Genius and luck in asset management

In the second of a series of interviews with veterans of the South African asset management industry, we speak to Coronation’s Tony Gibson.
Tony Gibson, a 'disruptor'. Image: Supplied
The first article in this series can be viewed here:

“Don’t mistake genius with luck,” says Tony Gibson, who was a leading star fund manager of late 1980s and 1990s. Gibson managed the Syfrets Growth fund, the top-performing South African general equity strategy from 1987 to 1993, and then the Coronation Equity fund.

Gibson says there are very few genuinely talented investment professionals. But he believes at least two of them are underlying managers in the Coronation Global Opportunities Equity fund that he built up, and still co-manages. They are John Armitage at Egerton Capital and Stephen Mildenhall at Contrarius (and formerly the CIO of Allan Gray in Cape Town).

Gibson said he has never built up the technical knowledge these managers display. Neither has he taken the Chartered Financial Analyst exams, as they weren’t the requirement they have become today.

But Gibson certainly built up a solid track record and proved to be a ‘disruptor’ in an industry dominated by the slow-moving investment arms of the life offices.

He would winkle out mid- and small-cap shares with growth potential such as Trencor, rather than focus entirely on the blue chips in the banking and mining sectors.

Gibson started his career at UAL, the merchant bank in the Nedbank Group in 1980. There, fund management definitely played second fiddle to corporate finance but it was useful to be able to run pension money for some of South Africa’s leading companies.

“It wasn’t even treated as a profit centre, just something which brought prestige to the bank and would help bring in clients,” Gibson said.

The walk-out

Nonetheless, Gibson learnt the basics of company research, which he put to good use when he moved down to Cape Town to join Syfrets Managed Assets (also owned by Nedbank) in 1985. As the manager of Syfrets Growth, which became the largest equity unit trust in South Africa after the Old Mutual Investors’ fund, Syfrets overtook all the other unit trust houses except Old Mutual in assets.

“Yet we were still treated as salaried bank employees,” he said.

So Gibson and his divisional CEO, Leon Campher, led the most successful walk-out in the history of South African asset management to form Coronation.

“Again it was more luck than genius. In 1993 we were right at the beginning of the transition of the industry from life office-owned houses such as Old Mutual, Sanlam and Liberty, to the independents such as Investec [now Ninety One] and BOE.”

RMB Asset Management, though owned by the Momentum life office, was seen to be part of the second category. It took the lion’s share of Syfrets’s assets after the walk-out.

Gibson says it was by no means clear that Coronation would be a success. It became part of Coronation Holdings, an opaque collection of trading businesses headed by David Barnes and Gavan Ryan. There were no captive assets but the staff were offered 30% of pre-tax profits – though very low basic salaries of about R250 000 a year.

Investing discipline

Gibson was CIO before handing over to Louis Stassen, another Syfrets defector, in 1999. Gibson says Coronation has developed much more sophisticated models and has a much more disciplined approach than in his more freewheeling days.

“But I believe while we are more disciplined, I don’t believe we are dogmatic.”

He says that under current CIO Karl Leinberger, in spite of being a large manager in a small market, Coronation has created 3.3% of annualised alpha in its houseview equity portfolio over the Capped Swix index over the past five years.

Since 1999, Gibson has focused on Coronation’s international strategy. Initially, this took the unusual approach of concentrating entirely on hedge funds.

“At first we were only allowed to invest 5% of a pension fund’s assets into foreign assets. We focused on low-risk absolute return funds, not on high-risk macro funds,” Gibson said.

Regulations have made it harder for South African institutions to invest in hedge funds, so Coronation now invests mainly in the long-only products run by managers with proven skills in hedge funds. These include firms such as Egerton, Eminence Capital, Tremblant Capital and the New York-based Select Equity Group.

Gibson has now been managing money for three-and-a-half decades and unlike many other large managers, Coronation still has a number of former CIOs working full time for the business. These include Gibson himself, Stassen (though he has relocated to London) and Charles de Kock, the former CIO of Old Mutual Asset Management.

Stephen Cranston is a journalist at Citywire, which provides insights and information for professional investors globally.

This article was first published  on Citywire South Africa here, and republished with permission.

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unfortunately some people did confuse luck and genius and then stuff like Steinhoff happens, even to the very lucky.

Yep … I remember an interview with Koos Bekker where he said that in the early days of looking for companies to invest in, they “threw mud against a wall and saw what stuck”. Fortunately Tencent was the one that stuck.

Not so with others, which are still mainly fledgling and may make it against global competition or may not.

I’ll hold on to my meagre Prosus shares for now.

R250,000k in 1993 was a “very low basic” salary?

… for fund managers. A bad year for champagne merchants …

Inflation adjusted from 1 Jan 1993 its the equivalent to R1.33M p.a today.
Not really life in “hard” mode, but low compared to peer salaries.

I hear you. It depends what inflation number you use. I got almost R1.8m in today’s, still low for a seasoned “skilful” fund manager but “very low”.

End of comments.

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