With the markets being volatile over the past year most asset classes have had a punishing time, but it’s fair to say emerging markets have borne the brunt of it.
Indeed, according to the International Monetary Fund, growth in emerging market and developing economies was 4 per cent in 2015, the lowest rate since the financial crisis in 2008. Added to that the Global Emerging Markets, Global Emerging Market Bond and Asia Pacific ex Japan sectors were the worst-performing sectors in 2015. This has been reflected in fund sales, for example, in January this year emerging market debt funds saw outflows of £75m.
However, Investec Asset Management – a group with an emerging market heritage – has been bucking this trend. David Aird, managing director for the UK client group, says business has been “very healthy”.
“We have global assets under management of £72bn and have been enjoying net flows of £3.5bn per year. We have seen a trend of gathering assets over the past two or three years. Even the emerging market debt team took net money over the past 12 months, which is almost unheard of. Our competitors have seen their assets significantly fall.”
Within Investec’s 31-strong UK Oeic range there is £10bn in assets, ranking it 15th in terms of independent asset managers. When Fund Strategy last profiled Aird in 2012, Investec sat in 11th place, with ambitions to enter the top 10 within two years. So what happened?
Aird says: “We missed out because we didn’t have products in four areas. We weren’t represented in UK equity income, global equity income, property or Europe, which have taken a lot of net flows over the past three or four years.
“But we are about long-term growth, we are not going to launch products for the sake of it. We didn’t have products that misfired.”
The group has since turned its attention to income products, but has no interest in rolling out property and Europe products at the moment.
Aird continues: “Artemis has grown strongly and has dislodged us. It has done incredibly well with its income fund. We haven’t had equity income solutions to offer until recently, but it is one of the areas I am optimistic about.”
“We missed out because we didn’t have products in four areas. We weren’t represented in UK equity income, global equity income, property or Europe.”
Blake Hutchins joined Investec from Threadneedle Asset Management in November 2014 and the Investec UK Equity Income fund was launched for him in January 2015.
“This fund will play into the same arena [as the Artemis fund],” Aird says. “It is a very competitive sector, with managers such as Neil Woodford and Adrian Frost, but there is room for good income funds. There are some managers coming towards the end of their careers, so there will be room for Blake. There aren’t many quality equity income funds.”
The Investec UK Equity Income fund currently has £14m in assets. Over one year the fund is down 4.3 per cent compared to the 4.5 per cent fall in the sector, FE data shows.
“We have just got it off the ground,” Aird adds. “We have got to build engagement with clients. But there is little competition with quality equity income funds.”
Aird says the group is also considering launching an Oeic version of its $169m Global Quality Equity Income sicav, run by Clyde Rossouw and co-managed by Hutchins and Abrie Pretorius. Over one year the fund is up 2.6 per cent against the 10 per cent fall in its sector, FE data shows.
“The fund has an eight-year track record and has been a hidden gem, but we are now rolling it out globally,” Aird says. “We are talking to clients around the country about the fund. We hope they will be able to buy the sicav, but if they can’t we will launch an Oeic version.
“There has been amazing interest already. It has the performance and lots of capacity, and there is a complete lack of competition. We are super excited about our income strategies.”
Aird is practically part of the furniture at Investec, having joined the firm 16 years ago as one of the founders of the UK business. He began his career in the sales team at Royal Trust Asset Management in 1988, before moving to Fleming Investment Management in 1993 as a sales director, where he first encountered Investec.
“I owe Fleming Investment Management a lot,” Aird says. “I had a global roving role and part of my responsibilities was developing the South Africa business. I spent a lot of time in the South Africa office, and in 1996 Investec was a client.”
A brief stint as European sales director at Gartmore followed in 1999, but Aird left after a year “because of a disagreement”, joining Investec as sales director of European retail in 2000. “I knew about Investec’s culture from my time in South Africa. They were the go-to fund management company, young, dynamic, driven and innovative. I thought if we could bring that to the UK and employ people who share the vision it could be exciting.
“I had worked for big companies and there was bureaucracy and politics, which is not my thing. Very rarely are you given an opportunity to grow something from scratch. To be part of a team building a business from scratch is incredibly exciting. Hendrik du Toit founded Investec in 1991, so it was an established business outside the UK but a greenfield site here.”
