Steven Nathan’s hasty 10x exit: Who believes the Old Mutual spin?

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Last week index-tracking pioneer 10X Investments announced the sudden departure of its founder, Steven Nathan. Old Mutual-appointed chairman Henk Beets hastily moved into the CEO’s office with the company spinning the exit as friendly. It said: “Steven was presented with an opportunity to sell his shares… he decided the timing was right. It was an amicable parting of the ways.” But, as BizNews founder Alec Hogg told BizNews Premium subscribers, the official line is absolute rot. Take a listen to this flashback interview with the principled, enterprising Steven Nathan – who was never afraid to stick his head above the parapet to call out the wrongs in the financial services sector. – Jackie Cameron

Steven Nathan on his career path:

In those days – in the 1990s – one of the things I did was an insurance analyst. I was a life insurance analyst, and I got to understand the inner workings of the life insurance industry and the asset management industry. It was a big eye opener from what we learn at university or in the CFA course, about how we should manage people’s money – in the long-term – as a profession versus when you get into the actual industry and the real world, and you see how commercialised [it is]. A lot of salesmanship and not that much stewardship.

I did enjoy the benefits of the investment banking industry and I also spent some time in London with Deutsche Bank, where I ran the global bank’s team for Deutsche. I got to see some good practices, but also some not so good practices. I was also introduced to index funds, when I spent time offshore and I just felt that I had this knowledge and experience and I could actually use it to benefit a lot of investors, rather than just try to make all the riches myself. I was disappointed to see the lack of competition and the lack of really caring about the ultimate investor.

On starting 10x:

I was in London in 2004 and I left. I came back to South Africa for one more year at Deutsche. Then in 2005 I left, and part of the change was to move to Cape Town. I had a dream of starting my own company and living in Cape Town. Interestingly, when I started 10x, my first focus was on the individual client. So I thought, let’s have a direct to consumer business focussing on the individual market. If we rewind our minds back to 2004, the more work that I did on 10x – trying to get the company going – looking at how we distribute the product, I realised that it was too premature.

The market wasn’t ready and it would be too expensive to get a direct to consumer business. One of the sayings in the investment industry – in the life insurance industry – is that these are products that are sold and not bought. People don’t walk into the big life companies and say they’d like to buy an RA. You have tens of thousands of intermediaries phoning people and actually selling them products. That is a challenge we faced in 2005/2006. How do we actually get the product to the ultimate investor? Because, sadly in investing, a lot of good products sit on the shelf and a lot of bad products sell incredibly well. So, that was a challenge.

Then when we looked at that I said, no lets rather go into the corporate market – the company market. Because if we can get one company with 200 people, then that is equivalent to 200 individual sales. So we started off in the corporate market – direct to corporate – to build some critical mass over there. Then we started selling individual products a little later. The big thing with 10x is that we prefer to go direct to the client, so we’re not paying commissions to advisors or intermediaries. Therefore, advisors are not incentivised to sell our product.

On 10x objectives:

When I started 10x, we had one objective. We said blank piece of paper. What we want to do is have one portfolio or one strategy that every investor can invest in. Not a choice of two, three or four. Because if you have more than one, then you get different outcomes. If I offer you two portfolios and they differ by 2% per year, over 40 years, one is going to be worth double or half the other. That isn’t what we’re trying to do at 10x. We want to have a portfolio – a single strategy – where everyone gets the best possible outcome, using foresight – not hindsight.

So before the time, what do we think that best, single investment strategy is. That’s what we do at 10x. Everyone gets that long-term strategy. It differs if you’re getting close to retirement or needing your money, then the portfolio adjusts to account for that. But most people are in the long-term portfolio, but it’s one outcome.

On the market reaction:

It’s gone well for us. We’re managing now in excess of R8bn. We look after about 150 companies. It’s gone well. But we think it should have gone a lot better. I think it has been a challenge, and as I said, it’s really because people aren’t empowered. One of the companies I saw about six years ago, when I went to go and talk about what we were doing, about the low cost index funds – just tracking the market at a low cost, not trying to be smarter than anyone else – how that is a better strategy, the MD of that company said to me, ‘it can’t be true. It can’t be true what you’re telling me. If it was that easy, my current provider – a big life company – they would be doing this for me’.

It was actually quite a tense meeting, where I was saying that this is the fact. It’s not my opinion, it’s a fact. I never got the client six years ago, but they phoned me up to say they’d now like to move to 10x, because they’ve seen that what we said back then actually seems to be correct.

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