Sanlam beds in after the launch oflong/shor[ and multi-strategy fundsWith a solid platform place, Bruce Simpson at Sanlam Alternative Solutionslooks fonruard to the new strategies taking root and seeing all its funds grow
anlam Investnrents has rebranded
its single-nranager hedge fund
unit, coinciding with a grolrp-
wide realignment ofits investnrent
busir.resses, with sienificant plans under way
to expand on its hedge fund offering.
Long-time hedge lund nranager I3ruce
Sinrpson, who has been with the group for
16 years as a market rnaker, trader and fund
nranafler, now heads business development
lor Sanlar.n Alternative Solutions, which
sits alonsside the grouph other core invest-
nrcnt d iv is ions at S.rr r larrr Invcstments, re-
porting to Nersan Naidoo, chief executive
oflicer of the Investnrcnt Core .
Sanlam lnvestr.nents is :r division of San-
lam Life Insurance, with assets under nran-
agcnrent of around l\400 billion (US$37.5
billion), including long-only asset rnanage-
nrcnt, a passive trackir.rg businesses (SA-
Tl\lX), a structuring business, the group'.s
nrulti-manager business (SMMI) and the
Alternative Solutions unit."ln the past we had a couple of hedge
hrnd n.ranagers with'synthetic' ownership
ir.r the business under the GEN-X brand.
which started in 2006. Sanlarn was a large
partner in the busir.resses, but the group felt
it had no real reprcscntation at a business
levcl," says Sinrpson."ln ny new role I rcp-
resent the grollp at a strategic level, idcn-
tifying talent, raising assets, and looking at
opcrations and risk nlanagement across thc
nranagers that sit on the sanre platfornr."
The platform already conrprises four
strategies, with two new funds added this
ycar.While the fixed incor.ne arbitrage and
creclit lunds have been running successfully
lor sorne years, equicy long;/short and nrul-
ti-strategy are ncw. ln time Simpson plans
to add new strategies potentially looking at
FUND FACTS FUND FACTS FUND FACTSThe Sanlam High-Yield Fundfte Salan Fb<ed hcorre Artrage Rnd
Fund inception date: October 2004Strategyn Fixed income arbitrageFund manager: Johan KurtzPrime broken RMB PrimeAdministraton Investment DataServices Group (lDS)
AUM: R245 million
Op€n to investment Yes
The Sarlanr Credit Opporfunitbs Fund
tn
BruceSimpson
the nrarket-neutral cquiry and conrnrodi-
ties space, when the right investnlcnt tcarns
present thenrselves.
AJI r r tarr lgcrs have synthet i t (o-owner-
ship in the products they run and in all cas-
es (with the exccption of the credit funds)
also co-invest, with assets under nranage-
nlent across the platform currently around
R1 .32 b i l l i on .
The latest fund to go live is a nrulti-
strategy offering, which started on July 1,
rnanaged by nrarket veterans Sithembele"Bond" Manyadu and William Ofosu.
The pair jo ined Sanlam at the beginning
ofJune, with inrpressive nrulti-year track
records in the bank proprietary trading
environment. The fund was seeded with
R100 million with a commitnrcnt for a
further R100 nrillion, providing perFor-
nlance tar€iets are achieved.
The Sanlanr Multi-Strategy Fund fo-
cuses predor.ninantly on the South African
markets, lvith a small ofhhorc conlponent
included in its mandate.
It blcnds equiry long/short and fixed
inconre with tactical risk-budgeted alloca-
tions bctween the nvo sryles based on quan-
titative and fundamental risk-rcturn analysis.
Thc nraxir.mu.n allocation to one sryle is
70%u ofvalue at risk (VAR) at any one time.
Sinrpson believes the duo's conrpetitive ad-
vancrge lies in their skill base, backed by ex-
tensive cxperience and industry connectiorx.
Ofosrr has had a l6-year carccr . jo in ing
UBS! graduate progranrnre in the UK and
Switzerland before returning to South Af-
rica as a trader and analyst. He later went
back to London to head UBS'.s prop trad-
ing for South Africa, leading a team of
traders rnanaging nlore than l\1.5 billion.
He was subsequently head of trading for
South African equities (spot and deriva-
Fund inception date: July 2010
Strategy: Off-market debtFund managers: Erica Nell, Jared AbelsAdministrator: Investment Data
Services Group (lDS)
AUM: R180 mil l ion
Open to investment Yes
Fund inception date: July 2010Strategy: Listed credit, B rated
ano aooveFund managers: Erica Nell, Jared Abels
Administrator: Investment Data
Services Group (lDS)
AUM: R640 millionOpen to investment YeS
lohon Kurtz
l6 HEDGENEWS AFRICA Third Ouarter 2014
Slthembe/e "Bond" Monyodu Greg Bergh
tive$ atJP Morgan, and nrost recently head
of equiry (spot and derivatives) trading at
BNP Paribas, where he set up its South Af:
rica trading operations.
