Multi-Management

Interneuron - a small, dynamic investment management group - was founded in 2001.

Interneuron is a boutique or niche asset management group managing assets based on an avoidance of loss philosophy only. The multi-management and asset consulting offering (known as Interneuron Fund Managers) is offered through a subsidiary of the Interneuron Group called Interneuron Capital Limited. Interneuron Capital is a South African Financial Services Board approved discretionary Financial Services Provider (i.e. portfolio manager). Interneuron Capital Ltd is also an affiliate member of the South African Association of Collective Investments and Interneuron Capital is a member of the Johannesburg Stock Exchange.

Although asset and investment consulting have been offered to clients since our inception, the multi-management capability was formally established during January 2004.

Interneuron Fund Managers’ investment philosophy is based on two corner stones. The primary corner stone to our philosophy is the pursuit of absolute returns, i.e. to generate capital growth in excess of inflation, while preventing large capital losses over the short term. Investors all aim towards real wealth protection or to retain their purchasing power. Wealth creation (and subsequently investment returns) is one thing, but protecting the created wealth is another. We therefore believe that the pursuit of absolute returns is the ultimate objective for any investor, and thereby the ultimate test of skill for asset managers.
The secondary corner stone to our philosophy is consistency rather than pursuing excessive returns. The main reason for this is that we believe in the principle of compound interest whereby consistent risk-adjusted investment performance slightly above the median investment performance will ensure that over the medium to long term we will be one of the best performing multi-managers.
For example, we would rather start from a smaller positive return base than needing to generate a return of 30% due to a negative return of 15% in a preceding investment period. Our research has shown that chasing excessive returns attracts unnecessary risks to a portfolio and is purely cyclical of nature. We tend, therefore, to select managers with a proven track record of consistency rather than those managers aiming at top quartile performance.

Although we trade as multi-managers, our core business is much broader and includes:

Asset management solutions, with a specialist focus on multi-management, to retail (individuals) and institutional clients (pension and provident funds).Asset consulting to institutional clients, local authorities and municipalities.Portfolio construction, investment consulting and advisory services to the investment committees of chartered accounting companies, independent multi-manager businesses and financial advisor practices offering white label fund-of-fund solutions. In those cases where independent investment consulting is not provided to the investment committees of the above mentioned parties, Interneuron Fund Managers obtain a discretionary appointment to manage the portfolios or funds on behalf of these parties.
Product engineering whereby bespoke solutions or products are tailor-made and developed for the unique circumstances and needs of clients.


	MULTI- MANAGEMENT



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	Some History
	Interneuron - a small, dynamic investment management group - was founded in 2001. Interneuron is a boutique or niche asset management group managing assets based on an avoidance of loss philosophy only. The multi-management and asset consulting offering (known as Interneuron Fund Managers) is offered through a subsidiary of the Interneuron Group called Interneuron Capital Limited. Interneuron Capital is a South African Financial Services Board approved discretionary Financial Services Provider (i.e. portfolio manager). Interneuron Capital Ltd is also an affiliate member of the South African Association of Collective Investments and Interneuron Capital is a member of the Johannesburg Stock Exchange. Although asset and investment consulting have been offered to clients since our inception, the multi-management capability was formally established during January 2004.
	Our Investment Philosophy
	Interneuron Fund Managers’ investment philosophy is based on two corner stones. The primary corner stone to our philosophy is the pursuit of absolute returns, i.e. to generate capital growth in excess of inflation, while preventing large capital losses over the short term. Investors all aim towards real wealth protection or to retain their purchasing power. Wealth creation (and subsequently investment returns) is one thing, but protecting the created wealth is another. We therefore believe that the pursuit of absolute returns is the ultimate objective for any investor, and thereby the ultimate test of skill for asset managers. The secondary corner stone to our philosophy is consistency rather than pursuing excessive returns. The main reason for this is that we believe in the principle of compound interest whereby consistent risk-adjusted investment performance slightly above the median investment performance will ensure that over the medium to long term we will be one of the best performing multi-managers. For example, we would rather start from a smaller positive return base than needing to generate a return of 30% due to a negative return of 15% in a preceding investment period. Our research has shown that chasing excessive returns attracts unnecessary risks to a portfolio and is purely cyclical of nature. We tend, therefore, to select managers with a proven track record of consistency rather than those managers aiming at top quartile performance.
	Our Investment Process
	Interneuron Fund Managers’ investment process is summarised in the following illustration:

