GraySwan Investments: Offshore Megatrend Investing Offers Rich Rewards

In October 2019, life on the Lourensford Wine Estate in the Western Cape – home of GraySwan Investments’ head office – was blissful. More than 3000 hours of sunshine each year helped bolster production in the vineyard. GraySwan Investments also enjoyed a bountiful year, celebrating exceptional growth especially in the private wealth side of the business. The product range was growing – with a specific focus on offshore investment opportunities – and, as the company approached its tenth anniversary, business was booming in both the Cape Town and Johannesburg offices. At the time, the South African economy was weak, fuelling the demand for the offshoring of funds.

 2020 came with a bang, but not a welcome explosion of new activity, more of a booming disruption across all market sectors and all economies thanks to the onset of the Covid-19 pandemic. GraySwan, as it has always been, was quick to adapt, ensuring that things were done right. In 2019, CEO Duncan Theron told Enterprise Africa: “Whatever we set ourselves out to do, we do it with integrity and do it wholeheartedly. We always go that extra mile.” The company continued to do everything to protect, nurture, and diversify its investment offering to the delight of their clients.

 RESPONSIBILITY

 “One of the principles in how we conduct business is ‘boutique’,” says GraySwan Communications Manager, Nande Boss. “The term boutique does not infer that we are small but rather that we provide a premium and tailor-made service. It is essential to consider that each of our institutional and private wealth clients has different goals, needs, expectations and risk appetites. Boutique also means highly-focussed and dedicated to ensuring meticulous care of every individual client. It’s about excellence in everyting we do.”

 This boutique business offers trust and performance and service excellence as key selling points. A signatory to the United Nations Principles of Responsible Investing (UNPRI) and a previous winner of the Responsible Investment Consultant of the Year award from BATSETA, GraySwan is also a partner of Unashamedly Ethical – an alliance of businesses focused on ethics in business and leadership.

 Environmental, social, and governance (ESG) considerations are becoming more and more important in investment decisions, and so GraySwan has over the past decade delivered insightful and high conviction advice to their clients to ensure transparency through the entire responsible investment process.

“The CFA Institute surveyed individual investors and asset owners in 15 markets and held 23 virtual roundtables. The report found that 85% of CFA Institute members take ESG into account in their investment processes, up from 73% in 2017. Data from the Principles for Responsible Investing show that the number of signatories increased 28% in the first half of 2020 and assets under management grew 20% to more than $100 trillion,” says Boss.

“Addressing investment managers’ business models, the report said that while only 19% of institutional investors and 10% of retail investors currently invest in products that incorporated ESG factors, 76% of institutional investors and 69% of retail investors have interest in ESG investing.

“On expected growth areas, the report said that industry professionals expect to see more ESG index tracking and quant funds, ESG thematic products, ESG multi-asset products, climate transition strategies and long-term engagement, as well as better benchmarks.  We think people are aware of these trends and will invest responsibly. Our role is still to educate, do the right thing when it’s trending and when it’s not. When we do the right thing, we can be an example for others,” she adds.

Over the last 10 years, GraySwan has made its name on its responsible, ethical and moral approach to both investment advisory and wealth management. Even with the shocks from the pandemic causing further distress in the economy, these principles will not change, and GraySwan will look to balance real and competitive returns with strategies that ensure sustainability in the wider world and such at lower costs.

“It is a great honour and huge responsibility to be entrusted with managing someone else’s financial and investment affairs. We are very transparent about what we can and cannot do,” confirms Boss.

THE NEW NORMAL

According to PwC, now is a ‘challenging time to be an investor’ because the ‘asset and wealth management industry could be considered a bellwether for the overall economic environment’. The Covid-19 pandemic has instilled a seemingly never-ending sense of uncertainty in markets – exactly the sort of thing investors and asset managers don’t like. Combine this with a myriad of other influences including cybersecurity as asset managers work remotely; the difference in strategy for recovery across different economies; service providers falling out of the market; changes in budget and tax implications for certain products; and a simple reduction in the flow of money in the private space as appetite for risk declines, and you have a difficult scenario to manage.

But GraySwan has significant experience in its industry boasting more than 150 years of investment advisory and investment management experience, and the company’s people have seen the peaks and troughs associated with economic turmoil many times before. The business acted without hesitation and secured confidence for clients; like many turning to technology to fill the void in the office.

“With the announcement of national lockdown in South Africa, GraySwan immediately released all staff to work from home and be safe while introducing the GraySwan Online Experience,” details Boss. “It was important for us to let our clients know that business would still continue, but not in our physical offices. Documents could be signed electronically, and our advisors were available through Zoom, Teams and WhatsApp to have conversations with all clients, answering their questions and concerns, and providing recent, relevant and accurate data to inform any financial decision making.”

Microsoft CEO Satya Nandella explained that many advisors experienced ‘two years’ worth of digital transformation in two months’ in March 2020.

 “We’ve always endeavoured to lead in this regard,” says Boss. “Historically, GraySwan has always had to adapt and evolve in order to serve our clients in an ever-changing world. The national lockdown due to Covid-19 meant that clients would receive excellent GraySwan services in the comfort of their own homes. This has demanded great intentionality from our staff to remain engaged, adapt, and ensure they are healthy so they can continue to provide excellent service. 

 “This time also meant that we need to continue with the work that our GraySwan Charitable Trust does in meeting basic needs, especially over this time. We were able to do so. In the most uncertain of times, people still looked out for each other which was beautiful to see.”

