[ad_1]
You can also listen to this podcast on iono.fm here.
ADVERTISEMENT
CONTINUE READING BELOW
Download the free LiSTN audio app on Google Play, Apple or here.
JIMMY MOYAHA: Ninety One, South Africa’s biggest listed asset manager, reported earnings for the first half of the year ended September.
I’m joined on the line by the founder and CEO, Hendrik du Toit, to take a look at these numbers. Mr Du Toit, thanks so much for taking the time.
There was a significant drop in Q1 numbers, and that drop seems to have continued into Q2 – basically over the first half of the year. Take us through some of the challenges that the business had to contend with, both internally and externally.
HENDRIK DU TOIT: We are South Africa’s largest listed and unlisted asset manager and we had to face – particularly because most of the assets we run are in public markets – and contend with on our international side a very rapid increase in interest rates and in hard currencies, particularly the dollar.
That really gave most of our US and European clients an opportunity to go into money markets for the first time in a long time and earn a decent interest rate or buy government securities.
That actually let them postpone putting money into the equity market or into the emerging markets – which are our two main offerings to them.
In South Africa we’ve had a far more stable experience because the South African interest rates were very well managed by the Reserve Bank. Yes, there was an increase, but not that rapid increase in interest rates that destabilised the appetite for risk-taking.
So it’s been a pretty tough period for active long-only investment managers globally, and our competitors have had a similar experience. But our business is cyclical and we look forward to the cycle turning in our favour in due course. We just don’t know when.
JIMMY MOYAHA: Given that you don’t know when, as you rightly mentioned, Hendrik, how do you then position – or what strategic repositionings has the business gone through or been forced to go through as a result of the factors that, again, are not within your control?
HENDRIK DU TOIT: In our business you would’ve noticed we have an operating margin of 32%. We are pretty profitable. In rand terms for the half year, we made about R2 billion or R2.4 billion.
So we have the luxury of actually focusing on our job, which is managing our clients’ money rather than desperately chopping and changing our strategy.
We are sticking to our knitting and doing the things we are doing for our clients, and hoping they’ll reward us with more business if we do a good job for them.
But we of course had to make sure our cost line is tightly managed. You would have seen that we have been pretty tight on that and have actually taken our variable employee compensation down in line with our profits, to make sure our shareholders get fairly rewarded and that we are all aligned.
So we’ve been tight, but we haven’t changed our strategy. We just have really doubled down on our focus areas to make sure we deliver the right returns for the clients who’ve entrusted more than R2.8 trillion to us.
JIMMY MOYAHA: Speaking of continuously rewarding shareholders, it’s not just the external shareholders but it’s also other stakeholders. The business is still able to pay a dividend. The dividend was down but you’re still able to pay a dividend in a time where many companies may have decided to forego that dividend.
The company’s staff shareholding increased as well. Can you just take us through the importance of rewarding the various stakeholders in these tough times?
HENDRIK DU TOIT: The people of Ninety One buy their shares; they don’t get them for free.
Over time we’ve built a stake of 29.4% in the company, the people who work in the company. So we are perfectly aligned with shareholders.
We’ve also at company level have been buying back some of our shares when they were pretty low in the in the first half of this year. So we have returned more capital than the dividend – actually an additional more than approximately £25 million – which is well over R0.5 billion – to shareholders in addition to the dividend.
ADVERTISEMENT
CONTINUE READING BELOW
So we make sure we are properly aligned and we, the people who work in the firm, are owners, which means we take a long-term view and we care about the company as much as any shareholder. I think that’s really important in a talent-driven business.
JIMMY MOYAHA: Especially in the asset management space, where very often the asset managers’ views are not aligned with those of the shareholders. So it’s very nice to see that this is one of the businesses [whose managers] have such a strong focus on investing their own capital and their own money in what they believe in.
Hendrik, I want to look at the net outflows. There were net outflows of approximately R100 billion. What’s the plan to replace this, because these were not outflows as a result of reputation for Ninety One, but they were as a result of the macro conditions that you had nothing to do with.
HENDRIK DU TOIT: Yes, but firstly it’s over the six months, not over the quarter. And remember, it’s R100 [billion] out of R2.8 trillion. Our clients have essentially on the international front, not on the South African front, not yet exposed their portfolios to emerging markets in the way they normally do, because last year they took off risk. This year they really kept a lot of the money in cash, or bought fixed-income securities, government debt, because government debt became so much cheaper.
Again, it’s not something we supply there; in South Africa we do it. That is why our flows in South Africa were better. But looking ahead, we know they’re going to come back into the equity market, and into the emerging market debt and credit markets, and that is where we will serve them.
We build long-term relationships with large pension funds and asset owners. Sometimes they take the money away, sometimes they bring it back. And as long as you serve them well over time you will grow with them, and you will grow your business. So that’s how we see life.
This is a cyclical downdraft rather than a structural challenge to Ninety One.
But it’s important that we remain healthy and strong during this period so we can service our clients properly. We’ve had an extraordinary macroeconomic environment over the last 18 months, which I don’t think will be repeated.
JIMMY MOYAHA: I tend to agree with that. It’s unlikely we’ll see the significant movements that we’ve seen, or the extreme movements that we’ve seen.
Hendrik, I want to look at the outlook, or at least your perception of that macro environment. We’ve seen that interest rates have been everywhere; inflation has been everywhere. And lately – just yesterday – we’ve seen the CPI data out of the US suggest that the US economy is slowing down, risk seems to be coming back into the market.
Is this the trough or the bottom end of this down cycle, and when can we start to see some stabilisation – just at a macro level globally?
HENDRIK DU TOIT: I think Jimmy, you can see the power of markets once they sense an interest-rate peak. I think it’s early. I think there was a little over-optimism and exuberance yesterday and today. There’s more uncertainty ahead, but we are reaching, we are closer to the cyclical peak than the trough, and we won’t see the kind of interest rate increases – you know, we had one from an 800-year low to a 22 times increase in dollar interest rates over the last 18 months. We won’t see that again.
But we are still in a world which is very messy, challenged with geopolitical uncertainty all over the place, and quite frankly [with] a lack of leadership, which means market participants will be cautious.
And then I think the challenge we look to ahead is also in our own market in South Africa, where yes, the market’s very cheap.
But we need to see clear direction after the election next year, of a better implementation of government policy so that jobs can be created, more money can be generated, because ultimately we can only manage money that people have earned or made.
We are looking ahead to South Africa and so we hope things go better. We are not 100% clear, but we are seeing a world which is less challenging for investments in so-called risk assets.
JIMMY MOYAHA: And if we can make it through these difficult times, we can make it through the easy ones as well. Thanks so much, Hendrik. That was Hendrik du Toit, the founder and CEO at Ninety One, giving us a sense of their first half-year performance, some of the challenges they’ve had to contend with, and just the overall picture that the business is sitting with at the moment.
[ad_2]
Source link
(This article is generated through the syndicated feed sources, Financetin doesn’t own any part of this article)