Best of breed

Nedgroup Investments' 15-year, R300-billion journey

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Accolades have been showered upon Nedgroup Investments in the past few years. In August, for example, their automated online investing platform scooped Technology Project of the Year in The Banker's Tech Projects Awards 2018. We chatted to Executive Head of Nedgroup Investments, Nic Andrew, to find out more about the culture of innovation that has spurred Nedgroup Investments on to success after success.

Please tell us how you came to be sitting where you are now: head of Nedgroup Investments.

My interest in asset management started when I was doing my articles at Deloitte and I was fortunate to work on the audits of several asset management companies. Interestingly one of them was the newly formed Coronation that had just been created as a result of a walk-out of Syfrets led by Leon Campher. I found engaging with the investment teams fascinating and thought it would be a stimulating industry to work in.

When I came back to South Africa after a stint in London in Corporate Finance in the late nineties, it was natural to look for a role in financial services and I was fortunate to be offered a role in setting up a multi-manager business within Nedcor Investment Bank. I also studied my CFA and read as many investment books as I could get my hands on.

Then, after the merger of BOE in 2003, we came up with the idea of Best of Breed™ concept. Suggest changing to: That was the beginning of the journey that brought Nedgroup Investments here today - 15 years later and with R300bn AUM. I have been extremely fortunate to have been at the right place at the right time and to have worked with many talented and passionate people.

As head of Nedgroup Investments, what do you do to ensure that the business always puts investors' interests first?

Successful asset management companies consistently get the following right and that is what we try to achieve year-in and year-out:

  1. To have an unwavering focus or obsession on delivering long-term performance;
  2. To be good stewards of clients' savings – this means never forgetting that one is managing other people's hard-earned money and always acting in their best interests. Stewardship needs to become “how one does things around here” and embedded in the DNA of the business – by what we do not just what we say. Each member of the team, whatever their role, needs to understand what they can do to earn clients' trust and importantly to hold each other accountable in whatever decisions are made.
  3. To make it simple and easy to do business. This includes communicating in a responsible, relevant and understandable manner.

The fact is that if our investors win in the long-term, we win as a business.

In your view, what does it mean to be a responsible steward of investors' money?

Being a responsible steward of investors’ money means always acting in their best interests and treating it as if it’s your own money. As a guide, I like to say imagine that anything you do was reported accurately by an informed journalist on the front page of the daily newspaper. If you would be happy with your mother reading that newspaper, then your behaviour is probably acceptable.

But an important distinction to make is that this does not mean always giving our investors what they want. It means using our expertise and the expertise of our fund managers to deliver long-term performance for our investors – and educating our investors accordingly.

What is your role in helping the business "focus relentlessly on delivering long-term performance across our range"?

Our underlying business philosophy (and key expertise) is to identify outstanding fund managers who have a demonstrable edge which we believe can generate out-performance and has persistence.

We spend a significant amount of time and research identifying these managers – and then monitoring their performance and that of our funds. We acknowledge that there will be inevitable periods of short-term underperformance so we assess our managers over appropriate time-frames.

We constantly try to improve the process rather than the outcome. This means we are always looking for better ways to identify exceptional managers, better ways to construct and monitor portfolios, and better ways to identify when a manager may have lost their edge.

What is the role of independent managers with respect to Nedgroup Investments’ Best of Breed™ investment philosophy?

We don’t think that there is any manager that is the best or most skilled across all asset classes and geographies. So we look at identifying independent managers who we believe have a sustainable edge in a specific field. When we find them, we appoint them with specific mandates and give them time to deliver on that.

Our managers' sole focus is to deliver alpha. Our responsibility is to administer, distribute and market the offering so that the manager does not need to.

Who at Nedgroup Investments are the specialists in identifying the right managers and what is their core expertise?

We have an experienced team of investment professionals, many of whom have been researching and selecting managers for close to 20 years. Over that time, they have met hundreds of managers from around the world, and have learnt many lessons.

Their expertise and responsibility is to firstly identify where managers have an edge and secondly to determine if that edge is sustainable in the future.

What does Nedgroup Investments look for in such independent managers?

We look for managers who:

  • Are owner managed – alignment of interests with investors;
  • Display high levels of stewardship – genuinely looking after the interests of their clients;
  • Have a demonstrated long-term track record through various market cycles;
  • Have a clear investment philosophy that clearly articulates their edge and is repeatable;
  • Are able and willing to take active positions – as opposed to closet index trackers;
  • Tend to protect capital or manage downside risk well; and
  • Tend to be fundamental (as opposed to top-down) and valuation (as opposed to momentum) based.

Of course, every manager that meets these criteria is still very closely and carefully researched before they are appointed with detailed investment and operational due diligences. Our operational due diligence team has the right of veto. It is important that we feel we can enter a long-term partnership with the manager as our expectation is a very long-term relationship.

Why is identifying the right independent managers so important, and what efforts and time go into getting this right?

Identifying the right managers is a prerequisite to delivering long-term performance, so it’s is fundamental to the success of our business. I believe we have demonstrated skill in doing this, and clients have rewarded us with entrusting us with a growing amount of their assets. This has grown the business from R5bn to over R300bn since 2003.

A huge amount of effort and research goes into finding the right managers upfront and then into continuously monitoring the managers.

Do you believe the Best of Breed™ investment philosophy has been successful over time? What are some of the indexes of success?

Absolutely. As a whole, our Best of Breed™ philosophy has been extremely successful. We have ranked in the Top Three South African Fund Managers in nine of the last 11 years. We have also been the top Offshore Fund Manager for the past three years – both according to the independent Plexcrown ratings.

These independent ratings measure the entire range so are a reasonable proxy of the performance of our clients, which is the most important thing. Ultimately delivering solid returns to clients is how we determine success and earn investors' trust. We are very conscious not to take this for granted and will continue to work and deliver for clients, while looking at how we can improve. 

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