Hendrik du Toit Investec Asset Management
Born: Cape Town
University: Masters Com. Stellenbosch, Masters Philosophy Cambridge
Former: Investment Analyst South Africa Mutual Life Assurance Society + Chairman IDCSA + Lecturer Department of Economics, Stellenbosch University
Firm entrusted with: GBP59 billion of client assets in 2011
When did you make the UK your home?
Well, it’s debatable whether it is my home. I’ve been living here with my family since 2005. Investec expanded here in 1998 and I used to fly up and down between the two places. Eventually we were attacking the world from London, so more time was sucked in here. I still have a home in South Africaand I go back virtually every month. So I haven’t ‘left’ South Africain that sense.
And from a business perspective?
It was necessary for us to come to London because it’s the largest conglomeration of money managers in the world. Therefore you have better opportunities of touching and seeing clients who come here looking for people to engage them. London was a commercially logical opportunity for us, a little like the SA breweries, who just couldn’t do what they did from Johannesburg. Increasingly though, the way technology is evolving, you will be able to do business anywhere as the world. I guess my grandchildren will not understand why I had to come here.
How valuable are South African business people with connections in both SA and UK?
It’s a model I’d very much like to like to encourage. I think the idealistic notion of a ‘truly international person’ doesn’t work, because you don’t know where you come from, or where you’re going. I think UK locals still think that people who come to London from developing countries have fled. That’s mostly not true anymore. It’s not the refugees who pitch up here. People come here because they want to be part of the melting pot. The really smart ones, particularly the Chinese, retain the contact and are absolutely in the driving seat, as they can play both sides and are quite clear about their identities.
What were the biggest challenges you faced moving here?
Although people are very accommodating to South Africans in London, in the City it was seen as: ‘you’re not going to make it to the first beat; how committed are you?’ There was huge cynicism to deal with. So that’s why we had to move physically. We said: ‘No, we live here now, if we fail, we fail with you.’
Moving cross border is disruptive if you have an established life somewhere else. It’s more social pressure and a higher risk of failure. However, this was also motivational. We had no option, and we had to make it. The beautiful thing about the City of London is that it actually looks past ethnic, religious, or whatever orientation. It just looks if you can provide what they need at the right quality. You’ll notice there have been a lot of success stories in the city of London over the last 20 years, since deregulation, that have actually been that of immigrant businesses, or immigrant establishments doing very well, working harder than the incumbents, (not necessarily the locals).
Do you ever look at yourself in the mirror and think, I’ve made it?
No, because that’s the beauty of competitive industries, you never make it. I have a poster by Nike, of a guy running and it says: ‘There’s no finish line’. That’s what this business is, you can opt out but once you’re in it, you’ve never ‘made it’. So definitely not, on the contrary, in London I keep on meeting people who have done so much, not financially, that have used their time so much better that one’s constantly humbled and almost embarrassed by what you’ve done with your chances. That’s the good thing again about being in a competitive industry, there’s no time for slacking.
What makes you a success within Investec?
Determination, that’s the most important thing in an environment of lots of talented, smart people. It’s all about a mind-set. The way the French rugby team came into the final of the world cup; they weren’t going to be pushed around. They weren’t the best team, but they almost did it. You can learn determination anywhere; you can learn that in a small village in Zimbabwe, when you have to walk to school long distances every day.
Your company is entrusted with billions of other people’s money. How is the pressure of that responsibility?
We are not in a traditional business. We don’t sell beer or sell riches and we actually take responsibility or part-responsibility in a supply chain for other people’s financial future. I spend a great deal of time trying to explain this to people in house. It’s not just their careers, it’s actually their uncle’s or your aunt’s money. If you’re irresponsible or you make a mistake, you’ve crossed honest people who’ve worked hard.
This industry, by and large, it is not as transactional with its clients as other parts of the financial services, who have recently been collecting flack for their behaviour, but it’s not perfect by any means. But it’s nice to think that if you do the job well, you’ll make a few guys live better when they’re old.
What role do South Africans play in the future world economy?
I was very excited when I went to the SA embassy recently. There were two guest speakers; one was Will-I-Am, the singer. And he said his dream as a creative person, (he’s not a businessman but obviously very sharp), was to see the next Sergey Brin from Google, or Mark Zuckerberg of Facebook to come out of Africa and it is indeed possible. If they’re international enough and open-minded enough, they’ll be able to link into a supply chain. The message for Southern Africans is that if you’ve got a really good idea, if you’re competitive at something and if you’re open-minded, that probably means having spent some time outside your home country. You can go back to your home country and build a very good business. Or, you can do it in another country and you can then in-source from your own country because you know better, you can negotiate better, you can deal better.
