‘Steinhoff really shook me’

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RYK VAN NIEKERK: Welcome to this week’s edition of the Be a Better Investor podcast. It’s a podcast where I speak to finance and investment professionals about their investment journeys, and we also look at the best and worst investments they ever made and why they chose a career in managing other people’s money. The idea is to find a few tips and tricks which could assist amateur retail investors to become better investors.

My guest today is Nkareng Siwale. She’s the founder and MD of RainDance Asset Management. Before she started the firm in 2019 she was the chief investment officer of public markets at Ashburton Investments and has been in the asset management business for more than 16 years.

Nkareng, thank you so much for coming into the studio today and for your time. Just give us a bit of background about yourself. Where did you grow up and when were you first exposed to investments?

NKARENG SIWALE: Thank you, Ryk. Thank you very much for also having me. I’ve been looking forward to this chat. I grew up I guess for the first 10 or so years of my life in Lesotho. My dad was a MoSotho and my mom was Xhosa, from the Eastern Cape.

When they separated we moved, all three of us – I’ve two older siblings – to the Eastern Cape with my mom and ended up going to school at Queen’s College. Well, my brother was at Queen’s College and my sister and I were at Queenstown Girls High. We all matriculated from there and somehow all found ourselves here in Joburg.

They went to Wits and I was still in high school finishing off there. I wanted to go to UCT, to be honest, but my mom just wasn’t comfortable with the idea of nobody looking after me, so she asked very nicely – not so nicely – that I come to Wits.

So I did that and I was registered at Wits for a BCom in Economics, and that’s what I did.

Why economics? I think I’ve always liked the idea of trying to understand how things function in the economy and all of that, and I really had no idea about markets [when] entering that space.

RYK VAN NIEKERK: So you pursued a BCom in Economics. When did you see the investment side of economic theory?

NKARENG SIWALE: Obviously, I suppose, in the coursework you get exposed to finance, you get exposed to investments, so you do those as a course. That was the first time I started, especially on the investment side, that coursework, to read about equities.

I’d never really understood the term or heard of it before [that] time. So it was more about digging and trying to understand what it was all about.

I must be honest – I can’t even remember which company it was – they called me about an interview to become an equity analyst.

RYK VAN NIEKERK: What year was this? I don’t want to give you your age away.

NKARENG SIWALE: This was my final year. You are about to write your finals and you’re about to leave university and look for a job, so your CVs are out there and stuff. They called me about taking an interview to become an equity analyst. I [thought] no, I want to focus on maybe on the fixed-income side just because of the economics degree and all of that. To this day I’m so grateful that that didn’t work out.

RYK VAN NIEKERK: What company was that?

NKARENG SIWALE: I can’t remember at all. I think it was one of the well-known bigger organisations in the country. I really can’t remember. But to this day I’m very grateful that I didn’t completely shut the door on that opportunity, because I’ve really enjoyed getting immersed in equities and stuff.

RYK VAN NIEKERK: So when were you first exposed to equities?

NKARENG SIWALE: I joined RMB ultimately, and I must say in a miserable position – at least I was miserable. I was in transactional banking.

RYK VAN NIEKERK: You were a private banker.

NKARENG SIWALE: A private banker. And at the time it involved having to get clients cheque books once they ran out of pages, and delivering it to them and transferring between their call and their cheque accounts.

I guess I was pulling my hair out. And then an opportunity opened up in the private bank and portfolio management.

I’d already been talking to our HR lady to say, look if you can find me an opportunity in portfolio management, I’d really [like that].

She [said] like, positions don’t really open up there much, very often. So when one did she remembered to call me, which was very fortunate. I took an interview there and that was that.

RYK VAN NIEKERK: So then you started to manage portfolios. Tell us about that journey, because it must be daunting. You know, it’s one thing to manage your own money, but to manage other people’s money is a totally different ball game – especially if it’s other people’s savings and life savings, and you will have a massive impact on the lifestyle they will have post retirement.

NKARENG SIWALE: I don’t think coming into the industry at the age that I was – probably on the right side of 25. You were young.

RYK VAN NIEKERK: That’s debatable. Which side is the right side?

NKARENG SIWALE: But you are young and you don’t understand the kind of magnitude of responsibility.

So I think only when things go really wrong do you understand what your responsibilities are around managing other people’s money.

I started as a dealer there.

This was in 2005 and markets [were] heady. All you had to do was have air in your lungs, breathe, and you would’ve picked a winner. So that was kind of me entering markets.

I was a dealer and hadn’t really started managing portfolios. But you did have to have a curiosity I think, which is why I say also around economics [you need] a curiosity about how countries and nations work.