Manyadu hrs l5 years ' investnrent ex-
perience, starting at Nedbank as a money
rnarkets dealer and later money market
fur.rd r.nanap5er, before joining Rand Mer-
chant Bank as a bond and fixed incorne
derivatives trader. He also worked as head
of trading for FirstRand Bank on their AF
r ica desk in Narnib ia, sct t ing up i ts opcr l -
tions before being recalled to South Africa
in mid-201 I to stabilise the swaps trading
desk, returr.ring the book to profitabiliry.
He has received multiple nor-r.rinations and
awards as the top trader within RMB treas-
ury and the covetedJSE Spire award.
The Sanlam Long/Short Equity Fund
launched on May 1, managed by well-
known South African hedge lund man-
ager Greg IJergh. llergh was previously a
partner at Praesidium Capital, where he
co-nranaged a long/short hedge fund fronr
2005 unt i l 201 l .The fund reached R700
r-nillion at its peak and was a consistent top
performer until the 200u crash prompted
investor withdrawals, putting its small-cap
holding under pressure.
Bergh took time ollt fronr formal fr"rnd
Dlanagcl l )cnt to conccntratc o l l other i r ) i -
tiatives, including being chief of staff to
the leader of the opposition in parliament.
IJefore Praesidiur.n, he worked at Investec
Bank and Edge Capital.
As principal manager, Ilergh will be
looking to add a co-manager within the
fundi first year, in keepine with internal
policies to develop and grow intellec-
tual capital on each stratepry. The fund se-
cured group seed capital of R50 million at
launch, with commitments to grow that by
a further I{50 million over 12 r-nonths, pro-
viding perfornrance targets are achieved.
The Sanlanr Fixed lncor.ne Arbitrage
Fund (recently renamed fronr the Gen-X
Fixed Inconre Arbitrage Fund) has been
running sir.rce October 2004, launched by
Sinrpson who was joined byJohan Kurtz in
March 2007. Kurtz, who previously spent
nrany years in bond and interest-rate sales
at Merrill Lynch, ABN Anrro and JPMor-gan Chase, is now the principal r-nanager
on the fund, which uses nrultiple strategies
to ndne opportunities in the South African
fixed inconre r.narkets. The fund has assets
of R245 nrillion, and has returned a net
annualised cornpound 1 0.76% since incep-
tion to the end of May.
Sanlarn\ credit funds have also been
running for some time, with one origi-
nally rnanaged by Simpson and Kurtz and
the other included after forrner nlanager
StJohn Bungey joined the group in a dif-
ferent capaciry.
Erica Nell is the principal manager on
both funds and has been with the unit for
two years.The rwo funds she manages have
combined assets of around R820 million.
She brings extensive experrence most re-
cently as head ofSanlam! centralised credit
risk function, with the portfolios benefit-
ing from the groupt deal flow.An account-
ant, Nell started out at Gensec Bank, which
became Sanlanr Capital Markets.
Nell was joined three months ago by
Jared Abcls as co-manager, who spent
seven years in credit research with Sanlan-r
Capital Markets, and has embarked on a
three-year step-up process to become a
partner on the funds.
The Sanlan.r High-Yield Fund, which
operates in the listed rated space, can invest
in instruments with a rating down to single
B. It has R640 million under management,
with capaciry for up to R1.5 billion, deliv-
ering net annualised returns of 5.5uln since
July 2010. The fund has underperformed
its target due to being exposed to the First
Strut default. The Sanlam Credit Oppor-
tunities Fund is an ofF-rnarket debt fund
operating in the unlisted, unrated space. It
has grown to R180 million fron'r R40 mil-
HEDGET{EWS AFRICA Third Quarter 2014 l7
r.
lion in 2012, with capaciry for up to R400
million, returning 9.46% sinceJuly 2010.
Looking at the bigger picture, Simpson
says being part of one of the largest inde-
pendent financial service providers in Af-
rica has great benefits for the business unit.
" We leverage off the group for legal, com-
pliance, HR, operations and IT and also
have access to scrip lending agreements,
fundamental and quantitative research. The
compliance team monitors our portfolios
daily," he says.
Being part of the Sanlam group also
helps on the market interaction side, with
access to third-party research, flow infor-
mation and trade idea generation. Trades
are executed independendy with manag-
ers receiving fair pricing and liquidity from
the market due to them being part of the
greater group.
