Ninety One boss used to turmoil

Few people expected Ninety One, a fund management spin-off of an SA investment bank and wealth manager, to make a sparkling stock market debut this week.

Ninety One endured a punishing sell-off on Monday, dropping more than 40% below the bottom end of its prelisting price range, reflecting a broader bloodbath in the stock markets globally as investors panicked that the coronavirus will trigger a long and steep downturn.

The timing of the float, done without raising any funds after Investec shelved plans to sell a 10% stake for as much as £226.1m (R4.5bn), is unfortunate — but that doesn’t bother CEO Hendrik du Toit, who has had his fair share of market turmoil in a three-decade career in the industry.

Ninety One was valued at just more than £1bn late on Wednesday afternoon, an equivalent of 0.8% of assets under management and six times its latest annual operating profit before exceptional items of £179.4m.

That’s a depressing valuation that reflects sector-wide pressure on share prices due to the inevitable prospect of lower performance fees and net outflows.

Still, the reasons for Investec to forge ahead with hiving off about the business a quarter that of brought the group in’ s operating profit in the year to end-March 2019 have strategic merits.

It frees up Du Toit to pursue the next phase of growth for the division of Investec that has largely escaped challenges in Britain — due to that country’s referendum vote to leave the EU — and SA, the economy of which has hardly grown over the past 10 years.

Britain and SA account for more than half of the company’s assets under management.

In the decade to end-2019, Ninety One, which offers a range of active strategies across asset classes including equities and fixed income, grew thirdparty assets under management to £121bn, an impressive 15% compound rate a year while index-tracking mutual funds and exchange traded funds were gaining popularity among investors looking for superior returns at low fees.

For the six months ended September 30 2019, Ninety One had net inflows of £3.2bn and operating profit before exceptional items of £97.3m. For the year ended March 31 2019 it had net inflows of £6.1bn and operating profit before exceptional items of £179.4m.

Perhaps the biggest advantage for Ninety One as it pursues a new growth chapter is its overweight exposure to fast-growing but volatile emerging markets, where the IMF says GDP per capita grew at a compound rate of 6% a year between 1991 and 2019, double the rate of growth in advanced economies.

Using skills honed at the height of political instability in the dismantling of apartheid in the 1990s to pick stocks in volatile political and economic conditions, nearly 60% of Ninety One’s assets under management are invested in emerging markets.

FASTER GROWTH

But allocations to emerging markets by fund managers in developed economies often do not reflect their share of global market capitalisation or their contribution to global GDP output of at least 40% — depending on who you speak to. Furthermore, emergingmarket economies are growing faster than advanced economies with the latest IMF forecast — which surely needs a rethink due to the coronavirus pandemic — pencilling in 4.4% growth vs 1.6% expansion across advanced economies.

Ninety One’s pitch to suck in more and more of clients’ funds is simple: you’re missing out on emerging-market opportunities if you don’t let a company with an established track record of picking assets in risky, volatile conditions be the steward of your capital.