Opportunities that present infinite/significant upside potential but with defined limited downside risk that can be hedged, therefore, providing a greater margin of safety.
The Fund scours the market for asymmetric investment opportunities. Once a particular opportunity has presented itself based on attractive fundamentals, significant upside returns and of course an asymmetric risk/return payoff; the interrogation process begins. The goal is to work the opportunity into one of greater asymmetry by tackling each significant risk node within the potential investment. Each risk node is scrutinised using industry experts, in-house bottom-up analysis, and where possible, hedged using a specific financial instrument.
Once a decision is finalised for a prospective strategy, the Fund implements a comparative process to find the financial instrument that enhances or best expresses our expectation or view. In parallel with the investment process, and given its fundamental nature; the Fund generates possible outcomes that are in opposition or test our investment hypothesis. It will also ensure that the correct, swift and orderly steps can be taken if and when the negative outcome materialises.
The portfolio/concentration risk is managed by ensuring the investment drivers and/or risks of one strategy does not overlap with any other strategy in the portfolio. The Fund is analysed in its entirety ensuring no more than 20% exposure to any expected outcome at any point in time. As discussed above, the risk is managed rather on a per each strategy. Liquidity risk is mitigated by hedging positions with financial instruments with greater liquidity compared to the underlying investment.
Leverage will be used for the following two purposes: (1) increase exposure to opportunities where there is a high degree of certainty and asymmetry; and (2) where necessary, hedge the portfolios exposure. The Fund is regulated as a retail hedge fund in South Africa. Therefore, leverage is limited to 200% gross total exposure. Cash constraints could potentially inhibit the fund from taking advantage of shorter term pricing discrepancies or arbitrage. This will also result in the use of leverage for such opportunities. Varying degrees of leverage will be utilised based on the level of conviction we have for certain outcomes i.e. greater conviction will translate into greater leverage and vise-versa.
|Performance Bracket:||Performance Fee|
|STEFI or less**||0%|
|STEFI + 10%**||15%|
|STEFI + 15%**||25%|
|STEFI + 20%**||30%|
STEFI defined: Short Term Fixed Interest Index (South Africa)
* Sliding scale lower over the first 3 years for early investors/support
** Based on a High-Water Mark
Peregrine Fund Platform (Pty) Ltd
Peregrine prime broking
Zurich Fiduciary Group
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