Speaker 0:
welcome to us at T V's Master Class on hedge funds with me, Joanne Banham. Today I'm joined by Isha Odenthal investment strategist. Old Mutual multi managers.

Speaker 0:
Tumi ate investment analyst and co manager on 361 multi asset portfolios. And Andres Stan, Chief Executive officer and Chief Investment officer Stan Capital Management.

Speaker 0:
Welcome to you. All

Speaker 0:
2020. I'm I'm glad you're here too, Andrea, because let me tell you, this is a tough 2023 But it like, I'm gonna pick up with you as the investment strategist in the wrong.

Speaker 0:
Everyone was predicting that 2023 would be difficult. And yet equity markets are flying. What do you make of these current markets?

Speaker 0:
Yeah, I mean, there's no there's no easy answer here. I think

Speaker 0:
you know, And And And I think you can tackle this from a couple of different directions. I mean, the the the one is to look at the just divergence between global bond markets and global equity markets.

Speaker 0:
Equity markets obviously, um, in positive territory year to date. Especially if you look at the US. Japan is also having a good year. Uh, bond markets. You still have a very deep yield curve in version, which is typically a precursor to a recession. So you're getting these mixed signal signals from from the bond market and the equity market. The bond market guys like to believe that that's the smart money and the equity markets. The dumb money. Um, I'm not gonna weigh in on that. Um,

Speaker 0:
yeah, I do think I do think the equity market is, uh is is probably a little bit over enthusiastic. Um, most of the returns this year again, which kind of focusing on the US for a minute. You know, most of the returns this year have come from from a a re rating. In other words, you know the PE ratio has increased earnings, you know, continue to be its better than expected. But it's It's not as if, uh, you know, companies are shooting the lights out. So there's an There's an excitement among investors that there's better days ahead.

Speaker 0:
Uh, perhaps, you know, the equity market is pricing in a soft landing. Obviously, there's also, you know, all of this, uh, a I stuff in the video, you know, that's also in the background

Speaker 0:
um but yeah, I think it's certainly been an unexpected, uh, start to the year in terms of in terms of what the equity market's done.

Speaker 0:
Um, And you wanna say something?

Speaker 1:
Yeah. II. I want to latch on to that. Thanks is like that. Most of the return this year in the markets, particularly in the US, has been driven only by a few stocks. So it's no longer the S and P 500. It's more like the S and P five, right? So there's a measure of market narrowness, uh, you know, comparing the equal weighted index versus the market cap weighted index. And so if we do that in the US, actually, that disparity is the highest on record.

Speaker 1:
And so, typically that is a sign of toppy markets. And if we look back at the so you know, year to date, it's the record. But previous periods where there's been a big disparity is 1999 2006, um, and, uh, during a part of 2020. So those typically were periods where within a year or so, you did see markets turning down, So I do think it's it warrant warrants some caution.

Speaker 0:
I just wanted to add that on. Add on to what they're saying. So I think the market has been prematurely and repeatedly pricing in rate cuts, so they're continuously looking forward to see OK, at which point are rate cuts gonna come in and they don't want to be left behind in equities. So that's a major reason why you'd still see people, um, tending towards equities in this market

Speaker 0:
and just to add on to what Andre was saying, Um, just on the narrowness and the breadth of the market, I think there's quite diverging views on whether the narrowness and the breadth of the market could be part, um um, an area of caution. Or it could be a worry for future returns going forward. I think I saw a research piece by Bales saying that

Speaker 0:
actually, if you look at all the previous points in which market bread was the lowest, you actually did have returns sort of continuing in the long run as people switched to different sectors and only 22 exceptions to the rule when it was the nifty fifties and the dot com bubble is when that breadth then resulted in a downfall in your equity markets.

Speaker 0:
OK, so you brought out the dot com bubble and Andrea, you also mentioned, I think, 2099. If you look at today and to listen to Tommy, there's often the markets do rally even when there's narrow grid. But there have been exceptions, and most people in our markets have to look at economic history. So, Andre, my question to you is, What do you think this period of time is most similar to if one looks back into economic history,

Speaker 1:
so I I I've got to preface that to say that it's it's useful looking at economic history. But of course, if you know you could foretell the future by looking exactly by looking at the at history, the richest people on the Forbes 400 would be all the librarians. And so that's not the case. So it is still useful, you know, to to to actually look at this, um,

Speaker 1:
and and I very much stand by what I said. I do think that you know when we see you, you mentioned the 50 50 which I think is a great example. You know, when we see markets where people are buying into stories a I right buying into stories rather than necessarily thinking about, uh, a company's, uh, uh, quality characteristics and valuations. That's when people tend to run into trouble. Uh, and so from that perspective, I think the narrowness,

Speaker 1:
uh, in the market now is, um you know, it does warn some. Some caution.

Speaker 0:
Yes, Like, um, you and I talked about a I before and do you think a I is a sign that things are great or or there's people are all trying to buy the same share?

Speaker 0:
Yeah, I think it's very difficult to know, to be honest, Um, And again, I think the history here is is is interesting. Because if you look at how technologies are typically adopted, um, it takes a lot longer than than we. We often think so. If you think about the Internet, you know, it took a while before you know, you had all this so-called revolutionary technologies arriving to to the point where we use it on a day to day basis.

Speaker 0:
You can go back even further in time if you go back. You know, there's a classic economic, uh, paper writing about how factories in the in the early 19 hundreds, even though electricity was available on an industrial scale, it took quite a while for factories that used to run steam to convert to running on electricity. And the reason was simply is because they had to reconfigure

Speaker 0:
the entire factory, you know, because these factories were running on a massive steam shaft in the middle of the building. Um, electricity, obviously you can have different workstations, and people can do, you know, independent of this, you know, uh, single massive power source. But the point is, it takes businesses time to figure out how to use new technology. And I think the same is going to be true of a I. I think you

Speaker 0:
You know, I I'm sure eventually it's gonna become completely integrated with the way we work. Um, our office tools, et cetera. Our emails, et cetera. Um, we're not quite there yet, so it's very difficult to know who's actually going to be the winner from all of this. Now, you could say in a video is an obvious winner because they use the chips and they've got great modes, and, you know, you know, competitive advantages, et cetera, et cetera.

