BIP MANAGER RESEARCH ANALYSIS: Allan Gray

Departures of Key Investment Professionals

Funds Affected: Allan Gray Stable Fund | Allan Gray Balanced Fund | Allan Gray Bond Fund

1. Allan Gray stands out meaningfully from peers locally in that their “average age at appointment into a senior responsibilities role” is very young. Very very young. Be it trainee analyst, trainee PM, PM or CIO. They groom their teams so fast.
2. Linked to this, over their history the numbers of times they replace a Senior departure with an external person has been extremely limited, if any. The team is ready for such events overall - as they take on meaningful responsibilities so early in their careers.
3. Some of the recent appointments confirm this.
4. But, it is also true that the depth of the team has been increasing over time like Duncan mentioned when he noted that when he was first approached PM the depth of the Investments team was far poorer compared to now.
5. With an overall active investments research team of just about 25 members, it is still one of the largest and thus most well resourced teams in the country. The edge with AG being a very robust grooming process - so not just a numbers story.
6. The most negative impact is that unlike Coro who has their full “old guard” in place and adding value from a corporate memory and cycle navigation perspective, Allan Gray has only Duncan left. So their edge @ navigating successfully @ cycle extremes which they had in the past is likely getting more compromised over the years. Because cycle transition usually requires the real grey hairs.
7. AG’s fixed income capability especially in the context of the AG Stable Fund does require more attention though. Not weak. Not necessarily average. But can be more forceful.
8. Coupled with a clean sweep of PM’s for the AG Stable Fund, it is likely very responsible for any Multi-Manager to place this on a “Negative to Neutral Watchlist”. But from a cycle perspective, we are the first to admit that these changes happened at a time when the risk vs. return opportunity set is better skewed in Favour of growth assets, and the starting point of the “contrarian value cycle” both locally and globally is firmly in AG’s Favour. So this “negative to neutral watchlist” is not a dis-investment call.
9. Allan Gray’s Investments Process is dogmatically team driven via both the Policy Group Approach (buy list determination) and Multi-Counsellor Approach (Portfolio Management). So all else equal, the impact of individual team member departures is to a reasonable extent quite limited.
10. This is a very independent and mature investment management business with a very mature, very well established and very robust investment philosophy and prices that has been tried and tested over a period of 43 years.
11. BIP’s adjusted Qualitative Ranking Score remains a 5-star with reservations around fixed income capability (limited extent) and AG Stable (larger extent).

Given the Recent changes, we have updated our score for Allan Gray

The overall team score has been downgraded from 84% to 77%. The biggest downgrades have been as a result the following factors, which will require that us to assess further:

• Quality of the investment team
• Investment skill of the senior professionals
• Team dynamics
• Continued high levels of turnover
• Overall team experience

The fund is still on or Buy list
While we acknowledge that the changes that are taking place in the team are significant, we take comfort in the fact that Allan Gray has a strong investment process which does not rely on start individuals – it is a true team based approach.

Recommendation
Clients should be aware that we are still monitoring these changes are interacting closely with the newly appointed Portfolio Managers. The scores we have provided could likely change based on our findings over the next few weeks. Should we find significant concerns which warrant that the funds be put on the Watchlist, we will release a note to let you know.

Kind regards
Boutique Investment Partners