	Our service offering
	Although we trade as multi-managers, our core business is much broader and includes: Asset management solutions, with a specialist focus on multi-management, to retail (individuals) and institutional clients (pension and provident funds).Asset consulting to institutional clients, local authorities and municipalities.Portfolio construction, investment consulting and advisory services to the investment committees of chartered accounting companies, independent multi-manager businesses and financial advisor practices offering white label fund-of-fund solutions. In those cases where independent investment consulting is not provided to the investment committees of the above mentioned parties, Interneuron Fund Managers obtain a discretionary appointment to manage the portfolios or funds on behalf of these parties. Product engineering whereby bespoke solutions or products are tailor-made and developed for the unique circumstances and needs of clients.
	Our competitive advantages: what sets us apart
	Apart from our absolute return philosophy to asset management and asset consulting, which already sets us apart from our competition, we believe that the following aspects differentiate us from other multi-managers and consultants:
	1.	Most multi-managers and consultants are like parking attendants. Although parking attendants have never driven a car before they want to advise you how to park your car. Interneuron doesn’t act like parking attendants as we have employed professionals with varied backgrounds and specialities (i.e. with experience in asset management, multi-management, pension fund consulting and financial advice). This results in a continuous cross-fertilisation of ideas and sharing of expertise. We are the only multi-manager that analyses appointed asset managers’ portfolios up to individual stock level. This in-depth analysis of asset managers’ portfolios provides us with a “forward looking” capability. At Interneuron Capital, a market view (based on a trinomial process consisting of technical, fundamental and quantitative analysis) is formulated. Based on our market view, appointed asset managers’ portfolios are assessed to determine whether our appointed asset managers are correctly positioned for the current market environment. Traditional quantitative analysis determines asset manager skill by analysing history, whereas our stock analysis enables us to determine whether an asset manager is correctly positioned to continue to deliver superior returns in the future. We acknowledge the importance of strategic asset allocation, but our main skill is active tactical asset allocation to manage expected downside risk. Asset allocation also forms a key strategy to ensure practical implementation of our absolute return philosophy. At Interneuron Fund Managers we formulate our own investment ideas and strategies. Appointed asset managers then merely become “instruments” to ensure that our investment ideas and strategies are implemented in our portfolios. The investment strategy at portfolio level is thus not merely a result of the combined strategies of the appointed asset managers.
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	Asset Consulting and Monitoring - Interneuron's Institutional Capability
	Interneuron believes in a “full implementation” approach to investment consulting, i.e. we are not only involved in formulating and monitoring investment strategy and to assist Trustees in asset manager research, selection and monitoring, but we also get involved in aspects like trustee training, assistance with transition management, investment compliance management, drafting of asset manager mandates and scrutinising of and making recommendations in respect of Portfolio Management Agreements. Interneuron further believes in an approach of “involved” consulting whereby we are involved with our consulting clients on a sustained and continuous basis adding value pro-actively.
	An overview of our service proposition:
	Interneuron undertakes to assist the Fund on all investment related issues, with special reference to:
	A. Statutory 1. Compliance management Compliance in terms of portfolio construction (such as strategic asset allocation), constraints and other risk limit guidelines. Compliance in terms of asset manager mandates and the Investment Policy and Strategy document. Compliance of a Fund’s consolidated portfolio with legislation and statutory guidelines and requirements . 2. Governance Analysis of asset manager communication such as monthly asset management reports. Degree, level and comprehensiveness of asset manager communication, reporting and feedback. Monitor changes to the statutory environment to determine the potential impact on the investments of the Fund. 3. Investment administration Scrutinize and making recommendations in terms of Portfolio Management Agreements. Draft mandates or re-assessing mandates for appropriateness. Handle and address majority of enquiries, interaction and communication between the Fund and its service providers (asset managers, custodians, etc.) B. Fund Profile 1. Fund audit and review which includes an assessment of a Fund’s current structure in order to identify inefficiencies and shortcomings in current processes, strategies, structures and documentation. 