Herman Bosman: Handpicked by billionaires to run their R45bn business
One of the SA financial services sector's brightest minds and former head of Deutsche Bank SA, 45 year old Herman Bosman, has been in his new office for just over a month. CEO-designate of RMI (market cap: R45bn) and RMH (R72bn), he was hand-picked for the role by FirstRand's founding trio GT Ferreira, Laurie Dippenaar and Paul Harris. In this interview Bosman explains how he intends engaging more actively with the underlying companies – FirstRand, Outsurance, Discovery and MMI – and his intention to build not only a new division for RMI, but a thriving business incubator. – AH
ALEC HOGG: Where did you grow up, Herman?
HERMAN BOSMAN: I grew up on the East Rand in Brakpan, both primary and secondary schools, and then left around '87 to go to what was then RAU (now the University of Johannesburg). I studied there for five years and then left for the University of Saarbrucken in Germany.
ALEC HOGG: Why that one?
HERMAN BOSMAN: It's an interesting one. The professor who is still involved with UJ now, Professor Michael Martinek, made a scholarship/bursary available for someone to join his faculty/sub-faculty in Saarbrucken, so it's a bit of an odd place, but it was certainly very interesting to study with him. He's a triple doctorate, including New York and a couple in Germany focusing on Competition Law as well as generally, M&A, and Commercial Law, so I spent a year there. I must say I travelled more than I studied but nonetheless, it was a fantastic experience.
ALEC HOGG: Did you know at that stage that (a) you're coming back to South Africa and (b) that Competition Law would be such an important subject as this country developed?
HERMAN BOSMAN: Before I went, I started doing some research into Competition Law. At that stage, Dr Pierre Brooks still the Chairman of the Competition Commission. While I was there, I did my Masters on Competition Law and as I came back, they actually reformulated the Competition Law, bringing in Canadian English etcetera.
ALEC HOGG: Did you engage with Pierre Brooks?
HERMAN BOSMAN: I did. I went to see him a couple of times in Pretoria as a young student. As I came back, the commission drafting was probably up and running already. Since I only spent a year in academia lecturing at UJ, I never really picked up on that in full swing, I guess.
ALEC HOGG: Do you miss it – lecturing?
HERMAN BOSMAN: I miss the interaction with young people. It's a wonderful didactical moment when people grasp issues and can actually talk about it/write about it, so that is a very interesting part.
ALEC HOGG: You say 'young people'. You're a 'young people' yourself still at 45.
HERMAN BOSMAN: I'm a bit younger than that even. It's really about the youth and part of what we want to do at RMI is we want to do well financially for our stakeholders and shareholders, but we also want to do good in terms of giving something back to society. In a small way, we want to do things that we can actually have an influence over. Big ideas are great, but I think what we really want to do is to focus on employment as well as the creation of jobs through new business ventures, and try to support that in many ways. Anything from having an incubator where people can have accommodation and mentorship, just an environment where they can prosper. The interaction that I will have at RMI from young to old is one of the big attractions.
ALEC HOGG: Let's get onto that now because you did work after academia for the Rand Merchant Bank Group, so you got to know Laurie Dippenaar, GT Ferreira, and Paul Harris pretty well. You left them to go to Deutsche Bank, but you are back now. You mentioned RMI. That's part of your job. The other one is RMH, which is where the three of them put all their money together and of course; they've now brought in the Royal Bafokeng and Remgro as well. Do you have the same dynamic when you engage with the three today, as you did in the past?
HERMAN BOSMAN: I would say so, yes. Obviously, when I started at RMB, GT was already in a Chairmanship role. Laurie was more involved in Momentum at the time, and Paul was CEO of RMB, so obviously, they were my bosses, but they are all people I respect greatly. What I've learned over time from them…I don't think you can actually write a book about it. You'd probably need to do much more than that. The relationship is one where they place high value on integrity, ownership, and acting as an owner. If you embrace that, you have a very good relationship with them. Issues such as business values and the fact that the business argument should also win on a consensual basis are some of the things they've instilled and which, in a great way, has been part of the reason why the group has been successful.
