Investec Asset Management is coming up for its 19th anniversary and, before too much longer, its founding chief executive Hendrik du Toit explains how he aims to take the firm from “good to great”
Du Toit helped establish Investec Asset Management in South Africa in 1991. He was plucked from Old Mutual, where he was rapidly building on his reputation as one of the country’s brightest academics, to run a new asset management unit. From a couple of pension mandates and a handful of staff, he now heads a firm with some $60bn under management. But du Toit is less interested in the headline number than building a strong, responsive firm to grace the top league.
In the asset management industry he is known for an informality and infectious excitement which belies a shrewd expansion strategy and rigorous underlying processes. “Some chief execs like to make their status very clear, with all the trappings round them, and others go for the don’t-mess-with-me, target-blasting image. But Hendrik is global cool. He is very approachable, but you know the competition is razor sharp,” says a fellow CEO (who prefers, even when pushed, to be nameless).
The firm is proud of its South African roots, from du Toit’s distinctive accent to the African zebra that is the corporate icon. The choice may not be immediately obvious – the zebra is a modest, herd animal, poorly camouflaged for its environment, and lacking the speed or aggression which might represent the values of a global money manager. But the elegant “out of the ordinary” black and white branding is as recognisable in its sector as Nike’s tick is in sport.
Du Toit recalls that the first hurdle was to make the leap from Cape Town. “We took the principles that worked for us at home and transferred them to London, which we decided early on was the base from which to engage the world,” he says. “In fact, we are the only asset manager that has successfully expanded from South to North.”
Now it does not really matter where the client lives as Investec has cross-border capability.
“What we do know is that they see London as a valuable base. What they can access here (if they are not taxed to death) is well understood – it is the biggest agglomeration of financial talent in the world in one place. But being global is more than just the sum of being in a number of different locations. It is a different mentality.”
He speaks of developing “capabilities”, rather than launching products, and insists the critical driver for the business is an understanding of ambient change. When Investec launched in South Africa, it was a time of political upheaval which many people feared. “But we were positive about what was happening. We knew we were looking at a growth opportunity for years ahead. That is what our experience brings – the richness of different perspectives. And you do not see the opportunities if you are not in tune with the environment.”
With that scale of change now sweeping the world, there are plenty of opportunities for those willing and able to seize them. He is backed by a management team which has stuck together for nearly two decades: chief operating officer Kim MacFarland, co-CIO’s Domenico ‘Mimi’ Ferrini and John MacNab, and John Green, global business development director.
Change and opportunities
Persistent change and opportunity are integral to how he runs the firm, a culture which he calls “non negotiable”. “We are not about hiring and selling on expensive people. We are not after short term gimmicky announcements, and we are not dependent on one product in one place. We build long term, global capabilities.”
That means bringing in and keeping people who can at some stage open new areas for the business. He is acutely aware, as a mid-size investment house, of the predatory power of investment banks with big cheque books. But he aims to provide what many fund managers find the banks cannot: time and freedom to express their professional creativity. Investment banks, he observes drily, have once again “undercut the power of people compounding” by hiring and firing wildly through the cycle.
He knows many top managers actually do not need to work, and financial compensation is often not enough to keep them. “We offer long term stakes, a high degree of ownership in what they are doing.” That has helped Investec weather two underperforming years – 1995 and 2000, and the latest financial storm, as clients perceive managers in tune with their own interests and committed to addressing problems.
It also fuels incremental business development. As interest grew in commodities, so Investec drew on its latent experience in the sector to build up its expertise. The same process occurred with emerging market debt.
“Five years ago, some of the emerging markets currencies were not looking too good,” explains du Toit.” But we had been running domestic non dollar bonds in Africa for years. Then they started to look interesting and we had two or three managers who were keen to get into it, so we supported them to build the business.”
That is what he terms a multi-specialist, as opposed to a multi-boutique, firm. He strives to retain corporate cohesion, to prevent the specialists becoming a series of competing empires. “There is just as much danger in growing too fast as there is in growing too slowly. The aim is to stay in a space where you are growing profits nicely, where you develop what you want to, and where you enjoy and believe in what you are doing.”
So now the bid for the big time begins. It was relatively recently that analysts framed Investec as a vulnerable target for takeover by acquisitive global groups, going the way of ABN Amro or Fortis. Du Toit has been a buyer himself, taking on Guinness Flight in the UK in 1998.
