Asset Management Companies: Why they exist
Recent studies indicate that asset management is not always given the priority and attention that is merited in this country and for Eino Emvula, CEO of Namibia Asset Management; the past 16 years have seen the company grow its assets under management (“AUM”) to over N$10bn, while its global balanced portfolios have been consistently ranked in the top quartile of the Alexander Forbes Namibia Investment View survey over the years. He shares his thoughts with us this month…
PF: Wealth through wisdom, what is the significance?
EE: That is our approach to wealth management in the sense that we look at every possible factor that can have an impact and affect the outcome of our clients’ investment needs. Every individual should take into account their own circumstances; the environment in which they invest and all the other factors that could have an effect on the desired outcome, which is what we do at Namibia Asset Management on behalf of our clients.
PF: What clientele are we talking about here?
EE: We generally have two segments. One segment is called the ‘institutional clients business’. The other segment is the retail one. Institutional segment is made up of Namibian pension funds and medical aid funds and a few corporations with surplus cash to invest.
Pension Funds have an obligation to ensure that employees have sufficient retirement savings. So we have an unenviable task to make sure those hardworking men and women have savings to live on when they retire.
That money is entrusted to us by decision-makers who at pension fund levels are the trustees. Besides pension funds, this segment has other corporations that have surplus cash. In addition, there are other clients within that segment, such as Medical Aid Funds, again, they invest surplus cash with investment managers and we happen to be the lucky ones. Equally, some insurance companies are our clients.
The retail segment’s purpose is primarily to serve individual clients that have discretional savings.
PF: Sixteen years ago, you started with two clients and now you talk of AUM of over N$10billion?
EE: Let’s go back to when we started in May 1996. We were a start-up enterprise and as you know, when you are a start-up enterprise, it’s not easy for people to trust you with their money. That’s where the luck comes from. There were a few institutions during that time that took a chance with us.
Over the years, we have earned their trust in the sense that our first two clients who trusted us with their money in 1996 are still with us today. Of course they have been joined later by others and I think we have been lucky in that sense.
As we know, it is a privilege, really, to manage someone’s money. Hence from that perspective, we feel lucky. We feel that when you manage someone’s money, you are almost managing their future.
The business that we are involved in is about managing these investors’ money. For example, an individual may be planning to get married in, say, 5 or 10 years. They therefore come and say ‘I want to save ‘x’ amount of money so that it would enable me to achieve my dream of getting married to this person’. And I think it is a privilege for an entity like ours to help those individuals achieve those goals.
Additionally we are lucky in the sense that there is a lot of competition in this industry and while we have done a great job, we know that clients can take their money within 24hours. That is how the business operates.
Obviously NAM has done very well over the years. It has created wealth for clients who invested with it, especially those who have been with NAM since inception.
PF: Are you saying that in this industry, there is a lot of vulnerability given that a client could withdraw their money whenever they wish?
EE: It’s all about two things in our industry, firstly, performance - which is measured in terms of the returns you generate for clients. Secondly, client service - If you are not performing and not serving clients to the best of your ability or not satisfying their needs, they will take their money; it’s as simple as that. It is a global rule of thumb in this industry.
PF: What product ranges do you have for corporations and individuals as well the minimum investment requirements thereof?
EE: We have unit trust products that are available to both retail and institutional clients. These four unit trust products are:
• NAM Coronation Strategic Income Fund
• NAM Coronation Balanced Defensive Fund
• NAM Coronation Capital Plus Fund
• NAM Coronation Balanced Plus Fund
The main objective of the NAM Coronation Strategic Income Fund is to provide an income stream on a monthly or any other period a client chooses to get that income.
PF: What is the minimum and how much does one get per month?
EE: The best way is to look at the objective of the fund, which is to provide returns that are above money market funds.
The fund’s benchmark is the IJG Money Market Index. If one were to look at what the IJG Money Market Index achieves, the fund aims to beat that benchmark. It has been able to beat that benchmark since inception. We can always look at hypothetical numbers and say ‘look this is what you will get’, but that is not the aim of this fund. This fund is the lowest in terms of risk of exposure and returns.
