Jul 27, 2020
Ninety One recently hosted a webinar in partnership with the CFA Society South Africa. Nerina Visser, President of the CFA Society South Africa, spoke to Hendrik about the role of the investment industry in addressing some of our economic challenges, whether impact investing can mitigate the negative economic impact of COVID-19 and what skills are needed to thrive in the investment industry. We’ve captured some of the highlights of their conversation below, but you can view the full interview here.
Nerina Visser: Let’s start with this idea of creating an impact. As allocators of capital, we certainly have the ability to create an impact and we seem to do a very good job of exclusion, of staying away from companies or investments that are deemed to be inappropriate from an environmental, social and governance perspective, but I think we have got so much more power if we approach this from a proactive perspective.
Hendrik du Toit: As an industry, we need to ask ourselves what we do for the society around us, because it is, after all, their money, rather than how much alpha we are generating against a benchmark. That is part of our job too, but ultimately, we have neglected asking that question over the last 30 to 40 years.
Show me a country that allocates capital appropriately and you will see a dynamic economy. Show me a country with no capital market and it will be a very poor country.
However, we mustn’t fall into the trap of thinking impact is everything. We are not development finance institutions, but custodians of savings. Look at the example of Naspers, which close on two decades ago decided to refocus on the internet and bought 49% of a small Chinese start-up called Tencent. They have probably generated $100 billion-odd of wealth and most of it belongs to ordinary South Africans through their retirement funds.
So, choosing a good investment is our first job. Our second job is to ensure that that capital works in a visible way for society so that society can identify with it. I don’t think we have addressed that issue enough and that is the reason, for example, why we launched the Ninety One SA Recovery Fund, amongst other initiatives.
NV: There is a persistent and growing call for prescribed assets. I see it as government effectively saying to us if you don’t allocate the capital in a way that will create this change in society we need, we will prescribe it for you. Would you say that the Ninety One SA Recovery Fund, along with other similar vehicles, is the industry’s proactive response?
HdT: You are absolutely correct, but – even more importantly – we wanted to stimulate a movement. We wanted to say it is okay to think really long-term. It means preserving productive capacity and the entrepreneurial spirit. We were looking at the mid-sized businesses that would not be able to issue 20- or 30-year bonds in the market at very low interest rates, that were cautious to issue equity too early because they worried about their share prices and who may therefore start cutting productive capacity too quickly and then miss the rebound.
I don’t believe in the V-shaped fairy tale, but I do believe the economy will rebound in the not too distant future. South Africa needs to capture the rebound in order to preserve employment, in order to preserve societies which can then look after their children and generate the skills to be competitive 20 or 30 years down the line, otherwise we will go backwards.
I think the developed world is looking out for itself and the emerging world is going to bear the brunt, not only of climate change but also of the COVID-19 response, and we therefore have no choice but to look after ourselves. South Africa is fortunate to have a highly professional, well-mobilised savings pool. I am not asking investors to take undue risks, but if you have exposure to corporate South Africa and you make an investment which makes sense for corporate South Africa, your value outside of this impact vehicle will be preserved. That is the logic we followed. We must also show the government we can come up with better ideas than them.
NV: There is no doubt that South Africans have benefited from the value that has been created in terms of their investments, but very little of that value has directly found its way into the South African economy. On top of that, the pool of investable assets – specifically listed companies – has shrunk dramatically.
HdT: I am not going to hold our industry to account here, but I will discuss what went wrong in South African society over the last two decades. And I’m not talking about corruption. We all know that corruption has been and remains a scourge of society and we need to prosecute fast.
I want to talk about the change in business culture around the world, particularly in our country. We have moved from a community of entrepreneurs to one of paper-shufflers. I think the investment industry should take some responsibility, because it is a consequence of over-emphasising box-ticking and governance for the sake of governance, rather than being focused on asking the real questions: is that business run properly by appropriate people?
We need to encourage entrepreneurial energy in this country, and there is no shortage of great examples. Just compare the difference in fortunes between a company like Naspers, which was an Afrikaans media company with nowhere to go when apartheid ended but transitioned under Koos Bekker to a tech giant, to the New York Times today. It was a brave, bold move on the part of Bekker. Similarly, Brian Joffe, who built up Bidvest; Michiel le Roux and Capitec; Adrian Gore and Discovery; Stephen Koseff and the Kantors with Investec. Look at what they created. Brave and bold thinking by entrepreneurial people who had a real vision.
We need to think about how we encourage that in the context of the savings pool of South Africa, which can finance it. That doesn’t mean venture capital investing. It means respecting a culture of entrepreneurial energy and drive and sometimes a bit of otherness because these people are not your run-of-the-mill corporate bureaucrats. They are different. You have to understand that and, as investment analysts, balance that with the need for certainty, the need for clear numbers.
NV: One of the cornerstones of a good investment strategy is diversification and yet, when it comes to the way that we manage our investment process and our investment teams, we fall far short of this. What should we do to ensure the diversity and inclusion really gets to its valid place?
HdT: I think diversity is important, but it is really about inclusion and inclusivity. You need to have an inclusive culture in your business and allow for ‘otherness’ – a place where people can be themselves. Can they tell their stories? It is often not the person with the CFA and all the degrees from great universities who becomes the great investor, but the ‘other’ person who has the variant perspective, who sees the world slightly differently, sees the opportunities, sees the change and who is then supported by highly professional people who can provide the framework.
Also, it is clear that we have to get to a black majority in the boardroom in SA. It is good that transformation has been mandated in the way it has because otherwise we would still have had a lily-white and completely unrepresentative industry today. The story of the Rugby World Cup team and their victory sums it up – it was not just Siya Kolisi as the captain but a genuinely diverse, inclusive team which brought a certain motivation they wouldn’t have had otherwise.
NV: I want to end by focusing on the individual investment professional. What skills do they require to be future fit for the new world we find ourselves in?
HdT: As an investment professional, the one thing that always wins in the end is curiosity. That curiosity must be combined with humility, because if you aren’t humble, the markets will humiliate you. You are going to be wrong so many times in your career and you have to be able to get up, recover and dream about being right, at least in the active business, where you have to take brave positions and brave bets.
But curiosity is paramount, and it’s not just curiosity about investments but a proper understanding and appreciation of history. Even if it doesn’t repeat itself, it always rhymes.
Finally, empathy for your fellow human beings is important. When I entered the industry, it was one in which greed trumped everything else, and nobody thought about the person sitting at the other end of the portfolio. Social consciousness without an excessive political correctness is important.
NV: Hendrik, some final words from you before I let you go.
HdT: We must all remember what an incredible privilege it is to be in this industry. We are not making widgets; we are able to look outwards, look at the world. We are learning the whole time and we have this huge responsibility to deal with the hard-earned savings of ordinary working men and women. We have an obligation, but also a fantastic opportunity, and in this world, we are more needed than in a simplified, flat world.