Speaker 0:
Um, but beyond that, it's difficult to know who's the winner. Is it the consumer of a I or is it the producer of a I, um, And I think I think there's a massive uncertainty. I think we we and and to to add on to what Andre was saying. I think that you know, the one thing about history and and and, um, the lessons we can learn from history is actually human behaviour doesn't change. You know, the economy changes, technology changes. But human psychology

Speaker 0:
is pretty much carved in stone from, you know, 100,000 years ago on the on the savannah, and that psychology is one that loves a good story. Uh, that's the psychology of wanting to be in the herd. It's the psychology of wanting, uh, you know, to to the you know, that fear of missing out, I think you know, all of that is deeply embedded in who we are as human needs. Um, and I think that as investors, you know, those are the kind of things that we really need to watch out for. Uh, when our kind of personal instincts start, start taking over

Speaker 0:
and you want to add something to that?

Speaker 1:
Yeah, I think I think it's like it's exactly on the right track. I've got a book behind me in the bookshelf on Competitive Advantage, and it was written in the early 19 nineties.

Speaker 1:
Um, and the interesting thing was, you know, one of the companies they used to demonstrate the great competitive advantage was intel, you know, saying that that, of course, intel at that stage a chip maker was was years and years ahead. And, you know, I think buyers of Of of NVIDIA would be well served to maybe just read that book and and consider that it's an industry with a lot of technological change

Speaker 1:
and things can happen and and to to a point, it might not be the people the stocks now at the forefront that eventually reap the benefits of of all of this, A I

Speaker 0:
All right, so we kind of talked about a and I We talk about the markets. What I'm trying to figure out here from a human behaviour perspective back to your point is like that human behaviour doesn't change. So my question to me is. Do you think the rally we've seen in a small number of shares is a bullish rally or bearish rally?

Speaker 0:
Yeah, tricky one. So I think rather than look at the number of stocks that are pushing this rally, I'd rather look at the quality of the fundamentals that have been pushing the rally.

Speaker 0:
And for our from our perspective, we think the relief rally was more based on the Fed policy optimism and the Chinese reopening rather than actual data. That supports a lot of the fundamentals going forward. So we're still quite cautious, given the fact that we think that we've seen top, um, top end margins and margins are gonna potentially peak.

Speaker 0:
And we're also seeing your C consumer excess savings that have been depleted. We're seeing an environment where it's going to be tough to manage those costs, given the fact that your interest rates remain high and so from our end, we think it's a bear relief rally, and it's an ex

Speaker 0:
for a second because you just follow it up because of all the facts you're looking at the market. It was the most predicted recession ever for the year, and every time you hear economists on TV or anywhere say, Well, it's not gonna happen in the fourth quarter Now it's gonna happen in 2024. So, Andre, I know you paid macro questions, but I'm gonna ask you anyway, um, why do you think the markets have been wrong on the kind of predicting recession? Why is the US economy so much stronger than people expected it to be?

Speaker 1:
I think we we're very much in the camp that, you know, the odds of having some sort of a hard landing is still fairly high. But I think we need to take a step back and and talk a little bit about about why I think making a macro call at this point is so difficult. We've had 11 years of experimental monetary policy, followed by the sharpest interest rate hike by gradient in history. We went from practically 0 to 5 points in a very, very short amount of space.

Speaker 1:
And so, you know, there's a couple of things stemming from that. The first thing is that, you know, it's quite hard to actually say what might happen given, you know, all of these unprecedented changes. So that's the first part. The second part is that interest rates are like gravity to financial assets. So as interest rates rise, you should expect financial assets pricing to to decline. And we saw some of that in 2022. I agree with that. I do think we're at a relief rally now. Uh, but,

Speaker 1:
you know, if you think about all of that, it does for tend some sort of a recession. The other part that makes it very tricky is that next year is a US election year and typically in the year ahead of elections. There's quite a bit of fiscal stimulus, so that also makes it quite hard to call. But I, I think taking it all together, yeah, there very much should be some sort of a recession, you know, waiting for us in the wings.

Speaker 1:
You know, if you look at at leading indicators like trucking, you can already see this turning down, so I'd be surprised if we don't see if we don't see some weakness.

Speaker 0:
It's like so we're kind of talking about interest rates here, so the no recession is keeps being moved away, but everyone's predicting it's going to happen. But the one thing back to Toy's point was all about interest rates. You know what was the market price again? We had a third meeting last night with a third pause or skipped, I think, as a new terminology, because they're expecting another rate hike at some point in the future.

Speaker 0:
Given that interest rates are ultimately the cost of capital argument, where do you see interest rate interest rates going in the US?

Speaker 0:
Yeah, I think the I think the, um

Speaker 0:
it's easy to to to obsess about, you know, the kind of the exact terminal rate so-called terminal rate where we peak. Um, I think we we we're close to to where we are. Yeah. I'm sorry. We're close to that end point.

Speaker 0:
Um, I don't think Yeah, I don't think it it it It matters that much. Whether it's 25 basis points more than today, I think to Andre's point, the point is, the thing is, interest rates have gone up very, very rapidly. Um, probably not. Probably. We probably haven't seen enough time yet for the full impact to be to be felt. I mean, if you you know, we've all remember economics textbooks from from varsity days. It takes 12 to 18 months,

Speaker 0:
maybe a bit more for the impact of interest rates to to start walking through. And I think that one of the reasons why the Fed is now pausing or skipping uh meetings is simply to say, Well, we as a fed have also, you know, we we initially we went for speed. And now we are at a level where we more or less think that the policy is in a restrictive territory. And, um, we can sit back a little bit and assess and assess the impact. And I think it's just gonna take some time before the impact of higher interest rates really start feeding into

Speaker 0:
economic activity. We saw the impact on the banking sector already, uh, Silicon Valley Bank, First Republic, and all these banks that that that folded basically because of the interest rate surge,

Speaker 0:
you know? So now the next domino to fall is how do those banks lend change their lending behaviour into the US economy? Um, you know, the data we have the survey data we have suggests a pretty sharp tightening in in lending standards. Um, you know, that's gonna start having an impact. I think where, where where we've had a slightly unusual situation is that in the housing market, because the mortgage rates jumped so quickly. And, of course, housing is the key interest rate

Speaker 0:
sector. You know, this is where central banks typically operate, but because Because, um, your your mortgage rate jumped so quickly. People who bought them bought the house and took out a mortgage prior to 2022. You know they don't want to sell. You don't. They don't want to lose out on a 3% mortgage and then have to move into a 700% mortgage. So so the supply of houses on the market existing houses for sale has dwindled to the point where you're actually forcing new buyers into

Speaker 0:
into, uh, into new houses. So this is a sort of unusual set of circumstances I think that the Fed didn't quite foresee, and therefore the housing market is probably a little bit more bubbly than they would have imagined. Given where the interest rates are today.