The returns that you get from the Strategic Income Fund will always be lower than the rest our NAM’s other unit trust funds because you take less risk. Investment works on the principle that the lower the risk, the lower the return one should expect and vice-versa.
The next fund as listed above is a lower equity option fund called NAM Coronation Balanced Defensive Fund. This fund can go up to 40% in equities. The minimum you can invest through a debit order is N$200 and N$2000 on a lump sum basis. It aims to give you a real return above the benchmark, which again is the IJG Money Market Index. The fund is meant for investors who want to take a little bit of risk but also want to ensure that they don’t lose capital, especially in a short period of time.
The third available fund is an ‘absolute return fund, NAM Coronation Capital Plus Fund. It aims to provide real returns of 4% above Namibia Consumer Price Index (“NCPI”) over a rolling 3-year period. The minimum investment in this fund is N$5000 lump sum and N$500 in debit order.
This one is suited for clients who want real returns of at least 4%. As you know, the biggest enemy of any investor is inflation.
By way of an example if a bank gives you a 4% pa return but NCPI is 5.6% pa in real terms, you are actually worse off and that’s why we have launched that fund to ensure that it gives clients real returns. That’s how wealth is created, by achieving investment returns above inflation over time. If your returns are below inflation, you would actually struggle to create long-term wealth.
The last one on the list is the NAM Coronation Balanced Plus Fund. Let me emphasise that this one is meant for small pension funds that cannot be managed on a stand-alone basis.
PF: And for the institutions…?
EE: Large institutions tend to be managed on what we call a ‘segregated basis’; they give us the money, say, N$100m to manage for them. They will normally give us a mandate, which is an agreement of what we can and cannot do and what their expectations are in terms of returns and we manage the funds on that basis.
Most pension funds in Namibia are managed on what is known as the ‘Best Investment View’, which is similar to the NAM Coronation Balanced Plus Fund. This is where we do the asset allocation ourselves. This means we decide how much we would allocate to equities (i.e. shares), bonds, cash, offshore and to property. In addition to that, we go further and say ‘if we allocate 60% to equity, we will do the work and decide which equities we will buy’, with a view of meeting the client’s investment objectives.
Some client objectives require assets to be managed on an absolute return basis, especially medical aid funds. They come and say ‘I want a real return of x’ and give us the parameters. The parameters indicate how much we should invest in bonds and equities and so forth. From an institutional point of view, there is no ‘one size fits all’.
In summary, it’s dependant on the client’s needs, the ability to take on risks and the duration of the investment.
PF: With all this happening, how do you go out there and get your clients?
EE: What we do at Namibia Asset Management is not unique in terms of getting the business. In terms of the retail business, what we do not do, which is very important is that we do not provide advice to clients.
PF: Is there a specific reason for that?
EE: Yes, part of it is regulatory and part of it is the way our business is structured. You want the client to use their own judgment as to which asset management company they should do business with.
Amongst our competitors registered with NAMFISA, there are probably more than 10, who are operational, but the way it works is that for retail clients, they have two ways. If they believe they understand which asset management company they want to do business with, they will walk through your door and give you business, which we don’t encourage.
Alternatively, they can go to financial advisors. It is these financial advisors who will sit with a client and say ‘Mr So and So, this is your financial position and these are your long-term investment objectives. Based on that such a conversation the advisor would advice the client as to which company to invest with.
Therefore the most frequent manner in which we get business, especially within the retail space is through investment advisors. For our institutional clients there are investment consultants. These consultants provide investment advice to institutional clients like pension funds, medical aid funds, etc.
What we continuously do is that we engage with both our existing and potential clients so that they are constantly aware of what we do. The advantage of this industry is that there are performance surveys, carried out by independent companies that rank the returns for each asset manager in this country.
Those returns are published and are available for scrutiny. They are distributed to our existing and potential clients, so they are able to see how we are doing on a monthly basis in terms of performance. There is a lot of transparency in that respect.
