GOOD investment performance has become the hallmark of Allan Gray, the Cape Town-based asset management company that has arguably become SA's best performing retirement fund manager over longer periods.

Chief operating officer Mark Herdman says since opening its doors in 1974 Allan Gray has remained SA's most consistently successful investment management house and is the country's largest privately owned investment firm.

"Over the past year most other investment managers have delivered negative returns, with the result that the average return on pension funds has been in negative territory. However, this does not apply to Allan Gray, which produced a positive return of 7,1% for the year ending 30 June 2003."

Herdman says, however, that they prefer to focus on long-term returns. Over the past 25 years its balanced-fund clients have earned a return 6,4% a year better than the average pension fund.

"We have always managed money on an absolute return basis, providing inflation-beating performances to ensure that spending power in retirement is not eroded."

Herdman says the move towards absolute return mandates in retirement funds indicates the industry is returning to basics now that the 20year bull market has ended.

Since its inception the company has never varied its value-based investment strategy. "This singleminded approach is the basis of our successful investment performance which, in turn, has led to us becoming one of the largest asset managers in the country. Allan Gray now manages about R55bn."

The company's core skill is valuing the underlying businesses that it invests in, says Herdman.

"We have significantly higher confidence in choosing winning shares than in betting on the next direction of the economy or stock market," he says.

Herdman says the company seeks to earn superior, long-term returns for its clients without assuming above-average risk.

"To achieve this, we invest in assets that we believe offer superior fundamental value. Investing based on this approach not only offers above-average returns over the long term, but also less risk of loss. We determine whether an asset offers superior fundamental value by comparing its price to its intrinsic or underlying value. Assets that trade at prices significantly below intrinsic value are considered to be attractive. Conversely, those trading well above intrinsic value offer unattractive long-term returns."

The company also has offices in Johannesburg and Windhoek, while it is global asset management partner to the Bermuda-based Orbis Group, which manages eight offshore equity mutual funds.

Both companies share an investment approach and performanceorientated culture.

Oct 30 2003 07:27:35:000AM  Business Day 1st Edition