John, explain how the Investec group company structure works and where your role fits in.
We operate as a global organisation and we are functionally organised in three pillars. The first pillar is investments, which covers all our investment teams and investment manufacturing. The second pillar is clients, and that covers all our client engagement including sales, client relationship management and marketing. The third is operations, which includes all of our operating activity.
We have a global head of each one of those. Co-CIOs look after our investment pillar, I look after the client pillar globally and Kim McFarland is our chief operating officer who looks after our operations pillar.
In essence, my role is to be responsible for all of our client-related activity and for the generation of new flows, the maintenance of existing client relationships and net flow across both our advisory and institutional business.
We have a lot of direct relationships in our institutional channel but in the advisory market, all the intermediaries are financial advisers, financial adviser platforms and wealth managers. There, we work almost exclusively through the intermediary channel. We have very little direct active business.
How much of Investec’s business is non-UK?
Investec’s UK business across its institutional and advisory markets today is about £14bn. Total assets under management for the firm was reported in our results at just under £68bn. Of that £14bn in the UK, roughly £26bn is in Africa and the rest is sourced from all the other markets we serve.
Within the client group I’m responsible for, I have five regionally organised client teams covering the Americas, which is based in New York; the UK, based in London; Europe, also based in London but with team members who operate in markets across the various European sub-marketplaces; Africa, its core centre being South Africa; and Asia-Pacific, covering all of our Asia, Australia and Middle Eastern businesses.
There is a marketing team that supports those client efforts and I have a managing director who looks after each one of our regionally defined client groups. For example, David Aird, who is managing director of our UK business, is responsible for the £14bn assets in the UK.
What are the key distribution channels for Investec’s mutual funds business?
We have two advisory businesses with both domestic and international strategies, one in South Africa and one in the UK. Our other advisory businesses, which mainly sell international strategies through our Luxembourg range of funds, are mainly active in Asia, Europe and the Americas.
In the UK and South Africa, we will use the networks, the wealth managers and the larger IFA organisations.
Through our Luxembourg fund range, our distribution is mainly through the large financial institution platform-driven businesses we develop relationships with, such as UBS, HSBC, Deutsche and Citibank.
In certain circumstances, and only really in Taiwan, we operate a very bank and insurance company-centric distribution model.
Which individual markets are more important than others? Which are faster growing or slower?
Starting with the Americas, our advisory business – as we do not have a US domestic fund range – is based mainly in the Latin America market.
We don’t do much business in Brazil because it’s very local but we do quite a lot of business in Chile and Uruguay, and increasing amounts of business in Panama. Essentially, the Latin American continent is a very active marketplace for advisory-driven mutual fund services.
In the UK, we’re very active across the broad spectrum as we see that as a big opportunity. We’ve got some interesting product evolutions going on to position us well for the coming focus areas that we think the market will demand.
In Europe we’re selective about which of the advisory markets we can be competitive in. We’re looking at Italy, Germany and Switzerland, where we see a big opportunity, but we’re staying away from other parts of southern Europe at the moment.
Asia, in the advisory space, covers Hong Kong, Taiwan and Singapore, in that order of priority. The Asian markets for mutual funds are very challenging. They can move a lot of money but you’ve got to have the right product in the right space with all the bells and whistles.
We’ve had a long history there because Guinness Flight, which was acquired by Investec, was one of the key providers to the expat community in Asia. It’s a business I think will deliver a lot of interesting opportunities for us, particularly in some of our new product-focused areas.
The big product focus area for us across our advisory businesses globally is in the multi-asset growth and multi-asset income space. We’ve seen a lot of specialist income products raise a lot of money and we’ve invested a lot in building that.
Tell me about how you’re taking advantage of the radical changes to UK pension rules in 2015 to position the Investec range, not just in the UK but the rest of the world?
It very much plays to our focus on multi-asset solutions products. We’re not quite sure which way the platforms are going to go or how the product wrappers are going to be orientated towards this new scenario.
You’re going to get very interesting combinations and variations of annuity-type products that are going to come out and there will be insured versions of that. Ultimately, we see high-quality income-generating strategies as an important underlying investment building block and good high-quality multi-asset growth, which takes the edge off volatility.
If you have an equity-only strategy and you’re aged 60, you’re probably going to be a little bit nervous but, at the same time, you don’t want to be only in a low income-generating strategy that delivers no growth.
South Africa has an annuity product called a living annuity, which came to market in the ’90s. It talks to exactly the concept that some of the changes in the UK legislation are looking towards, which is about building an investment strategy that allows you to draw down income but is still variable and can grow.
Even through a series of market cycles, people do much better from investing in a diversified portfolio that’s going to grow, out of which they’ve drawn income, rather than buying insurance life annuities.
Our key product in the UK has been our cautious managed strategy, which is more orientated towards the person approaching retirement or in retirement. We’re well placed in that space, given our UK Cautious Managed Fund is key to our asset-raising activity in the advisory marketplace.
We’ve also now developed a diversified income product, which is a multi-asset income fund. That’s something we’re marketing actively, partly because we think many of the one-dimensional income strategies, either equity-only income or corporate debt high-yield income strategies, are going to suffer too much volatility for the market you’re talking about.
What are you doing in terms of resource into researching this area?
The retail distribution review in the UK drove us to develop a fund range we felt was sufficiently broad in being able to satisfy needs. With one or two tweaks – we may need one or two additional funds – that essentially will stand us in good stead for targeting the market that will emerge from these changes.
We do not need to go and deliver a whole series of new investment propositions. We are spending a lot of time thinking about how those propositions will come into the market in terms of wrapper, presence on guided architecture platforms, and within some kind of income drawdown facilities.
We currently have one or two partnerships with life companies where we have specifically orientated our product, and it’s delivered a really good result. We’ve just had one or two that have come to fruition, in other words a five-year cycle with one of the big life companies just down the road from our London City office.
I can’t name them for client confidentiality reasons.
So that’s a space we’re watching carefully. Our resource is being spent not necessarily on building new investment products but on trying to understand which channels are going to be successful for this opportunity and how we align with them. We don’t have any conclusions yet. Everyone is playing their cards close to their chest right now.
How is your product strategy shaping up in 2014?
We’re focused on a couple of things. First is the delivery of high-quality outcomes on our multi-asset range. Our Diversified Growth Fund and our Diversified Income Fund are critical areas of focus for us, both in the UK and internationally.
The second focus is on commodities, which is an area of our business that has seen a lot of outflow and has been a source of a lot of negative investor sentiment. We think that’s going to turn around and we’ve got some really competitive commodity products across the spectrum – our Enhanced Natural Resources Fund and our Gold Fund. We’ve also got some interesting developments in play around pure commodities.
The third area is emerging market fixed income, which is an important area of specialisation for us. The sell-off in the middle of this year created a fantastic opportunity for investing, and we have funds of size we think will be really competitive in the marketplace we’re going into.
The final area is the quality equity strategy. Long-term individual investors should naturally gravitate towards that story of high-quality companies generating cash flows, and we have a Global Franchise Fund now that has more than a six-year track record.
Those are the keys in our advisory space: really good solutions and strategies focused around income and growth, some really good component pieces, commodities and fixed income, emerging market fixed income and a solid core global equities strategy that’s all about cash flow and stability and not about chasing the froth at the top – and we think that is what will do investors well.