What has been working in our favour is that we have been consistently ranked in the top quartile over the years in these surveys. Returns are ranked on a one month, quarterly, 1 year, 2 years - up to 10 years basis. When you go through that range, you will notice that Namibia Asset Management has been consistently among the top three. For that reason, we ascribe our success to our own ability to generate good returns for our clients.
PF: What happens after the clients have given you their money on a day-to-day basis?
EE: That’s a good question and it’s best answered by putting things into perspective. When we started off in 1996, we did not really have asset management skills to speak of or in Namibia at large at that point in time. The founders of Namibia Asset Management then teamed up with Coronation Fund Managers as a technical partner who is still our technical partner to this day.
The way we manage money is that the investment team in Namibia is integrated in the investment team of Coronation Fund Managers in South Africa. What the investment team does is to look after our clients’ hard-earned savings by identifying investment opportunities into which capital can be deployed at a good return while taking less risk.
PF: How do you do that while you are sitting here in Windhoek?
EE: There has been a technology revolution over the years that helps us through systems such as Bloomberg, Reuters, I-net and others, which allow for information dissemination.
With these systems, you can sit anywhere in the world and have access to exactly the same information with a person sitting in New York, Bermuda, Hong Kong or London, at the same time. With that said, our key competitive advantage is our proprietary research. We are a house that focuses on doing its own research.
Ultimately, what you do when you are making an investment is buy a stake in a business and you are rewarded when that business grows profitably. The price at which you buy that stake is therefore important.
We speak to the management of these companies, their competitors and suppliers. Take the example of a company like MTN, an emerging market mobile operator, which operates in different geographies.
First and foremost, we do our research here at the office to understand the historical growth of the company. Then we would speak to management to understand their strategic objectives of the company. From there, we will go and verify some of these facts, for example, by travelling to places such as Nigeria where it operates.
PF: So you actually go out there physically?
EE: Yes, we visit the companies and the markets physically and do the research. We collect data. The information comes through the system and everyone gets access to these financial statements, then we go through the financial statements similar to this one (referring to the NAM 2011 Annual Report). We try and understand what is in there and say ok ‘this is what the results are saying’, then go ahead to interrogate the management of this company. We ask what their plans are for the company going forward; what their major concerns and key things that make them excited.
But you also need to step back and say ‘wait a minute, they have told us all these things but this is a very competitive industry in which they operate, how about the competition? Let’s speak to the consumers of their products and really see if there is value for money in this company’.
Ultimately, what we do is that we only invest or allocate capital on one basis; company valuation. If the valuation says this company is worth N$10 per share but it is trading at N$4 per share, we will invest in that company because there is an opportunity for positive returns. But if it is the other way around, we would not touch that company. It is as simple as that.
So that’s the way we invest client’s money. It is valuation-based and tries to look into the long-term and long-term for us is five years and/or longer. Even when we analyse companies, we look at how much money they have generated over a few years. History is history but it helps you to get a general view of what you are getting yourself into, then we do projections for the next five years before terminating it, by calculating what is called ‘terminal value’ at that point.
PF: This sounds very complicated; do you ever sleep well at night?
EE: If you constantly look at the news flow, you may go insane, so the best way is to focus on company fundamentals because these don’t change overnight. They take long to change. When you do that, you will realise that you will not only be creating value for your clients but you will actually be able to sleep at night.
PF: You are currently managing assets of more than N$10bn, how did you arrive at that, what has been your growth strategy?
EE: We have been focusing on one thing and that has been ensuring that we meet our clients’ needs. Our clients have needs and our focus has been to meet their needs whilst building a sustainable business.
To have been here for the past 16 years, I think it proves that there are those clients who have been with us since inception and still with us and are happy. It does not mean that we are resting on our laurels. We continuously re-engineer our system but still focus on the core value, our philosophy.
