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Veteran cash supervisor Nick Downing specialises in a extremely worthwhile area of interest – rigorously chosen international funding trusts from a whole bunch whose fairness is listed on London Inventory Alternate. On this fascinating interview, the co-founder of Overberg Asset Administration explains his course of, and the way he can repeatedly purchase offshore belongings at important reductions. – Alec Hogg
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Related timestamps from the interview
00:00 – Introductions
00:48 – Nick Downing on beginning his personal enterprise
03:18 – Why he selected the city of Greyton to start out his enterprise
04:42 – On shifting to South Africa after graduating from Cambridge
06:25 – On Overberg’s distinctive method to investing and the London Inventory Alternate
10:03 – Why funding trusts aren’t in style in South Africa
13:17 – On the ins and outs of funding trusts
14:29 – On the success of Overberg Asset Administration
17:13 – How Downing and Overberg method funding
19:58 – On Overberg’s greatest holdings within the LSE
22:49 – Concludes
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Edited transcript of the interview
Alec Hogg: Nick Downing is the founder, chief government, and chief funding officer of Overberg Asset Administration. However really, we now have a number of historical past previously. I’m undecided in the event you recall, however while you had been working at Appleton, right?
Nick Downing: Sure.
Alec Hogg: You sponsored the very first radio present in South Africa, which was my present on SAfm. It was referred to as the Appleton Market Replace.
Nick Downing: Sure, I keep in mind it.
Alec Hogg: All these years in the past. After which we misplaced contact since you left Appleton very shortly afterward and went off to start out your personal enterprise.
Nick Downing: So, sure, that’s the place I began. Nicely, thanks very a lot for inviting me to this interview. I actually recognize it. So it’s been a very long time. In 2001, we took the choice, my spouse and I and our two younger kids, to maneuver to the Overberg. That’s why we referred to as this firm Overberg Asset Administration.
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Alec Hogg: And I can’t ask you the place the Overberg is as a result of I really additionally stay there now, inside the space.
Nick Downing: So the Overberg is that complete space that stretches from Hermanus all the way in which to Caledon and Grabouw, in addition to elements of the Overberg like Greyton. Nicely, it’s the village. It’s a Theewaterskloof municipality. It contains the cities of Caledon and Grabouw. There’s a lot funding required, and Grabouw and Caledon are the most important funders of the price range. However it is best to come to Greyton one among today, Alec. It’s stuffed with potholes. Nothing’s working, and it’s a shame, actually. It was the jewel of the Overberg. I believe it nonetheless is, but it surely wants a little bit of a shake-up.
Alec Hogg: The governance…?
Nick Downing: It’s the governance. It’s the price range allocation. The out there price range goes to Grabouw for apparent causes, due to the migration and lack of housing, but it surely comes from Greyton and will get siphoned off to Grabouw. I don’t imply to be complaining about this on the present; it’s not a lot to do with international markets.
Alec Hogg: However, however, my considering is why? I can perceive. I do know very effectively why we now have moved in the direction of good governance within the Western Cape. I get a lot sooner bandwidth right here than I had in Johannesburg. I can work from wherever on this planet remotely. However what, 20 years in the past, made you go to Greyton, which is way away from what one would have thought any type of connectivity or shiny lights?
Nick Downing: Nicely, that’s an excellent query. There’s an organization within the UK referred to as Perpetual Asset Administration, and so they moved within the Nineties to Henley-on-Thames, miles away from the town of London, and that was my inspiration. I assumed, if they’ll do it, so can we. We had Web connection, or we did. Then it was a little bit of the previous dial-up connection, but it surely was sufficient to obtain prime analysis from London and elsewhere on this planet. We had been only a phone name away from the stockbrokers in Johannesburg, Cape City, and London. And actually, the massive motive is that the commute is about 500 meters. So I stroll or cycle to work, leaving a lot extra time to deal with the essential issues like managing shoppers’ investments.
Alec Hogg: Warren Buffett lives in Omaha.
Nick Downing: Oh, one other good instance. And he’s been there ceaselessly. Without end. Sure.
Alec Hogg: That’s attention-grabbing. You got here to South Africa from the UK. You had been educated at Cambridge College, which for a lot of South Africans is nearly a pinnacle of schooling. You clearly had the world at your ft. Why come right here?
