, market structure and custom rather than by value.
Returns realised over a short, defined period around a specific catalyst: merger arbitrage and asset unlocks.
Short portfolio
A value investor’s approach to shorting: a defined framework whose primary aim is to add to returns.
Securities priced well above their correct value: Fads, Frauds and Fades.
Selected evergreen thoughts on investing
How we avoid cheap stocks that stay cheap, and why growth traps leave investors with less protection.
A framework we apply to every opportunity: what makes a business great, and why a string of trades is not a business.
Risk is the accepted unknown, mistakes are fixable errors, and failure is mistakes left to compound.
At a glance
How it is run
Every holding starts as a piece of primary work: accounts, competitors, capital allocation history, and where possible the people running it.
We buy at a discount to intrinsic value and sell as that discount closes, the sell decision is set by price, not by sentiment.
A manageable number of positions, each large enough to matter, each understood well enough to hold through a drawdown.
RECM capital is invested alongside investors in the fund.
Who it suits
Qualified investors with a multi-year horizon who want a genuinely unconstrained, valuation-led mandate and who can tolerate a portfolio that looks unlike the index, including periods when it holds cash, or holds assets that are out of favour.
Disclaimer
A South African Qualified Investor Hedge Fund, available only to qualified investors as defined in the applicable regulations. This page is a summary for information only and is not an offer, a solicitation or advice. Past performance is not a guide to future returns. Full terms are set out in the fund documents.
Collective Investment Schemes in Securities (CIS) should be considered as medium- to long-term investments. The Manager does not provide any guarantee either with respect to the capital or the return of the Fund. The value of participatory interests (units) may go up as well as down and past performance is not necessarily a guide to future performance. CIS are traded at ruling prices and can engage in borrowing and scrip lending. The Manager may borrow up to 10% of the market value of the portfolio where insufficient liquidity exists. Forward pricing is used. Fluctuations or movements in exchange rates may cause the value of any underlying international investments to go up and down. CIS prices are calculated on a net asset basis, which is the total value of all the assets in the portfolio including any income accruals and less any permissible deductions (Brokerage, STT, VAT, Auditor’s fees, Bank Charges, Trustee and Custodian fees and the Service Charge) from the portfolio divided by the number of participatory interests (units) in issue. A schedule of fees, charges and maximum commissions is available on request from the management company. Commission and incentives may be paid and if so, would be included in the overall costs. These portfolios may be closed. Different classes of units may apply in a portfolio and are subject to different fees and charges.
The Manager retains full legal responsibility for any third-party-named portfolio. Where foreign securities are included in a portfolio there may be potential constraints on liquidity and the repatriation of funds, macroeconomic risks, political risks, foreign exchange risks, tax risks, settlement risks; and potential limitations on the availability of market information. The investor acknowledges the inherent risk associated with the selected investments and that there are no guarantees.
Performance is calculated using net NAV to NAV numbers with income reinvested. The performance for each period shown reflects the return for investors who have been fully invested for that period. Individual investor performance may differ as a result of initial fees, the actual investment date, the date of reinvestments and dividend withholding tax. Full performance calculations are available from the manager on request.
This document is for information purposes only and does not constitute or form part of any offer to issue or sell or any solicitation of any offer to subscribe for or purchase any particular investments. Opinions expressed in this document may be changed without notice at any time after publication. We therefore disclaim any liability for any loss, liability, damage (whether direct or consequential) or expense of any nature whatsoever which may be suffered as a result of or which may be attributable directly or indirectly to the use of or reliance upon the information.