Our clients come to us for two things; good returns and good client service and we believe we are trying our level best to meet these. Over the years, we have met a lot of those needs and I think that this has been our strategy, really.
PF: Would you confidently say Namibia Asset Management is the leading force in heading the call for Namibians to participate in the critical areas of development?
EE: We have proven over the years that we add value to our clients’ wealth. It is the only reason we are in existence. Had we not been adding value, we would probably be gone by now. So I believe that although this industry is quite competitive, we will still be here for a long, long time.
PF: Not very long ago, we had a case of Prowealth, which swindled people’s saving, where were these regulations?
EE: I will not comment on Prowealth’s case, because I am not qualified to comment on that. I believe NAMFISA is in a better position to comment on that.
Though my only comment is that globally speaking, 2008 was a good year in the sense that it exposed companies that had been running pyramid schemes when the market crashed. The Bernard Madoff case in the USA is one prime example.
There were a few of these companies in the developed world. What came out of this unfortunate incident was an enhanced form of regulation. Here in Namibia the market is busy with the Financial Institutions and Markets Bills, known as the FIM Bill, which we understand will result in risk-based regulations. It is meant to ensure that NAMFISA regulates based on risk, and really try to look at what are the risks inherent in each entity that manages other people’s money and structural risks too. Definitely what happened, to some extent, has resulted in the bad apples being rooted out of the market.
PF: How do you get rewarded?
EE: We have two main fees, basic and performance fees, that’s how we get rewarded.
PF: There is an outcry and questions around Namibian assets being invested offshore, what is your take on that?
EE: What this means to me is that this nation, if you looked at the statistics that are out there in terms of what we save, is a net-saving nation. This is a good thing. There are those nations that are net-consumers.
The negative thing is that these savings do not always find opportunities in Namibia. Capital should create wealth and you can only create wealth if there are opportunities through which you can deploy that capital. What we have been seeing in the Namibian case is that there are a few opportunities through which one can deploy this capital safely.
Remember, you need to strike a balance between ensuring that money doesn’t fly out while also ensuring that this money (which belongs to the savers) does not disappear. If you ask savers, they wouldn’t want you to invest for the sake of investing, but they want you to invest in businesses that are profitable because then, they will not only share in those profits but protected that capital.
There are profitable businesses in Namibia but our mandate is to invest in companies that are reputable, safe, have good corporate governance, and are accountable to the owners of capital and ultimately in businesses that generate good returns to shareholders.
In addition to that, our mandate is to invest in entities that are listed on a stock exchange, such as the Namibian Stock Exchange (“NSX”). What we have seen (and I think for us it is probably a phase in which we are, and probably these phases take much longer) is, remember, in 1996, we didn’t have an asset management industry to talk about, yet in the last 16 years, there has been a well-established industry. I think we are getting into a phase where the owners of businesses realise that there is another avenue through which they can raise capital other than borrowing money from the banks.
There is what is called a capital market. NAM allocates capital in that market. We need entities to come to the capital market; entities which can withstand the checks and balances that would qualify them to be the beneficiaries of this capital.
I urge Namibian companies to start look into listing on the NSX as an alternative option to raise capital. By the way, companies should not list for the sake of listing, but should have a need for capital.
Over the years, FNB Namibia, Namibia Breweries, Trustco and Bidvest Namibia have all listed entities on the NSX. NAM is also a listed entity. This has resulted in these companies benefiting from the local savings. As an example Bidvest Namibia raised capital in Namibia through its listing on the NSX in 2009. Namibian Asset Management and other competitors allocate capital on that basis. NAM doesn’t directly participate in the unlisted space. But I think it’s an interesting sector that is coming up and I hope with the new mandates GIPF has given over the years, a lot of these entities will graduate to the listing board and once they graduate, they will require some capital and the issue of capital flying will come to an end.
PF: This means that there are a lot of untapped opportunities in the Namibian space?
EE: Look, Namibia is a small population, so structurally, it will be problematic. Namibia is a small economy of two million people. There are bigger markets around us, if you look north is Angola, east is Zambia and south is South Africa, these are much bigger economies. We, as a nation, need to look at what our competitive advantage is.
