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ALWYN: 5 DECADES OF
Sanlam Private Wealth
Jun 28, 2023
Alwyn van der Merwe’s investment career spanned some of the most severe market disruptions in history. Between his start in the industry in the late ’80s and his retirement in March this year, the former Director of Investments at Sanlam Private Wealth experienced the emerging markets crisis of 1998, the bursting of the dotcom bubble and the rand blowout in 2001, the 2007 global financial crisis and the Covid-19 crash in 2020.
‘Some of those were what some people would call one-in-100-year events. And we had four of them in 20 years,’ Van der Merwe said in an exclusive interview with Citywire South Africa. ‘You can imagine that there were many learnings from them. And the first thing is that, although we were never deep-value investors, valuation matters.’
He recalled long debates within the Old Mutual Asset Managers team where he had worked in 2000 and early 2001 about whether they should own mining shares in their portfolios.
‘At that stage, many of those stocks were trading below their net asset values, but information technology was the big theme and there was an argument that you wouldn’t need commodities as much as in the past,’ said Van der Merwe, who ended his career as a Citywire + rated manager.
‘Fortunately, rationality triumphed, and we bought many mining shares at the time. But it was really unfashionable because they only started to really perform in 2004.’
Another debate about the same time was around taking clients’ money overseas, given how sentiment towards South African investments had fallen as the rand blew out in 2001. Van der Merwe recalled how senior portfolio manager Adrian Allardice had been the voice of reason, actually making the decision to bring money back to the country when so many others had been doing the opposite.
‘The price they paid for taking money out was absolutely enormous,’ Van der Merwe said. ‘They were buying dollars with a very weak rand, and investing in overseas markets on P/E multiples of over 20 when the JSE was on a P/E of 10. So, in both cases, they just destroyed value.’
In Van der Merwe’s view, the critical consideration in both of these cases was simple fundamentals. ‘We can’t forecast what will happen, which is why you have to pay attention to valuations,’ he said.
‘And to try to understand how prices perform, you need to go back in history where the context was more or less the same. As a strategist, my role was asset allocation. And those big top-down calls matter. You need to appreciate that history repeats. Maybe not in the same way, but you can see where the balance of probabilities is.’
When Van der Merwe retired, he had a conversation with his long-time friend and colleague Kokkie Kooyman that brought home for him how crucial decision-making at these kinds of inflection points is. ‘I said to Kokkie: “I’m not sure how much value we added”. And he said: “The value you added was when you protected clients from themselves at the big turning points”.
‘That was true in 2001 with the rand and with IT shares, it was true for resources in 2007. Somehow in investments, people don’t learn. When a theme starts to dominate, people simply extrapolate. That has been true at every turning point.’
The responsibility of the investment manager, Van der Merwe said, was to make the difficult calls at those moments and then have the stomach to stay the course. ‘You might look stupid for a while, but ultimately, that’s where you add value.’
Those managers who have been able to make the correct decisions in times like these therefore stand out in Van der Merwe’s estimation. And they have all displayed three things that he believes define a great manager.
The first is courage. ‘The risk is if you are too early, on either the up or the down side, because that’s when people start to question the skill of the portfolio manager,’ he said. ‘It becomes quite tense when the scoreboard goes against you after you’ve taken a decision, so you need a strong stomach.
‘Despite the fact that you are trying to do the right thing for the client, there is also a business you need to run. And if you take a wrong decision, it has implications for shareholders.’
Second, there is a talent in being able to come to the right conclusions from what you are presented with. ‘It’s not only intelligence that makes a good manager,’ Van der Merwe said. ‘Some people just have the talent to sniff out successful companies or to analyse the situation and get the context right to make the right call.
‘To be intellectually clever does not mean you have the ability and talent to take the information you have and turn it into a good investment decision. I’ve seen intellectually brilliant people who were not good investment managers.’
Finally, in Van der Merwe’s view, the job requires passion. ‘It’s not an eight-to-five job. You live investments or you don’t. If you speak to really good money managers, their love for the job comes through.’
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