Similarly within equities you needed to have a curiosity about the companies and provide really broad information.

I think once you become a portfolio manager, when you’re making [stock] calls, then you need a deep knowledge about those companies. But as a dealer [it] really just broadened the landscape for me to kind of see the different industries, how they interrelated.

RYK VAN NIEKERK: Tell me, when did you buy or make your very first investment with money you had earned? That is important – and what was it?

NKARENG SIWALE: With money that I’d earned it was actually after my first bonus in portfolio management, not as a transactional banker.

That was really because you’re in a team and the guys are teaching you to a very large extent and encouraging you: ‘Look, start saving now, and the way to do that is in the equity market.’

I might get this wrong but I think my first three buys, I can quickly tell you those names. Metrofile, Astral and I think City Lodge were my first three buys into my portfolio with my first bonus in portfolio management.

RYK VAN NIEKERK: If I remember correctly, Metrofile performed really well during those years.

NKARENG SIWALE: It did during those years. I think the story behind it, obviously, was that [in] the world regulation is the way it’s moving; you have to store everything for five years or more, all the records, etc.

They were really the only player in the country, and at the time regarded as quite a small cap. So that was kind of the idea behind it.

But one lesson I learned on all three of those names was in 2008. I must say I was really fortunate to have been in the industry at that time.

RYK VAN NIEKERK: Did you get out before the crash?

NKARENG SIWALE: No, of course not [laughing]. How did I know?

I think that’s when I realised that you come through an unprecedented time in markets when a rising tide lifts all boats, and now you realise that you really have to understand the companies that you are invested in, that companies are governed by cycles and you have to know their cost drivers and their revenue drivers.

So I got hurt particularly in Astral for a while, because then the soft commodity prices were hurt on the cost base, although it’s also a revenue driver for them. They took a while to come out of the malaise.

 RYK VAN NIEKERK: So you didn’t chicken out?

NKARENG SIWALE: [Chuckling] I did not chicken out. I think eventually I did; by 2011 I’d had enough of it.

Metrofile also. I think around 2011 things were starting to go digital, and [there were] questions around, like, are they going to shift and recognise the changing environment? I think they eventually did, but I also got out of that.

I think those were my first buys. The lessons from there were really that, especially going into a crisis, intrinsic value really matters in a company.

RYK VAN NIEKERK: So give us a version of what happened after you became a portfolio manager at Rand Merchant Bank. Of course you moved to Ashburton later on, which is part of the group. Then you became the chief investment officer of a very, very respected asset manager in South Africa. That must have been a fantastic journey.

NKARENG SIWALE: Especially at the time I would look back and just really wonder how I landed up there because I think in the journey you don’t realise as you progress, when you [go] from dealer to portfolio manager – oh, it’s just a career progression. You don’t really recognise what this could potentially lead to, the platform it has given you.

So becoming a portfolio manager – and this was for private clients – I think was a very different world from when I moved into Ashburton; now you’re a fund manager and you’re managing institutional monies but also a fund. I think it’s a very different ball game.

RYK VAN NIEKERK: But there’s a team. You don’t take decisions by yourself – or do you?

NKARENG SIWALE: That was a team. So we’d always kind of run a team process and a team approach, so we’d have an equity team and within the equity team there were sector responsibilities. You had to be on top of your sectors.

For me, I covered banks and insurers and ultimately the whole financial sector, and was responsible for all the calls in financials. Similarly we had the head of industrials and the head of resources.

And then you build out an equity house view on the back of that and you had a little flexibility in terms of the stocks you picked from that house view. Similarly with the bond team, and then you can build multi-asset portfolios, etc.

So I think [with] just the experience on both sides, the private clients and then the fund management side, you had a lot more engagement on the private client side.

Clients want to understand the stories in their investments. Why that company, what do they do, how does it work?

So it’s more that kind of conversation, whereas when you come to the fund management side it’s much more about the numbers, the performance, what was your valuation on this company, how did you arrive at it? And [those are] completely different conversations. What the risk exposures are, how you measure them and all of that. So very different conversations on both sides of that world. I was again fortunate to have been exposed to both sides.

And then in 2017 I was appointed deputy CIO on the listed market side and they were going to continue to find the deputy CIO for private markets. We were both appointed in 2018; [I was] CIO of listed markets, and my colleague was CIO of unlisted markets.

RYK VAN NIEKERK: That’s a great journey. Tell us about those two years when you were the final decision maker on most of the positions Ashburton took, I would imagine, in the equity space.

