Meet Barend Ritter

Barend Ritter, Portfolio Manager of Aggressive Equity, Houseview, Equity and Resource Portfolios is no stranger to taking calculated risks.

How did you find your way into the investment industry?

After completing a chemical engineering masters at Stellenbosch, I went to work for Sasol as a process engineer, working on their gas-to-liquid pilot projects. I didn’t know anything about the investment industry until I connected with a friend who worked at Syfrets as an investment analyst and then found I liked the idea of fund management and was intrigued about whether there was a system of investing on the stock markets that actually works.

Through one of his contacts at Board of Executors in Cape Town I got the names and contact details of all the chief investment officers at the Cape-based asset management companies. I faxed them letters of introduction and it so happens that there were big staff changes at Allan Gray and they had a sizeable stake in Sasol, which ended up being my ticket to the game. I was an analyst and portfolio manager with them from May 1997 until the end of 2005. I started managing money while at Allan Gray, under the mentorship of Simon Marais.

What makes you suited to managing aggressive equity portfolios?

I am happy to take on risk as long as the odds are in my favour – and have done so a few times during my career. The first time I took a significant risk was when I left the fund management team at Allan Gray in the early 2000’s to set up their retirement annuity, life annuity and preservation fund business. I was given a stake in the business, which would pay off for me if the business was successful. Fortunately it did perform very well over the next three years. When the business was on its feet, I sold my stake and joined Prescient to set up a similar business; also on the basis that I would share in the upside but receive a low basic salary in the meantime. When it comes to investing in particular, I have followed the fortunes of portfolios managed in an aggressive value style for more than 15 years and this has made me well aware of the benefits and pitfalls of an aggressive investment management style.

A chemical engineer who doesn’t immediately come across as a risk taker, has stepped out of his comfort zone several times during his career; moving from Sasol into the investment industry, of which he knew little about, and then becoming an entrepreneur in the retirement industry – all with great success. He’s also a family man and a believer of taking high quality breaks from work.

How do you manage risk at this end of the risk spectrum?

In the aggressive space, we define risk as losing capital rather than underperforming a benchmark. We only establish high conviction positions in businesses where there’s an adequate margin of safety between the share price and our estimation of its intrinsic value. We see the intrinsic value of a business as a range of possible outcomes across a number of scenarios. Investing in a business that presents upside potential, even in a “worst-case” scenario, is ideal. Often, the market doesn’t provide an adequate number of opportunities and then we mitigate risk by investing in high quality businesses trading at a reasonable price compared to our estimate of intrinsic value.

When have you found it hardest to invest?

As portfolio manager you have to “play the cards you are dealt”. At times, typically towards the end of an economic recovery, most businesses trade at prices well above intrinsic value. Often during these periods, the quality of shares offering value is poor and the extent of upside to fair intrinsic value doesn’t justify owning significant stakes in these businesses. Often sectors perform exceptionally well during the latter stages of the economic recovery and the businesses within them get to a point where they typically trade at high price-to-earnings multiples that seem unjustified by the probable future growth of the businesses. Under these conditions it is difficult to protect clients against potential capital loss. Another scenario within which it is difficult to manage money aggressively is when most shares are trading around fair value. Experience has shown your best bet at these times is to moderate risk.

What do you do outside office hours to take your mind off investments?

I believe it is important to have high quality breaks from work. So I don’t touch or read anything related to investments for a couple of weeks a year. I have four children and it is a priority for me to spend time having fun with them.