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Investec asset management spin off plan lifts shares

The bank plans to float the business on the LSE with a secondary float on the JSE.

Investec cheered investors on Friday with plans to spin off its asset management unit in a surprise restructuring ahead of the departure after four decades of the South African firm’s founder and chief executive.

The plan to float the asset management business on the London Stock Exchange with a secondary listing in Johannesburg follows similar moves by Prudential, Old Mutual and Deutsche Bank as fees fall and costs rise.

Analysts had not expected any major changes a the Anglo-South African financial group, despite the upcoming departure of CEO Stephen Koseff and two other founding members.

Shares in Investec were up 10% at 09:14 GMT on news of the strategy shift, which Hendrik du Toit, who heads the asset management business and will become its CEO after the demerger, said was needed for the unit to compete.

“If you want to play in the super league, independence wins,” he told reporters on a call, adding Investec’s management were confident the rest of the business could thrive alone.

Independence would give the asset management business, which contributed 24% of Investec’s pre-tax operating profit in 2017, greater flexibility to grow, UBS analyst Michael Werner said.

“In theory, there’s less bureaucracy to go through… you know 100% of that capital is allocated to you. It makes it a little easier, in terms of more rapidly deploying that capital or at least more rapidly making those decisions.”

Investec Asset Management has 109 billion pounds ($143 billion) in client assets under custody, with offices in London, Cape Town, New York and Hong Kong.

Easy split

While Investec gave no details on potential valuation, rival listed asset managers in Europe are priced from around 1% of assets under management to around 6.5%, depending on the asset mix and client type, which influences the fees earned.

Given Investec’s focus on active equity, bond and multi-asset funds, with some higher-margin alternatives, and a mixed retail and institutional client base, a 2% to 4% of total assets value would translate to $2.8 to $5.6 billion.

Du Toit said that as the business is independently run already there were few difficulties in spinning it out, and there would be talks about whether it would keep the brand.

Alongside Fani Titi, who is Investec chairman, du Toit will serve as joint CEO from October 1 until the completion of the demerger, which is expected in 12 months.

Titi will then run what is left of the group, mainly specialist banking and wealth management, while maintaining a residual stake in the asset management business.

They will replace Koseff, who was instrumental in transforming Investec from a small leasing outfit in Johannesburg into a global investment bank and asset manager with a presence in South Africa, Australia and Britain.

Investec also said that it expected revenue in the six months to the end of September to be moderately ahead of the prior period, despite a technical recession in South Africa and uncertainty in Britain around Brexit. 

COMMENTS   1

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I think the ‘’change’’ should be the fun part of this whole new business. Effective change is not about technical or Asset Management capability, it is more about the meta-processes that drive and support the change!
Your ‘’offshore’’ successes and failures (the exchange rate gets blamed mostly)’’, of the past, should also beg the question – are you addicted to continual process and market changes without ever stopping to wonder and ask why the last one didn’t work, like so many other organizations ?
Hendrik, I agree with your statement “If you want to play in the super league, independence wins,” I believe that if you want to run with the big dogs, you can’t ‘’pi$$ like a puppy!
Poor budget management over time in both medium and big organisations, due to endless recycling, restructuring and changes, so often just leads or reverts them back to centralization and decentralization, after years of failures.
Hendrik, what about the ‘’elephant in the room’’? – The minority Randgold shareholders that are suing Investec for ‘’Obstructive Conduct’’ – will the buck now stop with you?

End of comments.

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