sean melnick nedcor securities – midcap conference
TRANSCRIPT
GROUP SNAPSHOT
The Peregrine group is a leading provider of wealth and asset management solutions.
Assets under management currently exceed R 22 billion.
Citadel R 10 billionQuant R 9 billionHedge funds R 3 billion
10th biggest broker by value, 7th by shares traded and 5th by deals settled.
Market capitalisation (net of treasury shares) @ R7.50 of R1.5 billion.
Capitalised at 6.7% of assets under management.
PE ratio per trading update (@ R7,50) between 8.2 times and 9.3 times to end March 06.
GROUP PROFILE Contribution to Sep 05
WEALTH MANAGEMENT 23%
Citadel ASSET MANAGEMENT 35%
Hedge Funds
Peregrine Capital
Peregrine Investment Managers (PIM)
Caveo FOHF (JV with IS)
PeregrineQuant TRANSACTIONAL 26%
Broking & Structuring
PROPRIETARY CAPITAL 16%
Investment returns (net of group costs)
PERSONAL FINANCIAL FRAMEWORK
1.WEALTH
CREATION
(“What you do
for a living”)
2.YOUR LIFESTYLE
ASSETS
(‘How you live”)
3.WEALTH
PRESERVATION
(“Securing your
future”)
4.EXCESS
ASSETS
(“More than enough”)
WEALTH MANAGEMENT - CITADEL
CITADEL
Focussed on individual high-net-worth wealth management
Clients with R 2 million plus to invest
Average current top-up client size R 5,0 million
Average new client size R 8,0 million
Total assets under management approximately R 10 billion
New inflows of R 100 million per month
Client retention of 96%
Annuity outflows of almost R600 million
WEALTH MANAGEMENT
CITADEL - PROFITABILITY
Annuity profit R 4 million per month = approx R50 m per annum
PLUS 20% performance fee above lifetime benchmark per client
Benchmark is inflation after accounting for all costs and taxes
High watermark catch up from late 2001 / early 2002
Performances fees currently averaging R 3 million per month plus
Approximately half the client base now at, or above, high watermark
Strong gearing to weaker currency over time
WEALTH MANAGEMENT
CITADEL – PERFORMANCE FEE “RUN RATE”
At current level of AUM of R 10 billion :
if all clients at benchmark: run-rate of R 20 million per 1% real
if half the clients at benchmark: run-rate of R10 million per 1% real
Half the clients at benchmark: 5% real = R 50 million fees per annum
Half the clients at benchmark: 10% real = R 100 million fees per annum
WEALTH MANAGEMENT
PeregrineQuant
Over R9 billion in AUM
Cashflow positive
Good progress in both the institutional and retail markets
All the infrastructure costs have been spent
Belief that quantitative asset management will continue to gain ground
on the more traditional styles
ASSET MANAGEMENT
HEDGE FUNDS
Peregrine is the biggest player in the local hedge fund industry.
The group’s exposure to the hedge fund industry is extensive with investments across a broad range of strategies exceeding R5 billion on a worldwide basis.
In excess of R 2,5 billion is managed in single strategy hedge funds. Within the group’s wealth management arm, Citadel, over R1 billion is invested
with leading hedge fund managers on a multi - strategy approach. In addition, R1,7 billion is currently managed globally on a fund of hedge fund
basis with an international joint venture partner. Caveo, a newly formed FOHF joint venture with Investment Solutions currently
has R 330 million under management.
The group also houses one of the country’s leading derivative, equity and prime broking operations.
OUR INTEGRATED HEDGE FUND STRATEGY
FUND OF HEDGE FUNDS / MULTISTRAT
Caveo
Citadel Multistrat
SINGLE STRATEGY FUNDS
Peregrine Capital
Peregrine Investment Managers (PIM)
PRIME BROKER
Peregrine Prime
CAVEO – Top of the funnel
Combining Peregrine’s hedge fund experience and reputation
with Investment Solutions distribution (and manager access)
Currently R330 million under management
Potential to manage several billion
Conflict of interest resolved by “non-Peregrine” products
ASSET MANAGEMENT
OUR INTEGRATED HEDGE FUND STRATEGY
FUND OF HEDGE FUNDS / MULTISTRAT
Caveo
Citadel Multistrat
SINGLE STRATEGY FUNDS
Peregrine Capital
Peregrine Investment Managers (PIM)
PEREGRINE CAPITAL
Fundamental equity hedge fund management company
Over R2.1 Billion in AUM
Comfortable at current AUM , but closed to new flows
Hedge fund : 44% p.a. gross compounding since July 98
Performance fund : 65% p.a. gross compounding since July 98
50/50 economic deal with management – stability in team
Profit from annual fees of only R 10 million BUT
ASSET MANAGEMENT
PEREGRINE CAPITAL – PERFORMANCE FEES AT AUM of R 2,1 BN
168 m40% pa
147 m35% pa
126 m30% pa
105 m25% pa
84 m 20% pa
63 m15% pa
42 m10% pa
Performance Fees
Return
ASSET MANAGEMENT
OUR INTEGRATED HEDGE FUND APPROACH
FUND OF HEDGE FUNDS / MULTISTRAT
Caveo
Citadel Multistrat
SINGLE STRATEGY FUNDS
Peregrine Capital
Peregrine Investment Managers (PIM)
PRIME BROKER
Peregrine Prime
BROKING AND STRUCTURING
Peregrine Securities
Equity Broking
Peregrine Prime
Peregrine Equities
Derivative Broking
Derivative & Quantitative Research
Structuring
TRANSACTIONAL
Base Case (?) Earnings for Peregrine (note assumptions)
R 180 m @ 6.7%12Interest
PAT = R116m, HEPS ± 60 cps
@11%, each additional 5% pa = R17.5m
Large transactions/structures excl.
Each additional R1bn AUM = R2.5 m
@15%, each additional 5%pa = R12.5m
1% pa real performance = R10m
Sensitivities
(15)Holdings costs
162Total
40Return on proprietary capital
125Subtotal
30Securities
5PeregrineQuant
40Hedge funds
50Citadel
PBT (Rm)Company
Balance sheet
No external gearing at year end
R 360 million in cash / near cash investments
Approximately R 150 million cash in working capital
Generating cash at a rate of R 20 million per month (pre tax)
BUT
Earnings do rely on good investment performance
Business is highly people dependent
FINALLY, AN INTERESTING COMPARISON AND SOME HOMEWORK
Man Group Plc (www.mangroupplc.com)
Largest listed hedge fund manager. Listed on the LSE.
Man Group Plc is a :“leading global provider of alternative investment products and solutions. One of the world’s largest future’s brokers.”
Assets under management @ 12 Jan 06 - $ 45.8 billionMarket Capitalisation - $ 11.9 billionMarket cap : AUM = 26% !!!!Fiscal PE (trailing) – 19.3 times