ALEC HOGG: From your own perspective though, are you not just a glorified asset manager, given that most of their wealth as you say, is tied up and it's a considerable amount of wealth? RMH market cap – R72bn. RMI market cap – R45bn. That's over R100bn you have to start playing with. Although you only take over as CEO in a little while, I guess you have your hands on already.
HERMAN BOSMAN: Yes, Peter Cooper has done a tremendous job over more than two decades. The focus has been quite structural in the last five years…the split of the group, bringing in Bafokeng, and selling the one part of Outsurance into RMI. We now hold over 80 percent. Peter has therefore done many structural things and he's actually prepared the company in such a way that we almost want to write the next chapter if we can. That next chapter is expanding and activating the investment portfolio whether I'm active or a glorified asset manager. I wouldn't even go that far. I'm really a custodian of assets, of what we have and we need to redefine how we add value to those four or five investments we have.
ALEC HOGG: Yes, because you don't buy and sell those assets. There's a stake in First Rand, Discovery, and Outsurance etcetera and it's there. You would get a dividend stream presumably, that you have to worry about.
HERMAN BOSMAN: Yes, a couple of days ago, in the Business Day, I read that the big money is not in buying in selling. It's in waiting, and that's what we've done to a large (if not exclusive), extent. That will remain the strategy, that we find the right investments and that we become long-term strategic value-adding investors in that.
ALEC HOGG: Waiting. That's a bit of a Buffett term, as well. His average period of holding a stock is forever. Are you going to be the same?
HERMAN BOSMAN: If you think of the business going forward and what we want to do, and you say 'we want to probably look at some of the younger start-ups in the country' then the cynical view could be 'but who are these companies', and then there may not be any space for them in the market. By analogy, if you look at 20 years ago, there wasn't space for Discovery in the market and 12 years ago, there certainly wasn't space for Outsurance in the market. Yet, they prospered. Their portfolio would have to consist of slightly more in number but smaller in terms of start-ups. If the opportunity presents itself, we would also look at the bigger side of things; whether we can find something that becomes a fifth pillar in RMI. Just to answer your question, I don't think we are automatic holders of it. It comes naturally, but it's not automatic. The difference between that is that if capital and investment resources may become a scarce resource, we'll have to carefully think what makes sense in a portfolio. However, the starting point and the natural inclination is to back the right companies, back the right people, and keeping that business for every.
ALEC HOGG: And staying in the financial services industry.
HERMAN BOSMAN: Yes.
ALEC HOGG: Given that you've now been brought across by the three guys and the other shareholders – prestigious shareholders to have and to engage with – what is an outside shareholder going to get by buying some stock in RMI or RMH?
HERMAN BOSMAN: I think the two are slightly different. The RMH side are obviously getting a straight conduit into First Rand. What we hope to add is that through the fact that we're a strategic long-term investor, we add some benefit to them and that benefit could personify itself in various forms. However, it's really a First Rand exposure with what we would believe, are additional enhancements on top of that.
ALEC HOGG: So there's no idea there of unbundling the First Rand shares. You're going to keep it as an entity.
HERMAN BOSMAN: Yes. On the RMI side, the investor would firstly get the portfolio. The second thing that we are creating is capacity within the group. With that capacity, we mean that we want to redefine – and I mentioned this earlier – the way we interact with our portfolio companies and the way, we add value to them. Capacity is one of the things. There may be others. Firstly, an investor gets that value-adding relationship and partnership with our portfolio companies. Secondly, it gets the ability for us to position ourselves further as an enabler of financial services, leadership, and innovation. That sounds a bit airy-fairy, but what it basically says is we want to really think about how we partner the next Adrian Gore, Willem Roos, Nicolaas Kruger, or Sizwe Nxasana. That's what we want to set out. On the one hand, if you're sceptical you may say 'well, you were just lucky in three or four of those'. Maybe we were lucky but fortunately, randomness has no memory so that in itself is fine. If we weren't only lucky, but had some skill, I really hope that some of that skill has rubbed off and is still present in the group, in the boards, in the management, in the shareholders, and that we could try to find new investments, which are quite exciting and good for shareholders.
ALEC HOGG: With Outsurance being unlisted, is there a valuation that one could put on? I ask this because at the Berkshire Hathaway AGM this year, Warren Buffett says 'book value of GEICO (which is an American version of Outsurance if you like) is R1bn, but he reckons it's worth R20bn.
