I started working in the financial industry during November 1979 as an advisor, later became a broker and eventually found my passion in asset management, which lead to the creation of the listed Efficient Group. Third Circle Asset Management (Pty) Ltd was started as my third circle in the financial services industry in August 2007.
The business plan for Third Circle, was a complex concept of combining behavioral finance (our habits and money anchors that drive every decision we make about finances) with the creation of a mathematical model to achieve investors’ goals. The next step was to simplify the model and make it available to the public, with the ultimate goal of having fun creating wealth seamlessly, and without crisis management.
To create and complete a complex system that Third Circle Asset Management(Pty) Ltd has, you need specialists with unique skills and a connector. Our connector was Van der Spuy Brink who helped us to identify the specialists we needed.
Third Circle Asset Management (Pty) Ltd utilises two systems, namely MAP® (Money Anchor Profiler, which tests behaviour) and SPOTS® (Stochastic Portfolio Optimisation Through Simulation, which is the mathematics of value creation).
My passion is to help people to create wealth.
TIME-LINE: 2007 Started writing the business plan.
2008 Bought Vestlock (Pty) Ltd an asset management company and changed the name to Third Circle Asset Management (Pty) Ltd.
The portfolio construction follows a three-step process
Why Third Circle Asset Management?
There are more than 100 asset managers in South Africa that manage more than 1000 funds. One finds poor, average and excellent funds and asset managers amongst these. There are also instances where one or more of the good managers make an error in judgment that causes them to perform poorly compared to their competitors.
Two clients invest money on the same day and may receive substantially different returns, even in a case where they have the same risk profile and invest in the same ASISA category.
The difference comes in with the fund choices that were made at the onset of the investments. EXAMPLE: (Information obtained from FundsData 8 July 2016)
INVESTMENTS PERFORMED AS FOLLOWS OVER A 20-YEAR PERIOD:
INVESTOR A AND B EACH INVESTED R1 000 000 ON 9 JULY 1996 IN AN EQUITY FUND FROM THE SOUTH AFRICAN GENERAL EQUITY CATEGORY.
The value of the investment after 20 years is R 13 291 580 – a return of 13.81% per annum.
The value of the investment after 20 years is R4 399 520 – a return of 7.69% per annum.
THE DIFFERENCE. R8 892 060 IS A LOT OF MONEY!
A short list of viable funds for investment is determined.
To determine the short list of portfolios which are to be utilised in the optimisation algorithm, we start by analysing the price data of all of the thousand plus unit trusts currently available. Where open for investment and permitted under the legislation governing our fund, these funds’ data are then evaluated relative to their respective benchmarks (for example local fixed interest, local money market, local property or international equities), and the performance parameters thus calculated are used to indicate which fund managers are currently likely adding the most value. This technique goes beyond just identifying which fund managers are delivering the best performance, but also sheds light on how they are generating those returns (by luck, or by skill?), and how consistently their skills will be able to add value.
The ideal is to identify managers who will reliably add value through high skill levels, and not to frequently churn between portfolios that are only getting it right by sheer good fortune from time to time.
Portfolios are entered into our simulation model, which eventually yields the portfolio combination from these funds that is statistically optimal to achieve the risk and return objectives.
The simulation model then predicts millions of potential market paths for hypothetical portfolios of the funds under investigation, eventually converging on a fund combination and weightings that give the best statistical chance over all these future scenarios of
- not breaching the drawdown targets,
- generating the required returns above inflation and
- if both of the above goals are statistically met with a greater than 90% probability, the model aims to optimise for the maximum expected return going forward.
A thorough risk analysis of the resulting portfolio is completed and structures of financial instruments are added to the portfolios where appropriate, to help protect against material broad market risks.
Finally, we analyse the underlying composition of the funds selected by the simulation model and aggregate this over the whole portfolio, which gives us an indication of which underlying shares, bonds, currencies and other assets the portfolio is exposed to.
Furthermore, by using a purely quantitative approach, we avoid any subjectivity in the selection of portfolios for investment, which could be induced by things like previous positive or negative experiences with a fund which have little bearing on the outlook going forward, or perceptions of fund quality, which are often the result of good marketing and popularity rather than intrinsic quality.
Another great beneﬁt of our systematic approach, is that it enables us to keep abreast of all of the bewildering and rapidly-expanding array of funds, approaches and strategies available. There is a time and place for every asset class and strategy, and the traditional approaches to fund selection tend to struggle to keep up to date with all the new developments and opportunities.
Why do we want to know you better?
As founder and current MD of Third Circle Asset Management (Pty) Ltd, Hugo Snyman has been working in the financial industry for more than 36 years. Out of experience he knows that it is very difficult for financial advisors and asset managers to gain certainty about a client’s financial behavior.
With more than a 700 tests done we know that investors believe that the MAP® profiler is more than 85% correct in identifying their money anchors (personality traits that do not change) that predict how they see life and handle money. In terms of questionnaires measuring attitudes, this is a very (in fact, unheard of) high accuracy rating, which was scientifically tested and verified for predictability.
By looking at attitudes, we can predict investment behaviors and expectations, across a range of beliefs that you shaped during your lifetime. This means that the measurements very accurately predict your needs and expectations from your investments. That allows us to manage your expectations to know when you will panic and try to avoid it to ensure that you reach your investment goals.
The MAP® is offered by Third Circle Asset Management (Pty) Ltd. to allow a financial advisor to give bespoke advice, do scenario planning and create a sustainable asset management solution.
SPECIALIST INVESTMENT SERVICES
BY CHRISTO LUÜS – CHIEF ECONOMIST