Manager Research

Investec Limited announced last week Friday that they plan to spin-off the asset management segment of the group. This means that Investec Asset Management (IAM) will be publicly listed, and traded, as a separate entity on the London Stock exchange with a secondary listing in South Africa on the JSE. It is highly likely that it will operate in future under a new name and brand which is still to be identified.

IAM is a large and well-established brand both in South Africa and the United Kingdom, with assets under management of £109bn (R2.1tn) as at 31 August 2018. This move to list IAM separately comes as the broader Investec group plans to focus on their core areas of speciality, banking and wealth management.

The direct public listing of IAM has the potential to introduce both positive and negative effects to company.  The potential positives include:

• The ability to access high quality global clients where the current ownership structure (ie. by a bank) is seen as a disadvantage.  They refer to the ‘super-league’ – and while this can have various meanings, we take it to mean both these high-quality clients, and the potential to increase assets under management considerably. 


• The ability to grow through acquisition will be made easier through the simple ownership structure, and we could see this as a potential outcome given the general trend in global asset managers to consolidate.  While Investec is perceived as large from a South African context, it is seen as a mid-size player globally, and this could have long term implications if they were not able to keep up with the declining trend in asset management fees. 


• It also enables more direct share-based remuneration by making it easier to implement and execute on staff share incentive schemes.

There is no doubt that being separated from the bank is a net positive for the business, despite the fact that historically there has been limited overlap and IAM has operated quite autonomously from the broader group.  We generally see privately held/unlisted ownership structures being optimal for clients, and while Investec won’t achieve this, they will improve on the status quo.

There are also potential negatives:

• Becoming publicly listed can place additional pressures which can serve as a distraction to both management and fund managers. Although saying that, IAM has been living within the listed group for a long period, one step removed from public scrutiny.


• Select staff currently own around 16% of the business.  Without a significant hike in this allocation, it does leave the business exposed to decision making which is not what we would call ‘investment led’.  Quite often the long term needs of investors/clients are neglected to the benefit of short term shareholder profits, and only a genuine investment led ownership structure can defend against this.  By way of comparison – Coronation closed their business to new flows in 2015 to protect client performance, sacrificing short term profits for long term outcomes.  This is the behaviour of a long-term decision making approach we would hope to see at IAM.  Investec have demonstrated similar behaviour in the past.


• Growth through acquisition (also a positive above in relation to cost-efficiency), can be a significant negative where these types of deals can destabilize existing teams.  Investec’s multi-specialist model is well established, so we would expect this to be relatively muted and rather be focussed on extension into new specialisations to access a broader client base.


• We have seen significant stability in key executives and fund managers at Investec, and this listing could present a good opportunity to capitalise on their success and exit the business at a higher valuation.  We don’t have line of sight on any lock-ins, other than to say it is already likely the case.

Hendrik du Toit (IAM founder in 1990) will continue to lead the business post the listing which is a positive.  We will look for any actions that indicate the business is moving away from being investment led and supportive of the long-term decision making of the boutiques.

At this stage, we do not believe the potential change warrants a change in the rating of any of the Investec funds.  However, we will continue to monitor how the business develops as the listing plans are rolled out.