Speaker 0:
I think the long story short is, you know, just give it time. Um, interest rates will start working through the system.

Speaker 0:
But I think also to your point, it's like, you know, we're now I'm almost towards the end, not the beginning. And another 25 books is probably not, you know, an end or Andre. You wanted to comment on something that I

Speaker 1:
think I think it's like hit the nail on the head that, you know, we've yet to see the full impact, but he makes the point very well. We've

Speaker 1:
in the second and the third biggest US bank failures within a month of each other this year. So that so. You know, these are the guys that are particularly sensitive to rate hikes, and we're definitely gonna see the impact on the real economy as well. You know, Tumi mentioned earlier that, uh, US profit margins are still close to record levels. And, of course,

Speaker 1:
that is partly supported by companies carrying a lot of debt and paying very low levels of interest rates on them. You know, I think looking at PE ratios is somewhat fallacious when you're dealing with economies with really, really low levels of interest rates. Uh, and we're gonna see that reset going forward. So it's, you know, we know that there is this headwind to corporate earnings that's that still has to arrive.

Speaker 0:
Fallacious. That's a lovely word, Andre. OK to me, as you want to comment as well. Yeah, I think we're commenting quite a bit on the companies, but we've also haven't considered, I guess, the fiscal piece. Um, for a lot of these countries, given the fact that they had increased, um, their debt, particularly pre pandemic and post pandemic, if you look at their debt levels. So for us, I think it's concerning when you've got this fiscal consolidation. We think just the debt stabilisation might be a lot harder, given the fact that interest rates are now

Speaker 0:
are rising and are so high they're making this debt burden even harder to tackle. And I think what we need to see is the policymakers becoming a lot more aggressive to support growth and also address these debt concerns. So a lot of the countries were initially estimating that they're going to sort of cut their budgets and look to tighten their budgets this year and the next. But Andre did mention there's it's some. It's an election year for some of these countries, so depending on the election year. You you could see these debt concerns continue.

Speaker 0:
OK, so talking about debt concerns and interest rates, let's now move on to South Africa. And I promise you, we're gonna get into what you guys think about hedge funds in a few minutes. Just painting setting the scene. OK, now we have South Africa. We have South African Reserve Bank raising interest rates into an economy that's on its knees. A. What's happening to the S? A economy? Where do you see growth coming from?

Speaker 0:
Um, yeah, tough, tough question, I think. I think, first of all, let's just touch on the so because, um, I think it's worth it's worth pointing out. I mean, why are they hiking interest rates when the economy clearly actually needs lower interest rates? And I think the reason is very simple. You're in an environment where global interest rates have have risen so much, we've actually fallen behind the the the rest of the pack. If you look at where some of the other emerging markets are, I mean, just, for example, Brazil, you know their short term interest rates sitting at 13%?

Speaker 0:
Um so so, you know, count yourself lucky that you only

Speaker 0:
you know, taking, uh, you having a rate of of, uh, you know, around 8%. Um, they have to hike rates because there's a loss of credibility on the part of other policy makers. You know, the fiscal policy maker. Fiscal policy has has a low credibility. Foreign policy increasingly has low, low credibility. Uh, microeconomic policy is low credibility. So the credibility piece sits with the they have to, um

Speaker 0:
they kind of have to be the adults in the room here, Um, from the point of view of of also shielding South African markets from potential adverse effects. So obviously, you know, we spoke about US interest rates earlier. Obviously, South Africa has also had, um, a fairly sharp interest rate cycle. It's not as bad as the US has been, but it's It's a pretty sharp interest rate cycle, so that's gonna squeeze consumers. Obviously, load shedding is a big is a big topic.

Speaker 0:
Um, it's tough for companies. It's tough for the production side of the economy, but our economy is dominated by consumer spending. So ultimately you know where the growth in the economy comes from. Whether you and I are gonna go out and and spend, um, and given,

Speaker 0:
you know, some of the other headwinds interest rates, inflation, uh, sluggish job creation. You know, you're not gonna see major consumer spending. Um, I think where there is a little bit of hope, obviously, is that the fact that there's a lot of investment going into alternative sources of energy? Um, individuals, companies, and belatedly, the government as well. So I think that you know that that's kind of the the silver lining in all this situation is that

Speaker 0:
the more you allow the private sector to step in and, um, and do things for for themselves, you're not only solving the electricity problem and potentially the logistics problem, but you're also encouraging investment, which which is good,

Speaker 0:
because I'm hearing like a ray of light here coming through. So, um, Andre, do you Do you agree that you know, private enterprise steps up to the plate, starts a big Capex project In two years time, you might not even be talking about load shedding.

Speaker 1:
Well, I, I think even more importantly, GDP growth is simply capital invested into an economy. Times the return on on that right so so it's important to invest, and then the return on that capital is also very important. So I agree with a that that companies investing into renewables there's actually a pretty good return. Companies we speak to are getting

Speaker 1:
pay back periods between four and six years, depending on whether you add batteries to the solution or not. And so that's not a bad return on capital. And obviously the banks are funding this so the banks are still coming by some loan growth. So I do think, um, at the margin. That's not bad. II, I think also, from a market point of view, it's very interesting to me that in South Africa I almost feel as if the markets are making the same mistake as during covid. They fixated on this

Speaker 1:
issue of load shedding. It's incredibly hard to be optimistic on South Africa right now, and therefore they've marked down S A Inc companies to actually valuation levels similar to March 2009. I actually did a bit of a trip through memory lane and I dug up one of the first investment screens that I did when I set up the company in 2008.

Speaker 1:
Uh, and it's interesting that the valuations for the companies that we hold the SAN cohort are actually, on average, the same as they were during the global financial crisis lows. And I think again, putting it back to covid in Covid. The situation was far less knowable, right? Nobody knew what the side effects of the disease would be whether a cure would be found, how long it might take to actually roll out the cure. Compare and contrast that to today. Yeah, the load shedding. We have the technology to fix it. You know, we can

Speaker 1:
look around and we can sum up everything that's currently in process. And we can surmise that by March of next year things will look a lot more positive. Um, so I do think that that sets us up. Very. Um, you know very well. Of course. It must be said that part of our problem is cyclical, and part is structural. The structural element is how could the government have let this happen and what else might happen? Uh, but we can have a discussion on that.

Speaker 0:
Well, thank you. We're going to have a discussion on that Because to me, I'm gonna ask you a question. You know, what's the famous words? I'm here from the government. I'm here to help the most dangerous words in investing or something along those lines. Well, slapping government definitely not helped. And to like point. Private enterprise can step in and try and solve these problems. But we now hear about NH. I It's just been passed in parliament. We know. Transmits a mess. Miners can't get their goods to market.