Nick Downing: After Cambridge, I labored in London for 5 years with Nomura Securities, an enormous Japanese funding financial institution. Then I got here to Cape City to do an MBA. I’ve household from South Africa—my grandparents and oldsters are from right here—and I’ve at all times liked the nation. Initially, once I got here to Cape City to do the MBA, I assumed it will be a quick stint. However prefer it occurs to lots of people, I’ve by no means left. No matter all its issues, I’m fairly positive I’d by no means go away South Africa. I like the folks, the tradition, the trade, and the improbable entrepreneurial spirit. There’s a lot potential.
Alec Hogg: And also you deliver one thing completely different to the funding market on this nation, specialising within the offshore facet and Overberg in London Inventory Alternate-listed funding trusts. Sure. I’d love to search out one thing completely different. One thing that isn’t run-of-the-mill as a result of there’s a lot of that—folks attempting to be within the pack and never going out of the group. Your background within the UK, working at Nomura in each Japan and London, did that offer you an perception that South African-based folks may not have had?
Nick Downing: Funding trusts, additionally referred to as funding corporations or closed-end funds, commerce on the London Inventory Alternate—about 300 of them comprising the Footsie Fairness Funding Index. They provide an excellent funding mechanism, offering traders with publicity to a world diversified portfolio in a really environment friendly and cost-effective approach.
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Alec Hogg: Do they differ from unit trusts?
Nick Downing: Sure, unit trusts are open-ended, which means they create a brand new unit when a brand new investor comes alongside and promote shares within the portfolio when an investor decides to redeem their items. Alternatively, closed-end constructions just like the funding corporations we put money into have a restricted variety of shares in challenge. While you purchase shares, you want one other vendor, and while you promote, you want one other purchaser. In consequence, the share doesn’t at all times commerce at web asset worth, not like unit trusts. This may create alternatives and risks for traders, requiring skilled professionals to handle such portfolios. Nonetheless, it’s a wonderful option to acquire publicity to illiquid belongings because of the day by day buying and selling facilitated by the London itemizing.
Alec Hogg: It’s shocking to me that funding trusts have gone off the radar in South Africa. Previously, through the 1969 increase and bust, funding trusts had been fairly sturdy right here. There aren’t that many round anymore. However the way in which you’ve described it and the way in which I keep in mind it, if you wish to purchase a unit belief, you pay full worth, 100% of the belongings. If you wish to get one thing at a reduction, you purchase right into a closed-end funding belief. As you say, now, they’re buying and selling at a reduction of 16%. So all of us like to purchase a greenback’s value of belongings for $0.80, or on this case, $0.84. I’m wondering why they’re not in style on this nation.
Nick Downing: So there are a few examples like Remgro. It’s a type of funding belief, proper? Reinet is one other one. I daresay they’ll grow to be extra in style in time, however each of these—Remgro and Reinet—commerce at a lot wider reductions to web asset worth than the 16 or 17% that I simply quoted. That’s as a result of they cost very excessive charges. Reinet, particularly, has a price paid to the asset supervisor of wherever between one and a half to 2%, and it follows a really passive administration method with simply 4 or 5 holdings like British American Tobacco and Pension Corp. Not a lot exercise is happening, so traders query why they need to pay 2% for minimal exercise, which leads to the widening low cost, presently standing at 32%. One other instance is the U.Okay.’s Pershing Sq., the Invoice Ackman funding firm, which is excellent but additionally has a excessive expense for shareholders, paying a complete price of 1 and a half %.
Alternatively, there are examples like Scottish Mortgage, well-known for having completed extremely effectively by recognizing Tesla and different revolutionary shares a number of years again. They cost a price of solely 30 foundation factors (0.3%) and have 30% of their portfolio invested in unlisted securities, which normally command larger charges. Surprisingly, Scottish Mortgage now trades at a reduction of 20% to web asset worth.
Alec Hogg: Do you personal any in your palms?
Nick Downing: Sure, we do. Scottish Mortgage is one among our holdings, in addition to Pershing Sq. and Rothschild Capital Companions. The latter has a 20 foundation level price (0.2%) and has proven an unimaginable monitor file since its founding in 1988, with the bulk possession held by the Rothschild household. So we now have strong companions.
