ANDRIES VAN ZYL: Charl, Coronation has an astonishing story of passion and dynamics – where did it all start?
CHARL BESTER: Yes Andries, Coronation was founded in 1993 by its first 18 employees, and over the years has grown in terms of its employees and fund managing. They’ve grown because they performed – throughout the years they outperformed the market and most of their competition, and if you do well you attract assets. You attract assets in the retail market – the average man on the street who also wants exposure within those funds, but you also attract assets within the institutional markets – the big retirement funds. If we look at Coronation today, you’ll see they’re managing 85% of the biggest 200 retirement funds. They’ve taken a big bite out of that cake, they manage more than R400 milliard in institutionalised business, and if they keep on doing well – even during times of under performance – those big funds won’t just move from one fund manager to another for no particular reason. The money will stay there for long periods of time. Also, what makes a fund manager like this so attractive, is whether you’re managing 1 milliard, 10 milliard or 100 milliard, you don’t necessarily need more fund managers. In other words, the bigger the cake gets the more profitable you become. As opposed to a mine, who has to reinvest and build new shafts the whole time, if you have a fund manager who can manage a lump sum of money – you can maybe move to a bigger office, maybe acquire better research systems or employ more analysts – but the portion of profit that goes to the investors just gets bigger and bigger over time. When Coronation was listed in 2003, they closed on R3.35 per share on the first day – at the end of 2005 their shares reached a peak of R115 per share. Since then, the share price pulled back with around 35% to just R75 per share. Coronation is starting to look attractive again on this level, its price earning relationship is around 14 and its dividend yield is just above 6%. In an unpredictable market where there’s uncertainty regarding capital growth, that dividend is very attractive and important to us. If we look at the prizes, whether it’s the Raging Bull awards or the Alexander Large Watch, throughout the years Coronation has been one of the top, if not the top ranking fund management company, and we don’t think that will just change. Although we said there might be under performance, if one looks at a 5, 3 or even 10 year periods, all their funds are in the first quarter century – and I think it’s a remarkable achievement. Its employees also own 24% of its shares, and this is something that makes this company even more attractive to us. I always say – if you have a grounded interest, and it’s not just your salary but if a big part of your balance sheet is linked to the company, then you are going to think differently about the way you’re doing business, on how to approach and treat your clients and share holders, and that’s why we think they’re so successful. They also earmarked their most senior fund managers to grow the international business – and it has grown tremendously the past year, they’re managing around R145 milliard internationally. There’s a lot of potential to expand this even more, and that’s where I see a lot of future potential.
ANDRIES VAN ZYL: Our market commentator and portfolio manager, Charl Bester.