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Ninety One forges ahead, regardless of troubled markets

Ninety One forges ahead, regardless of troubled markets
Ninety One CEO Hendrik du Toit. (Photo: Gallo Images / Financial Mail / Trevor Samson)

Asset managers thrive when markets are strong: The value of assets under management increases, new investments come rolling in and fees rise. So it doesn’t take much to recognise that life is about to become very difficult for these firms as global economies contract, recession strikes and depression lurks around the corner.

Ninety One, the asset manager spun out of Investec and separately listed in March, reported an 11% increase in pre-tax profit and a 10% increase in adjusted earnings per share for the year to end-March. 

This is a decent result for a firm that managed a demerger, listing and rebranding in the year, while also rushing to become fully digital with 1,000 staff working from home ahead of the Covid-19 pandemic.

Rather than revelling in the result, CEO Hendrik du Toit has his eyes firmly fixed on the future. “This is not a time to look back and celebrate past success. It is the time to face risks in markets and the underlying economy,” he told Business Maverick.

The global economy, he says, is a bit like a patient that has been in intensive care, but is now drugged up and out of hospital. Rather than being on the road to recovery, the patient has been abandoned because global leadership is absent.

The pandemic has created a global crisis that requires collective thinking, instead, countries are selfishly focused on their own needs. “I’d like to see how the G20 gets its house in order before making predictions about how this will end,” he says.

Fortunately, central banks have administered substantial medication across the board which is supporting both companies and markets.

“We have not seen panicky behaviour or withdrawals from our clients [which include large SA pension funds]. But we have had to engage very intensively with all of them as they reshape their strategies,” he says.

Emerging markets will not come out of this crisis unscathed, unlike the 2008 financial crisis, which was largely confined to the developed world. 

“I have concern for vulnerable emerging markets, particularly the energy suppliers,” says Du Toit. “But bigger emerging markets like South Africa won’t be unscathed either.

“South Africa has to focus on the economy. It is not an either-or question, we need to free the economy while we focus on saving lives. That is the difference between recession and depression. We must avoid the permanent loss of productive capacity. We are not like the US, which is the most flexible economy in the world. Only the US can absorb 35 million newly unemployed. This is not the case in a market with limits to its entrepreneurial talent.”  

The health of emerging markets is of particular interest to Ninety One.

Its roots are in South Africa, a good portion of assets under management stem from South African investors, and an understanding of emerging markets is part of the firm’s investment proposition.

But, as the table below shows, Ninety One has successfully diversified beyond South Africa.

“There are tough times ahead, but also huge long-term opportunities for those who can deliver value,” says Du Toit. “That means delivering the returns, staying relevant and servicing your clients.” 

Staying relevant, staying focused and sticking to the long game are themes that Du Toit reflects on regularly. 

Perhaps because increasing competition and pressure on fees is forcing mid-sized asset managers to be agile and innovative. Or perhaps because business leaders are recognising that they can make a contribution beyond salaries, profits to shareholders and taxes to the state.

“Are we relevant to society?” he asks.

Ninety One is launching a recovery fund in South Africa to support viable businesses that are too big for relief funding. While the fund will have a social impact, it will also generate returns for investors. 

“There are companies that need to be engaged in a different way and as an industry, we can add value there. That does not mean we are changing our strategy as a business,” he says.

He is also aware that active managers need to reset their growth trajectory. 

Ninety One will be starting on the back foot given that total assets under management reduced by 7% to £103.4-billion (R2.31-trillion) at the end of the financial year.

“Revenues could be down 10% to 12% assuming some net inflows,” says Jan Meintjes, portfolio manager at Denker Capital. “But they can flex some of the cost base which means profits should stay intact during the crisis.”  

The market will not provide an uplift. “We will have to remain disciplined on costs,” says Du Toit. “But we will not undermine the business by starving it of further investment.” 

The firm will target growth from the North American institutional market and Asia.

Ninety One’s value proposition is that it is a global asset manager with a specific focus on and understanding of emerging markets. 

“North American institutions are very disciplined when it comes to rebalancing their portfolios. We will help to spread North American money around the globe.” 

Asia meanwhile, will be the dynamo of the world post-Covid-19. “Our long-term strategic position has to be built in Asia. At the moment we are focused on our investments in the area. We will invest in Asia and learn how to deploy Asian capital around the world.”

South Africa remains key to the strategy and gaining market share is the best game in town right now. “The savings pool in SA is not going to grow in the longer term as you need economic growth and employment growth for this to happen,” says Meintjes. 

“But Ninety One is well placed to gain market share in areas of the SA market. We are seeing some of the larger managers struggle with performance, while smaller managers are vulnerable because they are often not diversified enough.” DM/BM

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