Investec’s asset management business lists in stormy waters

Amid a market rout that has officially brought to an end to the longest-running equities bull market in history, financial services firm Investec will unbundle and separately list its asset management business, Ninety One, today, Monday 16 March.

If the objective had been to raise capital, rather than to simply unbundle one conglomerate into two simpler, more focused organisations, management may have thought twice about proceeding with the listing on the London and Johannesburg stock exchanges.

After all, the most anticipated listing of 2020, that of home rental platform Airbnb, may be delayed as bookings collapse in the wake of the Covid-19 pandemic, according to the Financial Times. And eyes are on Ant Financial Services, estimated to be the most valuable fintech company in the world, on whether it will or won’t list this year – it has not confirmed speculation in this regard.

The panic about Covid-19 could actually support some listings, such as that of US on-demand delivery company Postmates, which could be enhanced as people opt to work from home.

While Investec Asset Management will continue with its listing of Ninety One, it has changed its mind about placing a 10% stake in the business with new investors as was initially planned. Instead, it will retain its full 25% shareholding for the time being. Of the balance, 55% will be unbundled to Investec shareholders in a two for one ratio whether they hold Ltd or Plc shares, and 20% will be held by management.

“Market conditions have proved particularly challenging in the recent two weeks and, while we were encouraged by the strength and quality of investor engagement in relation to the Global Offer, we have decided to retain our shareholding in Ninety One,” says Fani Titi, CEO of Investec. 

Hendrik du Toit, who founded the company in 1991, believes it’s important to execute the strategy as planned. 

“Despite the recent market dislocation, we have been encouraged by the support of our shareholders and potential investors. We are confident in the resilience of our capital-light business model and its organically developed, specialist, active investment offerings. Ours is a long-term story.”

The newly listed firm will not be competing with giants like BlackRock, which has very low fees and enormous scale; nor will it be trying to grow into a Blackrock. On the other hand, it is also not a small alpha-driven boutique.

“We have £121-billion under management, which is equivalent to about R2.3-trillion and annual revenue that exceeds R11-billion; we have over 250 investment professionals in the UK, Europe, Americas, Asia and Africa; we are not a small start-up,” says Thabo Khojane, MD of Ninety One, SA.

The focus, he says, will be on growing the business organically.

So what differentiates the asset managers that succeed? 

“They tend to be independent and have a high clarity of purpose,” Khojane says.

“Outside of South Africa, we are finding that clients insist on that independence before they will do business with us.”

Of course, long-term performance is key too.

While the global market is no doubt challenging at the moment, the firm has been around for 30 years and does not plan to change its strategy, its values or its corporate culture – though its branding and livery have changed. It will continue to support an active management approach to investment, leaving its individual managers to follow their investment styles, whether for the Value Fund, the Managed Fund or the Opportunity Fund, among others.

And while investment markets are currently volatile, Ninety One’s managers believe that investors cannot put their heads in the belief that they can wait until markets self-correct.

For instance, portfolio manager Clyde Rossouw focuses on multi-asset absolute return and low volatility real return equity investing. He oversees the Investec Opportunity, Cautious Managed and Global Franchise Funds.

“We believe the active quality approach we follow tends to provide better downside protection than the market, while still delivering strong through-cycle performance, in both absolute and relative terms,” Rossouw said in a presentation to investors on Friday.

Markets are volatile, and investors are fearful, and in times like these it is even more important to stick to investment fundamentals. When it comes to equities, the companies the Quality team favour are global ones with low levels of debt, high free cash flows and which are attractively priced, he says. They are businesses like Visa, Verisign, Unilever, Standard & Poors, Moody’s, Roche, J&J and Nestlé, which are structurally advantaged and have consistent track records, good leadership and strong brands.

While SA Inc looks cheap, and opportunities are emerging, stock selection is critical. He says he prefers SA bonds over SA equities at the moment. “Government bonds should be in your portfolio,” he says.

Investors in Ninety One itself, as opposed to its funds, will like the capital-light and scalable global business model, which has a substantial runway for further growth, according to a research note from Nedbank Private Wealth.

“The group has demonstrated an ability to attract assets from a variety of sources (including across various distribution channels and geographies) and is well-positioned to continue to deliver robust earnings growth as it further scales AUM.”

The offer price will range between 190 pence and 230 pence a share. BM