Among the paradoxes of business is the way successful entrepreneurs love attracting people who are just like them – but usually baulk at giving them their own wings. Eventually, however, sanity does prevail. But for Hendrik du Toit, who started Investec Asset Management with a phone and a briefcase in 1991, that journey took 29 years. Du Toit and his tightly knit team who manage ÂŁ120bn in assets for clients around the world, last week celebrated their independence with the listing of their newly renamed Ninety One in London and Johannesburg. Poor timing perhaps – but as Du Toit explains in this wide-ranging interview, the team which now owns 20% of the business, are not losing any sleep over a share price that’s half what was expected ahead of the Covid-19 Crash. They’re taking the long view. As any sane money manager needs to. – Alec Hogg
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In this special podcast we are going to pick up with Hendrik du Toit the chief executive and founder – of what is now called – Ninety One. Hendrick, most of the Biznews community have heard of Ninety One. You guys are sponsoring our podcast – very smart of you to to get – ahead of the game, but that’s been what you’ve done. I remember talking to you about – what became Investec Asset Management – started by you in a briefcase and I think you even had a PA but that was it.
That’s correct and our current chief investment officer Mimi Fiorini joined after a year – I think he was about 12 years old, Gail Daniel who now still runs one of our top funds in South Africa joined shortly after and it was a fantastic ride. I gave Kim McFarland – my current finance director – the task to keep the staff numbers under 25. In December 1993, she succeeded everything else but failed on that one.
But 1991 was the year that you actually began?
Exactly. It was a momentous year. It was a year when things were changing rapidly in South Africa. It was the year of the de Klerk speech, apartheid legislation was starting to be dismantled, the Soviet Union actually ended in that year. The Internet was becoming accessible to ordinary people and it was really a momentous year of change and – in our case – opportunity.
I remember talking to you shortly after you started and getting a lesson in understanding themes in investing. At the time, we were all – most people in South Africa – were just value investors and you introduced – to me anyway and I’m sure many people within your firm – the whole concept of momentum investment and it was a good time to do it. If you consider how well the market did for the next 6 or 7 years. Did that give you the kicker?
Firstly we couldn’t do what everyone else was doing. Any business you start, if there are incumbents who do a good job and you do exactly the same as they do – without a certain sense of differentiation – you’ve got no chance. The theme that was really driving us then, was that South Africa was changing for the better and no one was seeing it. In fact the world was changing for the better and no one was recognising it. People were extremely defensive, extremely worried about the transition about an impending Mandela Presidency and we simply backed the entrepreneurial energy of South Africa on the equity side and we backed the fact that the ANC – first generation – would be highly sensible people, which turned out well and allowed us to deliver performance numbers which got us in the game. We evolved our business from there because – as you know – fund management is as much a business as a set of beliefs.
A set of beliefs that’s interesting. I know you talk about or the strap line that you have now, is that you are investing for a world of change. If anybody understands change it’s got to be South Africans. The resilience that has been born into our nation through the incredible changes of the last 25 years.
I’ve always said it’s been a great privilege to – not only have been born and educated but have grown up in South Africa – which changed so much. It doesn’t only give you resilience, but it also forces you to cope with fundamental change. It also – as our country became outward looking – prepares one for the complexity of the world. We’re a complex country, we have 11 official languages, we have a multitude of different cultures, so in a sense it prepares you for a global world. I think even today South Africa is a great place to do business in because all the challenges we face, these challenges some people around the world face at some point in time and that makes you tougher.
And I presume you’ve got a bit tougher over the past few weeks. I suppose the real question is why did you go ahead with the listing? If you saw the chaos that was going on in the markets you must have known that the share price that you’d start at would be substantially lower than the indicative price that you had before listing.
That’s absolutely true but we aren’t selling anything. Firstly, until last Friday I was joint CEO of the Investec group and our strategy was to simplify the group and present it to shareholders in focused units, so that each of those units can meet their various challenges and capture their growth opportunities. In the case of the asset management or Ninety One business, we wanted to give shareholders direct access to the cash flows of the business which they haven’t had for many years. That was the objective and because of this objective we believed that it was time for these businesses to go their own ways for a variety of reasons. The asset management business or Ninety One is a global business. Its major growth areas are outside the core geographies of where Investec Bank and Wealth operate and therefore you need to develop understanding and the appetite for engagement. The board needs to be clearly focused on those challenges. The Investec businesses largely deal with direct consumers – high net worth and entrepreneurial companies – the asset management business is largely an institutional investment management business or a business which deals with advisory platforms i.e. large financial institutions or financial advisors around the world. These are very different markets and there are very different ways of reaching them. One can argue that the Zebra was a great brand – of course it’s a great brand we love it – but most of the Zebras brand building was aimed at the former market segment and not the market segment served by Ninety One. Plus, the share price – and you wouldn’t believe it if you saw the action in the markets this week – but the share price was definitely reflecting a discount to the sum of the parts of the business. Now the sum of the parts were priced correctly – of course we chose a week which really wasn’t the greatest one – but over time we know that the market price will correct.
