🔒 Money manager marriage: Viljoen joins Houlie – ahead of post-2001 repeat?

In what he describes as a reflection of a changed asset management industry, RECM founder Piet Viljoen is merging his firm with Counterpoint, led by his former Allan Gray and Investec colleague Sam Houlie. Forthright as ever, in this wide ranging interview Viljoen shares the two big mistakes he made since starting RECM and explains why he intends in future sticking to managing money rather than running a business. – Alec Hogg

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Twenty years after top performing find manager Piet Viljoen left Investec Asset Management to launch RECM, he’s called quits on his career as a businessman. Today Viljoen told me he is merging the company with Sam Houlie’s Counterpoint Asset Management, under whose name the new firm will trade.
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Even after the merger and with R6.5bn in assets under management, Viljoen reckons Counterpoint is not yet at scale, and has invited other like-minded boutique money managers to come aboard this newly launched ship.

In the interview embedded above, Viljoen explains why the timing of the deal is opportune. He shares an honest perspective about the way the asset management industry has changed and the impact of compressed profit margins influenced by continually escalating costs.

Also read: Piet Viljoen is right: Public companies often run by managers for managers.

Allied to this has been the way SA investors are shovelling assets abroad as fast as possible, starving the local market of fresh capital. Viljoen says it reminds him of 2000 and 2001 when a similar negative sentiment was pervasive and local shares, especially small caps,  at similar bargain levels.

He points out the trough of almost two decades back was followed by a massive bull market in SA shares, transforming the JSE from a dog to the best performer worldwide in US Dollar terms. The difference today is that while there was “zero” chance in 2001 of SA repeating Zimbabwe’s road to penury, there is now “some” risk of it happening,

Viljoen won’t put a number on the odds of SA following Zimbabwe, but says the mere fact it is possible means investors are wise to take at least some of their assets offshore.

Also read: Piet Viljoen: Investors AWOL so many managers run companies for themselves

While Houlie will run the investment team, the new firm will be jointly controlled by Viljoen and Merchant West Holdings, a Johannesburg independent financial  services firm run by entrepreneur Braam Viljoen (no relation). The merger is slated for completion in March.

Statement from RECM and Counterpoint:

• We are pleased to announce that RECM and Counterpoint Asset Management have reached an in principle agreement to merge their operations. Importantly, the two firms have complementary skills and investment philosophies, and share a similar culture.
• The asset management industry in South Africa is highly fragmented. Intense competition and an onerous regulatory environment has resulted in increasing margin pressure. We believe that the even greater depth and reach resulting from our integrated teams, when added to the current compelling performance history in many of the fund offerings, will be of great benefit to all clients.
• We share the same vision, and consolidation makes sense. Combining assets and skills not only enhances our ability to deliver on our investment mandates, but importantly, scale also allows for an incremental reduction in costs to our clients, over time.
• We thus anticipate and will be seeking out more discussions with other, like-minded investment firms.
• The process is expected to take a several months to complete, however the following key principles have been agreed upon:
   The consolidated business will trade under the Counterpoint Asset Management brand.
   Where fund overlap exists, funds will be amalgamated.
   The business will be led by Linda Eedes as the Managing Director. Sam Houlie will lead the investment team as the Investment Director. Chris Stainforth will continue as CEO and will step down on completion of the merger.
   Piet Viljoen will join the Counterpoint investment team as a portfolio manager and will continue to manage those funds to which his style and experience is most suited.
   The combined entity will manage assets in excess of R6.5bn, with a well-resourced investment team.
   The transaction involves a restructuring of Counterpoint Asset Management which will see RECM (Pty) Ltd and Merchant West Holdings (Pty) Ltd acquire a joint controlling shareholding in the consolidated business.
   Merchant West Holdings (Pty) Ltd is one of SA’s biggest independent financial services providers with a history of over 20 years in the financial services sector.
   The transaction will be subject to regulatory approval.

Comment from Biznews community member David Melvill:

Dear Alec

I would love to believe Piet Viljoen is right. I am a fan of his too. He is bold and very brave when it comes to Value stocks.

The problem with value is it can become a whole lot “cheaper,” it then becomes “deep value” and along the way many value investors give up as the “pain” becomes too much. This is what happened with Nedbank, where Piet managed a fund for them. They said, “Piet we just can’t take this under performance any longer.” This led to them parting of the ways. Was Piet wrong? No, the “value unlock” was taking a whole lot longer than hoped for.

Could it be that the “circumstances” are not the same, as there are too many “new factors” that were not in play last time, as mentioned in my friend’s article of yesterday that appeared in BusDay, “A profitable trading edge?”

For reasons articulated in our interview, he’s not bold enough to predict a repeat. But when long-time market veterans like Viljoen tell us circumstances are similar to those before a major rebound, it pays to listen. As our mutual investment hero Warren Buffett says: The time to be greedy is when everyone else is fearful. And fear stalks every corner of the JSE right now.

I hope Piet is right and I am wrong, because otherwise there are going to be many disillusioned investors who get wiped out. The old saying, “The market can remain irrational longer than I can remain solvent,” comes to mind.

Blessings

David.