2. Member base analysis and profiling of return targets. What makes Interneuron unique is that we prepare an asset liability modelling exercise for each of our institutional clients (i.e. specifically defined contribution retirement funds). In brief, this entails an analysis of each retirement fund’s data up to individual member level to establish what each member has saved for his/her retirement to date, what his/her current and future contributions will be, and how long he/she still has to save up to his/her normal retirement age. In this manner it is determined what return the Fund should achieve in order that the average member will be able to replace his/her salary at retirement. The required return is expressed as a real rate of return (i.e. inflation plus a particular percentage). 3. Design or review of the Investment Policy and Strategy document. C. Structure of solutions 1. Optimisation of asset classes in order to obtain the strategic asset allocation for the Fund. 2. Portfolio construction including aspects such as portfolio constraints, risk budgeting and addressing underlying strategies such as core-satellite, active-passive, and specialist mandates, etc. 3. Formulation and implementation of investment strategy. D. Implementation 1. Asset manager research and selection. ..... a. Asset manager due diligence, research and analysis. ..... b. Assist the trustees of a Fund in the selection and appointment of appropriate asset managers. ..... c. Portfolio Management Agreement and mandate finalisation. .... .d. Blending and optimisation of exposure to asset managers within each asset class, ..... ...sector, strategy and within the Fund’s portfolio as a whole. ..... e. Fee negotiations with asset management companies. 2. Research on asset class expectations and tactical asset allocation adjustments. E. Monitoring and evaluation 1. Asset classes: Monitor and evaluate domestic and international markets, asset classes and sectors in order to place asset manager and holistic Fund returns in context. 2. Investment strategy: Monitor economic and market trends with a view to determine its possible impact on investment strategies. 3. Asset managers a. Monitoring and evaluation of asset manager returns on a relative (peers) and absolute (benchmark) basis. b. Performance attribution 4. Holistic Fund level: Monitoring and evaluation of returns at combined Fund level on a relative (composite asset class benchmark) and absolute (return target) basis to ensure that the objectives, aims and goals of the Fund will be met. 5. Risk management and analysis of asset classes, asset manager mandates and for the Fund as a whole. F. Continuous Support and Consulting 1. Investment strategy & asset allocation a. Pro-active consulting on the desirability of changing investment strategies against the backdrop of a changing economic and external environment. b. Periodic rebalancing of asset allocation positions to the strategic asset allocation guidelines. 2. Asset managers a. Put forward recommendations to the Fund on the potential termination of mandates and the appointment of new asset managers. b. Arrange for regular feedback cessions by appointed asset managers. c. Handle majority of interaction and communication between Fund and service providers (asset managers, custodian, etc.) 3. Ad-hoc advice, for example on the timing of and most appropriate structure for hedging 4. Address ad-hoc research, advice or consulting requests from the Fund 5. Scrip lending 6. Transition Management a. Formulate a transition management or re-alignment strategy. b. Monitor the progress and success of the transition management process. c. Cash flow and or book over management after termination of a mandate. d. Compile a transition management report in order to access the market impact cost, transaction costs and effectiveness of the transition process. 7. Reporting 8. Review of the strategic asset allocation guidelines of the Fund 9. Performance fee assessment and fee negotiations 10. Ongoing review, assessment and consulting G. Training 1. Trustee training 2. Monitor changes to the legislative and statutory environment and any relevant market developments .......... with a view to advice or inform the Fund accordingly.
	Consulting Process – A Macro Overview
	The graphic illustration below provides an overview of our asset consulting process:

	The Interneuron Group's approach to Black Empowerment
	When it comes to black economic empowerment, the group’s empowerment initiatives are designed to enlarge the pie, rather than re-divide the existing pie amongst South Africans. For example, Interneuron Capital Limited was involved in structuring the finance for a large development project in the Eastern Cape – a province with extremely high levels of unemployment. This project will create 600 jobs in the construction phase, and around 300 jobs on an ongoing basis – many more than Interneuron’s own employee base. 80% of all trading is executed through black economic empowered stock brokers. The finest example is the use of Lekgae Securities, which is a 100% black owned stock broking firm. The Interneuron Group also has a black economic empowerment initiative named the Cadet Program where talented and promising young black graduates form part of a hands-on training process to become portfolio managers. Our third party partner, the Metropolitan Group, is the eleventh best empowerment company in South Africa.
	People supporting this service Faces link to personal information

	Gerrit Bekker; Paul Martin; Riaan.Van.der.Vyver; Marthie Horn; Andy Paterson; Willi Jonker
	Contact
	You are welcome to contact Riaan van der Vyver at +27 (21) 851 8415 or email him at riaan@interneuron.co.za if you want to find out more about “our world” at Interneuron Fund Managers.

MULTI- MANAGEMENT