In a market characterised by volatility, expensive capital and uncertainty, Peregrine Capital CEO Jacques Conradie is pleased by the investment firm’s performance.
Peregrine, SA’s first hedge fund manager, has been in business for 26 years.
Conradie looks back at the first half of 2024 and how his firm’s main funds performed against the backdrop of political uncertainty in SA. He also outlines the place of global tech in Peregrine’s portfolio against the backdrop of artificial intelligence (AI) growth.
How have Peregrine’s funds performed in the first half of 2024?
We were up about 8% in our high growth flagship fund for the first half. Over the past year we’re just below 16%. So I’m reasonably pleased with that.
Had we bet all in on a good election outcome, [we] could have done better, but our job is to take advantage of the upside while being hedged if things don’t turn out well.
Obviously, it would have been nice if we had a bunch of Nvidia [shares], that could have added 1 or 2 percentage points to our performance.
For those who have invested from Peregrine’s inception, how do the returns look like?
Our cumulative returns since inception is now more than 150 times the money invested, so R1m upfront would be more than R150m now. That’s from the start of 2000. It’s nice to keep compounding and that’s the key for us as a hedge fund. It’s about consistent performance. That’s how you generate wealth over the long run. It doesn't help if you do a 50% year, but then you lose 50% again the next year. That’s not how you build wealth.
Consistent and strong outperformance while limiting downside, is how you put consistent runs on the scoreboard for yourself and clients over time. That’s certainly what we aim to do.
Technology stocks have rocketed recently, especially because of AI. Are we at risk of being in a bubble?
It’s a key question but a difficult one to answer.
We are extremely excited about the benefits AI will bring to humanity over the next five, 10, 20 years. It is just staggering. If you interact with ChatGPT, there’s almost a feeling of human-level intelligence.
The question is, what is currently priced into the companies? Is it too much or too little?
The interesting thing to us internally is: normally when these big new tech changes happen ... when computers, the internet or mobile phone were developed, new start-ups replaced the large existing tech companies, and you got new winners and some of the existing companies became losers.
But the way that AI has played out and because of the extensive cost of training models, huge data centres and lots of Nvidia graphics cards required, it’s actually played into the hands of the large tech companies this time around.
They’re the ones best positioned to win because they can afford all these data centres, and they can apply AI into their large existing businesses.
We think it has played out very well for these larger firms. We like shares such as Meta, Google and Microsoft. We think they’re long-term winners. With Microsoft trading at about 30 times its forward earnings, and Meta and Google at 22-23 times, this looks quite reasonable for us vs the overall market.
My gut says they’re not in a bubble.
What about Nvidia, the valuation of which has gone through the roof because of their hardware that powers AI?
The one that’s hard ... that I’m not an expert on is Nvidia. The earnings multiple doesn’t look that expensive but they are making super profits because they’re the only ones that can deliver these chips, at the speed, low power cost and number of units the market needs.
That one is very uncertain... How quickly can other people replicate their technology? There’s clearly a big incentive to do so given how much money Nvidia is making. So how long does their edge last?
Their semiconductor division, where they make the chips, is what I’m somewhat unsure of.
What is the value of your assets under management (AUM)?
It’s about R20bn in assets after a good period for our funds.
It’s nice that more people have realised the value that a hedge fund can add to their portfolio in terms of the higher expected return.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.