Q & A with Nick Battersby of PPS Investments
Nick Battersby, the chief executive of PPS Investments, is the driving force behind a mutual fund that caters only to professionals. Philippa Larkin (PL): I see from PPS Investments’ 2015 financial results, assets under management exceeded R21 billion, with a 15 percent increase from the prior year. How were you able to achieve this growth, despite the slowdown in the economy?
Nick Battersby (NB): Our asset growth has been fuelled by a combination of the investment returns. PPS holds such prominence in the professional community that we are able to assist thousands of new graduates each year with starting their savings journey. As these professionals move through their lives and careers we are able to provide them with products and portfolios to meet their needs. Our mutual model is unique in terms of investments in South Africa, and as we navigate a low-return environment, our model of sharing our profits with qualifying graduate professional clients who invest with us has proved increasingly compelling.
Asset growth is also aided by the high persistency of assets that our clients have invested with us. The PPS membership base features extremely low lapse rates in terms of recurring premium savings which is entirely consistent with the experience of our insurance company as well.
PL: How large is your membership base and how are you appealing to new members to join? What income bracket do most of your clients fall into?
NB: We form part of the PPS Group, a multi-disciplinary society of graduate professionals that operates through the ethos of mutuality. This means that the group shares 100 percent of the profits generated with its qualifying members. Over the past 10 years PPS has shared more than R21.6 billion in profits with members. The minimum requirement for becoming part of the organisation is a four-year university degree.
Over the past ten years, PPS Investments has grown significantly and today services roughly 30 000 individual clients. We are part of the 75-year old PPS Group which has a membership base of more than 200 000 members.
PL: Have you launched any new product recently to appeal to a gap in the market?
NB: Our preference is for simple, uncomplicated products that our clients can understand and that deliver on the “label on the tin”. Consumers can sometimes be bewildered by elaborate structures with unclear client value propositions. Where the regulator introduces new opportunities for clients, we respond with cost-effective solutions. To this end, we launched the PPS Tax-Free Investment Account, which provides access to a carefully monitored range of unit trusts, allowing our clients to earn tax-free interest, dividends and capital gains.
Sharing our profits with professional clients who invest with us has proved increasingly compelling.
We have recently augmented the range of PPS unit trusts through our first global portfolio, the PPS Global Balanced Fund of Funds, and our first passive portfolio, the PPS Balanced Index Tracker Fund. The PPS Global Balanced Fund of Funds provides clients with the opportunity to achieve a 100 percent exposure to foreign assets while investing in rands. The combination of complementary managers provides a diversified multi-asset opportunity to access foreign growth markets, while capitalising on periods of rand weakness.
The PPS Balanced Index Tracker Fund provides an opportunity for clients to combine passive investing styles with other active managers. Despite the flurry of end-of-cycle marketing by passive managers proclaiming consistent outperformance over active managers, we are of the view that a varying combination of active and passive investing is the most sensible long-term approach to investing.
PL: But Nick back to you. How did you become involved in PPS Investments?
NB: I joined the PPS Group in 2007 with a specific brief to set up PPS Investments, which we launched in May 2007, so we are rapidly approaching our first decade in operation. The opportunity to build the business from scratch was very appealing, operating as we do as the niche provider to professionals. My single regret is that I only became a PPS member when I started working for the company, whereas if I had been recruited by a financial adviser on campus in the eighties I would have enjoyed the benefits of the mutuality for much longer!
PL: Was it a big learning curve becoming a chief executive?
NB: I was fortunate to have the full backing of the PPS boards in launching PPS Investments, and was able to put together an energised and focused management team from the outset. When industry leaders on your board support you, and talented people choose to join your team, that’s a great formula for success. I suspect that it was easier for me, starting from a clean slate as opposed to having to deal with legacy structures.
PL: So much is said about leadership. How has being placed in such a vital role changed you and how you think?
NB: I am firm believer in “getting the right people on the bus”, enthusing them with a clear purpose and then incentivising them to meet and exceed expectations. In my 25 years of leading businesses, I keep coming back to the basic principle of being able to be passionate about the business so that others will naturally follow. I think that if I were to lose that passion for a role I would need to move on quickly.
PL: Are you looking at the ramifications of the #FeesMust Fall campaign as to how it could potentially impact your business model that targets graduate professionals?
NB: Student activism is neither a new phenomenon nor unique to South Africa. Nevertheless, the violence associated with some of the protests cannot be condoned. We are encouraged by the establishment of the Fees Commission and by the appointment of Sizwe Nxasana, as chair of the National Student Financial Aid Scheme which we see as a transformative development. We have confidence that the resolution will be met, and are encouraged by the successful completion of the academic years at many of the tertiary institutions despite the earlier disruptions. PPS will continue to look for ways to play our part in facilitating access to education for tertiary students through its bursary and other student support programmes.
PL: Is FinTech impacting on PPS Investments’ model? If so, how are you facing this challenge?
NB: PPS Investments has offered digital services to clients for many years, providing ease of access to information as well as transactional capabilities. We continue to work within the broader PPS Group to deliver the ability for clients to engage with our various product and services when and how they want to. The early stage experience and burn-rates of direct-to-consumer business models in the UK and the US supports our view that FinTech needs to be used to support financial advisers to provide varying levels of advice to clients. These clients have chosen to self-service at times, but will probably need to be able to access advice at various and varied stages.
PPS has recently launched its first member app into the app stores, and will continue to launch similarly digitally-enabled tools to assist our clients and their advisers as we further develop our digital ecosystem.
PL: From your data are you seeing a trend of South African professionals staying in the country or moving abroad?
NB: The PPS Graduate Professional Index provides a useful barometer of sentiment from a broad base of professionals. The latest survey reported that 47 percent of those surveyed admitted to having considered emigrating in the past year. The strongest reasons for doing so were politics, crime and lack of employment opportunities.
PPS has recently launched PPS Mutual in Australia, so it is interesting to see that the most likely destination of would-be émigrés is Australia (29 percent), followed by North America (21 percent) and then mainland Europe (20 percent). This survey was pre-US election, but post-Brexit which perhaps explains why UK features at a lowly 14 percent.
PL: Are you finding many of your members being affected by the wave of company cost cutting and retrenching in South Africa due to the economic slowdown? Is it affecting some of their funds with you?
NB: The professional community is somewhat shielded from the harsh reality of some of the economically-driven corporate activity. Many of our clients are in private practice, which is less susceptible than the corporate sector. From an investment perspective we continue to see consistent flows of new recurring premiums as well as lump sum investments, comfortably on a par with the previous years’ experience. It has also been noticeable that despite the premium-flexibility of modern retirement annuities, the persistency of premiums remains as clients have continued to maintain their savings plans. As is to be expected in challenging economic times, PPS does receive higher volume of insurance claims, and there has been a notable increase in stress-related illness.