Tower Capital Management (Pty) Ltd is becoming a lofty figure in the South African hedge fund space.
Tower Capital Management (Pty) Ltd. is the investment advisor for Tower Fund, Ltd. and Tower Partners LLC (both USD), and the investment manager of Tower Fund (ZAR). The Tower funds run an equity long/short strategy focusing solely on the listed South African market. The firm was founded by partners Richard Bottger and James Faircliff in 2009.
The flagship fund, Tower Fund (ZAR) has gained 17.5% net for 2012 (as at end of November). This fund has achieved annualized returns since inception (August 2009) of more than 18.5% net with a standard deviation of 8.4%. Correlation with the local South African market, the JSE All Share Index, has been low since inception (0.42). It is currently featured in Opalesque Solutions’ Emerging Managers Database.
In an interview with Opalesque, Tower Capital’s Chief Operating Officer Philippa Owen said that the funds’ strategy is doing very well in the current environment. “The sub-Saharan growth theme is one which is offering numerous investment opportunities and the listed South African (SA) market is the best way to get upside from the theme while retaining sufficient liquidity needed for a long/ short strategy,” she said.
In terms of performance, Owen was happy to say the fund had registered “very good performance” in October (+4.6% net) with contribution from both alpha longs and shorts. “Our correlation to the market is low due to the low betaadjusted exposure. Our themed focus on Sub-Saharan Africa outperformed, and our bottom-up stock picking was particularly successful,” Owen reported. The fund continued to produce positive returns in November (2.8% for the ZAR fund) and for the start of December.
Tower Capital has three funds: a local South African fund (Tower Fund ZAR), and a Cayman Master Feeder structure with both US-offshore and US-onshore Delaware feeder funds (Tower Fund, Ltd and Tower Partners, LLC respectively).
The TowerFunds’ strategy is equity long/short and has three distinct sub-strategies: (1) fundamental/core long short, (2) opportunistic/trading, (3) long/short and hedging.
According to Owen, the fundamental positions are those which the investment team considers to offer significant alpha as a result of market mispricing (when target price is at least 25% away from current price). These positions are very carefully researched using bottom up analysis and detailed valuation work. Fundamental and core positions can be up to 20% at market value in the portfolio but will be actively traded around both for return generation and risk management. For each core position the investment team will articulate a clear investment thesis, target price, timeline to catalysts and exit strategy. The bulk of the returns historically have come from the fundamental/core book.
The opportunistic/trading strategy allows for shorter term trading to enhance portfolio returns. These ideas can be eclectic in origination – and may be event driven/catalyst trades, momentum or mean reversion trades, or thematic in nature.
The funds only invest in SA listed equities, although thematically will exploit trends in sub-Saharan Africa – most recently this has been a focus on South African companies which have been rolling out successful expansions into sub-Saharan Africa and taking advantage of the growing consumer base in the region.
“This is the strategy that the investment team has been running since inception,” Owen pointed out. “We believe this is the best liquid equity strategy. The investment style is to concentrate risk around the ideas which offer the best risk adjusted return. The funds focus on less followed liquid mid-caps where there is still significant opportunity to add value from bottom-up fundamental research. Both PMs have a private-equity background, which means they are well placed to perform original fundamental research into both the listed companies and their private counterparts in the industries they are looking at. Return generation from the strategy has been exceptional since inception. Trading around core positions has added value and the opportunistic trading sub-strategy has been profitable. The hedging book has certainly mitigated downside and protected returns.”- Komfie Manalo, Opalesque Asia Tower Fund ZAR and Tower Fund Ltd can be found in Opalesque Solutions’ Emerging Managers Database, which is available to Opalesque’ subscribers. You can subscribe here: www.emerging-managers.com/pricing.html.