Anchor founder aims for R500bn

Anchor Capital founder Peter Armitage speaks to Business Day about his plans for the company that he founded nine years ago, which has become one of the key players in the asset management industry.

Anchor Capital founder Peter Armitage speaks to Business Day about his plans for the company he founded nine years ago, which has become one of the key players in the asset management industry. You founded Anchor towards the beginning of 2012 shortly after leaving Investec. Why did you leave a safe corporate job with a wellknown asset manager?

It is all about entrepreneurial spirit. I want to be on the side of creating value for myself and my partners as opposed to doing it for a bigger organisation. Investec is a great place to work and a high-quality organisation, but at the end of the day it’s a big business where you are an employee. It was also clear to me that there was space in the market for a smaller company that could provide bespoke and personal service to high net worth individuals.

You managed to grow assets from zero at the start of 2012 to about R80bn. How difficult was that and what are some of the challenges you faced?

It is never a straight line and I remember one of my partners asking me in late 2012 (when we had just reached R1bn of assets), “that’s great Pete, but where will the next rand come from”. We often laugh about that.

You listed Anchor in 2014 but then delisted in February 2021. What was the driving force behind this decision to delist and what is the benefit of being an unlisted asset manager?

It was a great experience being listed and gave us immense profile. There are cycles on stock markets and we didn’t believe the JSE would rerate smaller businesses for the foreseeable future. We valued our business at more than what the market was willing to pay, so we were delighted to be able to buy our shares back. We allowed all investors to stay on board to make it fair – we were honoured that a bigger proportion than we expected decided to do so. It also gave us a chance to get our BEE shareholding right.

In July 2020 you were highly critical of SA companies that have embarked on offshore expansion, saying it has probably cost shareholders over R300bn. What factors do you think were the main reasons for SA executives generally not succeeding internationally?

Competitive advantage locally does not necessarily translate into international markets. Low growth and paranoia about SA led to a massive growth in offshore investment by SA companies, most of whom were reticent to invest further in SA. Then companies often bought very mediocre businesses offshore or sent the B team (or at least less experienced executives) to build a business. Foreign corporate firms saw us coming and lined up opportunities which the locals were not prepared to buy, or at least not at the prices that SA companies were prepared to pay.

International equity markets, particularly in developed markets, have performed very well over the last decade, which has prompted you to warn against buying the index as picking individual stock winners is critical given high valuations. What are your views on index-tracking solutions?

I think index-tracking solutions make a lot of sense and you are buying something specific, usually at a good price. We use many index trackers in our funds and as part of a solution for clients and financial advisers; it is part of the solution set. Asset managers should not be paid their fees if they do not earn them. There is a lot more to investment than active or passive, however. We create solutions for people, help them create their long-term goals, consider tax and structure and then invest assets. The business model of many big asset managers is to hang on to benchmarks, and if this is the case, an index tracker might be better, but ultimately a mix is usually the best solution.

What can the active asset management sector do to convince the average retail investor that it is still a viable option given the increasingly attractive case being built by index-tracking and exchangetraded alternatives?

We would not be in business if we did not believe we could beat a vanilla tracker. A tracker guarantees underperformance against an index (it’s the index less costs). With the right active asset manager you have the chance of material outperformance. A 0.5% difference in fees can be immaterial if returns are generated. For smaller investments, a tracker might make sense, but as soon as you need asset allocation advice and help to manage assets globally you need a wealth manager.

Deputy finance minister David Masondo has been highly critical of the asset management industry’s transformation efforts and has said the government will be introducing new legislative powers to speed up transformation efforts. Do you think his criticism is warranted and is legislative persuasion the appropriate solution?

He has a point, although I know the industry well and many companies have made great strides in transforming and have great intent. Some reasonable rules and guidelines would make sense and we would support that. It is, however, probably not necessary as clients are increasingly insisting on transformed businesses. The biggest impediment to transformation has probably been the gatekeepers (consultants to pension funds), who play a valuable role but they have been slow to support smaller asset managers.

What advice would you give to emerging black asset managers who say they face huge hurdles in growing their businesses and winning mandates from big institutions?

I would say they are right, but to stay the course and concentrate on having a quality team and create a great longterm track record. The tide is coming in and asset allocators will increasingly be under pressure from clients to support black asset managers. The biggest issue is the funding to get to critical mass to build a good team.

Where do you hope to see Anchor 10 years from now?

R500bn of AUM [assets under management], diversified both locally and globally, with the biggest network across SA. But more importantly to have helped in achieving the goals of investors and improved every client’s financial future.