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CNBC Interview with Investec Group Joint CEO, Hendrik du Toit, from the World Economic Forum 2019


Following are excerpts from a CNBC interview with Hendrik du Toit, Investec Group's Joint CEO, and CNBC's Geoff Cutmore and Steve Sedgwick.

SS: Well, from Robert Shiller to Hendrik du Toit, who is the joint CEO of Investec Group, Hendrik, really nice to see you, thank you very much indeed for, I might just say it again, for being 42 degrees colder than Cape Town, at the moment, just to rub it in.

HT: [Laughs].

SS: Same question as we just asked Robert Shiller, really, do you see a risk of a full-blown bear market, and-, and let me accompany that with the question, accompanied by a recession?

HT: There's always-, towards the end of a-, or a mature end of a bull market, the risk increases, it's obvious. We don't see it right now, for the simple reason that there's a-, the wall of worry is still being climbed. I have never seen people as depressed in Davos as this year, they're probably depressed by broader issues, but, you know, Davos is a very good contrary indicator, and, if we look at our earnings results that came out recently, yes, they may be revised downwards next round, but companies are doing pretty well.

SS: But Hendrik, I-, I totally agree with you, that-, and-, and I think the point you're making is that the ebullience around Davos has been way higher-,

HT: Yeah.

SS: Than it should've been in previous years-,

HT: Yes, yes.

SS: Rather than thinking it's a counter indicator this year, I was hoping that, actually, the Davos man and woman has finally got it, but you're saying it's still a contrary indicator?

HT: I think markets remain markets, and to us, the wall of worry is the issue, uh, the GDP growth-, if you talk to businesses, the underlying demand is there, the global consumer is active, and I think it's all about the Fed, it's all about Jay Powell, and all about the trade negotiations. Now, the big uncertainty is the-, the US/China trade negotiation, which is not really about trade, it's about a new world order, and if we get a dysfunctional world order, having come from a space which was very, very good for business, over the last 20, 30 years, since communism fell, then, yeah, there may be-, there may be some big-, big hits along the way, and there may be some big challenges.

GC: And that sounds like a difficult environment to chase risk assets.

HT: Yes. The other side, though, is the opportunity. If you look at the correction, we've had a very substantial correction in the emerging market equities, also emerging market debt, both areas we're active in. Everyone thinks there's this disaster going on, yet local currencies in emerging markets have recovered really well over the last few months, and there are opportunities to lock in yields, to make money, in what still is a low yield, low-, should be a low return world, but actually has been a reasonable return world. So-,

GC: Now-,

HT: I think if you pick, and therefore the world is going towards active, rather than just simply exposing yourself to risk assets in aggregate.

GC: Can we talk a little bit about the business?

HT: Yes.

GC: As we read it, in the pink paper, there's a huge row going on, among vested interests over the splitting off of the asset management business. Could you just clarify for us? Is there a-, is there a difficult discussion taking place, among shareholders, about what happens next with the-, with the business?

HT: No, I think, in Investec, we've had a business which was trading significantly below its-, uh, its-, its sum of the parts value. As incoming management, the incoming leadership, with the outgoing leadership, we've agreed that, firstly, we have to simplify the business. When you simplify, you typically look at the demerger options. The easiest and simplest option is to-, to, in our case, put the asset management on one side, list it off, and leave the bank and wealth, which operates in two jurisdictions, asset management and global, and we're going through the process with regulators, which is going well, we also now need shareholder support, we'll see, we-, we have been consulting shareholders, I think the only slight question mark was, you know, once I-, once I've-, I've dealt myself out of a job, which is absolutely right, and therefore I've got all the activists on my side, or on our side, is-, is the specific role, at the moment, it's scheduled to be Executive Chairman of the asset management business, which is perfectly functional, works perfectly well in the US, and every other market-,

SS: Yeah.

HT: UK governance is different, and I think we've got to respect-,

SS: Yeah.

HT: And listen

SS: Look, we can talk about governance until we're blue in the teeth, but I want to talk about the asset management industry, as well. Geoff's got-, have you got Mr Ermotti on your panel, later on, as well?

GC: Yes, I have. Yeah.

SS: And they had a horrible week of outflows, on their asset management-,

HT: Mm.

SS: Business, as well, I spoke to Martin Gilbert earlier in the week, as well, they've had a really tough time with outflows, as well. You-, I have to take your word, because I haven't checked the numbers, you tell me you've got inflows, at the moment, in the asset management business-,

HT: Up to the-,

SS: I just want to know why you're seeing inflows-,

HT: Now-,

SS: When they're seeing outflows.

HT: We're a mid-sized business, to the-, the half-, our half-year in September last year, we'll-, we'll report new numbers, you know, in due course-,

SS: Yeah.

HT: But since the-, since the crisis, more-, almost half of what we run has been raised in net new inflows, we only had one year of outflow. I think it's about performance, but it's also about appropriate and relevant offering, and about not disrupting your business with too much corporate activity, because remember, in-,

SS: mm-hm.

HT: In our game, you get put on hold. I think UBS is different, UBS is all about risk perceptions of ultra-wealthy people. We're not in that business, we're largely in the institutional, and in the wealth market, but not the ultra-wealth market, and they're different.

SS: Yeah.

HT: Ultra-rich people normally have businesses producing cash, and they can afford, with their investment side, to have stay-rich portfolios, rather than return-seeking portfolios.

SS: Fabulous.

GC: Hendrik, real pleasure, thanks so much-,

HT: Thank you-,

GC: For joining us, and love to catch up, when you've resolved some of these issues around what's going on with the business.

HT: Thank you, gentlemen.

GC: Nice to see you.

HT: Bye bye.

GC: Hendrik du Toit, Joint CEO of Investec Group.