This week, we speak with Adam Karr, portfolio manager at Orbis Investments and head of the firm’s US division. Orbis manages $37B in assets, and has a unique fee approach, where they only are paid a fee when they outperform; not only that, they refund fees to clients when they underperform. The (long only) Orbis Global Equity is their flagship fund, accounting for 67% of their assets, and has compounded at 11% annually, outperforming its benchmark since its 1990 inception. The firm was founded in 1989 by Allan Gray, a former Fidelity Fund manager.
The firm and its employees are the largest investor in the fund.
Karr discusses why they are an “unconstrained and concentrated fund,” with about 60 positions in their core fund. They run over a 90% active share across their holdings. They describe themselves as “Contrarian, intrinsic value” managers. He explains the way the firm chooses new investment ideas: In a firm-wide meeting, analysts pitch their best ideas in what often becomes a freewheeling and contentious battle over the benefits and risks of every position. Even after a thorough beating in the debates, PMs can still buy those stocks, with the purpose of these raucous arguments to fully understand the company, and not merely to win a debates.
The firm’s fulcrum fee — introduced in 2004, and discussed here by me in 2018 — is unique in the industry. Institutions pay nothing unless the firm beats its global benchmark; when that happens, the clients pay 25% of the outperformance. Part of that fee goes into a trust, which is used to refund fees when the firm underperforms. Managers believe this fee structure fully aligns the firm’s interest with that of the clients’.
Allan Gray, the firm’s founder, went on to become the largest investment manager in South Africa. He became a billionaire and philanthropist, created the non-profit Allan Gray Orbis Foundation and Charitable Trust, and donated his stake in Allan Gray Investment Management into the foundation.
You can stream and download our full conversation, including the podcast extras on iTunes, Spotify, Stitcher, Google, Bloomberg, and Acast. All of our earlier podcasts on your favorite pod hosts can be found here.
Be sure to check out our Masters in Business next week with Andrew Beer, Founder and Managing Member of Dynamic Beta investments. The firm manages several ETFs that seek to replicate illiquid alternatives at lower costs, with full transparency and daily liquidity. Their hedge fund replication fund, iM DBi Long Short Hedge Strategy ETF (DBEH) is up 27.7% since it launched in December 2019.
Adam Karr’s Favorite Books
The Art of Learning: An Inner Journey to Optimal Performance by Josh Waitzkin
The Biggest Bluff: How I Learned to Pay Attention, Master Myself, and Win by Maria Konnikova
Excellent Sheep: The Miseducation of the American Elite and the Way to a Meaningful Life by William Deresiewicz