Jacques Conradie, Peregrine Capital CEO, has managed hedge fund money at the firm since 2007. One of the key characteristics of his success over that time is an appreciation that sometimes you have to be willing to take positions that go against the market.

‘If everyone hates a trade, then often it’s a good trade,’ he said during a webinar hosted by Inn8 Invest. ‘Often the thing that people think is crazy at the time is the right thing. If you want to make money through the cycle, you have to be willing to swim upstream at times.’

He cited a specific example of a trade that Peregrine made in late 2014. ‘When African Bank failed, we were short the share, but we actually made much more money after the failure,’ Conradie said. ‘African Bank had sold bonds to Swiss and US investors who then felt that they needed to unload them, so we bought a ton of those bonds at 60c in the rand. ‘We ended up getting all the money back with a ton of interest. It was one of our greatest trades. But if I told my clients I put 10% of the fund in African Bank bonds, they would have shouted at me.’

At the moment, being long South African equity is another position that he feels goes against the prevailing sentiment, given the country’s economic difficulties. ‘It’s certainly tough for a lot of South Africans with all the load shedding,’ Conradie (pictured above) said. ‘But we think South Africans are very resilient, especially in the corporate sector. We think the management teams of medium and large companies here are world-class, and companies are taking things into their own hands.’

He said that due to how bad the situation has become, companies are now taking aggressive action to instal renewables, and because the grid is opening up the private sector is also able to participate more meaningfully in power generation and purchase agreements. ‘The amount of renewables that went into the system in South Africa in the first quarter of this year is almost the same as for the whole of last year,’ Conradie said. ‘We think it will rapidly fill the hole Eskom has left, and 18 to 24 months down the line we think companies and individuals will have taken enough into their own hands that load shedding will no longer be an issue.

‘Most people haven’t seen this. Most asset managers we hear are bearish about South Africa. But when everyone is bearish, that means prices are low. When almost everyone has a certain negative view on something, it’s often the right thing to take the other side.’

However, Conradie acknowledges that just being contrarian is not a strategy in itself. ‘You still have to be right about things turning,’ he said. ‘And if we’re still stuck at stage eight in two years’ time, we’re going to be wrong.’

SA exposure Nevertheless, Conradie said that the firm has ‘deployed quite a lot of money in the South African market’.

The market-neutral Peregrine Capital Pure Hedge H4 Retail Hedge Fund currently has a net exposure to South African equities of 16.8% according to its latest fact sheet. Its net exposure to foreign equities is slightly negative. Peregrine’s multi-strategy hedge fund, the Peregrine Capital High Growth H4 Retail Hedge Fund, has net South African equity exposure of 38.4%. That compares to net exposure of 14.7% to offshore stocks.

Conradie co-manages both portfolios with David Fraser, Justin Cousins, Simon Steyn and Matthew Thomson. ‘There is always a chance the government does something else wrong, but we think this electricity situation gets resolved, and even at Transnet we think a lot is being done right now,’ Conradie said.

‘And we also use put options to protect. And if we see the renewables trajectory slowing, or anything else slowing down, we can change our minds. We have a smaller asset base than the big managers, and we can be nimble.’