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Orbis and the private ownership advantage in value investing

The vast majority of quality asset managers will go through periods of five years of underperformance or more, which makes it difficult for that firm to take smart value bets and hold them until maturity beckons.

Of all investing’s most common style pillars – whether it be value, growth, momentum, factor, active or passive – value is the arguably the one that is most dependent on a flexible timeline for an investment to come to fruition. Reaching a target price can sometimes take a while for a company that was selected primarily because it was undervalued.

This wait can be problematic for investment managers that are listed or have a deep fractional ownership cohort that can become frustrated, impatient or otherwise carried away by outside influences.

This is where Orbis believes they have a strategic advantage, with the contrarian money manager’s private ownership base giving it the freedom it needs to make unpopular investment decisions, and the timeline for those investments to come good.

  • A controlling interest in Orbis is indirectly held by the Allan & Gill Gray Foundation, which is designed to permanently support the independence of Orbis and the Allan Gray investment groups in South Africa and Australia, while distributing its own profits to philanthropic channels. Most importantly, the Foundation doesn’t manage either Orbis or the Allan Gray groups, instead delegating oversight of the firms to a holding company called Orbis Allan Gray Limited, whose board is comprised mostly of current and former Orbis and Allan Gray executives.

    While slightly convoluted, this unique ownership structure gives Orbis investment analysts and portfolio managers the freedom they need to make unpopular decisions, which remains the cornerstone of a contrarian investment strategy.

    “This is important because contrarian investors must be out of sync with conventional thinking and will be painfully wrong at times,” Orbis investment specialist Shane Woldendorp tells The Inside Adviser. “That creates career risk for individual decision-makers and pressure for the owners of a firm.

    “As an example, during the technology bubble of the late-1990s, we had almost no exposure to the sector,” Woldendorp (pictured, right) continues. “Although we were ultimately vindicated when the bubble burst, the decision to avoid overvalued technology shares initially came at an enormous cost in terms of relative performance, and we lost a significant number of clients. Without the commitment of our investor-owners, it would have been extremely difficult to stay the course during this period.”

    Orbis investment specialist Eric Marais says the “culture and structure” of the company allows the team to fully execute on its investment philosophy.

    “We looked at funds that had 20-year track records of beating the benchmark and found that 71 per cent of them actually underperformed the benchmark for five years or longer within that 20-year period,” Marais (pictured, left) says.

    “So we know the vast majority of very good asset managers will underperform for quite lengthy periods of time. How do you do that when you’re publicly owned? I just think it puts you in a very difficult position when you’ve got shareholders clamouring for better returns, especially over short time horizons.”

    Staff Writer

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