South Africa Mining Shorts Drive Steyn Hedge Fund Outperformance

  • Asset manager cites wealth, emerging markets businesses
  • Boutique plans to more than double fund in 3-5 years

Steyn Capital Management Pty Ltd., a Cape Town-based hedge-fund company, produced returns three times higher than the stock market this year by betting before China’s commodity demand weakened that iron-ore producers would fall and investing in companies such as Old Mutual Plc.

The asset manager’s 1.2 billion-rand ($83.6 million) Long-Short Equity Fund focusing on the 150 largest companies on the Johannesburg Stock Exchange returned 22.5 percent this year through Nov. 9, according to founder Andre Steyn. The JSE All Share index returned 7.2 percent during the period. The company has 7.6 billion rand under management, he said.

“A number of large mining houses will have to restructure their balance sheets because they’re misrepresenting financial debt in payables,” Steyn said in an interview at his office Monday, declining to name the companies targeted for shorts, a bet the shares will fall. “We like Old Mutual’s emerging-market and U.K. wealth-management units because they are high-quality businesses undervalued by the market.”

Shares in mining companies have tumbled this year as commodity demand from Asia and Europe slackened. Lonmin Plc, the third-largest platinum producer, is facing financial ruin as the South African company offers billions of shares at a fraction of the market rate to restore its business.

Steyn, who began his career at Ziff Brothers Investments LLC in New York, said he plans to more than double his hedge fund to 3 billion rand in less than five years and start a unit trust fund next year. He sees a buyout opportunity at Cairo-based Eastern Tobacco where his 3.5 billion rand Pan-African Equity fund is invested. Egyptian smoking is increasing and excise tax has fallen, he said.

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