Speaker 0:
Um, pretty much everything the government's touched the last couple of years has been a disaster. Why do you think companies will start spending money unless government starts making some major changes?

Speaker 0:
Why should why should I be poli positive on the S a economy with the government we have in place today.

Speaker 0:
So the reason why we'd be positive is because some companies, firstly are not heavily reliant on South African GDP and the government and some companies are actually benefiting from government inefficiencies. So one of the opportunities that we had seen, um, for for for our funds was a company called Grin rod which was benefiting from

Speaker 0:
a number of the government inefficiencies and rails and ports. You mentioned Transnet seeing a big struggle. So I mean, investors can't just sit on the sidelines and say there aren't any opportunities whenever there's risks. And whenever there's government inefficiencies, there's opportunities also to be, um, to be realised. So for us, we are seeing on the green Side.

Speaker 0:
But we're seeing increased, um, containers. We're seeing large volumes just on the export side. So that's actually been positive on that small cap. And, um, quite a lot of people were quite nervous on the small caps, but we actually saw this as quite a good opportunity. So I mean, it's looking at the opportunities that are actually reliant on these government inefficiencies.

Speaker 0:
OK, so let's I'm gonna get back to the long side soon. But let's talk about what makes hedge fund special. And part of what makes hedge fund special is that the opportunities are short. So, Andre, maybe you can just give us a flavour of how you think about shorting within your hedge fund and and what sort of opportunities you've seen in the last couple of years.

Speaker 1:
So shorting is a particular strength of ours. So I I actually started in the industry as a dedicated, short selling analyst, Uh, 21 years ago, um, and so over the last 14 years, we've actually generated 16% annualised alpha on the short side. So it's a,

Speaker 1:
um it's something that we spend a lot of time on. Uh, we only short single stocks, not index indexes, because we can add value on the short side. Uh, and so this this year has actually been very good. Transaction Capital was our second largest short, and spar was our 3rd, 3rd largest short. So So that's certainly been helpful.

Speaker 1:
Um, And to your point, Joan, you know, we we have at the moment, you know, we have, um, a lot of opportunities in South Africa on the long side, But we've also at the same time, never had a short book that's been this big. So we're short 43% of capital and long just a a little, a little over 100%. Um And so the interesting thing here is that there's a lot of divergence to Tome's point as well that there are companies that are benefiting from this

Speaker 1:
And there are people that are being proactive, you know. You want. This is where management teams can really differentiate themselves. Because obviously what we want to see, we want to see companies investing in a proactive fashion, not being reactive to it. Uh, and you know, we can definitely separate out into a long book and a short book, uh, in in in that manner and IIII I actually also think that part of the reason that we have this large short exposure is not necessarily for essay risks.

Speaker 1:
It's actually more for global risks. You know, the way that the market works is you only get punished for risks that pe risk materialising that people didn't expect, right? So I think right now in South Africa, the consensus is that there's a tremendous amount of risk. Uh, but, you know, if we do see the US rolling over, yeah, that might lead to some more weakness in South Africa as well. And that's why we're carrying this large short book as an insurance policy against that

Speaker 0:
for me. Obviously, as the HR manager, you also do a lot of shorting. Um, talk it through your kind of shorts that you've done historically and kind of where you're seeing opportunities without mentioning names, because I understand you're not gonna tell us which names you're shorting, But historically, we have using opportunities, and we're using opportunities today.

Speaker 0:
So historically, we've actually done quite well, um, to short the unprofitable tech index in our funds. Um, so we had a basket of US Tech shorts and, um, just after the covid rally where everyone was just also buying tech. Um, then we actually went in on our shorts, and we actually saw a huge D rating in these unprofitable tech index, and we actually managed to close it just in time before, um, the

Speaker 0:
rally. So, um, that's where we saw quite a bit of opportunities and attribution, um, in our funds, um, also just in terms of resources, we're quite nervous, um, on resources, given the lacklustre demand that we're seeing in a deteriorating demand backdrop. So just on the PGM side, we're seeing quite good short opportunities there. Um, we've also seen quite good short opportunities that we utilise during the

Speaker 0:
bank crisis. Um, so we were Short co America and Glacier Bancorp. These are the two stocks, um, that form part of the regional banks index. We closed those shorts also just in time. Um, so I guess it's also just looking at the catalyst that's out there and managing the shorts and closing it out just before, um, some news comes out. That could be potentially positive for these, um, companies that we we're finding as shorts.

Speaker 0:
I'm gonna come back to you in a few minutes on how when to close out a short and second. But I wanna ask you a question first. It's like I. I think we've painted a picture. The world economy is uncertain. Stock markets are expensive or, you know, they're running hard on a few stocks, so I can only imagine from a multi management perspective, hedge funds make sense in the today. So, within that context,

Speaker 0:
what kind of hedge funds are you guys looking for? You're looking for long short managers, market neutral managers. What kind of hedge fund strategies are you putting into your portfolio for? Are you not?

Speaker 0:
Yeah. So, No, it's It's, um we we I we love our hedge fund, uh, fund exposure in our balanced funds, particularly on the institutional side. Not not yet on retail, but institutional.

Speaker 0:
Um, we can use, uh, our hedge fund or fund solution as part of that balanced fund. And, um, you know, my co panellist today actually manage. You know, this portion of that fund for us? Um, just, you know, as a full disclaimer, but it's it's it's been a great It's been a great performer for us over the last five years. Obviously, the local equity market has been chopping, and I think it's been in an environment where hedge fund managers have just added a lot of value for us. Um, in terms of what we look for, yeah, we predominantly have long short equity.

Speaker 0:
Um, again, that ability to go short, the market in in uncertain times, um, you know, has has has really worked very well. And I think I think that is a position that that will keep, um, going forward. Um, but we do also have, you know, we've got five managers in that solution. So mostly long, short, but also 11 market neutral manager

Speaker 0:
like, I wanna stay with this market neutral business. Long short. But given the kind of the macro environment and the stock picking opportunity you're seeing, do you prefer a manager who's had carries a very short net position. I mean, sorry, not terminology right here. A small net position Or do you prefer a manager? That kind of swings the fences and goes very long and then short. And how do you think about this? From a risk perspective.

Speaker 0:
Yeah. So? So a couple of things. One is obviously because we have a fund of funds, we can combine different managers and and, um, you you know, and we can have managers with slightly different, uh, skill sets and slightly different approaches to doing this. So I think that that helps a lot.