NKARENG SIWALE: The areas I guess I looked after under listed markets – [were] the multi-asset equity team, hedge fund team, passives, and the fixed-income teams. And also then the Jersey and London teams. It was a very big team. I think we had just two people in London, but the Jersey team was quite sizeable.

It was a really daunting time for me. My former boss at the time – I’d worked with him for 16 years and you almost always felt like you had this air cover –

RYK VAN NIEKERK: Who was that?

NKARENG SIWALE: That was Paolo Senatore And then when he stepped away, now you need to provide air cover for your team and your people who report to you. So you need to become that and step into that role. So yes, you do question yourself a lot – whether you can do it, and do they think I can provide that for them?

It was a difficult time, I must say. Just in the business’s evolution, I think it was probably six years in into Ashburton’s life that I stepped into the role of CIO.

And we were going through quite a difficult time as far as restructuring the business was concerned.

A lot of people’s careers were probably on the line, having to cost-cut and rationalise costs across the business, rationalise our product offerings as well.

RYK VAN NIEKERK: So there were many changes.

NKARENG SIWALE: There were changes. You step into that, and that’s always tough for a business.

RYK VAN NIEKERK: Absolutely. So you were the CIO for, as you say, two years. You said it was a daunting task, but then you decided to rather start your own asset management firm, which I would believe would be 10 times even more daunting. In 2019 you founded RainDance. First of all, tell us about the name – where does the name come from?

NKARENG SIWALE: I remember getting onto our family group, our family chat, and I texted my brother and sister and I said, guys, I want the company to be named after our dad. His name was Motlalepula, which means ‘he who comes with the rain’. They put out a few ideas, I think like three or four suggestions, and RainDance kind of won. That’s how the name really came about. It was named after my dad.

RYK VAN NIEKERK: Why did you start it?

NKARENG SIWALE: Towards the end of my time at Ashburton, my colleague and I at the time – in our respective roles as unlisted and listed markets – were talking about taking the company in a direction of starting to entrench ESG [environmental, social and governance factors] and that framework into the entire product offering.

So everything in listed markets and everything in unlisted markets. And also I must say in the unlisted space there were quite a few interesting things that they were already doing, like The Jobs Fund, etc. We wanted to make sure that we were also known for that. We were starting to talk about that.

And if I’m being honest, I think Steinhoff shook me much more than I’ve ever admitted to myself.

RYK VAN NIEKERK: Did you invest in Steinhoff?

NKARENG SIWALE: Not in my personal [capacity], but we were overweight at the time of everything happening.

We had an overweight position in it, and theoretically I understood why we went into Steinhoff. We were looking for additional rand exposure.

We already had all the rand-hedge counters in our portfolio, and we wanted to go more because we’d always as a team stayed out of Steinhoff, to be honest, because we weren’t comfortable that we; [we felt we] didn’t understand the story and the numbers. These were those difficult years around state capture and everything. You wanted to get as much rand exposure as you could, and Steinhoff had just had their listing in Germany and we tried to turn the tires.

RYK VAN NIEKERK: You’re not alone. I can tell you I think most asset managers were exposed to Steinhoff.

NKARENG SIWALE: I think that really shook me and, talking to my colleague, one of my things was, look, we really need to be aware of the governance in the companies that we invest in.

But more than that, those governance issues can be highlighted or exposed in an environmental issue like BP and the oil spillage. So we just wanted to start moving in that direction.

When I left, that was how I wanted RainDance to be founded, the framework in which it was built.

RYK VAN NIEKERK: So it was Ashburton that was exposed to Steinhoff, not RainDance?

NKARENG SIWALE: It was Ashburton, yes.

RYK VAN NIEKERK: It was the end of 2017.

NKARENG SIWALE: It was the end of 2017 when it happened, like December. So that holiday wasn’t great.

RYK VAN NIEKERK: I still remember I had an interview booked for me with Markus Jooste for their results. It kept being postponed and postponed during that time. And then we realised, listen, something is afoot here.

NKARENG SIWALE: They’re not going to publish results.

RYK VAN NIEKERK: Okay, come 2019 you started your own business. I’ve done some research around 200 or so boutique asset managers in South Africa. We have the big guys in Ninety One, Coronation, Allan Gray and Ashburton; and then you have 200 niche or boutique asset managers.

What do you do differently? Why should people invest with RainDance and not with one of the others?

NKARENG SIWALE: Thank you for that question. I was hoping you’d ask it. We’re not saying that we are an ESG fund manager, and if you want an ESG solution come to us. No, that’s not what we’re saying.

