André Steyn at Steyn Capital Management in Cape Town has had an exceptional start with his Steyn Capital Fund, which has just completed its first year.
The long/short equity fund has returned a net 42.44% in the 12 months to the end of April, putting it at the top of the HedgeNews Africa equity tables. The fund has been positive each month since inception, barring a 0.57% dip last June, with an 8.54% gain the following month, its strongest return so far.
The fund started with R14 million in owner assets last May and was at R83 million at the end of April, with several fund of hedge funds now invested. Steyn expects to cap the fund at around R300 million.
Steyn uses proprietary screens to research South Africa’s top 200 stocks with a value-driven bottom-up approach, typically focusing on a mix of valuations and return on capital.
His research process is informed by many years’ experience working at big global hedge funds. Before starting on his own in 2008, Steyn spent four years at Temujin Fund Management UK, the UK arm of a billion-dollar New York-based hedge fund, where he was CEO. He was responsible for all non-US investments in a long/short portfolio of around $2 billion. Before that he spent two years at Ziff Brothers in New York, a multi-billion dollar hedge fund, where he performed fundamental research for the purpose of recommending new investments for the firm’s capital, and generated significant alpha by shorting companies with poor earnings quality.
A chartered accountant and CFA, Steyn started his career at Andersen in 1998, completing his articles in Cape Town before transferring to the New York mergers & acquisitions practice where he advised companies and private equity funds on acquisitions.
“I moved to South Africa thinking I could apply overseas research techniques to this market, which is less efficient, and I am pleased to have proven over the past year that this is the case,” says Steyn. “It is also good to note that a significant proportion of the fund’s returns over the past year have been driven by correctly anticipating company earnings using proprietary research.”
The portfolio typically comprises 15-20 core long and 20-25 short positions, which are intensively researched. Currently, the number of long positions is somewhat higher than usual due to the presence of a deep-value “basket trade”.Steyn is keeping net exposure fairly low in current market conditions while seeking to raise gross exposure to benefit from the spread between the long and short books so as to generate returns whilst effectively managing risk.
He adds that South Africa has a disproportionately high number of good-quality companies relative to the size of the market, not all of which are yet recognised as such by local market participants.