RYK VAN NIEKERK: Investec announced earlier this year that Stephen Koseff and Bernard Kantor will step down as the CEO and managing director and this is after they have been at the helm of the company for decades. Stephen joins us now, Stephen welcome to the show, Investec was founded in 1974 as a small finance company, you joined a bit later in 1980 and I believe there were only around eight people at the time at Investec. What was your first job?
STEPHEN KOSEFF: My first job was…I had a joint venture with Investec, which we started in 1978, which was called Investec Leasing East Rand and so my first job when I came across full-time was for about six months I was like a banker looking for new clients. Then six months later Ian Kantor asked me to take over the job as chief accounting officer. We’d just acquired the bank in July 1980 and he asked me to take over as chief accounting officer a few months later, which is like a regulatory position in the firm because you had to sign off all the regulatory returns.
RYK VAN NIEKERK: What was the idea then when you acquired the bank, you received a banking licence in 1980, what was the plan to do with the bank?
STEPHEN KOSEFF: We were a leasing company, so we used to originate loans to mainly doctors and accountants and did some fleet leasing for mid-size…and we didn’t have a liability base so we had to sell the loans off to other banks, and we used to sell them to Standard Bank and Trust Bank, which became part of Absa. There was always the fear that if you hit one of these periods where the banks don’t want to buy the paper, we wouldn’t have been able to perpetuate our business. So it was important to get a banking licence so that we could get a liability base and fund our own activity.
Even post getting the banking licence we still used to sell off some loans but that was just to match the liquidity. So that’s how we started and that’s why we needed a bank and then from the bank we merged with Metboard, which was a trust company, the trust company had two unit trusts called Metprop and Metboard Equity Fund, the one became the general equity fund of Investec Asset Management. Metboard, the other unit trust, became part of what is today Growthpoint. In that whole period we were trying to build a merchant bank, today they call them investment banks and asset management businesses. So when we bought the bank first it was really to fund our activities and then in our strategic view we worked out that we need to expand into other areas of activities, including money market trading and all those kinds of things. Over time we developed it into what we became today.
RYK VAN NIEKERK: Just after democracy came to South Africa, Investec grew quite aggressively, when did you decide to enter the UK market and what was the reasoning behind that?
STEPHEN KOSEFF: Originally when our founder, Ian Kantor, went to live in Holland in 1984 he was going to build our international arm, the type of organisation meant that we had to expand internationally. Much of our target client base was based in different jurisdictions and we needed to be able to offer that client-base services. So we felt that to be what we needed to be, we needed to expand internationally.
South Africa was opening up and a lot of foreign banks were coming into South Africa. We felt it was important for us to play what we call an ‘away game’ and it certainly enabled us to survive as an organisation because most of our peers at that time disappeared and some adopted different strategies. Obviously our biggest peer would have been the RMB Group, which acquired Barclays and became FirstRand. We decided to stay on our own and expand internationally and build on the fund that we had built.
We made a lot of acquisitions internationally, starting in 1992 when we acquired Allied Trust Bank. Ian Kantor had gone on his own, he did a management buyout in 1988, because he felt he couldn’t operate his business under an apartheid regime, under a subsidiary of an apartheid regime. We then, as Investec, decided to start looking to the UK to expand internationally and someone identified Allied Trust Bank to us, it was owned by Barclays and Barclays was selling it and that was in February 1992. We did a deal with them to buy it and it was subject to a key condition – the referendum in April that year.
I always tell people that apartheid didn’t only liberate – if you quote from Madiba’s book, in the second last paragraph – the oppressed, it also liberated our whole society and we benefited from the end of apartheid because it enabled us to expand our business internationally and no longer be part of what was then regarded as a pariah state.
So we then expanded internationally to the UK, all the way into the late ‘90s we bought Guiness Mahon, we bought Guiness Flight, we bought Ambrose Plc. We started in Australia, we even had a bank in Israel and we started in America. So we were quite aggressive in our expansion, all the way up until we listed in London in 2002 when we created the dual-listed structure.