What we are saying is we want to provide returns to investors, but we also understand that intrinsic value just has to be looked at from a much deeper perspective.

So when arriving at a company’s valuation, yes, you’d look at the normal drivers, your balance sheet, your income statements, etc, when you do those forecasts. But in your discount value you have to account for what they call ‘environmental capital’ in the social capital that you used and leveraged to input into what your business is.

RYK VAN NIEKERK: But how do you do that?

NKARENG SIWALE: How you do that? You do it with great difficulty.

I think it’s coming together now, but globally there’s been a call for standardising. How do you measure the E? How do you measure the S and the G?

There’s been a call and a wave towards finding one kind of approach, almost. I don’t think we’re really near settling on one, but there’s been a lot of consolidation, I must say, with all the standard providers and data providers.

RYK VAN NIEKERK: But there’s a lot of subjectivity involved. It’s not like a discounted cash flow analysis, which is pretty standard.

NKARENG SIWALE: There must be subjectivity. But I also think subjectivity has been entrenched in investment management for years.

I often like to say what I do is not a science, it’s an art – and sustainability just kind of adds to the difficulty of arriving at that decision.

But you have to consider it, especially in the world we’re living in today.

So something as simple as close to home, like the riots we had in July 2021, I think, you needed to know how you had factored [in] that kind of social unrest, just given the buildup to people’s situations, economic situations. You must have tried to expect or anticipate that a volatile situation like that is kind of on the cards. And then you must, I guess, anticipate it in your valuations and your forecast as well …

RYK VAN NIEKERK: How do you do that? It must be incredibly difficult.

NKARENG SIWALE: It’s incredibly difficult. But now this is where you don’t just engage your normal management teams and go away and build your valuation.

You have to talk to their suppliers, have to talk to the bodies that regulate the industry that they operate, and [consider] what kind of player they are in that space. You have to talk to even their clients. What’s their experience, whether Pick n Pay, for instance – and I don’t mean customers – I mean clients that may be their suppliers.

And I think you ultimately try to get a sense of a team, get a sense of whether they really consider whether they are ahead of the curve.

And you’re not going to win them all. You’re not going to foresee all of them. But are they ahead of the story in terms of their environmental obligations?

RYK VAN NIEKERK: Give us a sense of which companies on the JSE you regard highly in the ESG space and which you are invested in.

NKARENG SIWALE: I can probably talk about Clicks, which we’ve done a bit of work on. We’ve just got our first allocation – in which we’re not yet invested. But part of our approach is we definitely have to start engaging management and really understand their approach.

RYK VAN NIEKERK: Bertina Engelbrecht – I think you’ll like her a lot.

NKARENG SIWALE: Oh, really? Okay then, I’m looking forward to that.

But really, having just done the desktop analysis of a company like Clicks, first of all we say our approach is premised on two pillars.

One is quality. So your traditional approach – are you a value manager, are you a momentum? We are a quality play.

And then the other side of that is ESG. We’ve done the desktop work on the quality side and the normal valuation. And then on the ESG side, you have to go through companies.

It’s kind of standard policy to publish a sustainability report now. So you comb through that.

We think Clicks is a good quality business. But environmentally, first of all, I think there are material factors, things like the social capital. You can call it human capital just from a staffing perspective, and then data security, their customers’ privacy.

So you are firstly not exposed to things that could go really bad, significantly bad. They’re kind of a safer play. Then you really have to understand the data policies in place.

RYK VAN NIEKERK: It’s a very interesting model, and it’s very different from many other asset managers. They take a magnifying glass and go through every single note of the financial statements and the annual [report]. With the integrated report you take much more of a world view of a company in addition to their financial statements.

NKARENG SIWALE: And try to put that down into a value. That’s the difficulty.

So you have to try and arrive at a figure to say if there was a significant data breach in a company like Clicks, what really does it mean in terms of maybe fines, in terms of having to jack up their data protection services, in terms of having to repair any fallout from that breach – and arrive at a value?

And then we try to factor it into our whack … . or discount value for that company.

RYK VAN NIEKERK: Time is not on our side. Let’s talk about young professionals. You are very young still, so I think you’ll know what I’m talking about.

A lot of young people would like to get into the investment world – maybe not as professional investors, but just as somebody who wants to learn what is going on in the market, how investments work, and hopefully in the process build a nice portfolio.

Everybody would like some capital available to them. What would your advice be for them when they start? Say they’ve put their first thousand rand in an EasyEquities account, they’re very excited – but they need to invest it now. What do you think they should do and how should they approach it?