Speaker 0:
But number two, we, we we want managers that are good. You know, shorting is not something that that everybody can do or should do. Um, as Andre said, it requires really, really good skills because it can go very badly wrong. Um, so so you know, we want managers with demonstrable skill in, in, in shorting. Um, but then thirdly, we want

Speaker 0:
we want to leave it to the managers to do their thing. Um, it's not for us to to get involved in in what they do, and we're not also going to kind of switch between different managers based on on market styles or what? What's happening in the macro environment? It's more of a, uh, a long term allocation, um, in our portfolios and also in in in the fund of funds. Um, portion of that.

Speaker 0:
OK. And your name was mentioned there, uh, back to shorting because I think, you know, that's what sets you guys apart in the long only space I. I think I may be wrong on this, but you don't short for valuation reasons. And I thought I heard you don't short prepared trading. Is that true?

Speaker 1:
Yeah, III, I guess. First, I wanna thank S a, uh You know, you guys have been fantastic partners. Uh, and in fact, you've been invested for more than 13 years. Uh, and I'd be remiss if I didn't point out that both ST and 361 have retail funds as well. Uh, but, uh, then I'll get back to your shorting question.

Speaker 1:
Um, yeah, I think Look, risk manager on the on the short side is crucial. You know, you also mentioned that the the timing is important and the timing is important because you always have somebody working against you, right? there's a management team trying to get the value of the stock price up. And so you have to be very, very cognizant of that.

Speaker 1:
Um and I guess that leads us into why we don't do valuation shorts, right In a valuation short. Think something like a Tesla, right? Something get, or perhaps even a video. Something gets pushed up to a price where you say, Look, you know this. I think the video is at 35 times sales, right? So So you kind of look at it and go Well, there's a lot of fantasy in that. But

Speaker 1:
if it's at 35 times sales, that's a crazy valuation. You can go to 70 times sales, and they would just be two times crazy, right? So So? So there's no natural bound to that, Uh, and we've learned over time to avoid that kind of thing. Um, so we look for catalysts, and the number one catalyst is typically earnings announcements, you know? So I give you an example. Transaction capital, which is so shorter

Speaker 1:
in November last year at around 40 rand a share, we shorted it based on what we saw out of the September 2022 earnings release. And we saw several things, uh, you know, which suggested to us that perhaps the earnings quality wasn't particularly high. Uh, that it was also clear from the financials that everything that hadn't been nailed down was given to the banks as security. This is a very capital hungry business. And then we did some fundamental work on the the margins within the used car business.

Speaker 1:
And we, uh you know, we saw that it had gone up to unsustainable levels and it was already busy busy rolling over. So that's the work that we do to think about. OK, what are the key catalysts going forward? And for us, that was always going to be earnings.

Speaker 1:
Uh, and so we we closed that out after the earnings. Although I must say that we we, um you know, subsequent to the full earnings, we we actually tried to short it again, So we're not currently short, but, uh, also probably wouldn't be, uh, looking to be long it because they're so very reliant on the kindness of strangers

Speaker 1:
and then to iso's point again risk management. I I was a short seller in Europe where when Volkswagen briefly became the world's most valuable company in 2007 as a result of a short squeeze. So we spend a lot of time thinking about you know, who else is short these names. What kind of rates are we paying to short it. Is this a popular short?

Speaker 1:
Uh, can we get more borrow on it? Um and and and these are the kind of things that you need to think about because, you know, for the shorts, it's like playing cricket. You know, you want to eat the singles and the doubles. You don't wanna wait. You don't wanna eat sixes, because the sixes are fun to talk about, but often they're quite risky. And you don't want to build a business in that manner. You just wanna consistently have the process do the work.

Speaker 0:
Andre, I'm a big fan of T 20. So clearly, I like to see the sixes. Um, to me, let's just back to shorting, because I think this is increasingly important. We discuss this, um, you, you know, talked about quite a few minutes ago. You said we got out, we got out, we got out. If you don't get out of a short What are your risk parameters in place? How do you

Speaker 0:
kind of is there a automatic stop to say, If it's up 10% and we're wrong, get out. Is there a human behaviour behind? This is a quants behaviour behind it. Just give us a feeling from a risk perspective, what you do when a short goes against you.

Speaker 0:
So at 361, we don't have hard limits in terms of our shorting. So before we even start the short position, we look at the position sizing and, as Andre mentioned, short, um, percentage short interest. All those factors are extremely important, firstly in managing the actual position size that you have on book.

Speaker 0:
And so when the actual short goes against you, we need to look at the factors and the actual information that's come out that is either beneficial to the story or it's actually changing the short thesis. If, for instance, we think it's changing the short thesis and we now want to reduce the shorts, we have continuous discussions with our investment team members. We have daily meetings which say this information now I think it does actually impact the short position. Let's reduce maybe the sizing from 2% to 1%.

Speaker 0:
Or actually the catalyst is now pushed further out. So maybe we actually hold a smaller position now and we increase the short size, um, closer to the to when the catalyst will then actually come out. So in managing the short sizes, we actually rely more on human behaviour,

Speaker 0:
and we rely more on the investment team to make those decisions regarding the risk management process around the shorting.

Speaker 0:
I'll come back to you now, Andre. It's like when you think of hedge funds it it often is quite opaque. As an example, I look at a number of hedge fund fact sheets and I can't tell what on earth they're doing. I just some of them give good disclosure. Some give terrible disclosure, and you're obviously in a great position. You get

Speaker 0:
to meet these managers a lot, and you can really interrogate what they're doing. What sort of questions are you asking them when it comes to their short side? What kind of information are you asking for? That makes you comfortable that they have the right risk policies in place to not have a situation where short runs away.

Speaker 0:
Yeah. So I think, uh, obviously we'll we'll also try and look at, um, this my colleague busy. Who's the hedge fund expert? Will Will Look at We'll look at those, um, parameters. Um, and we'll we can you can trace over time to see what managers typically do. And you know, if if a manager is suddenly increasing their short position dramatically, you know that that is something that you can then raise with them and find out what's going on.

Speaker 0:
Um, but But yeah, ultimately, it's it's number one. It's about risk management. It's about knowing that they have got strong risk management processes in place, Um, and that they are adhering to to those processes because that's kind of yeah, that's sort of 0.12 and three is is, you know, risk management. Um,

Speaker 0:
and I think our our industry, um, is also probably a lot less risky than maybe we think of hedge funds overseas, and we hear of hedge funds blowing up overseas. Um, you know, there have been quite a few high profile ones over the last year or so. I don't think our industry domestically is quite as racy as, um as you get in some of the the big name hedge funds overseas, and that's actually fine. You know, that's the way that's the way we like it.