 Asked if the pandemic has created an environment where spending and investment decisions are impacted, Boss says: “We took a more cautious strategy on adding risk back into our client portfolios post the material market drawdown in March 2020. But the results have been rewarding as we have strongly outperformed our peers and such at lower risk and also at lower fees over the past 12 months. Most of our products are top quartile over this period. We have also constructed various offshore solutions for our clients which a focus on disruption and healthcare innovation. We’re now working on an offshore digital finance which focus on blockchain technology and cybersecurity as well as a thematic commodity solution for our clients. We knew we had to adapt. We needed to innovate and think about the future, the next decade. We know we can’t advise and manage monies the way we used to as the world has changed.”

 While GraySwan has always been an advocate of spreading risk by offering offshore investment opportunities, now more than ever, this advisory offering and wealth management product range is vital for any balanced investment portfolio. Exposure to the many risks of a singular approach, keeping all wealth in South Africa, is almost universally viewed as an unimaginative tactic.  

OFFSHORE SPREAD

Asked if the offshore strategy still remains prominent for GraySwan, Nande Boss is clear: “We actively look at the current valuation of the Rand and why this is the time to invest offshore. At current levels of USD/ZAR R14.50, the Rand is trading within the fair value range and is presenting an opportunity to further diversify investments by moving funds abroad. Albeit that we have a database of more than 100,000 offshore funds, we prefer using low cost offshore passive funds for our clients offshore allocations as 90% of actively managed offshore equity funds underperform the markets after fees. We further utilise ESG as a smart beta factor to outperform the markets and around such we utilise a range of thematic megatrend solutions to provide outperformance over the long term. Key to our risk management approach, for our large institutional clients and within our product ranges we actively manage currency risk. The Rand is the most volatile asset class in the world, the risk needs to be managed. When the Rand blew out to R18.85 to the US dollar we hedged our clients currency exposure against potential Rand strength. When the Rand recovered to levels below R15 we unwound these hedges and made some handsome profits for our clients.”

For the past decade, the South African economy has ridden almost constant turbulence and to have all assets exposed to these risks alone is not a sensible plan. Many of the country’s specialist and reputable advisors and managers are looking into offshoring and searching for safe destinations for client’s assets.

“There are various reasons why South African investors choose to invest money offshore, including diversification of portfolios, foreign currency exposure, concerns about the current economic state of our country, or planning to emigrate in a few years’ time.

 “Over the years, South African exchange control regulations have become a lot less complicated, allowing South Africans access to a larger range of offshore investment options. In order to assist our clients in navigating the range of offshore investment options, we have been sending out a series of articles to support clients in constructing a well-diversified offshore investment portfolio,” explains Boss.

 Of course, the GraySwan team is closely monitoring various investment megatrends, both underway and emerging, around the world to ensure the optimal allocation of our clients’ offshore investments. These major shifts in the trajectory of the global economy often arise from constantly evolving developments in technology, changes in demographics and social systems, climate change and eco-awareness, urbanisation at a rate not seen before, changes in the nature of wealth with emerging economies responsible for significant growth and many more. Investing in these megatrends is known as thematic investing. This is a method that GraySwan uses as the foundation to educate and empower their clients to invest offshore.

 “We believe the future of offshore diversification vests more and more in thematic and megatrend investing as well as the rapidly expanding and morphing Exchange Traded Fund (ETF) universe. Over the last two years, our research team has made a special effort to analyse available offerings, most notably the multiple megatrends that are shaping the new normal,” says Theron.

 “If we don’t prepare to be part of the change and grow alongside it, we will be left behind, along with the other disrupted.”

“To achieve future superior performance for our clients, we continue to access niche and new markets and sectors,” he adds.

 Currently, the South African government imposes certain restrictions on those private investors looking to externalise funds and various permissions are required from the South African Revenue Services (SARS). GraySwan is always open to discussions around what is possible for individuals, businesses and large funds considering offshore investment strategy.

 RICHLY REWARDED

 Despite the unwelcome smashing of markets in March 2020, and the restrictions imposed on both private and business life, GraySwan has continued to invest their clients monies with great success. Harnessing the power of proprietary research and continuing to educate clients in a pro active and high conviction manner characterises the way the business deals with its clients’ money.

 Because of its strong foundation, the company has seen through a challenging period, Boss remains very optimistic about the future.

 “With our big drive this year to allocate spend on the marketing efforts, we anticipate further growth,” she says. “We have an outstanding and proven long-term track record so we need to start telling investors about our offering. We will also be employing additional financial advisors as we believe there is a material gap in the market. Private investors are looking for an independent advisor which offers a boutique, premium and tailormade offering and with a track record of outperformance and such at lower fees. People are our strategy because it is people who serve our clients. The founding team is still involved each day as they are passionate about investing and our people!”

 The GraySwan team continue to live by the company’s core values of doing the right things, the right way, always. Importantly, while GraySwan is now more than a decade in age, the appetite for growth remains the same as in the early years. Like South African fynbos, while there is sunshine, progress is unavoidable. For GraySwan, while there are opportunities, growth will come and, as it always has been, now is about finding the best investment opportunities for clients. 

 “In a world where the only constant is change, considering where and how you will invest funds from now on is of critical importance. A firm committed to bringing what is necessary to the table; one that welcomes, supports and encourages change is not an ideal but a reality. Through transformation and innovation comes growth and despite negative global growth forecasts, there will always be emerging investment themes and megatrends where investors, those who are willing to break away from out-dated thinking and habits, can be richly rewarded. Our goal at GraySwan is to find these investment opportunities and to make such available to our clients, efficiently and affordably,” concludes Boss.