JOHANNESBURG, South Africa -- Investec Guinness Flight is setting its sights on Europe.
In a two-pronged expansion strategy, the Johannesburg-based money manager will target U.K. pension funds and continental European retail money.
Investec Guinness Flight (whose full name hasn't been decided yet) is the product of the Investec Group's acquisition of London-based Guinness Flight Hambros Asset Management Co., which was announced in May and concluded this month. The combined firm has $22 billion in assets under management, and 75 investment professionals.
But Investec's shopping spree is unlikely to stop there. The deal will rank Investec Guinness Flight among the top 150 largest non-U.S. international money managers. Hendrik du Toit, the firm's newly named chief executive officer, said it's Investec's goal to rank among the top 50.
SPENDING SPREE
The money manager likely will pause to catch its breath after digesting Guinness Flight Hambros.
Parent company Investec has been on a torrid spending spree. The first South African bank to warrant being called international, in the past year Investec has established an investment bank in Australia, bought a Mauritian private bank, opened offices in Hong Kong, expanded to Botswana and Namibia, bought securities firm Ernst & Co. in New York, acquired U.K. bank Guinness Mahon and, most recently, Hambros, the venerated U.K. merchant bank, along with the two banks' money management joint venture.
Investec also owns a 63% stake in Tel Aviv-based Israel General Bank and its wholly owned subsidiary Carr Sheppards Ltd., a London stockbroker. Investec holds a 10% stake in Amsterdam-based international private bank Insinger Group, which has $1.6 billion in assets under management.
By the end of fiscal 1999 next March, 50% of Investec's earnings will come from abroad --up from a projected 30% in fiscal 1998.
SERVICING SOUTH AFRICA
Chasing South Africa money going abroad has become big business for domestic investment banks. A 30% fall in the value of the rand so far this year, coming on top of drops of as much as 70% in many domestic blue-chip bank stocks, has turned a trickle of offshore investment from South Africa into a torrent. Most South African institutions were unable to provide international investment products, making clients ripe pickings for foreign competitors, Mr. du Toit said.
Although the primary motive for Investec's international expansion was to service South Africans abroad and South African off-shore money, the deal nonetheless bolsters Investec's network in North America, Europe and Asia.
The merger of the two money managers more than triples Investec's assets under management to $22 billion from $6.2 billion, making the firm South Africa's largest private manager of third-party assets. During the past few years, Investec Asset Management's share of the South African market has shot up to 10% from 1%, on the back of spectacular domestic equity performance.
There are powerful synergies between the money managers: while Investec is strong in domestic and international stocks, Guinness Flight Hambro is strong in global bonds and currencies. Both target the institutional and retail markets.
Mr. du Toit said once the merger is completed, Investec Guinness Flight will first turn its attention to Europe, which is by far the most accessible market.
Continental Europe's retail market offers the greatest promise, because it is three to four times bigger than the pension fund market. The firm offers more than 100 mutual funds, which are sold primarily through independent financial advisers, although some are sold directly.
But the firm also is targeting the U.K. pension market. Traditionally strong in the U.K. offshore market, Guinness Flight officials have been building their presence among U.K. institutional investors through recent acquisitions.
Officials at the combined manager said they want to crack the top ranks of the U.K. pension market, making London its second base after South Africa.
"The on-shore market in the U.K. is extremely concentrated among six large fund managers whose sheer size makes it difficult to outperform the average indices," said Tim Guinness, joint chairman of Investec Guinness Flight.
"The U.K. domestic market is crying out for new smaller, dynamic entrants," he added, noting the firm already had between 55 and 60 clients, now boosted by Investec clients.
"It is our immediate goal as Investec Guinness Flight to join the top six fund managers," Mr. Guinness added. Guinness Flight officials note, however, it might take another two years until they build a five-year track record to penetrate the institutional market.
While Guinness Flight Hambros had not penetrated the U.S. pension market in a big way, Mr. Guinness said, "we have a particular interest in expanding into the U.S. market, which we investigated five years ago already, when we launched a couple of pilot products. Our strategy before expanding further is to build up a credible performance history and track record."
He added: "Although we do not discount select acquisitions, we anticipate any growth to be by startups and organic means." Investec's recent acquisition of Ernst & Co., with offices in New York, Chicago and Boston, might help.