Speaker 0:
OK? And you wanted to add something?

Speaker 1:
Yeah, I know II. I did. But But But But just to to a point, I think in South Africa, the benefit is that you, the hedge fund industry, has matured over the last two decades or so. Here, Uh, and a number of players are sold as well as 361 have been in the game for a long period of time, and that's exactly what you want. You want somebody who's proven themselves over a variety of market of market cycles. Um, I also want to add that hedge funds in South Africa have been regulated since 2015,

Speaker 1:
and there's never been a blow up of a regulated hedge fund. And so there are regulated limit risk limits set in place for retail funds, and then one of the interesting things is it's very much like a unit trust, but it's even more regulated. So hedge funds have a, uh, have to have an independent risk manager as well. Looking over how we manage, manage the money. So I think that should give investors a great deal of comfort, even if they can't. If they don't have the resources, that is a has to to look at what the funds are doing.

Speaker 1:
You know, these retail hedge funds are regulated. There is an independent risk manager looking over over them. Uh, and so again, I think that that should give a a AAA great deal of of confidence and then just to to me earlier point on the shorts. The interesting thing about a a short versus long is in in a long if you're wrong, it becomes a smaller part of your portfolio. In a short, if you're wrong, it becomes a bigger part of your portfolio so that risk management is important and we do cut as as those 361 do cut back the sizes

Speaker 1:
If it runs against us, you know, in investing, you know, we constantly making mistakes. We're not right all the time. The the core thing is, are you on average much more right than wrong and for both ourselves. In 361 I think the the answer is quite clear that, you know, yes, that is the that is the

Speaker 0:
case.

Speaker 0:
And just give us a better feel for as short goes against you because Timmy gave her answer. What do you do in your strategy? Do you just cut your positions? How does it work? How does your work and you get it wrong?

Speaker 1:
I get under my desk, and then I I put on a helmet. Um,

Speaker 0:
no. Uh,

Speaker 1:
So we, uh you know, we have target position sizes. I think, you know, I've seen the best short sellers in the world have a diversified short book of fairly small, uh, size positions, and that's that's for risk management purposes.

Speaker 1:
So a typical short for us is about one size, the third of a typical long right? So you can see it in the sizing already. And then we think very carefully about, you know, sectoral exposures factor risk as well. Um, and you know, we, um we we will again, if a short runs against us, we we will. We will definitely cut it back.

Speaker 1:
Uh, you mentioned pair trades earlier. We typically don't do pair trades. We might do a pair trade if it's something like a merger arbitrage where we're trying to edge out a particular thing. So, for example, last year we when PSG announced it was going to delist, we bought. We already held some PSG shares, but they bought much more, and we sorted out some of the constituent parts.

Speaker 1:
And of course, when you do that as a hedge fund, what happens is when you short a share, you actually get the cash so you can use that cash to buy more PSG stock. And so that increases your return on the Net cash invested. So we were able to execute on that position at a 200% internal rate of return, but taking not taking any market risk. And that's what exactly you know, one of the benefits of the hedge fund that you get the opportunity to do

Speaker 1:
some of these more idiosyncratic risks that don't, uh, have a correlation to the market. And and again, I think that's what we're all trying to do. We're trying to blend a portfolio of things that outperform, have downside risk protection and then have very low correlation to the rest of the market. to really provide value to investors in that way.

Speaker 0:
Tell me, is that something like 361 as well, Sort of merger arbitrage, where you go along, one acquire and sell the choir or this little Well, that's not really all you're talking about. You're talking about more and bundling ideas, but is that what you do to me as well? Yeah, we also do that. But just to also Andre's point, they don't do a lot of pair trades, but we've also we're comfortable to do a lot of pair trades, um, in the fund.

Speaker 0:
Um, so if, for instance, you like, um, let's say one of the banks, um, in terms of their preference in terms of what they're lending versus let's say, unsecured and you like their portfolio a lot more, Um, and you want to actually be along that bank and short another one in terms of given the fact that you're quite nervous about consumption.

Speaker 0:
Nervous about interest rates, nervous about unsecured lending, we're comfortable to do a lot of trades. Um, in our hedge fund portfolios, um, we also do a lot of merger arbitrage, um, that Andre mentioned, and we also comfortable to do a lot of the short, um, shorting of Indices. Um, they mentioned that they don't do a lot of that.

Speaker 0:
Um, for us. Um, it it does form part of the portfolio just in terms of the protection that it offers the funds. So if we look at, like, historically, when all typically falls and where that protection kicks in, it kicks in quite significantly in a lot of our portfolios and enables us to manage that downside risk in our portfolios.

Speaker 0:
OK to me, you open the door there, but I'm gonna ask you a question. Um, most hedge fund managers this year that I've read have been shorting the S and P. That's been very painful. How how are you coping? I mean, your is a good example, but most people go to S and P because it's cheap to do. How are you finding shorting S and P this year?

Speaker 0:
Yeah, so for us, um, in terms of the the you look at sort of the different sectors, um, in, in, in, in South Africa and then you'd also look at the different sectors and what they're trading at overseas. So if you're quite long it Actually, how you short The index also determines what? How you've gone long in the portfolio. It's not just an outright short that you're doing,

Speaker 0:
So we typically look at all the sectors that we have exposure to If we've got a lot of exposure, let's say to tech, we've got a lot of exposure offshore to some of the, um the banking, um, groups. Um and how you manage that actual index is you. You can happily be short the index and then actually be benefiting from the names that have actually done extremely

Speaker 0:
well. Um, if you look at the performance of of the S MP as as mentioned earlier, quite a lot of those stocks were actually single stock names that have done well. And it wasn't the broader S MP that actually did. Well, so for us, it has enabled us to manage that risk by also being along with some of these tech names and being short the index

Speaker 0:
that you clearly have been long in video. Well done. That's impressive. OK, Andre, um, you wanted to say something?

Speaker 1:
Yeah, I. I wanted to say Isn't it wonderful that staying in 361 do such very, very different things. And both of us have done really well over time. Uh, you know, I think I think that is exactly what you want as an invest to B a couple of these hedge funds that are doing differential things, but doing well over time,

Speaker 1:
you know? So we I. I think we differ from 3. 61 that we don't play in the US market. Uh, we have an exposure to global emerging markets. Uh, but, you know, we really strive to play in these markets that are less efficient. That's really the the the the idea that we want to want to do. And And, um, you know, I think for us this year we have quite a bit of S A Inc exposure on the long side, so that's been a detractor.

