Review of the Final results for the year ended
31 March 2016
It is my great pleasure to present to stakeholders a Peregrine annual report reflecting a portfolio of businesses in sound financial shape. We are particularly pleased with the improvement in the quality of the Group’s earnings, with a far higher annuity contribution countering a lower contribution from performance fees and proprietary profits to produce record earnings at the normalised headline earnings level.
As emphasised in the CEO’s report, the year was one characterised by weakness in global markets and continued relative underperformance in emerging market equities and currencies. Politically South Africa experienced one of its most challenging years in the past two decades, resulting in massive downdrafts and then partial rebounds in local capital markets and currency markets from December onward. This local volatility preceded international markets experiencing similar patterns of turbulence well into the new calendar year, precipitated by the USA raising interest rates a quarter percent in December after holding them at near zero for 7 years, fresh evidence of a potential Chinese meltdown and markets treating a plummeting oil price as evidence of anaemic world growth.
The year ahead is unlikely to be less volatile. In addition to the political and economic concerns on the local front, international issues such as the Brexit referendum in June, the American presidential elections in November, weak economic growth prospects worldwide (other than the USA perhaps) and ongoing credit concerns (both nationally and at a banking level) in parts of Europe and in China, all portend the possibility of further instability.
It is comforting to know that our wealth, asset management and trading businesses are, by design, structured to handle increased levels of volatility, which we see as being an ongoing feature not just of emerging markets but of capital markets in general, fueled by a ceaseless barrage of real-time news and data and increased hot money flows.
Whilst we remain cognisant of not slipping into complacency mode, we do feel that we are able to offer our clients sensible, well informed advice, particularly in difficult times. It is not uncommon for our client retention ratios, new client inflows and activity levels to benefit from difficult conditions on both an absolute and a relative basis.
Difficult conditions are however often coupled with a reduction in the level of performance fees earned by the Group as well as a reduction in proprietary returns. Conversely, in a year where returns are boisterous, performance fees jump markedly and proprietary profits swell, but the multiple at which the market rates these earnings tends to fall.
This brings to the fore a conundrum at a strategic level regarding the efficacy of a mix of operating earnings, performance fees and Group proprietary profits in a single listed vehicle. There is little doubt that the quality of group earnings would be enhanced if profits on proprietary investments were not part of the mix but on the other hand those investments act as positive enablers and stabilisers to our businesses in many instances. Solving this conundrum would likely result in some form of Group reorganisation in the future if it can be shown to be beneficial to shareholders’ long-term interests.
It remains for me to offer my thanks and to congratulate our CEO Jonathan Hertz together with his fellow executive directors Mandy Yachad and Robert Katz for steering the Group to the position it finds itself in. Annuity earnings’ capacity sits at record levels, assets under management measured in South African Rand are at an all-time high and foreign currency earnings as a function of overall earnings are currently approaching 50 percent.
To our many clients, I offer a warm thank you. We appreciate your loyalty and support and hope that we can continue to build a long-term relationship with you that is mutually beneficial under all circumstances. I thank too my fellow non-executive directors for their input this past year, which input has been as steadfast and consistent as in previous years.
None of this would be possible without our teams of committed employees, our many rainmakers and the management of our underlying businesses who have been so instrumental in molding each of their businesses into what they are today. For that, I thank and commend you all and wish you continued success in all that you do for us.
Date: 12 August 2016