Hendrik, you are entrepreneurial. Clearly you’ve built this enormous business from a briefcase and a desk. Are you now looking to expand your global ambitions given that you have a strong base in South Africa and in the UK. Are you looking at other geographies?
Firstly. what’s important is it’s a briefcase, a desk with great people and no capital. That’s what makes this business. It’s a capital light, people intensive business and it’s all about people. We are not a South African business trying to expand, we have been a multi country international business for many, many years. Way over â…” of our revenues – 70% of our revenues are non-African and we have a footprint in all the major markets of the world – in terms of where large asset pools reside – and what we do is we take their capital and we spread their capital around the world where opportunities may exist. A significant part of the capital we are entrusted with, is deployed in global or emerging market assets – 85% of the world’s money is in the developed markets – and a lot of the economic firepower is sitting in Asia, but the mobilised pooled institutional money is still predominantly in America and Europe.
And no doubt that with your independence, you’re going to be given that opportunity to go out and acquire people for the firm that you can incentivise properly.
We are not interested in acquiring large businesses or doing transactions. We are interested in organic growth. Occasionally you may find a bolt on or a team or a boutique that really fits with us which we may want to bring closer, but ours is going to be an organic journey – exactly as it’s been over the last 29 years – which means shareholders will also have to be more patient. It’s not a quick quick fix business or a quick move business. It is long term, it is intergenerational and it’s organic. That culture allows you to then – if you want to use your – acquire, but I would say attract high quality talent because we are in a talent business. Being free from the constraints of a group with a substantial banking component – particularly given European regulations around banking – will make us a more competitive and an attractive venue for talented people to join. Our competition is not large public companies, our competition is employee-owned or employee controlled partnerships. The real winners in our business tend to have one big common factor and that’s a high degree of employee ownership. We can now compete on that level.
And I suppose one has to right now because – as much as the clients are panicking with the way the markets have been going – your team have got to have a fair degree of steel and long term thinking to be able to tell the right story to the clients. What is the message that you’re giving out.
I have absolutely no doubt that we have one of the most experienced teams – not just individually experienced but experience together – in the global first league of asset management. I’m saying that with all humility. We have done the hard yards. Our executive committee has been together for 20 years on average and that includes some new people. Our key operational investment leaders have all been doing their jobs for 15 years plus – the same kind of level (key client facing people) and the people under them have been together, so we’ve all been through the financial crisis together. Some of us through the emerging market crisis of the late 90s. We’ve lived through SARS in Hong Kong. Next week our Hong Kong leaders go to talk to our other offices about what are they are experiencing with the coronavirus, so I feel – to use a rugby analogy – our forwards are big and heavy enough for the challenge. I’m pretty comfortable we’ll get through this as well as anyone else. No one’s going to get through this unscathed. These are opportunities to renew your business – to rethink things – and to test. Some parts would not work as well as others then you have to improve them. So that’s how we see it, there’s absolutely no panic in the camp.
Maybe I can just return to the same question in a different way I spoke with Kokkie Kooyman and he said that his clients were asking him should they buy now or should they wait and buy later. He said there were those who were going to panic anyway and they’ve sold. But essentially, the question that they were asking, what is the messaging that you are giving to your clients today?
Our message is firstly do nothing in haste – you’re bound to be whiplashed or make a mistake – because markets do recover. This market may have further to go down because we know that with the global financial crisis, the drawdowns were bigger, but because this is an issue that could be dealt with ultimately by a vaccine and that governments have now finally got into the act, we believe there could be a faster recovery than one where you’re dealing with zombie banks or countries with balance sheet problems. We are fortunate that we have a zero interest rate environment and fiscal authorities have to be in as well. My big fear is – and that’s the one thing we’re watching – is do we have appropriate levels of global coordination? If global coordination does not improve and remain organised, then we are going to have a haphazard recovery which will be a lot more painful, so our advice for clients would be to be more cautious. But at this point in time, we are seeing things going in the right direction and the bazookas are coming out. What I worry about is not financial markets. I worry about the ability of governments – Western governors in particular – to deal with the most vulnerable people. It’s not very easy in South Africa to self isolate. You send people back to a squatter camp where there are no facilities, there’s nothing to do, they are casual labourers, who is paying, who is giving them money? We better get the helicopter money out – not helicopter money in the monetary sense – but directly into people’s pockets, otherwise we’re going to end up with a phase of social upheaval. I am glad to see the British government has finally got it.