A phenomenal success story
RYK VAN NIEKERK: That was a tough time but looking back you grew up in Benoni in an accountant’s house, you studied at Wits and it’s just a phenomenal success story, it’s a phenomenal entrepreneurship story. Looking back now, how difficult do you think it is for another kid in Benoni to walk this same walk road and to build a business like this, is it still possible?
STEPHEN KOSEFF: I think lots of things are possible, there are a lot of guys who have built great businesses, who started later than us and it just depends on your resilience as an individual, the team of people that you work with, the culture that you try and build in your organisation. I think it’s a little bit tougher today because regulations are much greater than they were in those days. So to make acquisitions you’ve always got lots of extra steps but anything is possible. Lots of people will build great businesses and we’ve seen them come up over the last 20 years. I look at Brian Joffe, he started after us, he started in about 1988, 1989, he built what has become two business, Bidcorp and Bidvest, and they’ve become significant businesses, and they have also been able to carry on after him. Look at Adrian Gore, who started Discovery I don’t know how many years ago, there are lots of people who can build very good businesses. It doesn’t matter where they come from.
RYK VAN NIEKERK: If you look back, as you’ve said earlier, after the fall of apartheid a lot of the private sector actually got significant opportunities to grow their businesses and be part of a global economy and that’s one of the problems we have today is this increasing inequality and there are many reasons for that. What are your views on this and how to address it?
STEPHEN KOSEFF: When I did my MBA, which was in 1979 to 1981, the role of a firm was to maximise profits. I think that doesn’t work today, I think you have to earn the right return but your stakeholders, who are your people and your society in which you operate from within, are also important and you have to play a role in helping uplift society.
I think business, particularly in a society like South Africa, has a lot of capability to help uplift people because at the end of the day if you have a growing economy and society is doing well, you’ll do much better.
We all have roles to play and I think capitalism today has to have the social side, as well as obviously the commercial side. That doesn’t mean to say you must earn lousy returns for your shareholders, the shareholders are a very important stakeholder but they are not your only stakeholder, you have to balance the needs of all stakeholders.
If you don’t beat your cost of capital no one will invest, so you always have to beat your cost of capital and you have to grow as an organisation. Those are clearly the challenges, to find the right degree of balance between all stakeholders. But shareholders won’t invest unless you deliver them returns but you also have a role to uplift society. The ruling party has to understand the importance of business
RYK VAN NIEKERK: But then there also needs to be a symbiotic relationship between government and the private sector. Under the Zuma administration it seems as if the role of the private sector was vilified and the trust relationship broke down I think to all-time lows. Do you think that can be repaired in a short enough period to actually get to the economic growth levels we need?
STEPHEN KOSEFF: I think that the ruling party has to understand the importance of business. I think that the president certainly understands it because he comes from business. He’s been in unions, he’s been in business, he’s been in government, he’s seen all sides and he knows the capability of business and the importance of business. I just think it needs to be a lot broader within his party and I think there are still challenges.
There is improved collaboration between business and government at this point in time but there’s still a long way to go. If you look at business leadership, it’s trying to position itself as a national asset and we started the CEO Initiative post Nenegate, a collaboration between business and government, which is still going.
But it is very important that government create an enabling environment; Alibaba’s Jack Ma said at the Investor Summit this year that there are three things needed for an economy to grow. The first is to educate your people, second is celebrate entrepreneurs and thirdly, create an efficient state.
The state does not have to compete with business. Business has the capability, but the right kind of environment is needed and business has to have the understanding, which I think many South African businesses do – part of our role is also social upliftment to help people and to make a living and to help develop small business, to help develop supply chains using small business, because ultimately small business is going to create the growth.
Large business obviously is incumbent and it can uplift small business but there are multiple ways for us to achieve this. However, we need to have a good relationship, which I think under this president it will improve quite significantly. Certainly there are members of his party who need to understand the importance of business.
RYK VAN NIEKERK: But if the president calls you and says, Stephen, I would like you to be finance minister for a period, what would the first things be that you would do to try and ignite some growth?
