Foreign promise is huge
Istill wonder whether 300 people sitting in a rented office deserve the same market cap as more assetintensive businesses such as Massmart or Hyprop. I know that assets aren’t the only factor for valuing a company. If anything, as the focus moves towards capital-light investment models, too much of a lumbering balance sheet is seen as a drag. Of course, Coronation Fund Managers has had a substantially higher market cap in the past than its current R25bn — sometimes around R60bn.
As usual, in the latest financial year to September Coronation paid out all its free cash in dividends. It has negligible demands for capital, unless you count the generous, sometimes opaque, remuneration policy. There is none of the expectation that accompanies the launch of a new bank or insurance company at Discovery.
I found the launch of a global equity fund by Coronation lifer Louis Stassen exciting, but it is not quite the same.
Asset management is a notoriously difficult industry for acquisitive growth. Coronation sensibly accepts this, so it will never make money for the corporate finance shops. In fact, for years the business was run by fund managers who spent as much time as they could on investment. Even the CEOS — Leon Campher, Thys du Toit and Hugo Nelson — were ex-fund managers.
I love to speculate what would have happened if the former head of wholesale marketing, Magda Wierzycka, had been appointed CEO, a job she certainly deserved. Coronation would undoubtedly have been a lot more diversified, not necessarily for the better. Especially for dividend fans.
The current CEO, Anton Pillay, is a finance specialist, but at least he grew up in the investment world at the old BOE. It would be hard to imagine an industrialist or even a banker in the job.
Being long term shouldn’t mean having a relaxed attitude if things slow down. Clients still deserve to have matters explained. I am impressed by Coronation’s track record and the calibre of the team; it has maintained a collegiate, unstuffy culture, quite different from the meetings-driven approach of the life office-owned houses.
I am also impressed that it has built up R71bn from overseas institutional clients operating its equity and emerging-markets funds from Cape Town.
I am tempted to call them something cheesy like “world class” — but I’ll hold off for now. The potential expansion from overseas clients is immense, so there is no need to expand into motor insurance.
Looking but not buying
Locally, Coronation is one of the big three institutional managers, along with Allan Gray and Investec. And it is fighting fires to keep its market share. There were outflows of R43.7bn for the year.
As a fund trustee I am familiar with the dynamics in the industry. More money is going out of the system through resignations and retirement than is coming in in new contributions. Coronation is hoping to get some benefit from the reopening of its main equity and balanced funds, but for now trustees are looking but not yet buying. The global balanced fund has been the top performer over five and 10 years, so there will be interest.
Coronation at one stage received a ridiculously high share of the unit trust market, which frankly reflected the herd mentality of the typical financial adviser. There was quite a reverse in 2016, when R18.4bn was lost. This was down to R6.9bn in the past year. A little rebalancing of portfolios from Coronation is no bad thing, even though there are few managers in their league.