The formidable and fiercely independent man behind Investec Asset Management’s success
Hendrik du Toit fell into the Investec group almost by mistake. In one of those chance encounters when he was still an analyst at Old Mutual, Du Toit was covering Bidvest and was critical of its financial structure.Bidvest’s bankers, Investec CE Stephen Koseff and group MD Bernard Kantor, came to its defence. They had a heated disagreement, but Koseff and Kantor could see Du Toit’s intelligence and drive and picked him out as the ideal man to kick-start their asset management business in 1991.
Hendrik du Toit – Demanding leader
It’s not a decision they regret. The CEO of Investec Asset Management has built a formidable business in 15 years. He runs it as an autonomous business, even though Investec owns 100% of it, and won’t listen to Kantor and Koseff.
Kantor admits candidly that “Hendrik is impossible to manage, and even that can be considered something of an understatement”.
This week Du Toit’s team will walk away with a fistful of awards in the annual Standard & Poor’s/FM unit trust rankings, including the best overall group for 2005 (the first time a best overall group has been awarded in SA), the best larger group over one, three and five years and the top fund of the year (Investec Commodity). Across the board, the rankings show that Investec has had the most consistent performance.
Du Toit’s achievement is remarkable for two reasons: the first is that he has grown the business from a two-bit player with just R200m under management in 1991, to a shop with international reach and R330bn under management. The UK business alone has grown into a credible midsized player with assets under management of more than £11bn.
Du Toit’s success is noteworthy for another reason, too: that banks, and to some extent merchant banks, have a patchy record in running asset managers. Nedcor destroyed two of SA’s premier asset management shops, Syfrets and UAL, while Absa has a history of opening and shutting managers. One possible reason is that banks focus on short-term transactions rather than long-term investment trends. It is no coincidence that two of SA’s most successful shops (both in profits and assets), Coronation and Allan Gray, have no links with any bank.
Merchant banks have been more successful. BoE Asset Management was successful for about a decade before the merger with Nedcor; and Rand Merchant Bank set up the highly successful RMB Asset Management in 1989, now one of the top investment houses in SA.
But there’s no doubt that Investec Asset Management is an outstanding asset management business spawned by a merchant bank.
Investec Asset Management would not be where it is without the energy and drive of its founder and CEO. He may have officially relocated with his wife (Lorette, a former Beeld journalist) and two children to London, but with modern technology and regular overnight flights, his guiding hand is never far away.
Du Toit is disciplined, intense and demanding. He doesn’t suffer fools and can be prickly. He can also be witty, especially on a platform, but he’s not a party animal. His colleagues say that the closest he comes to letting his hair down is an all-night discussion on investment. He rarely drinks and never at lunchtime. He is definitely not the follower of a balanced lifestyle. He has limited time for family life and is known to work until 2 am and still get up at 5 am to jog.
His temperamental character, which makes the late opera singer Maria Callas look positively phlegmatic, is tolerated because he has delivered.
“Hendrik is the most creative thinker in financial services,” says George Brits, MD of Stanlib Asset Management. “And he is just so self-disciplined and well read that he leads by example.”
Du Toit is a master of detail but his colleagues describe him as charismatic rather than autocratic. He doesn’t second-guess the investment professionals in the way they run their funds, and gives them the space they need.
He says he’s not afraid to employ people “who are brighter than me – such as Brits, who was our global chief investment officer and has a PhD in physics. And I know I will never manage equity portfolios as well as Gail Daniel [manager of Investec Equity], or John Biccard [manager of the award-winning Investec Value fund].”
Du Toit is probably being modest. The skills he brings are that he leads by example, is a great motivator and is capable of spotting market trends ahead of his competitors. This last quality is what has made Du Toit so successful, given that good asset management is the art of getting the best return possible from the financial assets that an individual or institution may own.
Asset management may not be the biggest contributor to the Investec group – with operating profit of £38m in 2005, it ranks below private client activities (though of course it is a major provider of investment products to this side of the group); investment banking; and treasury and specialised finance. But Du Toit says the return on investment has been astonishing. Investec put just R1,5m of capital into Investec Asset Management in 1991, which very soon became self-funding. The SA business, regular as clockwork, produces operating profit in excess of R300m/year. It is run on a day-to-day basis by MD John Green and the investment team is the responsibility of chief investment officer John McNab.
