We also need to price the credit risk we are taking: what is an appropriate return to receive for the money we are lendi
Introduction
Anet Ahern
Anet has 30 years’ experience in investment and business management. After starting her career at Allan Gray in 1986, where she fulfilled various roles in trading and investment management, she worked as a portfolio manager at Syfrets, and later BoE Asset Management, where she was CIO and CEO. She also spent six years at Sanlam, where she was the CEO of Sanlam Multi Manager International, with assets totalling R100 billion in local and global mandates. Anet joined PSG Asset Management as CEO in 2013.
The quality of management matters across all investments we make In this edition, which wraps up what proved to be an eventful year for South Africans, we examine one of our 3 Ms: Management. When you pick shares, it is generally understood that evaluating the management of a business is very important. But it is just as crucial to have a solid management team at the helm when you invest in bonds. Gustav Schulenburg and Tyron Green explain how we assess management, and why we spend so much time and effort measuring their impact on both equities and bonds. We consider prior track records, capital allocation and 'skin in the game' In his article, Gustav points out that management teams act as secondary custodians of our clients’ capital. We therefore believe we can tilt the odds of generating appropriate investment returns in our favour if we partner with strong, proven leadership teams. But evaluating management is not always scientific and can be subjective. Gustav explains how we examine the footprints their actions leave behind. We especially consider how management deploy shareholder capital and whether they are personally invested in the businesses they run. In fixed income, risk is our key concern Since we are lending client capital to the governments, companies and banks whose debt instruments we buy, we need to assess the likelihood that they will repay the money to avoid any permanent loss of capital. We also need to price the credit risk we are taking: what is an appropriate return to receive for the money we are lending? Tyron elaborates on these considerations in his article.
The Captain’s Class by Sam Walker provides insight into the importance of strong leadership I hope that the December holiday was a time for catching up with family, enjoying good food, the summer weather and finally reading that pile of books on your bedside table! While our featured book may not have made it onto your holiday reading list, it is one we have found to be very insightful in assessing management. For us, one of the most interesting lessons is about purpose – how it drives sports teams and is an almost universal recipe for success in corporate businesses. Paul Bosman reviews this read. The PSG Flexible Fund: equity-like returns at lower levels of risk This quarter’s fund focus is on the PSG Flexible Fund. Shaun le Roux points out why this fund, its mandate and its positioning are suited to the current environment. Thank you for your support in 2017 and we wish you well for 2018 We trust that you will find our insights useful and, as always, we look forward to your feedback. We wish you all the best for 2018 and hope that your plans for the new year provide prosperity, health and happiness.
When the going gets tough, the tough get going As with investment teams, we are cognisant that the true measure of a good management team is not how they perform when things are going well, the bull market is broad, the economy is growing and prices are steadily rising. Rather, they prove their mettle when the cycle is against them and confidence is low.
FOURTH QUARTER 2017 | 1
