Technology-based niche hedge fund manager AIP Capital Management has reached the three-year mark as a business, making steady progress with its low-risk equity-focused hedge funds.
Founded by Johan Henn, Cobus Potgieter and Wilhelm Landman in 2017, Stellenbosch-based AIP manages a retail hedge fund, a qualified hedge fund and segregated mandates, with total assets under management of R275 million.
Potgieter and Landman, who both worked previously at Nitrogen Fund Managers, employ a market-neutral short-term trading strategy that is focused on corporate structure and corporate action arbitrage in the listed South African equity space.
The AIP NCIS Active Alpha RHF added a net 8.91% in 2020, while the AIP NCIS Concentrated Arbitrage QHF gained 9.28%, compared with 7% from the JSE All Share Total Return Index and 4.52% from cash.
The AIP NCIS Active Alpha RHF launched in October 2017, and has delivered a net annualised 8.25% since inception. The AIP NCIS Concentrated Arbitrage QHF, which uses the same market-neutral strategy expressed with slightly more conviction, has gained a net annualised 9.29% since launch in July 2018.
The funds both made notably steady gains in 2020, remaining on an even keel in February and March as markets crashed. Fourth-quarter returns were subdued yet positive as the market bounced.
“Our aim is to protect capital and we are pleased with the consistency in how we achieved that last year,” says Landman. “We achieved what we set out to do and there were no significant drawdowns, although our fourth quarter was comparatively muted.”
“We did well through the bloodshed in early 2020 and then went on to have our best month yet in April,” adds Potgieter. “Our strategy seems to shine when there is blood in the streets. For our investors it acted as portfolio insurance and held up nicely through the turmoil.“
The AIP NCIS Concentrated Arbitrage QHF is a slightly more concentrated portfolio and targets direct institutional allocators while the AIP NCIS Active Alpha RHF, which offers daily liquidity, is designed for retail and fund of funds clients. It is available through the Momentum LISP, with a focus on increasing retail distribution.
The strategy is corporate structure driven, typically trading 20-25 names at any given time comprising 8-10 independent positions with numerous components.
“Our approach is 100% opportunity-driven and we are happy to scale back on positions if no opportunity is attractive,” the pair notes. “With our pure arbitrage approach we are active in listed corporate actions. We look for mispricings in areas like rights issues, mergers or other corporate actions, where the market gives us more than one valuation for a given structure. Where markets do not price structures efficiently, we look to pick up return at minimal risk.”
Potgieter and Landman note that 2019 was a tougher year for them as market moves were difficult to trade lucratively with a continuous widening of discounts, while 2020 brought increased oscillations and jagged movements, favouring their short-term trading approach.
The RIF added 3.88% in 2019, after a 10.86% gain in 2018, while the QIF gained 3.83% after adding 5.33% in its first six months of 2018.
“We don’t like a one-sided market such as we saw in 2019 and in the fourth quarter of 2020,” they note. “Sideways to downwards markets, even early-stage bull markets, offer the best volatility in discount trades and attractive corporate actions, and that suits our style.”
After a volatile 2020 as the pandemic hit, the pair expects more of the same from the markets in 2021, and will look to trade with more conviction in the event of one-sided markets to achieve their cash-plus 4% return target.
“The fiscal outlook is disappointing, and we expect more fiscal and monetary stimulus. Equity valuations are also stretched and it’s almost impossible to call the top. Our view is that the global markets are a bubble, but fortunately we are not in a position where we need to express that view, we can just exploit the volatility along the way,” says Potgieter.
Landman adds that their view extends across headline global markets, but does not necessarily apply to SA Inc, where select opportunities remain.
“Money is being pushed into the system and markets can continue to run for a while. It’s momentum-driven and we are scared for the moment when the tide runs out. For the time being, uncertainty is accommodating to our strategy and a major correction in due course should also benefit our approach,” he says.
The pair add that opportunities for the strategy are finite, and as such they will look to cap the funds at a combined R1 billion to preserve performance.
With a successful three years behind them, the team is also looking to bring on strategic shareholders in an empowerment deal. Copyright. HedgeNews Africa – January 2021.
FUND FACTS
AIP NCIS Concentrated Arbitrage QHF
Portfolio managers: Cobus Potgieter and Wilhelm Landman
Structure: qualified investor hedge fund
Manco: Novare CIS
Administrator: Maitland
Prime broker: Absa
Open to investment: yes
FUND FACTS
AIP NCIS Active Alpha RHF
Portfolio managers: Cobus Potgieter and Wilhelm Landman
Structure: retail investor hedge fund
Manco: Novare CIS
Administrator: Maitland
Prime broker: Absa
Open to investment: yes
