Underperforming the S&P 500

Ocean Wilsons’ investment portfolio consists of around 90 hedge funds, valued at $328m at the end of March (a 7% decrease since December last year). That equates to 708p per share. The largest fund (Findlay Park) represents just over 10% of that $328m.

Owning 90 hedge funds suggests that the management team is spreading its bets and doesn’t believe it can identify the next George Soros or Jim Simons ahead of time. Management claims that the portfolio of funds outperforms its benchmark. That may be true, but since the benchmark is the US consumer-price index, this is not demanding.

Management would have been far better off buying a low-cost S&P 500 index tracker. The investment portfolio has achieved a 48% increase in value, which is lagging well behind the S&P 500, which was up by 262% in the last decade. Compounded annually the S&P has achieved a 13.8% compound annual growth rate over the last ten years, while Ocean

Wilsons has achieved just 4.5% per year.

If the portfolio does not outperform in 2022, in what ought to be ideal conditions, perhaps management will need to have a rethink. In 2008, Warren Buffett bet $1m that the S&P 500 would outperform a basket of hedge funds after costs over ten years. He won the bet easily. Ocean Wilsons’ majority shareholder, Hansa Investment Company (controlled by William Salmon and Christopher Townsend), has been incredibly slow to take that lesson on board. If they had invested in the S&P 500 instead, the portfolio would have been worth more than 1,750p per share at the end of 2021.

In March, Ocean Wilsons announced its new chair will be

Caroline Foulger, a retired partner of PwC Bermuda. While an accountant is unlikely to rock the boat, she should at least be asking whether the investment subsidiary really needs to own 90 hedge funds.