Anchor Capital founder Peter Armitage, speaks to Business Day about his plans for the company that he founded nine years ago and has become one of the key players in the asset management industry.
You founded Anchor towards the beginning of 2012 shortly after leaving Investec, who you were with for seven years. Why did you leave a safe corporate job with a well-known asset manager for the comparatively more risky option of starting your own investment company?
It is all about entrepreneurial spirit. I want to be on the side of creating value for myself and my partners as opposed to doing it for a bigger organisation. Investec is a great place to work and a high-quality organisation, but at the end of the day it’s a big business where you are an employee. It was also clear to me that there was space in the market for a smaller company that could provide bespoke and personal service to high-net worth individuals.
You managed to grow assets from zero at the start of 2012 to about R80bn currently. How difficult was that and what are some of the challenges you faced?
It is never a straight line and I remember one of my partners asking me in late 2012 (when we had just reached R1bn of assets), “that’s great Pete, but where will the next rand come from?”. We often laugh about that. We never dreamed of becoming the biggest independent wealth manager (not part of a bank or big institution) in the country within 10 years.
A service business is about great people and we created a brand and platform which attracted high-quality people with the same culture and values (obviously many of those were from the big banks). We now have over 280 people in our business identifying moneymaking opportunities for clients. If you provide great service and make people money, the assets grow as they refer their friends. We have also developed into the institutional market and service some of the biggest companies and pension funds in the country. I am confident that we can continue to grow market share every year.
You listed Anchor in 2014 but then delisted in February 2021. What was the driving force behind this decision to delist and what is the benefit of being an unlisted asset manager?
It was a great experience being listed and gave us immense profile. There are cycles on stock markets and we didn’t believe the JSE would rerate smaller businesses for the foreseeable future. We valued our business at more than what the market was willing to pay, so we were delighted to be able to buy our shares back. We allowed all investors to stay on board to make it fair — we were honoured that a bigger proportion than we expected decided to do so.
So the share was cheap, money is cheap and we had a great deal of confidence in the business. It also gave us a chance to get our BEE shareholding right. We also want to concentrate on what we know best — making money and servicing clients. Being delisted has taken many distractions away.
In July 2020 you were critical of SA companies that have embarked on offshore expansion, saying it has probably cost shareholders more than R300bn. What factors do you think were the main reasons for SA executives generally not succeeding internationally?
Competitive advantage locally does not necessarily translate into international markets. Low growth and paranoia about SA led to a massive growth in offshore investment by SA companies, most of whom were reticent to invest further in SA. Then companies often bought mediocre businesses offshore or sent the B team (or at least less experienced executives) to build a business. Foreign corporate firms saw us coming and lined up opportunities which the locals were not prepared to buy, or at least not at the prices that SA companies were prepared to pay. “Foreign earnings” was at a premium and the buzzword for some time. The rest is history.
International equity markets, particularly in developed markets, have performed well over the past decade, which has prompted you to warn against just buying the index as you feel picking individual stock winners is critical given current high valuations. What are your views on index-tracking solutions and do you think they offer a viable alternative to active asset management for the retail investor?
I think index-tracking solutions make a lot of sense and you are buying something specific, usually at a good price. We use many index trackers in our funds and as part of a solution for clients and financial advisers; it is part of the solution set.
Asset managers should not be paid their fees if they do not earn them. There is a lot more to investment than active or passive, however. We create solutions for people, help them create their long-term goals, consider tax and structure and then invest assets. The investment part is mostly Anchor funds (because we believe in our team), but also includes trackers and other funds where they are appropriate and add value.
The business model of many big asset managers is to hang on to benchmarks and if this is the case an index tracker might be better, but ultimately a mix is usually the best solution.
What can the active asset management sector do to convince the average retail investor that it is still a viable option given the attractive case being built by index-tracking and exchange-traded alternatives that offer better returns at lower costs?
You cannot make sweeping statements that trackers offer better returns. There are thousands of trackers and hundreds of asset managers. You will hear parties on the other side of this argument give you stats which present the figures in different ways. We would not be in business if we did not believe we could beat a vanilla tracker.
A tracker guarantees underperformance against an index (it’s the index less costs). With the right active asset manager you have the chance of material outperformance. Our global equity fund outperformed trackers by over 50% last year — this makes fees irrelevant. A 0.5% difference in fees can be immaterial if returns are generated.
For smaller investments, a tracker might make sense, but as soon as you need asset allocation advice and help to manage assets globally you need a wealth manager. It is not about active or passive (these are both parts of the solution), it is about financial goals and how you are going to meet them.
Deputy finance minister David Masondo has been critical of the asset management industry’s transformation efforts and has said the government will be introducing new legislative powers to speed up transformation efforts. Do you think his criticism is warranted and is legislative persuasion the appropriate way to speed up transformation in the sector?
He has a point, though I know the industry well and many companies have made great strides in transforming and have great intent. Some reasonable rules and guidelines would make sense and we would support that.
It is, however, probably not necessary as clients are insisting on transformed businesses. The biggest impediment to transformation has probably been the gatekeepers (consultants to pension funds), who play a valuable role but they have been slow to support smaller asset managers and the majority of their support has been for the old white-owned big asset managers.
We could be accused of not being sufficiently transformed, but our delisting has given us the opportunity to become 51%-black owned and play a meaningful role in the country’s future.
What advice would you give to emerging black asset managers who say they face huge hurdles in growing their businesses and winning mandates from big institutions?
I would say they are right, but to stay the course and concentrate on having a quality team and create a great long-term track record. The tide is coming in and asset allocators will be under pressure from clients to support black asset managers. The biggest issue is the funding to get to critical mass to build a good team. We have helped create some black asset managers in SA and we hope they flourish.
What do you look for in a person when you hire them, both in terms of the qualifications you think are valuable as well as their personal attributes?
The non-negotiables for us are people with intellect, strong integrity, honesty, determination, a passion for markets and the ability to fit into our culture and values. Personally I appreciate people with a good sense of humour, people who don’t take themselves too seriously and communicate well. I also like attention to detail, and missing apostrophes in a CV are a bad start!
If there is evidence of somebody having dealt well with adversity or challenging circumstances, I find that appealing. Teamwork is incredibly important and I have to believe they can fit into a team. We have to all work together for most of our waking hours. Qualifications are not that important — I just want to see that they have conquered and excelled in whatever they have applied their mind to. But once you are with us we often demand further study — more than 25 people have got their CFA designation while in our employ.
Where do you hope to see Anchor 10 years from now?
R500bn of assets under management, diversified both locally and globally, with the biggest network across SA. But more importantly to have helped in achieving the goals of investors and improved every client’s financial future — that is our purpose. We like nothing more than making people money.
What do you do to unwind when you’re not running Anchor?
Quality time with family and friends is my greatest joy and time spent surrounded by my special people is what I am about. I play some bad golf, I am an occasional cyclist, I love to cook on the weekends and I have written a book. I also spend a great deal of time absorbing market information and the views of people I respect. Last night I spent five hours analysing a company and writing an analyst report — this is not my job as the CEO, but I just love it.
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