Global concerns nothing new for Hendrik du Toit

Hendrik du Toit is feeling good about active manager Ninety One's business right now — in part because he can draw on the firm's roots in emerging markets to help navigate current events such as rising interest rates, spiraling inflation and the war in Ukraine's effect on energy.

"Normal is to live with the world as it is," the founder and CEO said in an exclusive interview at the firm's London office. "We have come from an era of central-bank underwritten (markets), the 'Fed put' — and that is what has made our industry too soft." Experience working in emerging and frontier markets gives a different perspective to dealing with less-than-optimal situations, "and you have to plan the business accordingly."

Mr. du Toit is overseeing the independent manager, which had £132.3 billion ($144.6 billion) in assets under management as of Sept. 30, at a time when "the ammunition to support markets has basically been shot out," with interconnected factors combining to create a challenging environment.

The Ukraine war is not something that should have happened, Mr. du Toit said. And the subsequent inflationary consequence has been compounded by "the fact that central bankers were behind the curve in general," he added.

The U.S., China and Europe also "are not guiding the world the way (they) did in the financial crisis," he added. Rather, we "have a world where it is extremely disjointed and hostile — and so there's no coordination and therefore volatility and risks will be amplified," Mr. du Toit said.

And for the U.K., recent chaos in gilt markets and pension funds' leveraged liability-driven investment programs "is a major additional problem. Because your pool of risk capital, which was supposed to be able to take the risk on, buy the dip and stabilize, is muted — and actually a source of distress now," Mr. du Toit said.

Deglobalization is another major challenge for money managers, he said.

"We used to be able to create a platform to serve similar-looking clients around the world — whichever country they are (in). Now, even within the United States, different states are demanding different things. The world is becoming much more complex, you need to do your homework and you need to decide whether you want to engage in a business much more carefully than in the past. So … trying to scale your business across different clients across the world, suddenly, (has) become much more complicated," Mr. du Toit said.

But that's where Ninety One's past experience will benefit the firm. With just over half of the client base in developed markets and the remainder in emerging markets, and almost 60% of strategies focused on developing economies vs. the remainder in developed markets, "we see both and we live both. And the rough and tumble of the more complex emerging world is a very useful training ground for the world we go into," Mr. du Toit said.

As for high inflation in developed markets, Mr. du Toit said the firm can draw upon knowledge of how some emerging economies have lived with higher levels of inflation than in developed markets for years. "For us, it's not the new normal … it's the old normal" to see developed markets inflation toward double digits. "I am a kid of the '70s, I was in high school in the '80s. This was the world where people paid for money," he said.

Investors and managers adjust, despite it being "painful" and "not optimal, but that in a sense is something which gives me confidence for Ninety One — because our structures and processes have been tested," Mr. du Toit said.

The CEO also has an experienced team around him — the average tenure of senior management is 16 years — which will help him in his quest to stay out of panic mode. The current leadership team and key fund managers have been through a number of market crises together.

"This one (the current chaos in U.K. gilt markets) may be worse, but we kind of know the drill. And the first thing is not to create mayhem and panic in the shop," Mr. du Toit said.

Ninety One was launched as Investec Asset Management in — not coincidentally — 1991, under Anglo-South African financial services company Investec Group. Mr. du Toit was founding CEO.

The firm demerged from Investec Group and was listed on the London Stock Exchange and the Johannesburg Stock Exchange on March 16, 2020.

The share price was 177.7p at market close on Oct. 18, up 31.6% vs. its opening share price on its listing date. The firm's AUM has grown 27.9% over the period March 31, 2020, to Sept. 30, 2022.

The firm recorded net inflows of £5 billion for the 2022 fiscal year ended March 31, vs. net outflows of £200 million for the 2021 fiscal year.

As of March 31, when the firm had £143.9 billion in AUM, £68 billion was run in equities strategies, £36.7 billion in fixed-income funds, £25.2 billion in multi-asset and £4.1 billion in alternatives. Ninety One also had about £10 billion in South African fund platform assets. Sixty-six percent of AUM was run on behalf of institutional clients as of March 31.

"We would probably have liked to have built a better illiquid part of our business, but that's difficult (and) capital-intensive," Mr. du Toit said.

The firm has "some interesting growth opportunities going forward," such as credit, but Mr. du Toit will take his time in developing those opportunities and growing organically. "If we did it by buying other businesses we wouldn't have been, as a group, the leading shareholder in our business today and that's very important to us," he said.

Ninety One was about 25% employee-owned as of March 31. Through demerging and listing the business — "we didn't necessarily want to be listed but it was the only way" — Mr. du Toit and other senior staff have been able to accumulate a substantial stake in the firm.

Being a leading shareholder is "very important to us because it gives us certainty of where the future goes or how we can direct ourselves in future. We are not, especially with share prices as low as they are, we are not easily in play or subject to hostile M&A activity from anyone — not that anyone wants to buy an asset management business today," Mr. du Toit mused.

Money managers are "unfashionable," despite being a "very good industry if you do your job properly. But it is much more competitive and as any industry, it evolves. Margins become thinner — it's very normal."

For the successful players, money management is a "very high-return industry, because you don't have much capital cost — and in a world where capital is becoming expensive, it is actually a nice place to be," Mr. du Toit said.

He's also believes that active management will make a comeback, both in terms of asset allocation and individual asset classes.

"I'm firmly of the belief that with the kind of disruption we now see, the active opportunity has increased tremendously and it's up to the managers to capture it," he said.

Mr. du Toit and his team will draw on their experience to capitalize on opportunities — particularly in today's unstable markets.

The U.K. is a perfect example of where managers can rely on learned knowledge and experience: Without the pool of risk capital to stabilize markets because of the LDI situation, for example, "it is not that different from the emerging market experience we have had. Actually, the whole world is now an emerging market, and that makes it a bit more interesting," he added. "But if you take a firm like us, that has grown up in that kind of world, we are sort of used to it. If you have the mentality…we are entering a world of great opportunities," Mr. du Toit said.

What will remain the same, and intensify, is the importance of sustainability, he said.

"We can't forget the sustainability imperative, and that's my worry," Mr. du Toit said, even though the system really shifted last year, "where finance got involved in the sustainability challenge."

Sustainability and sustainable investment have come to the forefront for investors and "it is nothing to do with whether you are on the left or right side of the political spectrum, nothing to do with whether you are 'woke' or not. It is solving a common problem, which we have seen in California, even the U.K. this year when they were worried about water, which we have seen in emerging markets for a long time — small farmers going out of business, places being too warm," Mr. du Toit said. "It is so sad that Africa, the continent that I come from, has contributed the least to greenhouse gases and is punished the most. Let's not do the COVID thing of all retreating behind our so-called borders and failing to contain the virus as a consequence. This is a common problem we should deal with together, and without finance you are not going to retool the world to get an efficient energy system and a cleaner manufacturing system," he added.

But managers have got to do their homework on sustainability, he said. "The easy data is going to be imperfect for years to come."

Real-world impact needs to be examined rather than just following an index or rating.

"If you want to help the world, don't decarbonize your portfolio. Help decarbonize the world," Mr. du Toit said.

Sustainability is the "defining problem of our generation," he added. "How will 10 billion people live on this Earth? Unlike Elon Musk, I don't want to opt to live on Mars. … The Earth is a great place, much nicer than Mars! Why don't we actually make it work here?"