Sanlam's strategic plan for the business
includes a transformation component, and
Simpson's aim is for the investment tearns to
reflect South Africa's multi-racial make-up.
"We believe there is first-mover advantage
in the space if people are prepared to trans-
form their businesses going forward," says
Simpson. "'We are looking to partner with
and/or develop and mentor the right talent."
For now he is not actively pursuing any
more strategies as he develops systems and
processes. "As our new funds develop track
records and begin to attract assets, we will
look to fill the gaps in our offering.But if the
right people show themselves we are happy
to talk.We're taking it one bite at a time."
Simpson says it has been a natural evolu-
tion for him to begin to focus on broader
business aspects in line with the groupb de-
sire to grow further in the space."As an institution, Sanlam has long been
a supporter of alternative strategies but
in a fair\ unstructured manner. Now we
have a comprehensive strategy in place and
know how we want to position ourselves
for the future. And while I'm no longer
getting the instant gratification associated
with markets, I am enjoying the strategic
planning and look forward to seeing all the
funds perform and grow."
Key to the role has been securing sup-
port and seed capital from various parts of
the Sanlam group, selecting the right in-
vestment teams and then building a busi-
ness case based on the risk-return profile
ofeach strategy.
"If new managers get insufficient seed
capital at the outset it doesn't cover their
operational costs," says Simpson. "You
don't want to create a panicked environ-
ment where managers are in a hurry to
raise assets rather than concentrate on
performance. This is a longer-term game
and we are looking to create a shallower
J-curve environment for our managers. To
do this we are covering their operational
costs for a period and, performance de-
pendent, providing them with meaningful
seed capital and distribution.""Our managers dont sit alongside a
long-only process. We are an independent
alternative asset management unit, with an
entrepreneurial focus. Managers have the
freedom to express their own views and
run their own businesses but with high-
level ofrisk and operational oversight."
Simpson sits on the five-member inter-
nal comrnittee that decides manager selec-
tion and seeding. He has daily transpar-
ency into all portfolio holdings to ensure
managers remain within mandate. He also
sits on the risk committee and will engage
with managers in the event of portfolios
suffering meaningful drawdowns.
While external investors are welcome to
come on board at an early stage, Simpson
expects the new funds to only start attracting
meaningfirl external interest after 18 months.
Funds of funds are the primary and
preferred route for third-party capital, al-
though there are various secondary chan-
nels under consideration, including retail
distribution via Sanlam's sophisticated net-
work.There is also the potential for direct
investment from within the group.
"We will be looking to plug into both
external and internal distribution," says
Simpson.
Once new legislation allows, Simpson
will be looking to offer retail classes for all
the strategies, which will run alongside the
institutional offerings.
In time the business will also look to
offer a multiple-strategy retail product,
which will allocate strategically to under-
lying funds, giving a one-stop solution to
the retail market.
"We feel there is already too much choice
in the retail space, so a consolidated offering
will provide a better solution," says Simpson.
"At the moment we are focusing on mak-
ing sure the underlying strategies will be
ready for the incoming retail framework."
As part of its transformation initiative,
Sanlam is launching a three-year gradu-
ate training programme at the start of
2015, with room on the desk for up to five
skilled individuals. The Sanlam Alternative
Investment Academy programme is be-
ing announced at Wits University and the
University of Cape Town, targeting black
honours and masters level graduates.
For the first 18 months, the trainees will
study, conduct research and paper trade,
after which they will be allocated a small
amount of seed capital to invest in the mar-
kes. Each graduate will have a senior mem-
ber of the alternatives team as a mentor.
"The programme will allow the train-
ees to develop a track record and get a real
taste of what it's like to manage money. If
we like what we see, we will give them
another 12 months of trading, after which
there is the potential to build them further
into the business," says Simpson.
:'-3
.fi ,'Enco Ne// lored Abels
FUND FACTSfle Sadrn Lcrg/h E fity Rrd
StrategtE South African long/short equityFund managen Greg BerghFund inception date: May 1,2014Prime broker: Peregrine SecuritiesAdministraton MaitlandAUlr: R50 millionOpen to investment Yes butearly-stage
FUND FACTSffeSailanmdtiffigyhrd
Strategy: Multi-strategyFund managers: Sithembele "Bond"
Manyadu and William OfosuFund inception date: July 1, 2014Prime broken RMB PrimeAdministraton MaitlandAU[ft R100 millionOpen to investment Yes butearly-stage
la HEDGENEWS AFRICA Third Quarter 2014