For Hendrik du Toit, life is about balance and simplicity. But not always.
Investec Asset Management, the hard-charging business he started 21 years ago, roughly doubled its institutional assets under management to about $65 billion in the five years to March 31 — right through the global financial crisis, according to data from eVestment Alliance, Marietta, Ga. Total AUM was about $100 billion as of March 31.
Mr. du Toit, CEO of the firm, sees Investec as a truly global brand, and as such has set his sights on U.S. institutional assets run in international strategies. “A very high priority is to capture the internationalization of the U.S. savings portfolio,” he said. “We're not going (into the U.S.) to take on Vanguard and the U.S. domestic business. But we think U.S. institutional clients want to know what we know, (and that they) identify with what we can offer them.”
Originally from Cape Town, South Africa, he still spends a few days there each month. He calls his house on the beach his “emotional home,” and indeed Investec still does a considerable portion of its business in southern Africa. But he's not about growing the firm at any cost. Investec avoided trouble in the crisis because its portfolio managers didn't invest in things they didn't understand, and simplicity is something Mr. du Toit trumpets.
He also takes the work/life balance very seriously. He's happy to play any sport, he kayaks when in South Africa, is training for an Ironman Triathlon and has run marathons. “All these extra things ... (are) very important. I don't think you can be balanced if you don't have outside interests, whether they're sport or art or music. Being too obsessed doesn't allow you to run a marathon. And once you run a marathon, you realize it's about pacing yourself ... and I think this industry is very similar.”
What is the culture like at Investec? The culture is very clear. If you get to know us over time you'll smell it. It's a culture where people are given a lot of freedom, within parameters. It's a bit like a university environment, where people can differ radically. We have no house view. The different investment groups have their own ways of doing things, but they spend a lot of time talking to one another, as well. That is what we try to create: a collective insight as opposed to a collective view.
It is a business that has developed (organically) from scratch. Everybody in the business ... at whatever level, are either first or second generation. So they're very close to the start. There's a culture here of people feeling a high degree of emotional ownership. And we try to transfer that to new people.
Where is Investec headed, what do you want to become? We're a business that's 21 years old, just under $100 billion under management, in transition somewhere. We are driven by the desire to build depth and quality insight in what we do, and therefore be able to charge a proper fee for what we do, not be purely volume-driven in what we do. Everything we do is active and we've got to increasingly emphasize the fact that we're active, that we do difficult things for clients.
You say your success comes down to performance, clients, innovation and insight. Tell me about insight. The most difficult is insight. When this firm really matures is when we develop insights that are just better than the rest of the industry. I cannot say honestly that is what we do today. We try. But that's the holy grail. ...
We know the financial sector very well, but had we known the financial section really well, we would have understood the ROEs (returns on equity) demanded from banks were unsustainable. I think we missed that — as an industry, but we in particular. Next time, we don't want to miss that.
You're looking to grow, but in “quality and depth”? Yes our volume will grow, but we are not driven by volume, and by no means do I believe that a $100 billion fund manager is subscale or for that matter a $50 billion or $20 billion (one would be) — it depends on how you're organized. We run with the same operating margins as managers with $1 trillion. So you can also create a lot of clatter and a lot of complexity and a lot of inefficiency when size is your only objective. We don't live with those inefficiencies, which means our lives are more pleasant. We don't spend our life in political meetings and corporate crap. That stuff just doesn't exist. If it did, I think most of us wouldn't be here.
You've said before that you admire Capital (Group) and Wellington (Management). Why? We don't want to look specifically like anyone else ... but we have two possible paths: the BlackRock (BLK) path or the Blackstone path. We want a Wellington with some illiquid capabilities. We're essentially building an institutional brand which evolves. The interesting thing about Wellington is ... to have evolved, even moved from equities to fixed income and succeeded. That says there's some kind of DNA in the business, there's some kind of process in the business which allows it to transfer intergenerationally and make itself (less) dependent on single success stories.
So somewhere between the shapes of those firms and the newer areas where active investors will have to live (is where we want to be). In a sense, like animals that go where the water is, we need to migrate. We embrace migrating to more challenging but less liquid forms of investment.
Emerging markets are a major part of your business. You must be big fans. We're not raving emerging markets bulls. We come from these places, we understand the vulnerabilities, but we also understand the opportunity set. What we've questioned for many years, which is only now becoming a mainstream question, is the fact that a good business is as good as a good business anywhere else in the world. You don't have to be in the U.S. ... And the whole myth about great regulation and great legal certainty in so-called developed markets is just wrong. Governments interfere, governments renege, they do all the things here that they do everywhere else. It's just slightly differently packaged.
To what extent are you marketing Africa to U.S. clients? Not very aggressively. We're telling people that Africa and frontier markets exist, that they're very interesting. They can't absorb lots of capital at this point. But we think the ability to hold more capital will be increased and enhanced in due course. Also, smaller economies are extremely vulnerable to downturns in the West. We need to work through that and get the right price-point entry.
You think it's time to drop the term “alternatives”? All of us try to do the same thing — we're trying to get an edge, we're trying to beat a certain benchmark.
From an investment management point of view, this artificial distinction between the categories should go away and all we should be doing is working with our clients to find long-term opportunities that make sense for them. I try to get that thinking into our business — we don't have separate areas (for public/private or hedge funds). They're part of the team, they're not separate. Our commodities business is built around a hedge fund. But they don't have earrings or wear different clothes.