Ninety One reports 10% rise in assets under management – FY results

Financial markets are busy with a painful adjustment because central bankers were too slow to see the inflation threat coming – and the Russians, through the attack on Ukraine, put fuel on the fire’: CEO Hendrik du Toit.

RYK VAN NIEKERK: Ninety One is the largest asset manager in South Africa and the group announced results for its financial year to the end of March 2022 today. During this period the assets under management rose by 10% to £144 billion or around R2.7 trillion. This means Ninety One manages more money than the Public Investment Corporation or the PIC, which has around R2.4 trillion under management.

During the period Ninety One’s revenue rose by 2% to R13.5 billion, profit after tax increased by 23% to R5.4 billion, and the board declared a final dividend of 7.7p or around R1.52/share.

Hendrik du Toit joins me now. He is the chief executive of Ninety One. Hendrik, thanks for your time. How much of the R2.7 trillion is still in South Africa?

HENDRIK DU TOIT: Good day, Ryk and the listeners. It’s very nice talking to you from London today. I just want to say one thing – the PIC is far larger than us in South Africa. We are a very different business. Most of our monies or funds we manage, capital we manage, is provided by international clients, but we still have a substantial business in South Africa. It depends – a part of that obviously is invested internationally; but [that] sourced from the South African or the African client group is just up around £50 billion in total.

RYK VAN NIEKERK: So it is still very, very significant – around a third.

HENDRIK DU TOIT: South Africa’s a very significant market for us, although obviously most and a big part of those assets are invested in the domestic market as well.

RYK VAN NIEKERK: Well, you had a good year last year. The assets under management rose by 10%, as I said earlier, or a net inflow of around £5 billion. Where did this money come from? Is it just an increase in asset values? Is it clients moving their funds? And how much of that comes from South Africa?

HENDRIK DU TOIT: Net inflows would be – now obviously we get much more gross business, but some clients take their money back, use it for pensions, et cetera, or they do some other things with the money – this is net, and the net is approximately R100 billion, of which approximately a third comes from the African market where South Africa is dominant, but we also have good businesses in Namibia, Botswana and elsewhere in Africa.

RYK VAN NIEKERK: When we spoke last year, you said that you saw China as a potential growth market. You are also saying that Ninety One looks to expand in the US, which is obviously a massive market; but it’s a mature market.

A lot has changed since then. The US has a significant inflation and interest-rate problem, there’s a war in Europe, and China has a major Covid problem and a significant part of the economy is in strict lockdown. Have these events amended your strategy?

HENDRIK DU TOIT: They have not. But we come from a year where revenues have increased by 10% in sterling terms, and management fees by 13%. That happens when you have reasonably good markets.

If we look at this picture we’re seeing here today, if it persists, we will have a much tougher time in the coming year, not only because there are so many issues all round, but there’s also an immense amount of volatility which then makes investors less risk-prone and [they are] therefore sitting on cash, so it’s harder to get flows as well.

But we are long-term investors. We look through this, or we consider the coming year as a year for great investment opportunities. I think the China story will turn. The US economy and US markets have been exceptionally good for a long time. Once the interest rates have adjusted, that path will continue. So, near term cautious, but definitely no panic.

RYK VAN NIEKERK: You say it’s a year for great investment opportunities. Have you changed the investment strategy, maybe to take money off the table and now look for new opportunities, or how would you approach these investment opportunities?

HENDRIK DU TOIT: In many of our specialist strategies we cannot, because the client asks us to invest in a certain way. In our multi-asset portfolios we’ve been very well positioned and actually have significant capacity to take on risk. So it really depends which strategy. But, from a business point of view, our business strategy has not changed. We are going after clients in big markets who want to invest globally and internationally, including emerging-market debt.

We think in particular there will be flows towards emerging markets once the ripple effect of the Ukrainian war is out, but this coming year is going to be tough.

So I’m quite comfortable and we’ve been specifically encouraging our clients to invest in high-quality, robust companies that will survive this kind of environment where their balance sheets are strong, and we think that thesis is going to pay handsomely in the years to come.

In the near term, however, who knows where the price will be at the end of next month or next quarter?

RYK VAN NIEKERK: I was at the Nampo Oesdag [agricultural trade show harvest day] in Bothaville yesterday, and there were several discussions about what’s happening in the world and how it affects the agricultural sector in South Africa. The number one item on the agenda was the war in the Ukraine, and obviously the higher fuel prices flowing from that conflict. So we definitely live in a global village and I think with the war it’s actually gotten smaller. How big a risk do you think that war in the Ukraine is for world markets, especially now that Sweden and Norway want to join Nato, because that may escalate the conflict even further?

HENDRIK DU TOIT: Ryk, I’m the wrong person to ask because I was absolutely convinced that the Russians would not invade Ukraine and upset an entire system, including their own access to markets for their energy. I’m not the right person to ask.

My sense is that the biggest implications have been felt and, unless it goes nuclear, whatever happens now is of less relevance because the world is already switching, already adapting.

The implication of food prices – the Ukraine is such an important food producer, and so is Russia – across the emerging world is going to lead to serious political instability.

In the Western world governments may fall when fuel and food prices continue to rise for too long, because that’ll frustrate investors, [with] voters creating significant political uncertainty.

So we are in a world where things are going to be tough and actually South Africa is a bit of a port in a storm – not necessarily [for] the guys at Nampo, but the commodity production, the distance from those places, and the fact that South African government debt is kind of replacing Russian government debt in global emerging market portfolios.

So perversely South Africa has actually been a less volatile place than many others as a consequence of the Ukraine war.

RYK VAN NIEKERK: Yeah, but I’m sure it’s still, maybe with the US inflation scenario, probably one of the biggest risks we’ve seen in decades.

HENDRIK DU TOIT: Exactly. I mean, we’re in a world where financial markets are busy with a painful adjustment because of the fact that central bankers were too slow to see the inflation threat coming, and basically the Russians through the attack on Ukraine put fuel on the fire.

RYK VAN NIEKERK: Hendrik, thanks for your time. That was Hendrik du Toit. He is the chief executive from Ninety One.

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