South African roots mean Investec Asset Management may have a competitive advantage when it comes to investing in emerging markets and commodities. Hendrik du Toit tells Stefanie Eschenbacher that his route is about quality and depth, not breadth.
In just over two decades, Investec Asset Management grew organically from a small South African asset manager to one that manages about $100 billion (€76.2 billion).
Its chief executive, Hendrik du Toit, who divides his time between Cape Town and London, says African roots have shaped Investec’s philosophy and investment strategy, giving it an advantage over others when it comes to emerging markets and commodities.
“We see ourselves as unique, in the sense that we operate in Europe and globally now but started in emerging markets,” he says. “We do not claim to be the best, that would be arrogant, but we are good at developing investment capabilities.”
Investec’s strategies are not about single countries. Instead, they are focused on making investments in a global context. Investment activities are as centralised as possible.
“Global investment is not the assembly of country components; we ignore the nationality when we pick bonds and equities,” he says. “That approach we want to continue.”
While other asset managers pride themselves on being able to adapt products to local requirements and needs, du Toit says Investec has chosen – for operational clarity and simplicity – to pursue a different strategy. He says it has been expensive to globalise Investec’s investment offering, especially at the beginning, but now that the business is maturing, it is paying off. “We have gained experience adapting products to client-specific needs, and have done so in the past.”
Still, he eyes Asia, a market that is highly fragmented, with regulation and regional product preferences that vary greatly.
Over the past few years, Investec established a presence in the US, a competitive and, many would argue, saturated market. “That part of the business is growing and a significant part of our net flows are coming from this region,” he says.
“In Europe we have been successful because we did not have a lot to lose. We have had a good crisis and there were no obvious problems, mainly because we avoided overly complicated products.”
Though Investec is still mainly targeting institutional and sophisticated investors, retail investors buy the funds through independent financial advisers, large banks and insurance schemes.
Du Toit says he welcomes the European Fund and Asset Management Association’s renewed efforts to raise awareness of the benefits of long-term savings and promote holdings of investment funds – including in Ucits funds – via retirement savings.
“What we do is always something that has longevity,” he says. “Short-term is for the exchange-traded funds world, not for us.”
Dealing with retail investors also involves having to adapt the business to comply with the requirements of the Financial Services Authority’s Retail Distribution Review in the UK, which bans commissions for new advised business.
“The concept of the Retail Distribution Review is fantastic, although the implementation – how it is done and when it is done – could have been better,” says du Toit. “I like that my clients know how much they are paying for advice.”
When it comes to other regulations, however, du Toit warns that these could backfire. “If the government gets too involved it takes away the incentive from people to do business here [Europe],” he adds. “I am worried about Europe’s attempts to de-risk long-term investment – investment is risky by definition.”
Investec’s product strategy tends to evolve with opportunity, particularly when it comes to the emerging market offering. “Now is all about developing depth and quality,” he says. “One big area for us in the coming years is emerging market fixed income, both in local and foreign denomination.”
While the focus is on credit in the debt space, du Toit contemplates new risk categories and says high yield could follow. “The key is being flexible and adapting to the needs of investors. We do not believe in product proliferation, but in product evolution at a doable pace.”
At the end of last year, for example, Investec launched the Emerging Markets Multi Asset fund.
Aiming to further expand its multi-asset offering, Investec recently hired Michael Spinks from Schroder Investment Management. At Schroders, Spinks worked at the multi-asset investment division, co-managing the Diversified Growth fund and Completion fund.
“We had looked with envy at that part of their business,” admits du Toit. “We would like to develop our multi-asset capability further.”
Multi-asset accounts for 15% of the overall business, but du Toit says he would like to raise this as there is a “huge” potential to grow. “[Multi-asset strategies are] perfectly suited for institutional investors and the defined contribution world,” he says. “Likewise, there is a huge opportunity in emerging market debt and equities.
“Income has become a general challenge around the world, even regulators are worried about the rush into income.”
Investec launched the Diversified Income fund this year, a restructured version of the Managed Distribution fund, formerly run by Alastair Mundy, for John Stopford and Max King. The duo will adopt a multi-asset approach and this fund will complete the risk-rated Managed Solutions range.
Three funds – the Global Franchise fund, the Emerging Markets Blended Debt and the Emerging Markets Equity fund – were recently brought onshore.
It also brought its American and American Equity funds, which used to be sub-advised by US-based Thornburg Investment Management, in-house in August. Mundy, head of the contrarian team, and Mark Wynne-Jones, who manages the Global Special Situations fund, have assumed responsibility.
Du Toit says now they are in-house, the funds are going to be invested “according to contrarian philosophy”.
Meanwhile, Mundy handed his Distribution fund to Stopford and King. “The Distribution fund was in the wrong place,” says du Toit. “We have shifted it to where it belongs and it allows the contrarian team to focus on equities.”
The Global Energy Fund has also seen a manager change, after Mark Lacey and Jonathan Waghorn left to join a physical commodities trader. Tom Nelson joined from Guinness Asset Management and Charles Whall joined from Newton Investment Management as energy specialists within the team. Bindley George, head of commodities and resources, manages the fund.
Commodities and emerging markets are Investec’s core strategy. A look at the Middle East and North Africa fund range, however, suggests that even if an asset manager has a competitive advantage at managing a particular strategy, it can still fail to gather assets if investors shun it.
Earlier this year, Investec merged its offshore Africa and Middle East fund and the Middle East and North Africa fund into the Africa Opportunities fund. The UK-domiciled Africa Middle East fund was closed and investors were given the option to transfer their investments into the Africa Opportunities fund.
He acknowledges that smaller emerging markets are more difficult because these are not yet integrated in capital markets and are too early to scale. Though some clients are willing to pay for that, Investec decided to consolidate its Middle East and Africa offering.
Nevertheless, Du Toit says he remains confident about the prospects in Africa and, going forward, in Asia.
“What worries me, is that in flat-ish and in regulated markets, it is difficult to keep people excited,” he says.
In what many already describe as a lost decade, du Toit says the challenge for asset managers is now to convince people of the opportunities the next decade offers.
©2012 funds europe