Nabo Capital: Asset Management and Investment Advisory in Africa by Pius Muchiri

Interview with Pius Muchiri, CEO of Nabo Capital

What is your assessment of the sector in Kenya? What are the latest trends? Is the market competitive?

The assets management sector has two kinds of players: the established players who have been there for 20 years plus and the emergent players who have come up in the last 5 to 7 years. For the established players, most of their AUMs (assets under management) are primarily pensions. For the emergent players, they have more non-pension, a lot of high-net worth and retail kind of clients combined with institutions, especially insurance and other non-pension sectors. The established fund managers are facing a lot of pressure from their clients who want more value. Over time, trustees have been increasingly feeling the value add by fund managers has been diminishing. Today, it is not unusual to hear a client wanting to pay 12 basis points, something that was unheard of 5 years ago. We have seen the average yield on assets under management coming down on the traditional clients. However, if you look at the other side, where emergent fund managers are focusing, on retail, and especially for ourselves, we focus on the high-net worth individuals and institutions, then you have high-yielding assets under management. The average yield on retail or ultra-high net worth products is 2%. For the non-pension institutions, it is somewhere between 30 business points all the way to 1%. Increasingly, as the emergent fund managers are establishing themselves, they are slowly nibbling on the established fund managers, getting the smaller clients with $1 million to $5 million. Over the next ten years, it will not be too far fetched that there might be a different ranking in terms of assets under management, especially given the fact that we are seeing traditional institutional clients demanding more. The pension schemes demand a lot of attention which could take a fund manager away from their core job of investing for one and a half to two months just on administrative matters. We are seeing more multinationals wanting to get boots on the ground. They prefer more smaller, nimble, agile fund managers like ourselves because they believe we are able to focus on the core job which is investing. Some other trends we are seeing, and we are at the forefront of this, is what we call “investing with purpose”, but globally, it is called “goal-based investing”. Clients are getting more familiar with goal-based investing. It is more intuitive than your traditional risk-adjusted return kind of investing. We work with clients who want to fulfill certain aspirations. This is something that is really new in this market. Nabo and maybe one other company do this kind of investing. The industry is headed this way globally and we are observing increasing interest in this so called goal-based investing.

What are your competitive advantages? How do you distinguish yourself from the other companies in the sector?

We want to make investment what it is supposed to be: a means to an end, a means to your aspirations, a means to your children getting an education, a means to you achieving home ownership, a means to you getting financial freedom.

If someone is investing in Africa, the first question they ask themselves is “who will they trust” to hold their hand. We are a five-generation investment firm and our history traces back to 1954. We have a long, rich history of partnering with multi-nationals and local partners. That always gives people a lot of comfort when they come to speak to us. Also, we are based here, we live here, and we have nowhere else to go so we have to make the best out of what is here. Thus, we have our boots on the ground and a lot of clients find this quite appealing. They get the same quality of service that you would get from our peers in New York or London, but still have a local manager with boots on the ground. We find that that is a big thing that a lot of clients value. Some of them want to approach investing in Africa from a regional point of view. If you are based in East Africa, they want to give you their East African portfolio. If you are based in West Africa, they want to give you their West African portfolio. There are others who are happy to give us their African portfolio. Another thing that we really pride ourselves in is our people. We pay our people well and give them a thriving working environment. We tend to keep our staff for many years. There is not a lot of movement. It gives our clients stability and predictability that if they come here, say after three years, they will still find the same people looking after their portfolios. Another strength is our leanness and boutique-like outfit. We are not a big company so we are quite agile. We can adapt to whatever the client wants. If you are a $2 billion business, that can be quite difficult. We are able to respond to market movements. When Nigeria was experiencing their currency erosion, we were able to take out everything we had with minimal impact to our clients’ portfolio. Our clients really like that we are bold and flexible.

What is your international reach? What is your percentage of local clientele to international?

About 60% of our assets under management is international. That speaks to our positioning. When we were setting up Nabo Capital, we were clear about two things. Firstly, our universe of investment was Africa. Any African country individually is too small to make any meaningful change to our clients’ portfolios. Secondly, we were very clear that we were attracting capital globally, local and multinational. That is why the profile of our assets under management looks the way it does. We are probably the only local manager that is most prepared to serve international clients seeking to invest in Africa.

Kenya has attracted a lot of attention for investment. Is this still the case? Is it still an interesting country to come to?