Just from your business – specifically your businesses perspective – active managers have been under pressure for a long time, but with this market crisis, surely the way that Mr. Market is now reacting, it must give active managers an advantage again. That’s an assumption that I’m putting on the table, but is it accurate?
No, I think it’s too simple to say that asset managers should do well. Asset managers – by and large – come out of this better than passives. Why? Because they are not part of indiscriminate action, but the asset managers just get hurt by the indiscriminate actions of the so-called smart beta portfolios or passive, or ETF’s. Because you have complete indiscriminate selling at times when there’s no logic to it. Now if you have cash you can exploit it, if you’ve fully invested you’ll struggle to exploit it. So it’s not as simple as that. But the case for active management is definitely enhanced by this kind of experience.
Hendrik, you’ve been through a number of crises. You’ve got the resilience – and I see the grey hair now from those experiences – how are you seeing things develop from here?
What we are seeing is something very different from either a financial crisis or a single country going bust. We see a situation where the world is going temporarily into a war economy where all rules get thrown out, stability is searched, in that fog of war there will be substantial moments of mis-pricing that one should ignore and look at the long term, but my best guess is, that we could have a very sharp recovery in risk assets once the world reverts to normal. The question is – and that’s an important question – who is going to pay for this and how will payment get extracted by the governments? I think that is an interesting question and may probably lead to a world with higher inflation down the line. We’ve had no inflation for a long time and a world where businesses – particularly equities – will do a lot better than fixed income instruments, which started at very low levels and of which the credit quality has worsened substantially. My near-term fear is the credit markets. Can we keep the credit markets stable, because they’ve essentially frozen up – particularly corporate bonds – and that needs some regulatory intervention as well as cooperation between the market participants and the regulators. So the one thing that worries me a little bit about South Africa is I’m not sure business and government have had a constructive dialogue in the last few years, so they can act as quickly as we acted for example when African Bank was saved – a very small exercise – really well done by South Africa. I think right now, we talk at each other, we don’t talk to each other and I’ve seen here in the UK, in America, where the governments are starting to use the private sector very effectively in delivering some of the objectives. I just worry about that. China did that it really effectively – because basically the state controls everything – so we need to be careful when you differentiate between markets. My gut feel is there’s going to be a fairly sharp recovery quicker than people expect.
And the timing of that given that you’ve got people in Hong Kong, you’ve seen the China story from up close, Kokkie again yesterday was saying the Chinese experience would suggest 5 to 6 months from the time that it hits to the time that normality returns. What’s your best guess?
Also read: Kokkie Kooyman: Why Capitec has fallen 38% since Tuesday – and what to do about it
I really don’t know and I wouldn’t engage in that discussion, because the West is so different from China, but I think the one thing in favour of Kokkie’s point is – whatever people say – the science is going to accelerate incredibly quickly now. There’s so much money behind it, there’s so much pressure and the Chinese are a few months ahead. They have been working very hard. So although Imperial College sent out a very depressing paper this week, a much more optimistic one has come out from Israel – I’m not sure who’s going to win – all I know is if we talk on this program in two years time, this would not be the main topic of our discussion. Our discussion would be how the public sector manages its balance sheet – which has grown too big – and what environment there is for business to operate globally. In other words, are we living in a world where there are still trade wars or huge barriers, or is this a world in which value can be created? I think for our industry and our business, we are very dependent on a world with global rules. That is the one thing I fear as a global asset manager. If you have a world which has a breakdown in the global commercial order, it is a problem.
Hendrik du Toit, the chief executive and founder of what is now called Ninety One the old Investec Asset Management – a company that he started – as you heard earlier in the conversation and looking ahead already into what might be the conversation in a couple of years time. Who’s going to pay for all of this? At the moment, no one really cares. Let’s just get the virus sorted out and get over this threat to the system. This has been a special podcast on the Biznews radio channel. I’m Alec Hogg until the next time. Cherio.