He professes not to be a fan of acquisitions generally. “We wanted to get into a new jurisdiction (in the UK) and it made sense to have a new platform, but you want to do as little as possible of that kind of thing, because the execution risk is so high. If expansion works, you are rewarded with growth – not only of assets under management, but with performance, revenue and client loyalty,” he says.
Yet persistent rumours that Investec may be eyeing new targets are – well – not entirely unfounded: “We look, that is true. But what we see is too expensive, or too complex. We have got traction on our own. Why do we need to buy? Fidelity rarely buys, and they have – what? – $2trn under management. Capital International never bought, it is up to $1trn. Wellington gave away Vanguard, and they still have half a trillion.”
He prefers to leverage the “deep insights from some very good people in the firm”. Example: Lots of people are talking about the shift in global financial influence from West to East. But who will really take advantage of that, and translate it into a business? That capability is what takes “good” to “great”, evident in the top coterie of firms.
He admires Blackstone: “They have got it right, that’s another multi-specialist firm, and they manage the culture very well. They are a partner that you can respect, rather than a commodity you measure quarter on quarter.” And Baillie Gifford, “a company with a wonderful franchise, where ideas are not industrialised”. “If you have an industrialised investment process, you might as well index, and in fact the more that happens, the more we like it, because we are genuinely active fund managers, and we can differentiate ourselves.”
He is not keen to be listed, with all the reporting requirements that entails, and perhaps for the protection private status affords, but considers Investec Asset Management could grow to three or four times (by revenue) its present size “without constraint”. “Our operating margin is the same as Schroders – which is three times our size, and it is better than that of Alliance Bernstein, which is seven times bigger,” he charges.
What sort of firm would be a likely fit? He would consider buying a small business at a good price with a unique skill Investec cannot build, or a firm that offers a jurisdictional opportunity. The third option is to buy a book of assets and strip it.
“But the last one of those was New Star, which came with massive brand risk and a pile of debt. Why do we want to be distracted and disrupted by that sort of thing?”
Expansion plans
So Investec will continue expanding its capabilities, and subsequently, its product range, into different markets. The US is a prime target, even though Investec Bank had an unhappy experience there some years ago.
“Here is the thing about the US: it’s still the biggest pool of liquidity in the world, and it is growing. People are saving more and they want to invest internationally – both retail and institutional investors. We are seeing a lot of US interest in our Africa funds, for example.”
Another opportunity is with the world’s sovereign wealth funds, which du Toit expects to be the benchmark investors of the future. “They are best in class. You do a lot of work, but then you get a half billion mandate that can go to five billion.”
He is a great admirer of Australia’s pensions system, with its mandatory contribution provision and “big administrative platforms that make professional choices on a strategic, not a fund, basis. It is a massive market, professionally mediated, so we like that a lot.” Two years ago he sent Mark Samuelson, former head of institutional sales in the UK, to develop Investec’s presence there.
He is on record as shying away from China, a market where everyone else is desperately trying to establish a toehold. He acknowledges the potential, but says there are other bases to cover first.
The same applies to India, where he sees real possibilities for the UK to “reinvent itself through an old association with a great country”.
Increasingly, du Toit likes the idea of alliances and partnerships.
An unusual one is the link with Saudi Arabia’s Jadwa Investment, which will see Investec managing the shari’a compliant Jadwa Africa Equity Freestyle fund. It originated through personal contacts and was formalised after the usual process of due diligence. “It works well for us and it will be something we can come back to develop,” he explains.
Regulators
In the UK, his short-term concern is the prospect of over-reaction by regulators to the global financial crisis, and a frustration that excellent asset managers are being lumped with the “bad boys” – the banks.
“There is this extraordinary drive to self-destruct. We can see it from the outside and nobody can understand it.
“The UK is highly regarded as a financial centre globally. It has respect and appreciation around the world. But we see Europe trying to exact retribution on the UK for an industry it doesn’t have, so won’t suffer, and the UK walking into the trap.
“We don’t need a witch hunt. The skilled people here will go elsewhere and use their talent to manage their own money or help out a few friends. But the country needs these skills. There is a real social value to a well priced capital market, which is what we have here. And we have a system – flawed as it might be – that allows individuals to save for retirement.”
But with all the corporate hurdles ahead, and global financial stability still uncertain, he remains relentlessly upbeat.
“Look, as a business, the canvas is getting bigger. People have to save, and things can go the right way if we are careful. Be happy. We live better than Henry VIII did.”