Relating to why funding trusts aren’t extra in style in South Africa, I believe they need to be. With fewer shares out there for asset managers to put money into on the JSE, the pool is shrinking, presenting an actual alternative for funding trusts.
Alec Hogg: And funding trusts aren’t restricted to purchasing listed corporations; they’ll put money into unlisted corporations as effectively.
Nick Downing: Completely. They’ll put money into personal fairness, music royalties, absolute return hedge fund methods, renewable vitality infrastructure, and different various asset lessons with poor liquidity. A lot of these belongings are not possible to entry via unit trusts resulting from their requirement for day by day dealing, which creates liquidity mismatches. Nonetheless, with closed-end funding corporations, there’s day by day dealing on the inventory trade, making it an unimaginable option to acquire publicity to those various asset lessons.
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Alec Hogg: How have you ever and the traders in Overberg Asset Administration carried out?
Nick Downing: I imagine we now have carried out very effectively. We’re not overly adventurous and comply with a conservative funding method. Over the long run—over 20 years—our annualised compound return on Sterling is about seven and a half per cent each year. That’s fairly spectacular, contemplating the depreciation of the South African rand. We cater to a spread of traders with various wants and threat appetites.
Nick Downing: We’ve a various vary of shoppers, together with giant household trusts, younger people who’ve offered their companies and want to make investments, in addition to retirees who’ve allotted a portion of their estates for long-term development and earnings. These funding corporations provide unimaginable dividend yields, making them enticing choices for retirees looking for each development and earnings. All our shoppers have personal share portfolios, whether or not they’re pure people or juristic individuals. Every portfolio is bespoke, privately managed, and stands alone, permitting us to tailor it exactly to satisfy the person’s threat profile, earnings wants, and development targets.
Alec Hogg: It feels like an attention-grabbing various to the mainstream method. So, if I had been to present you cash and let you know I’m a high-risk investor inquisitive about funding trusts providing good reductions to web asset worth, would you then construct a portfolio for me that aligns with my threat urge for food?
Nick Downing: Sure, that’s right. We’ve mannequin portfolios, together with development, balanced, and defensive choices. We focus on with every shopper their threat preferences, displaying them the historic efficiency, drawdowns, and potential dangers of every portfolio. Our objective is at all times to under-promise and over-deliver to keep away from dissatisfied shoppers. As an skilled investor, it wouldn’t be a problem for you, however not everyone seems to be aware of the funding panorama.
Alec Hogg: Your deal with the London Inventory Alternate makes a number of sense. Are you able to inform us extra in regards to the greatest holdings within the portfolio, comparable to 3i Infrastructure and 3i Group?
Nick Downing: 3i Group has grown considerably over the previous couple of years, and we acquired it in 2019 when it was faraway from a significant index, inflicting ETFs to promote the share. It’s a well-managed, listed personal fairness firm—one of many largest globally—with a market capitalisation of round £18-19 billion. They put money into numerous sectors, together with transportation, I.T., shopper providers, and renewable vitality. 3i Infrastructure, then again, invests extra in utilities and public-private partnerships throughout the UK, Europe, and the US. Their greatest holding is an organization referred to as Motion, a profitable non-food retailer within the UK and Europe, which has grown its gross sales and income phenomenally over time. 3i Group considers Motion a compounder and runs winners, and it now contains round 60% of 3i Group’s web asset worth. As they’re early-stage, high-growth corporations, it’s difficult to search out such alternatives within the listed markets, however we now have appreciable personal fairness publicity within the Overberg portfolios, with 3i Group being the most important holding.
Alec Hogg: Thanks for becoming a member of us in our Cape City studio. The world of investments is huge, and Overberg Asset Administration offers precious insights into the funding belief sector. I’m positive some traders will entrust you to handle their portfolios, whereas others might discover the alternatives supplied by funding trusts on the London Inventory Alternate, realising the huge potential inside this sector.
Nick Downing: Thanks very a lot, Alec.
Alec Hogg: Nick Downing is the founder and chief government of Overberg Asset Administration, and I’m Alec Hogg at biznews.com.
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