A-rated DFM boss on the many ways to build a portfolio
In the latest in a series of interviews with Citywire rated managers, Stephen Cranston talks to Boutique Investment Partners MD Pierre de Klerk.
Citywire A-rated Pierre de Klerk has been around the local fund selection industry for some time.
He has been MD of the DFM Boutique Investment Partners (BIP) since 2014. And before that he was a portfolio manager and then head of South African investments at Advantage, which was later renamed Momentum Manager of Managers.
As MD at BIP his main job is to manage the business itself, but he remains an active member of the 10-strong investment team, formulating the top-down investment view and taking part in the manager due diligence process.
BIP’s best investment view is expressed through its BCI Best Blend portfolios in all the main Asisa categories.
With about R6bn under management, this range accounts for about 10% of the firm’s R65bn under management or advice.
Sometimes BIP sticks its neck out with these funds, for example the BCI Best Blend Global Equity fund currently allocates 45% to emerging markets, using funds from managers such as Coronation, NS Partners (through the Nedgroup Investments Global Emerging Markets Equity fund), Goldman Sachs and Sands Capital, as well as dedicated China funds from Prescient and Investec.
‘We can, however, offer an alternative to clients who want more a more vanilla global equity allocation. But we will also talk them through the implications if they ask for a portfolio with a heavy bias towards the value style, for example,’ De Klerk (pictured below) said
The BCI Best Blend Balanced fund makes use of a mix of specialist funds, such as the Visio BCI Bond fund, Anchor BCI Bond fund and the PortfolioMetrix BCI Dynamic Income fund, ETFs, and BCI’s own funds of funds.
De Klerk said that the fund had underperformed the Asisa SA multi-asset high equity category over the past 2.5 years as it has had an overweight emerging market exposure, through funds such as as Prescient China Balanced feeder fund and the BCI Best Blend Global Equity fund.
BIP runs these funds through its Cat 2 licence, but more often it manages bespoke portfolios in partnership with its 50 intermediary clients.
He said these financial adviser clients vary in size from R50m to R5bn in AUM.
De Klerk said that there is a continuum in the service they offer – from those clients who want to make the final fund selection and asset allocation decisions themselves, right through to those who are happy to outsource the function fully to BIP.
BIP also manages the passive Select BCI Enhanced Core range for its parent company the Efficient Group, which make use of both index funds and smart beta portfolios. Core Shares helps BIP implement these portfolios.
Within this range, the Select BCI Enhanced Core Balanced fund makes use of underlying building blocks such as the Select BCI Enhanced Core Equity fund and the Select BCI Enhanced Core Global Equity fund of funds, as well as direct investments into large cap shares such as Richemont, Anglo American and Naspers.
‘There are two main approaches to constructing portfolios,’ de Klerk said.
‘Some of our clients want split funding, so we construct a portfolio of balanced funds. Others want a granular building block approach, perhaps using the Best Blend fund, but often more bespoke than that,’ de Klerk said. ‘We can offer a range of options on our buy list which we have uncovered through our research.’
An example of the split funded approach is the R2.6bn PBi BCI Balanced fund of funds, which invests in a range of big brand balanced funds such as the Ninety One Managed fund, the Allan Gray Balanced fund, the Nedgroup Investments Opportunity fund and the M&G Balanced fund. It also uses three systematic balanced funds – the Nedgroup Investments Core Diversified fund, the Satrix Balanced Index fund and the Prescient Balanced fund.
In its building blocks funds, de Klerk said that BIP makes wide use of passive portfolios, particularly in global funds.
It also likes to use a range of managers, from the larger managers through to boutiques – some of which such as Fairtree and Truffle Asset Management are now quite large in their own right.
BIP is also planning to increase its exposure to black-owned managers. Its short-list, for example, includes managers such as Meago Asset Managers, Benguela Global Fund Managers and Perpetua Investment Managers.
Sale to Apex
De Klerk said that if the sale of Efficient Group to Apex goes through little will change. The management team will remain, although without holding direct equity in the business anymore. The synergies between BCI and BIP will also continue,
‘On average, between 20% and 30% of our assets are with managers on the BCI manco. And it is a benefit that we get more access than other South African firms do to international managers on the BCI platform such as Fundsmith, Lindsell Train and Sands Capital.’
De Klerk said that he is excited by the proposed changes to Board Notice 90 which will allow multi-asset funds of funds to invest into hedge funds.
‘Hedge funds can make a useful contribution to long-term outcomes. But many advisers will be concerned about the effect on the total investment charge. In the fund of hedge funds we manage for the Efficient Group, the weighted average charge varies from 3% to 4%.’