NKARENG SIWALE: I think, not to knock something like EasyEquities, it’s a really useful investment approach, especially as somebody not in this space, for the diversity it offers you. Now you actually go onto their website and they’ve got really interesting kind of smart beta ETFs [exchange-traded funds] that you can buy and they’re focused on very specific sectors – not just locally, but globally as well. So that’s probably a good route.

But I think you just gain so much more when you start looking at the individual names. You gain the learning and …

RYK VAN NIEKERK: Individual names?

NKARENG SIWALE: Like the company, sorry. Like I was [saying], I started with a Metrofile, for instance. That required me to really try to start understanding the company, because Metrofile is not a name that you see. It’s not a Pick n Pay, it’s not a Spur where you take your kids.

So you really have to start reading about those companies and start to learn those little links. Especially as a young person you can afford to take those bets. This is outside your pension money. You can afford to invest your money, your extra money almost, into making those kinds of calls.

I’m not saying take big positions at all, but it does certainly expand the horizon for you.

RYK VAN NIEKERK: Stick to companies you know.

NKARENG SIWALE: Stick to companies you know. But can I also say, in doing so you have to have that professional guidance. So speak to a broker or a portfolio manager.

You might have the broad knowledge, and for yourself you’ve tried to get broad knowledge about the companies you’re buying into, but you need somebody with deep knowledge who has really done the numbers, because the numbers are important.

And while I say it’s an art, the numbers base gives you a good foundation of starting to understand the company and its drivers, and understanding the cycles that a company works in and where it doesn’t work, when it doesn’t work. A professional can really guide you. So just speak to somebody.

RYK VAN NIEKERK: Or read and read and read, because most of those professionals also put out their views.

NKARENG SIWALE: Yes, absolutely. Ask the questions. You probably really won’t have access to the management teams and stuff, but that’s where it becomes important to speak to somebody who does.

RYK VAN NIEKERK: Lastly, and this is always the question where I get a bit of a giggle: what has been your worst investment ever? Let’s take Steinhoff out of the loop. One where you used your own money and afterwards you thought, what was I thinking?

NKARENG SIWALE: One where I think I just got out too early and I got out when the share price was at a really, really lofty level – Richemont. But I did that at the end of 2007.

RYK VAN NIEKERK: It just ran.

NKARENG SIWALE: It ran until it stopped running. Perceptions, I think, at the time of luxury brands and luxury goods are going to tank in this kind of crisis. So everybody just kind of flocked out of it. I think it got hammered far worse than, say, a British American Tobacco or something like that. So you kind of ran with the herd and you started panicking yourself. I got out, as I say, too early because by kind of mid-2009 that thing was starting to turn a corner.

RYK VAN NIEKERK: Did you make money from the transaction?

NKARENG SIWALE: I could have made so much more had I remained invested.

RYK VAN NIEKERK: That’s the story of all asset managers’ lives, isn’t it?

NKARENG SIWALE: It’s true. It’s true. I know I’m not alone in this, but the worst decision I made was the point at which I sold. The purchase was a probably a good decision. It was the point at which I sold that I really messed it up.

RYK VAN NIEKERK: Many people think when you buy something that’s where you make the mistake. Sometimes you can make a mistake in the selling decision as well.

So let’s look at your best investment ever. What has been the one you are really the most proud of today?

NKARENG SIWALE: That I must say would be just when Dis-Chem was listing. I took a position just after listing. We couldn’t really participate in the IPO, and it ran for a while. It was being obviously compared against Clicks.

And I did it just from my experience as a woman, when you walk into a Clicks or a Dis-Chem. That was again on the back of my experience, just looking in the street.

I think that’s how young people should also approach it. What are their favourite shops? You look around, what’s the footprint in those shops? Is it busy, busy? Is it pumping?

I’ve always seen Dis-Chem in that kind of vein. It didn’t last – that perception that it’s going to do so much better than Clicks. That’s one where I also got out at the right time. That was something I was happy with.

RYK VAN NIEKERK: I can’t remember how the share graph looks, but I can remember it had a good run.

NKARENG SIWALE: It had a good run, yes.

RYK VAN NIEKERK: It had a good run after the listing.

Nkareng, thank you so much for coming in today and for sharing your insights. It’s a wonderful journey along which you have travelled and may that journey continue along the same trajectory with RainDance.

NKARENG SIWALE: Thank you so much, Ryk. It was a good chat. Thank you.

RYK VAN NIEKERK: Absolutely. That was Nkareng Siwale. She is the founder, the CEO, the CIO, and the person behind RainDance Asset Management.