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Fund Manager Focus - July 2015

Investec Asset Management - London

Investec Asset Management began as a small start up in 1991 offering domestic strategies in an emerging market. It is now an international business with $115 billion AUM (as of 31.3.15). It provides investment products and services to clients which include pension funds, central banks, sovereign wealth funds, insurers, foundations, financial advisers and individual investors. It invests in global, emerging and frontier markets in equities, fixed income, multi-asset and alternative asset classes. It incorporates ESG in its investment approach and embraces the concept of active stewardship. Its investment teams are based in London and Cape Town.

Asif Jeevanjee is an equity analyst at Investec Asset Management in the Quality Capability. He joined the firm in 2014. Prior to this he was a senior analyst in the international equity research department at J.P. Morgan Asset Management where he worked for 16 years specialising in the transportation, service and leisure sectors across Europe.

What's the relationship between Investec Securities and Investec Asset Management?

"There is no direct relationship. However, Investec Securities and Investec Asset Management are both part of the wider Investec Group. Like Investec Asset Management, Investec Securities is an independent business."

What's the relationship between Investec Wealth & Investments and Investec Asset Management?

"Investec Asset Management is an independently managed entity within the Investec Group. Both entities share the same ultimate parent company."

Investec Asset Management has ~$115 billion AUM - is that all managed from London or Cape Town or a bit of both? (Is the $115 billion all Investec Asset Management's)?

"This is managed from both London and Cape Town. The $115 billion AUM is all in respect of Investec Asset Management."

Of $115 billion of AUM - what percentage is in equities? Geographic split?

"Of our total AUM, over 40% is managed in Global and Regional equities. Approximately 49% is in global equities, 32% in US equities and 15% is in Europe (ex UK) Equities.*"

How many investment professionals are employed at Investec Asset Management? How many in London and in Cape Town?

"IAM employed 172 investment professionals as at 31 March 2015. There were 104 in London, 64 in Africa (of whom 63 are in Cape Town) and four in Asia."

Do you split geographies and sectors?

"Within the Global part of the Quality capability we are all global generalists though individual members of the team might have particular areas of expertise."

Does Investec Asset Management have an investment style?

"IAM has a number of investment capabilities. I sit within the Quality Capability. We invest in what we deem to be high quality enduring businesses that are well-financed and where management make sound decisions with owners’ capital. We want all this for a price that makes sense so as you can imagine the bar is quite high to get into the portfolios! The flip- side is that we typically remain owners for many years."

What screens do you use? i.e. how do you know if you want to meet a company?

"We want to own businesses that can convert capital to profits and profits to cash at high rates and we screen for companies with those characteristics. However, we are not slaves to the screen and infuse what we see with common sense and insight gleaned from wider reading, meetings with corporates and so on. The real heavy lifting is done at the research stage which is extremely intensive.

We are always keen to talk to management if we think doing so will enhance our understanding. We usually do this once we are already knowledgeable about an industry or specific company but may also do so when we think meeting with management will help us expedite the decision over whether or not to perform further research."

Which benchmarks do you use?

"We use MSCI ACWI as our benchmark although we will happily (and do) own stocks that are outside this benchmark."

What's your active share ratio?

"It is currently around 93%, reflecting the fact that for us, benchmark weight does not drive stock selection."

Do you have a target price when you buy a stock - i.e. 20% upside?

"We do not look at stocks quite that way. We are looking for bonds masquerading as equities with coupons (in the form of cash flows) that are easily estimated. Per share coupon growth achieved without too much capital should drive up the value of the business over time. In this sense our ideal business is one that has a value that is a moving target."

Average length of a holding?

"Any average length of holding from the fund is going to be an understated number since we have held a number of positions since the inception of the fund in 2007 that we are likely to continue to hold but we think about owning stocks for 5 - 10 years."

Average market cap? Market cap cut off?

"The average market cap in global is about $100 billion. We do not have a hard market cap cut off and we have holdings with a market cap of $1 billion but most of the companies we are interested in tend to be large cap."

Typical size of positions? Value of largest position?

"We own 26 names currently so position sizes are large in absolute and percentage weight terms."

ESG and corporate stewardship are important to Investec - how is this incorporated into the investment process?

"All facets of ESG form a core part of the evaluation of a potential investment. We are fortunate to have a great ESG team that help us identify potential issues which are investigated during the research stage, covered during the investment discussion and are considered as part of the final investment decision."

Any sectors/themes you do/don't favour and why?

"Our eternal hunt for businesses with attractive financial characteristics does draw us to certain sectors such as consumer staples, healthcare and information technology. That said, we have found and continue to find appealing ideas in other sectors too."

Does a stock have to be profitable?

"There would have to be some fairly compelling mitigating factors for us to consider a business that has not yet proven it can make money given our predilection for high returns on capital! We keep an open mind but have yet to find such an enterprise."

Do you have to meet management before you buy a stock?

"We do if we can, though it is more essential in some situations than others."

Where do you prefer to meet management? e.g. your offices, at HQ, conferences, group meetings etc.

"We do all of these but do have a preference for meetings at our offices simply because that way the whole team can participate. Often other investment capabilities at Investec might be interested as well and it usually makes sense for us to meet management together."

Typically how many companies (US and European) do you meet a year?

"As the team has been expanding the number has been increasing but collectively we would certainly see hundreds of companies a year."

Why should corporates target Investec Asset Management?

"That's a good question. Investec Asset Management is a large and growing firm that is increasingly on the radar of corporates. There's no time like the present for us to get to know each other better! Also, we are the kind of long term and thoughtful shareholders that companies should want on their share register."

You spent many years at JP Morgan Investment Management - how are things different at Investec?

"They are both great companies. Investec has a very unique culture. For example, there is a clear sense of the importance of 'doing good' as well as 'doing well' as evidenced by the commitment of energy, time and money by the firm and staff to a number of good causes."

* Please note the % Equities and % Global equities are based on the asset class of the investment strategies while the % US and % European (ex UK) are based on where the money is invested.
Source: Investec Asset Management as at March, 31 2015.

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