There are now 350 employees in the UK business and 800 worldwide. The firm has seven investment teams globally who are able to hire like-minded people “who buy into the philosophy and who will get the investment strategy to perform over the long term”.
“There are 40 leaders reporting into the global executive with an average tenure of 15 years. Obviously there is something that keeps people here,” Aird says.
However, there is always an exception to the rule. Head of UK retail Charlie Wilson joined Investec in 2010 but left a relatively short time later in April 2015. He has not been replaced as the retail team was “re-jigged”, Aird says. “We find if people join us and get the culture, then after a period of time they commit for a long time, but unless they commit in the formative years they tend to leave. Charlie has joined a big US company, which I think will suit him.”
Recent hires include Justin Simler, who was recruited as an investment director in the multi asset team from Schroders last year, and Simon Brazier, who joined with Hutchins from Threadneedle in 2014. Brazier is co-head of the quality team alongside Clyde Rossouw and runs the Investec UK Alpha fund.
Aird says: “We have built the quality team and there are now 15 members managing £7bn of assets. Simon’s key strategy is the UK alpha fund, which has raised £600m in the last 12 months and was the fourth most successful UK company for capital raising in 2015.”
Meanwhile, Rossouw’s £45m Global Franchise fund has seen strong performance over the past year, with returns of 10 per cent against the 6 per cent fall in the sector, FE data shows.
“Global Franchise is one of the best-performing funds,” Aird says. “It is in the same category as Fundsmith and Lindsell Train, two big companies that we are very happy to run alongside.”
However, it has not all been plain sailing this past year. The Investec Asia ex Japan fund run by Greg Kuhnert has been hit by the turbulence in emerging markets and is down 15 per cent over one year, compared to the 12 per cent fall in its sector, FE data shows.
Aird points out that over three to five years the fund is well rated.
“Clearly emerging markets have been tough. For 12 months we would ask clients for a period of grace. We want clients to be invested for five, 10, 20 years. Stocks and style may have gone against us but Greg Kuhnert is a first-class manager.”
This year marks 25 years since Investec was set up by du Toit in South Africa, but the firm won’t be dancing in the street to celebrate the landmark.
“It is a milestone but it is a milestone for us,” Aird says. “We will celebrate by saying thank you to our clients and then get our heads down and carry on doing what we are doing. We should double our efforts and try to generate more alpha.”
Ben Yearsley, Investment director, Wealth Club
Alastair Mundy is the undoubted star of the show at Investec, managing the UK Special Situations and Cautious Managed funds and the Temple Bar Investment Trust. The UK offering is further complemented by Simon Brazier and his UK Alpha fund. Aside from that, Investec has strength in some (currently) very unfashionable areas: emerging market debt and commodities. Its Enhanced Natural Resources fund has been a creditable performer in a shocking area. Investec has never been a particularly fashionable investment house, or one with big star names, Mundy apart, but has been competent in many areas over time, with bonds another sector it has had strength in.
Ryan Hughes, Fund manager, Apollo Multi Asset Management
Investec is a group that has punched above its weight in terms of profile and brand in recent years but it needs to back this with high-quality products across asset classes to be considered a major player. While its UK equity capability is strong, helped by the hire of Simon Brazier, other areas are a little more lacklustre, with long-term performance rather mixed in a number of areas. Niche areas such as commodities, energy and emerging market debt stand out, but better strength in core areas is needed.
Laith Khalaf, Senior analyst, Hargreaves Lansdown
Investec started life as a bank in South Africa in 1974 and launched its operations in the UK in 1998 through the acquisition of Guinness Flight Hambro Asset Management. The company has grown significantly since then, from a small start-up into an international business, and now has a wide range of funds and assets under management. We do not currently have any Investec funds on the Wealth 150, but we continue to view the company as a group that puts bottom-up stock selection at the heart of many of its strategies. That is shifting somewhat as it is currently building out its multi-asset capabilities and using that to court institutional investment from pension funds.
£2bn Assets in the Investec Cautious Managed fund
40% Return of the Investec UK Smaller Companies fund over three years
25 years Milestone Investec marks this year
31 Funds in the UK Oeic