STEPHEN KOSEFF: We do have structural issues but I think that growth is the key driver of transformation; I don’t think it is the other way around. I think the first thing we have got to do in our country, the number one priority, is fix state-owned enterprises and number two is to celebrate entrepreneurs in business that you can get a growth economy and the third thing is to create an efficient state, at the same time trying to up the education of our people.
All these things are critical. Education of people is long term but there are short-term initiatives; we need to fix our country’s balance sheet, we need to make sure that business is driven by the private sector and that government acts as an enabler and a supporter, creating a good environment, eliminating bureaucracy, making it easier for us to do business, welcoming investment into our country.
I think we’ve seen a start in that kind of programme, certainly the marketing of it but behind the marketing we need to get the processes adequate, we need to ensure that there are not all sorts of bureaucratic blockages that are holding us back. We also need to make sure that the state actors are playing their role.
To me I would immediately look at how I’m going to deal with these state-owned enterprises, how I’m going to bring private sector money into the state-owned enterprises and eliminate the burden that the state currently has, which includes the state balance sheet. I’ve done work through our economist Annabel Bishop, on what GDP would have been had we grown by 4.5% since 2010, post the financial crisis.
In this instance, you would have had an extra R1 trillion of GDP in this country and that would have given an extra R290 billion of revenue. Minister of Finance, Tito Mboweni’s medium-term budget forecast was a R20 billion budget deficit, we would have had a surplus of R88 billion. There’s a lot we could do with that surplus to help build infrastructure in the township communities, in the rural areas. We need those areas to function; we can’t load everything onto the city. There’s a significant amount that we can do collaboratively between business and government to transform our society and get our growth rate up.
RYK VAN NIEKERK: From your lips to the president’s ears. But Stephen, let’s go back to you, you’ve referred earlier to Brian Joffe, he “retired” not too long ago and I don’t think he has worked as hard as he is working now. What are your plans to follow on this absolutely fantastic career at Investec, which, of course, is not over?
STEPHEN KOSEFF: I’m still an executive at Investec until July 2019. Obviously we are demerging Investec Asset Management, I chair the steering committee and I remain on the group executive until that job is done. Once that is done then Fani [Titi] and the banking and wealth team go in one direction and Hendrik [du Toit] goes in another direction with the asset management business. I have to go in a cooler for a while and then I can come back as a non-executive. In the meantime Brian Joffe and the Bidcorp team asked me to become chairman of Bidcorp, so I’ve got that role to play. I am chairman of IEP, which was the original private equity group of Investec, it has quite a lot of industrial assets. I’m still co-chair of the Youth Employment Service, which is part of the initiative with Colin Coleman. I’ll have to work out what I want to do, at the moment I’m not thinking about what happens after July when I’m no longer an executive. I will still have a lot to do…
RYK VAN NIEKERK: Are you going to play more golf?
STEPHEN KOSEFF: I haven’t been playing for a while because I’ve had tennis elbow but I’m going to start again. You won’t see me playing golf in the week, I like to work.
RYK VAN NIEKERK: Retirement for executives like yourself, you become a consultant to many people, mentors to many people, are there maybe some private equity ventures you would look at?
STEPHEN KOSEFF: A lot of people are approaching me about a lot of things; I’m staying away from it at this point in time because I don’t want to get into any kind of conflicts. But I think at a point in time once I am no longer an executive I will probably look at one or two opportunities supporting some youngsters and so on. But I don’t know, I haven’t called it yet.
RYK VAN NIEKERK: Well, Stephen, all of the best and hopefully you don’t work too hard during your retirement.
STEPHEN KOSEFF: Yes, I keep telling people I am not retired. Retirement sounds like a funny word for me, I’m just shifting roles, I’m going from a very busy executive to more, as you point out, looking at the macro picture and trying to help and guide, as opposed to do.
RYK VAN NIEKERK: Good luck with that and thank you for making time for us.
STEPHEN KOSEFF: Thanks Ryk.
RYK VAN NIEKERK: That was Stephen Koseff, he is the outgoing CEO of Investec.