When we started investing in the continent, even our own money, the pecking order was South Africa, Nigeria, Kenya. Over the last five years, we have seen a bit of a change. Nigeria is oil dependent and the plunge of oil has helped Kenya to overtake them as a destination for capital. South Africa, despite its scale and its ability to absorb huge sums of assets under management, is growing slowly compared to the rest of the continent. Even though East Africa has its own challenges, we have found ourselves in a unique position where anyone who is looking to allocate to Africa, the first place they need to think about is East Africa. When they think about East Africa, the first place they need to think about is Kenya. I do not know how long it will be like this. Our biggest challenge as East Africa and Kenya is that even though we pride ourselves in our relatively more diversified economy, we have small and medium enterprises. We have a huge private sector, but it is very fragmented. That limits our ability to absorb huge sums of money. In terms of pecking order today, East Africa is truly at the top, North Africa is second, and Southern (e.g. Zambia) and West Africa are commodity based and still going through a difficult period.

Are you looking to partner with other institutions?

Absolutely. We cannot succeed by ourselves. We are very clear that we are a pan-African institution. So, we are working with a few potential candidates for merger or acquisition. When we talk about Africa, we think about how to position ourselves from North Africa, West Africa, East Africa, and Southern Africa. Today, our Board is constituted of West Africans, East Africans, and Southern Africans. There is going to be a lot of those kinds of partnerships. We are also looking at where the industry is moving globally through goal-based investing. We will have a lot more partnerships with institutions that will help us to meet the aspirations of our clients. If it is home ownership, we will work with developers to help our clients to own homes. If it is education, we will work with schools to help our clients to be able to take their kids to the most competitive schools and be comfortable throughout the period when their children are in school. It is such a wide area that we will always be out there looking for partners.

What do you offer for investment advisory?

Investment advisory is a subtle offering that we give. We have four types of clients here. One we call the capitalists and they are primarily institutions. Their biggest problem is allocating capital. They sit somewhere like in New York and say that emerging markets are not looking good and they want to move their money to frontier or developed markets. The decisions they make are more of allocation nature. The other type of clients we have we call hunters. They always speak in the language of “show me the deal and I will give you the money”. They do not like black box. Even individuals or institutions will say they want to build their portfolio on an asset by asset basis. We have been very pleasantly surprised over time that there are clients, even internationally, that want us to show them special situation opportunities and they will be happy to put their money in with us. They are a very interesting and some of the most interesting guys to work with. They are very exposed to investment, very sophisticated, they want to get their hands dirty, and they want to be involved in determining what risk they take. Another type of client we have are called loyalists. We find most of them to be women. They really love the Nabo brand and everything we do, especially goal-based investing. They are very sophisticated, very well-exposed, very successful in whatever they do. But they go beyond just your typical analysis. They will look you in the eye and ask themselves if they can really trust the guy who is running the ship. They are happy to meet you not to just talk about performance, but just to know that you are there and you are looking after their money. The last type are millionaires. They ask what the minimum investment is. They are middle level to senior managers in some of the big institutions in town and they are looking to build their portfolio. They have not succeeded in terms of doing big deals and making lots of money on one deal that gives them a lot of capital to start their portfolio. They are slowly building up their portfolios. They are executive managers in banks and some of the big consumer businesses around telecos, etc. but they want to build their portfolio slowly and carefully and they want to achieve that very elusive financial freedom. We found that the capitalists and hunters are the ones that drive our investment advisory. We are always out there looking for the best opportunities for them. When we find the best opportunities, we engage them to gauge their interest on an deal by deal basis. When they say yes, we help them to build their portfolios asset by asset.

What is your medium-term vision? What do you want to achieve for the company in the next three years?

We have huge dreams. For our next five-year strategy which we just launched, we are anticipating that it will be closer to $1 billion in the next five years, maybe three quarters of $1 billion. It is not much too to allocate but it still allows us to continue moving forward with our advantages like agility and actually to generate alpha above our peers. Besides that, what we really want is to bring something new to the industry. One of the things that really catches my attention is that today there about 200,000 retail clients only who are exposed to investment products out of a population of 50 million. That tells you, in terms of opportunity, we have barely scratched the surface even with our high net worth individuals. We want to democratize investment. We want to make investment something that is not just for institutions and the elite. We want to make investment what it is supposed to be: a means to an end, a means to your aspirations, a means to your children getting an education, a means to you achieving home ownership, a means to you getting financial freedom. What will really give me the greatest satisfaction would be to see our clients, both institutions and ultra-high net worth individuals, achieve their aspirations and have a delightful experience with Nabo Capital for many years to come.

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