When David Fraser and his business partner Clive Nates launched Peregrine Capital in 1998 they were ‘working off a clean sheet of paper’, as Fraser puts it.

And it has been a impressive performer. The Peregrine Pure Hedge H4 QI hedge fund, a classic market neutral hedge fund, has provided a 19.1% annualised return since inception in July 1998 up until 30 November 2023.

This is well above the appropriate benchmark return. It is well above the 9.7% return from the Asisa multi-asset low equity category as well as the 5.6% average inflation rate.

The more racy Peregrine Capital High Growth H4 QI hedge fund has given a 23.2% annualised return since inception in February 2000 up until 30 November 2023.

This compares with a 10.3% return from the Asisa multi-asset high equity category and 12.0% from the Capped Swix index.

‘These funds have been open to new business for all but two quite short periods,’ Fraser (pictured below) said.

He said that these returns quoted, as is standard in the hedge fund industry, are net of fees. The business has grown to more than R20bn AUM.

‘But it took us eight years to get to R1bn,’ Fraser said.

Often the returns are provided by a large spectrum of shares but sometimes there are big winners for the business, such as Thungela Resources, the coal business spun out of Anglo American on a tiny P:E. A gift for a sharp-eyed hedge fund manager.

Peregrine also recently made money from its investment in Rand Merchant Investment Holdings (RMI) – now Outsurance - as it realised value through unbundling its holdings in Discovery and Momentum Metropolitan as well as the sale of its interest in the UK insurer Hastings.

Few complaints

‘Our clients don’t complain too much about our fees. We have generated returns primarily through stock picking, and not by aggressive practices such as excessive gearing’

Fraser is now executive chairman of Peregrine Capital and Jacques Conradie is CEO.

Fraser, a chartered accountant, worked at two different accounting firms, giving him exposure to a wide variety of different businesses. At KPMG his team was auditing large corporates and parastatals such as Transnet and Eskom – still quite well-run entities in those days.

‘Mick Davis (later founder of Xstrata, which merged into Glencore) ran the Eskom treasury.’

Then at Kessel Feinstein (later Grant Thornton) the firm focused on entrepreurial businesses such as FSI, run by the flamboyant Jeff Liebesman and then the enterprising Jowell family.

‘So I got to learn about both corporates and entrepreneurial businesses. And I developed a passion for company analysis.’

Fraser is still a believer in the value of site visits. ‘It can add a lot of value to visit the operations, if you know what you are looking for.’

He has also recently returned from three days of visits to the listed South African retail chains.

Time to quit auditing

Fraser came to a point when it was time to move on from auditing. He had the opportunity to work in corporate finance at Standard Corporate & Merchant Bank, but instead he opted to join Liberty Asset Management (Libam) as an investment analyst.

The Liberty Group was the one large corporate Kessel Feinstein audited, and it was also the firm in which Liberty founder Donald Gordon had done his articles.

‘Libam had strong leadership in (chairman) Roy McAlpine and Jamie Inglis. And there was an impressive number of industry heavyweights that started their careers at Libam.’

These included Visio Capital founder Patrice Moyal, Sim head of equities Andrew Kingston, All Weather founder Shane Watkins, former Old Mutual Properties boss Ben Kodisang and Centaur founder Roger Williams.

‘Jamie and Roy were the adult supervision. Us youngsters were a close-knit bunch. We would all get together socially at least once a week.’

Fraser said Libam was in a different building from the life office and was independent operationally.

‘We seemed to be “hip and happening”.’

Industrials research

Fraser’s research spanned industrials such as Nampak and Barloworld, the construction sector – which was much larger in those days as Murray & Roberts Grinaker, (later Aveng) LTA and Group Five were all significant businesses – as well as IT businesses such as Reunert and Altron.

Fraser said that if there was one area of Libam that was less than excellent it was at the tier of portfolio managers.

‘At our peak we had something like 350 pension funds for them to manage, plus the GuardBank suite of unit trusts, so they were stretched.’

Fraser said that when he was at Libam from 1996 to 1998, Old Mutual and Sanlam were still the main competitors. Businesses such as Investec Asset Management, Coronation and Allan Gray were still substantially smaller than the asset managers affiliated to life offices.

Momentum’s asset management business, branded RMB Asset Management, was also still small.

‘BOE Asset Management (led by John Winship, Chris Logan and Anet Ahern) would have been the dominant independent business, and one we came across most at pitches. They positioned themselves as growth managers while we focused on fundamental value, which was distinct from Allan Gray’s deep value philosophy.’

The Melnick moment

The most signifcant contact Fraser made at Libam was Sean Melnick, who was one of the first specialists in the SA market in derivatives and related activities such as building structures through caps and collars.

Melnick formed the Peregrine group which started businesses such as Peregrine Quant (now Vunani Fund Managers) and which bought into, and later fully acquired the wealth manager Citadel. It also started one of SA’s first prime broking businesses, now Peresec.

He approached Fraser and his Libam colleague Nates – now owner of the British football team Lincoln City FC – to start a hedge fund business which was named Peregrine Capital.