The growth of Ninety One under Hendrik du Toit has been impressive. The R400bn it has taken on board from Sanlam, announced last month, was the biggest single deal. Even in sterling terms, at £17bn it is onboarding much money. Yet this isn’t quite transformative. It increases the firm’s assets under management base by about 15%.
Ninety One is already a mature player in the SA market, and younger puppies such as Truffle, Laurium and Fairtree are nibbling at its ankles taking incremental market share. No doubt some of the money that moves over from Sanlam will go to the young pretenders. Pension funds and discretionary fund managers (fund selectors) will rebalance their portfolios if they are overweight in the expanded Ninety One.
Ninety One has two separate listings, on the JSE and in London, which it inherited from its former parent, Investec. Du Toit used to talk about the business having two home markets, in SA and Britain. But the institutional investment market in the UK has not provided the growth the then Investec Asset Management hoped for when it entered the British institutional market in 1998.
Du Toit says the British wealth management market is vibrant. But that is very much Investec proper’s province. Investec plc has a 41.2% holding in Rathbones, the leading private wealth manager on the island. There is an informal, unwritten agreement that Investec and Ninety One won’t compete on each other’s turf.
But Du Toit says that the UK pension market has not proved to be a core source of growth for Ninety One in recent years — except for public sector funds such as municipalities. More and more private sector funds no longer give balanced or even specialist mandates to Ninety One and its peer group, opting for bond-heavy liability driven investments in which actuaries make the key decisions.
Du Toit now prefers to call the UK the aircraft carrier from which it operates into the global market. I asked veteran fund manager Chris Logan why fund management doesn’t seem to be the high growth industry it was when he was at the BOE Growth Fund in the 1990s.
He pointed me to a recent article in the Financial Times that asked readers to pity the British fund manager. They lack scale, carry bloated cost bases and live with the growth of private market and index funds.
UK-domiciled funds notched up net outflows of £31.5bn in the first 10 months of the year, according to Morningstar Direct. This is equivalent to a quarter of Ninety One’s total assets. The FT says this can only lead in one direction: further consolidation. Ninety One can escape this, as its exposure to the UK domestic market, while nice to have, isn’t driving its growth.
Fees are falling worldwide, to an average of 0.22% basis points (bps) in 2023 from 0.26% bps in 2010, according to the Boston Consulting Group, while costs have almost doubled, rising 80%.
Schroders used to be the role model for Ninety One. The blue chip funds a value team and encourages it to take a long-term approach, and not to stress about short-term profits too much. Ninety One has a very similar approach to its value franchise, which John Biccard fronts.
Schroders’ products still have a respectable market share of offshore sales from SA. But I expect Du Toit is glad he isn’t running Schroders these days. It is about five times the size of Ninety One, with assets under management of about $1-trillion.
Staff costs eat up 46% of its operating income. The Schroders headcount has almost doubled since 2013 but revenues are only 80% higher. In 2013 Ninety One was buried in the Investec Group so any such comparison isn’t easy to make, but there have been some important growth engines for Ninety One over that time, such as the R100bn it runs for Discovery unit trusts, which was an infant business 11 years ago.
For all its grand heritage Schroders looks like an ex-growth business. With the prospect of £10bn in outflows in the current quarter, Schroders’ share price fell 13%.
British investors take a far shorter-term view of equity investing. In SA investors recognise the long-term success story of Ninety One (and arch-rival Coronation Fund Managers) so such panic selling looks unlikely.
New Schroders boss Richard Oldfield “presumably has an eye to streamlining excessive manpower”, the FT speculates. Ninety One has no such problem, other than onboarding the 30 investment professionals from Sanlam Investment Management. But some of these will no doubt still find a berth at Ninety One, or else back at Sanlam, which still has extensive investment-related activities.
The FT says Oldfield “scythed” the executive committee from 22 to nine before lunch on his first day in the job. That sounds more the style of Sanlam CEO Paul Hanratty than Du Toit, who has been loyal to his immediate lieutenants.
In SA unit trusts still have net inflows. In the September quarter there was R86bn in net inflows and the numbers are also positive on a rolling 12 month basis. But in the UK locally domiciled funds had outflows in the 10 months to October from active funds, offset by a £14.4bn inflow into index funds and other “passive” funds such as smart beta funds.
Index funds still have a negligible share of the SA market, reflecting the dominance of fund selectors who believe that they can pick next year’s winners for you.
• Cranston is a former associate editor of the Financial Mail.
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