Impeccable performance

Independent boutique asset management firm wins big

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Truffle Asset Management is a leading independent boutique long-only asset management business, whose uncompromising values and flexible positioning have forged an enviable reputation, recently rewarded with a deal that would turn any fund manager green with envy. The rehabilitation of the underperforming Nedgroup Investments Managed Fund is to get a new fund manager. Blue Chip spoke to Truffle's Iain Power, who will be taking charge of the fund.

Nedbank's confidence in Truffle speaks to the stellar reputation the boutique operation has forged for itself. The best way to grasp why Truffle is held in such high regard is to understand the principles on which the business was founded and the advantages offered by its particular way of positioning itself in the market.

Founded in 2009 by Louis van der Merwe, ex-CEO of RMB Asset Management, and Hannes van der Westhuyzen, Head of Global Markets at Nedgroup, Truffle was initially started and run as a hedge fund business. Then, says Power, “in early 2010 we bulked up the team to start the long-only side of the business”– a shift that saw Truffle evolve into the boutique long-only asset management business that it is today.
This growth saw an impressive list of names join the Truffle team, including former RMB Asset Management CIO, Charles Booth, Iain Power himself, also previously with RMB Asset Management, and Jonathan du Toit from Orbis Allan Gray.
Truffle was founded with a very clear vision and an ironclad set of values. Power elaborates: “The business was established to meet clients' needs through delivering market beating returns in this ever-changing and competitive financial space. The vision was for the business to be a leading independent boutique asset manager, with equal emphasis on all of those words: leading, independent and boutique.”
Power unpacks the boutique concept further. Size is the first advantage: “A boutique manager has a smaller asset base compared to a lot of the larger managers out there, which typically means that you have a bigger investable universe in terms of potential opportunities when investing client capital”. For example, we are able to build significant positions in small and mid-sized companies to an extent that our bigger competitors are frankly unable to achieve.


“Take Sephaku Cement: this is a business with a market capitalisation of about R1.4 billion; we on behalf of our customers own approximately 10.5% of the company’s shares in issue, this represents an investment of about 140 million Rand or approximately 1.2% of assets across our funds. To achieve the same exposure, of 1.2% a conventional asset manager with R50billion of assets under management would have to own 43% of the company shares in issue, which is obviously just not possible.”


In other words, says Power, the size benefits of being a boutique manager translate into more opportunities to invest and greater flexibility to leverage customers' capital into those opportunities, yielding greater alpha opportunities or greater value creation and creating a sustainable competitive advantage.


The second advantage of the boutique approach, says Power, relates to the speed with which, thanks to a smaller asset base, portfolio positions can be changed to take advantage of market volatility. “For example, a big manager trying to execute a trade which represents let’s say 5% of a R200billion portfolio, has to trade a R10billion position which depending on liquidity can take weeks to execute; Truffle, on the other hand, with a much smaller asset base, is able to do that pretty much instantaneously.


Effectively we’re able to get more bites at the cherry, to the extent that we can extract some of that volatility and translate that into performance or additional alpha”.


The third benefit of the boutique approach is the personal touch: investing with a boutique manager means that clients can actually interact with the individuals who are managing their money. Contrast this with some of the bigger companies where the fund managers are screened off by marketing and various other corporate layers. Consequently, says Power, “There’s a lot more of a personal relationship between the customer and ourselves.”

These advantages speak directly to Truffle's core values, starting with the principle that the client always comes first. Says Power, “Our most important job is to deliver in terms of client expectations and deliver the best possible returns; our profit margin is a secondary consideration.” This means that Truffle invests alongside its clients in the same portfolios, paying the same fees if not more than some clients whose size entitles them to fee discounts.
“Our money is really where our mouth is,” enthuses Power. “It is invested in our own funds. We don’t allow proprietary account trading, which means portfolio managers don’t trade their own portfolios on the side – all the focus goes into client portfolios.”

As much as Truffle prides itself on being an independent owner-managed and -controlled business, the firm also benefits from having an outside shareholder with the stature and credentials of RMB Structured Insurance, which owns some 22.6% of Truffle's equity.

Reaping the rewards

The award of the Nedgroup Investments Managed Fund is a clear vindication of Truffle's values-driven performance.

The fund has declined from having R5.7 billion in assets under management in June 2014 to R3.0 billion at the end of September, making it the worst performer in the South Africa multi asset high equity category over one year, three years, five years and ten years. Is Truffle up to the challenge of turning this around? Head of Nedgroup Investments, Nic Andrew, believes Nedbank has backed the right horse.

“With our best of breed process we look for certain characteristics in fund managers that make them natural partners,” explains Andrew. “We particularity like business that are owner-managed, where the management of the firm invests alongside investors; businesses that are willing to limit the size of their assets to get good returns; and fund managers that have proven long term track records. Truffle has a very stable team that has demonstrated all of those characteristics and with their depth of experience we are just delighted with the partnership.”

Ultimately the idea is to bring the portfolio in line with the Truffle Balanced Fund and merge the two into a single unit trust, dependant on regulatory and unit holder approval. The Truffle Balanced Fund, which was formed in 2011, is currently within the top five unit trusts in its category over both one year and three years.

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