[ad_1]
Don’t expect Asset Management Company Ninety One to soon merge with any other company.
The group, which spun off from Investec in May last year and whose staff collectively owns 22% of it, has made clear that merging with another financial sector player is not on its agenda.
There is currently a wave of mergers and acquisitions (M&A) between corporations, such as Morgan Stanley’s $ 7 billion acquisition of asset manager Eaton Vance in October and Franklin Templeton buying Legg Mason for $ 6.5 billion in February.
Piper Sandler, based in the United States, also noted in its Asset Management: A Constant Evolution report (published in November 2020) that: “Across the size and spectrum, companies are looking for ways to reduce and manage costs against the income pressure. All of these trends are driving consolidation. ”
With all of this going on, it is understandable that Ninety One’s top executives were asked about future merger plans during a conference call about their semi-annual results through the end of September.
As Ninety One CEO and founder Hendrik du Toit sees it, many banks are trying to make their asset management operations match their banking operations.
By using mergers and acquisitions, banks are trying to get around the costly structure of asset management. By merging their asset management operations, the belief is that they will be able to expand their operations.
However, such a strategy may go against your interests.
“They are spending huge amounts of goodwill on it. And that leads to fairly low returns on capital, ”says du Toit.
He says that Ninety One’s business model does not favor joining another company. It generates a high return on equity, which in turn means you are debt-free and cash-generating, giving you “balance sheet flexibility.”
All of this means that it has the ability to “tolerate a portfolio of very risky strategies, or risk us selling to our clients. And therefore we can go through a bear market with our flexible cost structure without having large amounts of goodwill to pay off outstanding debt. ”
Staff see themselves as owner
Since your people are your main shareholders, this strategy of generating high returns also ties in with your staff retention strategy. “Over time, our people don’t see it as a workplace, but rather as a place they own, which in the long run aligns them with customers and shareholders,” says Du Toit.
From what you’ve seen, most mergers and acquisitions haven’t worked, instead “adding confusion, not scale.”
The ones that have worked were the result of a small number of people who still retained control and focused on building the business.
“For us, the rewards of following that kind of strategy and growing organically over time are much more attractive than creating a giant underperforming on equity, which ultimately gets caught up in the policy of M&A that looks inward and he forgets about customers, ”explains Du Toit.
Still, it does not mean that the group is not rational if it is presented with an attractive M&A. “But these will have to be really attractive opportunities, not the kind of thing that investment bankers trade in town, and they bring you all the names every other day.”
“We don’t need to grow fast. A company that has a very high return on equity does not need third-party capital, (and …) in a low-return or low-return world, it can afford to grow consistently but it doesn’t have to grow rapidly. ”
With this kind of internal setup, du Toit quotes JP Morgan as saying that he has focused on: “Doing high-quality business, in a high-quality way.”
