29 March 2002

Dynamic investment

CRACKING IT IN THE BIG LEAGUE

Though it's now a global company, the main objective is to No 1 at home

Hendrik Du Toit

Investec Asset Management opened its doors in 1991 with just R250m under management and this has grown to more than R250bn under management worldwide, making it the largest manager of third party assets in SA.

And since it took over Fedsure in May 2001, it has leapt to the No 1 slot in both unit trusts and linked product companies.

CEO Hendrik du Toit says its primary objective remains to be seen as the top fund management house in SA.

"SA will be our dominant source of cash flow and profits for some time. We still source 60% of our business from SA, and 54% of our assets under management are rand assets."

Kim McFarland

Internationally, Du Toit sees their mission as being the first African fund manager to crack it in the big league. It is already one of the 150 largest non-US asset managers.

Investec Asset Management has a small central team, with global responsibilities. As well as Du Toit, this includes chief operating officer Kim McFarland and the global chief investment officer George Brits.

But it has empowered locally based managers to take full bottom-line responsibility. "Several of our business units are now bigger than we were in total four years ago," says Du Toit.

Domenico Ferrini is now MD of Investec Asset Management's institutional business in Cape Town (the "original" Investec Asset Management), and John Green is in charge of the retail business Investec Personal Investments, the merger of the old Investec Unit Trusts and Investec IMS, the linked product house.

George Britts

Du Toit argues that SA is the most dynamic investment market after Australia, as it has gone further than mature markets such as the UK in the development of fund supermarkets and specialist unit trusts in the retail market.

Despite two poor years, in 1995 and 2000, Investec is still the most consistent large manager over rolling five-year periods.

The SA business is mature and established, says Du Toit and he sees the opportunity to leverage skills and experience in other markets.

"There are differences between the market but we see common themes. For example, there is a common thread between the move to defined contribution and individual choice in SA and the growth of Stakeholder pensions in the UK and the Mandatory Provident Fund in Hong Kong."

Though the business in SA aims to hold its premier position and is focused on maintaining quality and margin, the immediate drive internationally is to get scale in the UK.

He is confident that the UK team has been built up to fighting weight. Investec has attracted recognised talent from leading City of London investment houses, notably Paul Griffiths from Invesco as head of fixed interest, and Nick Mottram from Schroders as head of equities.

Click on graphic for enlarged version

Both say they were attracted by the more entrepreneurial culture at Investec, in which decisions can be made quicker than at the more bureaucratic City firms.

Du Toit says Investec is well on the way to turning the UK into a second domestic market. It has an acknowledged retail presence and recently won the Lipper Award for the best Overall Fund Group for 2001. Its UK retail business has been improved in the two years since the appointment of Jamie MacLeod, previously head of the Scottish Widows unit trust company, as head of Investec Fund Managers (UK).

Investec is now one of the top 20 unit trust houses, by inflow, in the UK. Last year it sold £160m net of redemption in the UK onshore unit trust market, with a further US300m in offshore sales to clients in the UK, Continental Europe, Hong Kong and SA.

It is now planning to tackle the demanding British institutional market, focusing on its skills in Global and UK Equities and Fixed Income. It has relocated Mark Samuelson, the former head of business development in Cape Town, to London as head of institutional sales.

And Investec Asset Management has a couple of what Du Toit calls long call options in Hong Kong and the US.

"We might not have been in those markets yet if we hadn't bought Guinness Flight back in 1998, which had offices in both countries. But there are huge prospects for nimble niche businesses in the US, by far the world's largest investment market and in Greater China, which is the world's fastest-growing investment market."

In the US, Investec has landed "special forces" in the shape of two senior executives, Brett Comley, former head of business development in SA and Royce Brennan, the former head of the Hong Kong office. They are looking after the Caribbean offshore market and Canada as well as the US.

Internationalisation allows Investec people to grow and try new opportunities. As global CIO, Brits's speciality is helping to build investment processes. He gives considerable latitude to the teams in London, Cape Town and Hong Kong, but he will give the process a full service maintenance when it is not working optimally.

The SA process has been strengthened after a redeployment of key team members such as Gail Boon, who is back in the core SA process, as well as the influence of the Sigma stock screening system developed by Nick Mottram in London.

Brits says that in spite of Boon's flamboyant style she is experienced enough to see that Investec's portfolio needed to become more defensive and to close out some of the risk against the benchmark.

Brits has been able to rely on two strong process architects, John McNab in Cape Town and Nick Mottram in London.

Performance

Under Brits's guidance the UK equity products (like their counterparts in SA) have been clearly differentiated with different tracking errors. The UK Equity performance under Michael Rimmer, another Schroders refugee, has been either high in the second quartile or in the first quartile for six consecutive quarters.

Brits says it is important for credibility to get these vanilla products right.

A strong administration and technology platform is critical for client service. McFarland had the demanding task of bringing all of Investec's onshore and offshore operations up to the same standard.

Investec pioneered the development of the Silica unit trust administration system, which it has migrated into the offshore offices in Dublin and Guernsey. And SA-based clients' offshore accounts can now be accessed online from Investec's domestic offices.

The Fedsure acquisition was also a testing time for McFarland's operations team as well as for the investment team.

Investec Asset Management was already scaled up to absorb the R40bn of Fedsure assets and did so with limited additional cost.

Du Toit says he does not think the business has been given enough credit for the job it carried out in absorbing the assets from Fedsure. It was done without disruption to the process and returns improved during the absorption period.

The increased assets in the business have significantly lifted asset management's share of the Investec bottom line.