Speaker 1:
But we think it's like shooting fish in a barrel. They're just shooting back at this point. But we're quite, um, confident that buying into companies that are, you know, sitting at 10 to 20% free cash value yields to equity. You're accreting value while you're waiting for, uh, some of these things to rerate so very, very happy with the positioning.

Speaker 0:
OK, so you mentioned earlier. You know, you've got lots of long lots of shorts. We talked a lot about shorting now. So now I talk about the long side of the economy. We are using opportunities in the South African context because we've got doom and gloom. Everyone's depressed about South Africa, and then we have valuations. So what are what are you thinking about local equities right now? On the long side.

Speaker 0:
Yeah. So it's, um it's It's pretty cheap. I think that's the That's the you know, the long and the short of it. Excuse excuse a B and, uh, yeah, no I. I kept that one for last, you know? No, Look, the South African market is under pressure, and I think, um, as Andre mentioned earlier it is It is kind of pricing in covid like

Speaker 0:
levels of economic disruption. In fact, if you look across, you know, the the currency has calmed down a little bit, but if you step back a few weeks, you know, we had the rand at 19 to to the dollar, you know, we had the bonds at 11% yields. You know all of that felt very much like markets were pricing in a shutdown in the South African economy. The way that

Speaker 0:
we saw in in 2020. Um, and I don't think it's that dire and And therefore, I think, you know, these, um, the the S, a equity market is offering a lot of value. Obviously, as a multi manager, we leave it to our underlying managers to pick the shares that they like. And there there are some interesting differences of opinion between them. But that's great. You know, you want you want that, um, you want that divergence in a in A in a mixed portfolio. But the South African market looks, um

Speaker 0:
it looks looks very attractive. South African bonds also look look very attractive. I think the the trick for for for balanced fund managers, um,

Speaker 0:
is I think we also want over time to have more global exposure. Um, you know, we've got the ability now to go to 45% and I think structurally it makes a lot of sense for for greater offshore exposure. It's just that now is not the time. You know when when the local market is so much cheaper compared to global markets. The rand is also obviously quite quite weak. We don't think now is the time that you wanna go. Um,

Speaker 0:
make use of that that full allocation. But I think, you know, over time, that's probably where, where you where most balanced fund managers are heading.

Speaker 0:
OK, so, Tim, we talking about sort of local versus offshore within your hedge fund portfolio, Are you? Have you got a biassed towards the local equities versus global equities within your portfolio moment? Or is it purely just a local hedge fund that you run?

Speaker 0:
I think it's a bit of both. So we've got local exposure and we've got global exposure both on the long and the short side. Um, but just in terms of, I can maybe mention an opportunity that we are seeing also on the local side. We we're seeing quite a number of opportunities also on Rand hedges in South Africa. So even on the local side, we are predominantly rand hedged based. Um, over the last year, um, we have been taking up. I mentioned the small cap grin,

Speaker 0:
but we've also looked at a company a EC I, um and then in the mining space. Their market exposure has been quite low in Australia and North America, and they're expanding in those regions. So for us, also not only being local versus offshore but also looking at these unique S a companies that are not reliant on South African GDP,

Speaker 0:
they don't have load shedding issues. They're growing in certain areas, grabbing a lot of market share in the mining regions. They're explosive. Their technology is quite good. They also have water and an agribusiness, which is quite defensive. So for us, we we we are playing it also in the local side in terms of getting in a good entry point for some of these South African companies that have also been hammered. But we also still like some of our, um, offshore companies Still

Speaker 0:
OK, so Andre, let's just stick to local for a second. And to me point, I probably should be more specific. S A Inc because all local shares aren't often local, they're actually just offshore hit shares listed here for want of a better word. So Local Inc we want the FAI, the Pip Cos the you know, the banks, the Absa. I mean, I saw a chart this week, Andre, that Absa has a higher dividend deal than its PE ratio. So, you know, what are you thinking about S A Inc today within your portfolio?

Speaker 1:
Yeah, I know I as I said earlier, I do think it's a It's a real opportunity. Uh, and and And we we have significant exposure to Sanc on alongside. It's been, uh, a little bit hurtful year to date. But, you know, very definitely. I do think that stock picking is very, very important in these mid cups. And, you know, we definitely have a demonstrated skill that we can do that. We can, you know, have a long work that outperforms. And and, uh, short companies that decline in price.

Speaker 1:
Um, in addition to that, we're finding opportunities in some of the resources. Um, so we have a long position in Glencore? Uh, we We are very much of the mindset that, uh, there is, uh, you know, one of the sharpest supply demand deficits in copper coming up as a result of the, uh, trend to renewable renewables. Um, but at the same time, we're cognizant that there might very well be a hard landing,

Speaker 1:
so we shorted a number of other resource companies. It wasn't meant to be a fair trade, but offsetting some of the risk shorting a couple of the other resource companies specifically in iron ore producers against that, um, and, you know, we do think that if there is, by the way, uh, a hard landing and we see some of these resource companies decline. You know, we think copper producers will be very, very interesting, uh, stocks to add to

Speaker 1:
So, um, you know, that's that's That's one of the opportunities. Um, many of the the SAN companies are interesting. There's, um you know, there there are some special situations as well. We think, uh, Fortress A and B is interesting. We've held it for a little while and essentially as a result of the A and B share structure. Um, that company is no longer paying dividends, uh, which resulted in both shares trading down.

Speaker 1:
Uh, and we think essentially buying into the A and BS and a hedging ratio, you're effectively buying 15 billion rands worth of real estate for free. Uh, because we're a hedge fund, we can sort out some of the position and reinvest that money into the fortress shares, Um, hopefully gearing our our exposure to that event. So that's a just a You know, we are looking around for event driven names where we're not taking on market risk. But we're still generating returns for clients.

Speaker 0:
Yes, Like when you think of it about hedge funds in your portfolio, do you think about them as funds to preserve capital? Or do you think about them as funds to outperform, uh, relative indices like the How How do you think about hedge funds within that construct?