Back in 1991, asset management was an attractive business for Investec, as it does not need much capital once the systems are up and running and the staff are employed. There is an annuity nature to the business, as fund managers are paid a fee (of, say, 0,5%/year) on assets managed. It is a great counterfoil to the much more volatile profits of investment banking.
Investec had a small exposure to asset management after it acquired Metboard in the 1980s. There was R200m split between the Metboard (equity) Fund and Metboard Gilt, but it was one of the rats and mice compared with the big asset managers of the day – Liberty Asset Management, UAL and Syfrets Managed Assets (SMA), the team that went on to form Coronation Fund Managers.
Du Toit accepted the job on condition that, after a few months getting to know the business, he would be allowed to start it up in Cape Town.
It wasn’t just that Du Toit is a dyed -in-the-wool Capetonian – it gave the new asset management business a buffer against any interference from its investment banking colleagues in the holding company.
Interference by the holding company was then a live issue in asset management. In 1991 Sanlam was still forced to hold certain shares such as Gencor and Sappi in its unit trusts and segregated portfolios. And Donald Gordon would not allow the GuardBank fund to sell Liberty shares.
So corporate interference had to be addressed and was. Kantor and Koseff don’t dare ask Du Toit to buy shares in any of their favourite companies.
As a niche player, it was important for Investec to develop an identity. “We positioned ourselves as growth equity managers, who were prepared to invest in second-line shares such as Imperial, Bidvest and Momentum.”
It was a contrast to the much more conservative, value-based philosophy of the main investment guru of the time, Liberty’s Roy McAlpine. His philosophy, which is shared by Allan Gray and Warren Buffett, has subsequently come back into fashion. But Du Toit attributes Investec’s success between 1991 and 1998 to the fact that it positioned itself as the “not Roy McAlpine shop”.
Du Toit knew that with a short track record and at a time when Investec itself was not exactly a blue-blooded establishment name, he needed to employ great salesmen. Investec’s growth in the institutional market was driven from 1993 to 1997 by two friends who used to do fashion modelling together, Brett Comley and Robbie Alexander, who both have the ability to sell sand to the Arabs.
Investec unit trusts took off only in 1994, when Comley lured his former colleagues from UAL, the late Peter Anschutz, Andrew Bradley and John Kinsley, to set up Investec IMS, a linked product platform.
Though none of them would be mistaken for models, they were consummate marketers and, thanks to the luxury incentive trips they offered to brokers, money poured into IMS. It offered a wide range of unit trusts from other shops, such as GuardBank and Syfrets, but Investec received a disproportionate share of this business.
Du Toit himself and the head of retail at the time, Jeremy Gardiner, drove the retail growth in the next phase from 1997 onwards.
In London, after Investec took over Guinness Flight , the Alexander/Comley role was filled on the retail side by Jamie Macleod, a peacock dresser with a taste for handmade double cuffs, with a perhaps a little bit too much ego to survive there. Macleod is now head of the Skandia Investment Management business – and ironically has found himself working for an SA company again, in the shape of Old Mutual.
Du Toit will admit that he believes in having a large staff around him. “We have been criticised that our margins have always been lower than other shops such as Coronation and the defunct BoE. But I made it clear to Stephen and Bernard that I was building a sustainable business for the long term.”
He will quite openly admit that he employs some people because they raise the profile of the business on the cocktail and conference circuits. After a spell as a private client manager and running the unit trust business, Gardiner now spends a great deal of time talking about the investment markets at breakfasts and evening functions.
And Michael Power, an academic employed by Investec a couple of years ago, has become an invaluable rent-a-quote on China and India .
But at the end of the day there is an impenetrable inner circle of colleagues who are also close friends – and no doubt, as they got in early, they are materially extremely well off.
Gail Boon (now Daniel) was Du Toit’s first partner in the business when she was brought in to assist him on the Metboard Equity Fund. She still runs that fund (it is now called Investec Equity) and rates as one of the top equity managers in SA.
She is as competitive as Du Toit and could have been a professional tennis player (she beat Amanda Coetzer once) – Du Toit says he gave up tennis when Gail beat him.
Domenico (Mimi) Ferrini, who joined from stockbroker Kaplan Stewart, rose to chief dealer and now has the unenviable task of managing the investment professionals in London. And Kim McFarland (who has been businesswoman of the year) joined in 1993 as the chief operating officer and remains Du Toit’s key executive on issues such as administration and finance.
Gardiner, who joined in 1992, is also part of the inner circle, as are John Green and Thabo Khojane, MD and deputy MD of Investec Asset Management SA.