Some of the countries that surround us are landlocked countries. Some of the advantages lie in the fact that we have a port and access to the sea and could establish few industries that support that particular sector. I think there is a lot of potential around that.
There is also good potential in the agriculture sector. These, in my view, are some of the competitive advantages we have as a nation that we need to exploit provided that we have the right approaches. Capital is here in Namibia that can be deployed, but it’s how you package opportunities in these industries that will allow capital to flow to those sectors.
Personally I think that if we were to put our minds together, there would definitely be a positive outcome. We could turn some of these competitive advantages we have into tangible results. We could then deploy capital through that, but remember, we should be an export-led economy because right now, we are an import-led economy. The reason that we remain as an importing economy is because we can’t produce some of the basic commodities, so then that capital will be going out. But if we turned around this economy and became an export-led economy, then the capital we have would be deployed in those industries that would in turn generate more capital outside the country.
PF: Having said that, are you planning to branch out of Namibia?
EE: Not at this stage.
PF: How do you fair with competition with foreign firms in such a small market?
EE: We are managing fairly well in as far as competition is concerned. Look, we have great respect for our competition. We know very well that should we not up our game, they would take our business away from us. With that respect, I think we can co-exist quite healthily and the clients ultimately benefit. This is because when there is competition, the client gets the best results, because everyone gives their best.
I am a capitalist by heart and believe that competition is good and therefore, we welcome that competition as it keeps us on our toes in ensuring that we deliver best results to our clients.
PF: What about the Euro-debt crisis, how has it affected companies like yours?
EE: We operate in a global market and allocate capital globally; as such we get affected by global events. We invest mainly in Namibia and in South Africa but do not restrict ourselves from the rest of Africa, or the global market.
The crisis in Europe is not a capital market crisis but a fiscal crisis. Most of these countries have been living beyond their means for a while, now it’s time for them to reign in expenditure and try to raise the revenue through taxes.
That is, unfortunately, the industry we operate in. The effect today is short-term but in the long-term, ironically, we find that there is value in companies that operate in Europe. But the key difference is that these companies or generally a lot of companies in the world generate their revenue not from the places of their origin where they are currently listed but from where they have expanded to, mainly in emerging markets.
For us, the key thing is long-term in the sense that this too will come to pass. Whether or not it will result in the Euro breaking up we don’t have a crystal ball to tell. We can only speculate at the moment.
But for astute allocators of capital, who invest on the basis of valuation there are opportunities even in these troubled markets. At this point Namibia and South African markets are fairly valued. But we find good value in the developed world markets and for that, NAM has taken a lot of its clients’ funds offshore.
PF: We commemorate Heroes’ Day this month, any reflections on that?
EE: I was not yet born in 1966, but I can say I was privileged to grow up in an environment that enabled me to see the war being fought around me. I have respect for men and women who sacrificed their lives for all of us to be in a peaceful Namibia today and for that, I would like to thank them. I ask all Namibians to unite and ensure that their (liberation fighters) lives did not go in vain, that we as a nation build a non-racial Namibia and truly reconcile with each other and form a non-racial and economically competitive nation. For me that’s important.
PF: Materialism, greed, corruption are eating away and reversing all the gains made, how safe is Namibia for the next generation?
EE: Look, I think corruption in any form should not be condoned but I think we need to look into the issue of materialism and the issue of greed. Materialism and greed combined would give birth to corruption and we as a nation need to instil the culture that it is only through hard work and perseverance you will be rewarded fairly and justly.
There is nothing wrong with making money provided you have worked hard for it and that your dealings are transparent.
Therefore, I urge the youth to refuse the culture of wanting to have material things at a very young age, because when they do not get them, they will have this urge within them to get them at any cost. Their position and roles in the society at that point in time may no longer allow them to get the material things as they will have been swamped by responsibilities. All these bad intentions and bad views will get into their minds to the extent that without realising it, they may find themselves being corrupt. Therefore, I urge them to stay away from that kind of mind set and rather try to work hard, knowing that through hard work and perseverance, they will be rewarded.