Speaker 0:
Yeah, that's a great question. I think it's quite an important question as well, because, um because hedge funds have done it so well relative to to local equities, I think investors might be sort of lulled into the idea that this is going to outperform the market over the long term, you know, which is not really how we think of it. What we typically want is the for our hedge fund portfolio to capture two thirds of the upside

Speaker 0:
of the equity market and then, uh, but only for one third of the way when the market falls. So it's, you know, the market is up 10%. We want 6% up, and if the market is down 10% we only want to fall by 3%. So so over time you're not going to beat

Speaker 0:
the all share or the cap switch. But you're gonna have a much better kind of risk adjusted return. And I think that is how that's how we look at it. And I think that's how our investors should also look at it. This is not something that's going to necessarily shoot the lights out. This is not something that's going to, um, kind of double your money every year or, you know, solve, solve your problems if you haven't saved enough. This is a This is a tool that you have and I mean, the name is in there. It's a hedge

Speaker 0:
kind of kind of solution. It's something that's going to give you probably a bit of a buffer, Um, in terms of in terms of market volatility,

Speaker 1:
Thanks. Like we understand to me. And I will work less hard because, uh, both of us have outperformed the market.

Speaker 1:
Um, no, no, I'm just kidding on that. That the the downside protection is incredibly important. You know, So over the last 168 months, there's been, um uh, you know, during during up months, uh, you're right, that we've captured about 60% of the upside. But during the down months, we've captured none of the downside. And so it's very important hedging that downside risk.

Speaker 0:
OK, so to me, if you listen to that conversation, then your benchmark must be aligned to what you're trying to do. Do you think hedge funds in Africa have the right benchmarks? Because if you're trying to do capital, preservation is cash or benchmark if you're trying to the is all or benchmark. So do you think hedge funds in Africa choose the right benchmarks, particularly when it comes to things like performance fees?

Speaker 0:
I think it's quite tricky, because clients would like different benchmarks during periods of when the Aussie is actually running. You'd actually prefer to not have Aussie. You'd prefer to have potentially cash and pay less performance fees. And during periods when potentially the market is out performing, you prefer to have cash. So you have different aspects of of your investors, actually preferring different benchmarks, depending on which some market cycle you're in

Speaker 0:
but for us, we think that cash is actually quite consistent, Um, throughout the market cycle. So if we are saying we're trying to be flat when the market is particularly down and we are priding ourselves in that downside, um, protection and that capital, um, protection for our funds for us. We actually think that cash actually works, um, quite nicely as a benchmark for our clients. We always show Aussie as well. Um, given the fact that we have outperformed Aussie since since inception.

Speaker 0:
So it's always a good sort of bragging point to also put Aussie there. Um, but for us, it's a big, big focus because we aren't benchmark cognizant we don't have. We're not tracking a what the Aussie is doing. We're not tracking sort of the market, um, neutral. We're not we we're quite low in terms of our net exposure. We can swing our exposure, be high net exposure, low net exposure. So because we are benchmark, um, we're not looking at that Aussie benchmark. I think it's appropriate rather to use cash within the hedge fund space.

Speaker 0:
Andrea, do you also use cash as a benchmark, or do you have a different benchmark.

Speaker 1:
So III. I think Tumi captured it wonderfully. But you know, how do you come up with a with a benchmark for something that you know in our own experience? You know, over 14 years we've traded with approximately 25% beta adjusted exposure, so exposure to the market. But that exposure has gone from negative 10 to as much as 70%. So how do you pick one benchmark for that? I mean, she's to me is exactly right that that that it's hard to do.

Speaker 1:
I think you need to take a step back and you look, you should look at Well, you know what's on the tin. What? What is the manager aiming to achieve and for us, we are over long periods of time, aiming to achieve the same or better return as the market, but with far lower levels of the downside risk. And so we've managed to beat the market over 14 years by 4.5 points a year. Uh, but the very important thing for us is that downside risk protection

Speaker 1:
and the super low correlation. So our correlation to the market over 14 years has been 12.5%. So I'll put it back to the fact that as an investor you should be trying to blend things that outperform, have some shop breaker protection in down markets and isn't correlated. And if you can find that that if it delivers that on a on a post fee basis, then I think you should be very happy.

Speaker 1:
I. I would note that our fees are typically a little bit lower than markets. So we have two hedge funds, a qualified hedge fund which actually has no management fee zero and only a 15% performance fee. And we have a retail fund that has a 0.5% management fee and a 15% performance fee. So we're looking to get rich with our clients, not all of our clients. That very much is the the philosophy.

Speaker 0:
OK, final question for me, guys, because we're running out of time. It's like is the liquidity of the hedge funds important to you? So when a hedge fund gets too big, do you start being worried about what our performance?

Speaker 0:
Um, yeah, it's also a good question and not one that we've really had to to deal with because I think most managers like to keep it like to keep it quite small. Um, and also the industry, you know, hasn't really attracted huge assets compared to compared to the longer only industry. But yeah, ultimately, we want we want funds that are quite nimble. Um,

Speaker 0:
and therefore, I don't think we'll ever look for a fund that is massive in size. You know, um, I think when you're talking about hundreds of millions rather than billions, I think that's more where you want to be in a in A in a specific hedge fund portfolio, because that gives the manager flexibility to kind of basically do all the magic things that they do.

Speaker 0:
Why has there been little money going into these hedge funds? Because the returns have been incredibly impressive. Downside risk has been well established. Why have Why have people been so loath to invest in hedge funds in South Africa?

Speaker 0:
I think a big part of the story is, um, you know, people don't necessarily understand hedge funds, and maybe it's a little bit intimidating. Um, but I think the other part of the story is just costs, and I think people have become very focused on on fees, um, and and very cost sensitive. And I think, unfortunately,

Speaker 0:
what happens then is you end up missing out on these, um, on these great returns, if you're just focusing on, you know, the actual fee that you're paying. Um, what we found, for instance, in in some of you know, our institutional fund, for instance, is

Speaker 0:
especially when these managers do well, ironically, you know, it can it can push up the the performance fees, Um, and then you end up with with higher expense ratios, and that sometimes doesn't look good and and try and complain about about higher expense ratios. So, I, I think part of the story is, is to accept that you are gonna pay more relative to too long only, but you're gonna get

Speaker 0:
a better hopefully a better return outcome. Um, and on all the returns you see are already already net or fees. Um, so perhaps not obsess about cost, but rather focus on value for money

Speaker 0:
value for money. I think that's a great way to end this, uh, gentlemen and to me. Thank you so much for that really insightful chat today. Hopefully the audience has learned a lot about shorting because I did talk a lot about it and the kind of opportunity set that you guys are seeing at the moment. And particularly given the uncertainty in world stock markets, though, to be fair, world stock markets are always uncertain. Thanks very much for your time. Thank you. Thank you. Thank you very much.

Speaker 0:
Thanks.