HERMAN BOSMAN: Right, a couple of words to answer that: One way is to take the market value, deduct the listeds, and you get to a value that the market is subscribing to. That's imperfect because there may be other things in the group affecting the value. There are some investment banks that we've done, and a certificate that actually strips out the listeds from RMI. You can therefore buy a certificate reflecting the value of Outsurance. Both of those are market-derived values. If the question is 'what do we believe Outsurance is worth', I guess that's a slightly more difficult question. I'm not really at liberty to ask you, but suffice to say it is a fantastic business, which we're very proud of being involved in.
ALEC HOGG: I'm trying to get to the discount….how a private investor would work out. 'We understand. Herman's a good guy. He's smart. He's going to be hopefully building a fifth pillar, but where's my margin of safety? How much am I actually getting when I buy the RMI shares today?'
HERMAN BOSMAN: Currently, both those shares at RMH and RMI are trading very close to NAV if not over it. I probably varies from -2 to +2 percent. At the moment, we are very comfortable that there's no leakage whatsoever if you would buy the shares.
ALEC HOGG: It's most unusual.
HERMAN BOSMAN: It is, but part of that is the fact that there's no friction cost. Even if we were to decide to unbundle some of our investments – and there's no intention to do so – there wouldn't be any capital gains tax or any other friction costs. Secondly, our operational expenses are very low and thirdly, I guess it's a question of most of what we have there reflected in listed prices and Outsurance is of such significant size that people could get their minds around putting a market value on it. There's not a lot of cloudiness in terms of the structures as they are at the moment.
ALEC HOGG: So it's in the books, when you talk about the net asset value. Outsurance is in the books and the market value…
HERMAN BOSMAN: Obviously, that movement – yes….
ALEC HOGG: But the upside is going to come from pillar number five.
HERMAN BOSMAN: Pillar number five. Obviously, we are very proud of what we have and they will continue to do well. I think that's where the first base is for the team and I to spend time on how we add value to the existing portfolio. It also becomes almost your calling card for new investments i.e. how well you do and how interestingly you interact with your current becomes the selling proposition to new ones.
ALEC HOGG: And the size of your war chest, what do you have available to make an investment with?
HERMAN BOSMAN: Currently, we'd probably look from internal resources or capital structure itself, leveraged to make investments if we do come across suitable ones.
ALEC HOGG: So there's no size limit.
HERMAN BOSMAN: I wouldn't say 'no size limit'. It would be guided by the capital structure, by our dividend forecast, by what we want to do in terms of cash flow to shareholders, and the diversity in the portfolio. At the end of the day, because it's a finite industry in terms of financial services, we will be more driven by the right opportunity than predefining size.
ALEC HOGG: When you look back in five years' time…if we take as a five-year investor: you like Discovery, you like First Rand, you like Momentum, and you certainly like Outsurance as well. How are you going to judge the way you added value? Would it be by having this fifth pillar?
HERMAN BOSMAN: Hopefully , more than that. Yes, the fifth pillar is important. I keep emphasising the relationship I'd like to have with the CEO's and the existing executive teams' portfolio. Thirdly, we would hope to have interesting seedlings and interesting start-up businesses in our incubator. Fourthly, close to our business on the other side of the floor, we want to build and entrepreneurial centre. We want to put young black businesses in as well as people with conceptual idea – these are not mutually exclusive – with conceptual ideas to come and play. It's therefore an incubator/entrepreneurial centre and hopefully, five years from now the new entrepreneurs have come out of that and new businesses have started as a result of that. That links back to what I said initially – dealing with young people (they don't have to be young) – but dealing with people where you work with a spectrum of a sophisticated CEO, of which we have quite a few in the group, right through to somebody with a great concept, but nothing more than a laptop.
ALEC HOGG: It sounds like a dream job. Do you get much spare time?
HERMAN BOSMAN: Yes, compared to what I've done before for 20 years, there's enough spare time, but I also have to recalibrate my own intentions to say I should think about things a bit harder and do less, or have few actions. The recalibration is that what you do will have a big impact or can have a big positive or negative impact. It's a more cautious approach than I guess the typical investment banker would think of.
ALEC HOGG: Herman Bosman is the Chief Executive Designate for RMI and RMH.