I would also like to encourage them (the youth) to stay away from things that do not add value to society. But rather find a niche for yourself in the country and say ‘I want to be an IT professional or a bricklayer in the society or whatever it is, knowing that it adds value to the society’. In the long term society only rewards activities that add value.
PF: What is the burning issue(s) you feel Namibia should deal with in the best interest of all?
EE: I was privileged to read the report on Namibia’s global competitiveness not so long ago. I urge the concerned parties (the leaders of this nation) to address the issues in that report on the competitive index first. One of the issues raised is the quality of education (don’t get me wrong here; I have high respect for our institutions of higher learning. I am a product of one of them); we need to look beyond Namibia and say our graduates can be, in the end, global citizens and they can work and live anywhere else. Because once you get a good grounding, you will go far. Obviously, once that quality is improved, I believe even the issue of unemployment would be tackled. That’s another second issue for me, because I believe that if we empowered our youth, the potential they could come up with in terms of new ideas could go a long way towards addressing the unemployment issue that we have.
The last point is to determine our competitiveness as a nation with the quality of education. We should then stir all our energy in one direction towards meeting Vision 2030.
We cannot be an industrialised nation without an industrial policy. I think that the sooner we get that the better it would be. With that, we would produce graduates who are geared towards the implementation of that industrial policy, that’s the only way and that’s very, very important to me.
PF: How do you motivate your team?
EE: The best way to motivate a team or an individual is to let people be free and to give them the freedom to think; the freedom to choose how they want to do their job and to give them the enabling environment which does that. While some people think money is everything, it’s not. What you really need is to give people freedom and instil in them that they are masters of their own destinies. Also let them know that they have a much bigger potential.
PF: It’s not all about business, so tell us about the causes close to your heart?
EE: What pains me is when I see unemployed men and women who can’t provide for their families. I really wish we could all do something to reduce the unemployment rate. It can be done over time. I would also like to see people saving more, not because I am in this industry but people should really learn to save... leave this idea of getting your salary today and tomorrow it’s all gone. We need to live modestly, we should learn to live within our means. Unfortunately, I keep on talking about money; investment is about how long you have been in the market and not how much you have in the market because of the power of compounding.
If people learnt how to save while still young, it does not matter how much, these things that people want (material things), they would be able to afford once they have made their money. This is a great country to live in because the law works here. I have been to some parts of the world where the law does not work and people find themselves at the mercy of corruption.
PF: What keeps you sane given the magnitude of your professional responsibilities?
EE: I have a good bunch of friends and family whom I hang out with. I have a very beautiful wife and a child that I always look forward going back home to. I like my sports, particularly football. Whenever I get home, I unwind by watching football. I also go to the gym in order to stay physically fit.
PF: What legacy would you like to leave behind?
EE: This business becomes a sustainable business that is making a real difference, with emphasis on real difference, in creating wealth for the Namibian people. It should be a vehicle through which they say ‘look I want to create wealth and Namibia Asset Management is there’. Also, leave a team that believes in itself so that it can add value. Without that belief, there would be no Namibia Asset Management, as you see here (pointing around the boardroom), we only have tables and chairs, so the only component that make up this company is our people. I would want to leave behind right people who believe in themselves and in Namibia Asset Management and add value to our society like we have done for the past 16 years.
PF: Do you have anything else to say before we round off our discussion?
EE: The last thing I want to say is that we are humbled by the support of our clients over the years. We are truly grateful for that. Since we have covered 16 years, we hope for another 100 years of operation where we will be of service to our clients and continue to add value. We believe that we have a role to play in the Namibian economy and we will continue to do that. Other than that, we will encourage our clients to continue to be a saving market because the future belongs to those who make provision for tomorrow and not those who consume everything today.
PF: Thank you Mr Emvula, it was a pleasure to engage with you. PF