Some people leave Investec Asset Management as they know they will never be CEO because Du Toit, still just 44, may be around for a couple more decades. A few have become CEOs of competitors – Brits is now MD of Stanlib Asset Management, while the former manager of the Investec Commodity fund, Johan van der Merwe, runs Sanlam Investment Management.
Others go to set up their own shops. Herman Steyn, who ran the Investec Index fund, set up Prescient, SA’s top quantitative asset management business, and Piet Viljoen set up his own boutique, Regarding Capital Management, three years ago.
“There is room for only one entrepreneur at Investec Asset Management, and that’s Hendrik,” says Steyn.
Du Toit vehemently disagrees with this assertion. “Our key strength is that we are a talent factory. Inevitably some of the talent does move on from time to time.”
Another illustration of Du Toit’s success is that Investec is the only SA asset manager to have made a real success of its international business – Old Mutual has a larger asset management footprint but its businesses are still run by local management on a decentralised basis.
Investec inherited the fund management shop Guinness Flight when Koseff and Kantor bought Guinness Mahon and Hambros Plc. The purchase price has never been disclosed.
“We originally planned to grow organically, but when Guinness Flight was acquired as part of the Guinness Mahon and Hambros businesses, we inherited a platform and an infrastructure – though admittedly Guinness Flight wasn’t exactly an A-list City [of London] firm.”
Only two senior figures remain from Guinness Flight. One is Philip Saunders, whom Du Toit calls one of his investment muses (the other being Daniel).
A Cambridge man like Du Toit, Saunders was head of marketing at Guinness Flight after several years as a bond manager, but he has become the most important investment professional in the London office. He runs the Global Managed fund, in which most of Investec’s institutional clients invest their 15% offshore allocation. At 48, he adds a little grey hair to Investec’s team of 20- and 30-something investment professionals.
The other is John Stopford, who was relocated to Cape Town for three years to set up a specialist bond team. It is hard to overstate Stopford’s contribution in setting up this business unit.
Though the fixed income team did not win any S&P sector awards this year, Investec (formerly Metboard) Gilt was second only to Henk Viljoen’s Stanlib Bond Fund over five years. And the consistently above-average performance of its Income and Gilt funds contributed to the overall awards.
Saunders remembers that the integration of Guinness Flight was by no means easy. “It was a brutal time after the takeover. Hendrik sent in George Brits to rebuild the entire equity process. There are still pockets of the old Guinness Flight equity business, such as Temple Bar Investment Trust, a UK value equity fund. But we used to have a top-down process in which economic research would be the main driver and Investec was determined to bring in a bottom-up approach in which stockpicking was the main source of added value. They wanted to translate what had worked for them in SA to the UK.”
Saunders says the most critical insight Du Toit took back to Cape Town from London was that specialisation was on its way.
Investec Asset Management’s core SA business in 1998 was its bog standard institutional balanced product – pension funds would give it the discretion to run a full portfolio of assets for them, typically 65% in equity, 25% in bonds and 10% in property and cash.
Du Toit could see from the UK that pension funds were going to stop awarding balanced mandates and instead split their portfolio between specialist managers – giving one domestic equities, another foreign bonds, another property and so on.
He saw it was only a matter of time before SA moved the same way – as indeed it is doing.
“I was conscious that as we got bigger we faced the threat of specialist boutiques,” says Du Toit. “I want the investment professionals here to have the best of both worlds – all the freedom, and most of the financial rewards, of a boutique as well as the infrastructural and marketing support of a large asset manager, without the financial risk involved in setting up your own shop.”
Investec has separate “value propositions” (critics might call them silos) for different equity styles. There is the equity value silo investing primarily in undervalued sectors of the JSE, the equity core silo which invests across the market, and the equity growth silo, investing in shares with above-average earnings growth prospects.
Investec Growth and Value have both won S&P awards. Investec Equity came second in the much larger general equity category, to PSG Alphen Growth over three years and to Nedbank Rainmaker over five years.
Another silo is quants equity (a more sophisticated and expensive version of an index fund) . And there is an absolute return silo under Clyde Rossouw, which has, if anything, given better returns than it did under Rossouw’s high-profile predecessor, Piet Viljoen.
With these pockets of excellence, Investec is well placed to continue winning awards.
It’s a record Kantor is obviously proud of, though he’s not complacent. “Hendrik certainly gets it right most of the time,” he concedes, “though he does miss some trends – we should have built a far more substantial hedge fund business by now, for example.”