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