Plan to hive off funds unit boosts Investec
• Separate listing could propel firm into the ‘super league’ • Will help unlock ‘trapped value’
The proposed demerger and separate listing of Investec Asset Management (IAM) from the wider group could propel the business into the “super league” and in so doing unlock substantial value for shareholders, said outgoing Investec CEO Stephen Koseff, who described Friday’s announcement as being akin to “watching my daughter leave home”.
The announcement sent the share price of the banking group surging to its biggest intraday move in more than 10 years. After jumping as high as 13%, Investec closed 9.36% higher at R103.30.
The reorganisation happens as Koseff relinquishes his position at the end of September, after spending almost 40 years at the company.
He will hand over the reins to joint CEOs Hendrik du Toit, the current chief of the asset management unit, and Fani Titi, a veteran of 15 years on the board.
“Hendrik is a magnificent manager and the market will support it. The optionality inherent in the transaction is that the asset management business will get a much higher rating than what it’s currently getting,” said Peter Armitage, CEO of Anchor Capital. Armitage spent seven years at Investec as chief investment officer of the local private client stockbroking and wealth management division.
Despite Investec’s share price surge on Friday, Armitage said the shares are still trading at a substantial discount. “We think you are almost getting the asset management business for free based on our pretty conservative assumptions,” said Armitage, who holds the shares on behalf of clients.
The unlocking of “trapped” value is one of the reasons proffered by the group for the demerger.
CEO-designate Fani Titi said the decision was the result of a strategic review of Investec’s businesses, which coincided with the imminent departure of Koseff, MD Bernard Kantor and group risk chief Glynn Burger.
“We have also dealt with our legacy book in the banking business,” Titi said.
“So we couldn’t have done this transaction a few years ago. The timing is a function of the improvement in the specialist banking business and the executive management changes we have announced.”
Titi will lead the remaining, mainly SA-based specialist bank and wealth manager.
“The listing is the consequence of the strategic review conducted by Fani Titi and I, in our capacity as joint CEOs designate, and supported by the board and the outgoing executive. It was the most efficient way to simplify the group to support a better long-term growth trajectory for all parts of Investec,” said Du Toit.
The trio of Koseff, Kantor and Burger took the company from an obscure finance and leasing business based in Johannesburg and grew it to a specialist banking and asset management powerhouse with substantial operations in SA, the UK and Europe. The group generated £2.3bn (R44.8bn) in operating income in the last financial year.
On a currency neutral basis, Investec announced at its preclose briefing on Friday that IAM’s assets under management increased 10% for the six months to end-August to £109bn, which excludes the £57.4bn funds under management in the wealth and investment division. The specialist bank’s core loans and advances rose 2.5% to £23.7bn.
Already one of the world’s largest investment firms, allowing IAM to stand on its own could propel the business into the “super league”, Du Toit said.
“If you want to play in the super leagues [as an asset manager] you need to be a standalone operator. Blackrock were twice held by large banking
groups and twice separated from them,” Du Toit said.
Du Toit joined Investec in 1990 as an analyst. He then had a disagreement with Koseff and Kantor about the value of a business Investec was acquiring. Following the spat, he was asked to run the fledgling asset management business. In 1991, the unit had £40m in assets under management and has grown at an annual compound rate of 13.7% for the past 10 years.
Some analysts said the division’s growth as a standalone business could well accelerate from its already substantial base. “They will have all the freedom to decide what their strategic future will be,” said Neelash Hansjee, a portfolio manager at Old Mutual Equities.
“This is still a growing business — despite having had substantial inflows over the last decade. There are bigger savings pools in the developed markets so the runway in which to grow is a lot bigger and deeper.
“The brand recognition … as a listed company will also help with marketing and retaining staff,” Hansjee said.
The demerger process is expected to take up to 12 months. Investec will retain a residual stake in the asset management company.