Taking a long-term approach goes beyond our investment philosophy – it extends to our relationships with our clients and our employees. Edgar Loxton, who joined the company in 1988, officially retired in 2017, but remains involved today – as a board member, chair of various entities and committees and a trustee of the retirement funds – shares some stories from decades past.
I joined Allan Gray in 1988 on the advice of a university friend who thought I was exactly what the company was looking for at the time – a nerdy IT guy. She rated the company highly, and I rated her opinion highly. I had recently gotten married in Pretoria and really wanted to go back to Cape Town. I missed the sea and was looking for somewhere to settle.
First impressions
I joined as a computer software developer. I knew nothing about investing. I was young, happy to receive a salary, and had no inkling that I was getting in early with a company that would ultimately grow phenomenally and make a big difference in people’s lives. I had no idea that I would land up being a lifer.
My first impression of the firm was that it employed very smart people, but they were reserved, introverted and not very friendly. The environment was formal – suits, separate offices with closed doors. Portfolio managers, who were the partners, were called “Mister so-and-so”. Meetings started on time, and once the door closed, which happened at the start, you did not dare enter.
Formalities have relaxed a lot since then, thanks in part to the growth in the Retail business and the take-on of more extroverted, client-facing individuals. However, the most important aspects of the culture have endured. Allan Gray was, and still is, focused on investment management and the servicing of the clients. It was, and still is, a demanding environment; the company’s values and your colleagues require you to stretch and challenge yourself. It is a highly ethical and moral place where there is no cognitive dissonance between what is right for clients, one’s own ethics and the business’s ethics.
No such thing as a free lunch
Lunch revealed the culture of the business in a different way: Even back in 1988, the company served a meal to staff – Allan believed that this was much more productive than everyone doing their own thing, and would also present an opportunity for connection and conversation. Ellen Jacobs was the cook at the time.
Allan had a consultative leadership style; he enjoyed canvassing everyone for their opinions. It was his idea for the Investment team to meet over lunch every day and discuss investment matters. This was no relaxing lunch, though. I remember the Investment team members telling me that they had to prepare for lunch by getting up to date on the latest investment news and data, as Allan would ask for their opinion on things like the gold price.
The Investment team always ate separately in the boardroom, and I realised that a growing number of staff felt excluded, so I worked to end these separate lunches when we moved to Granger Bay Court. The rest is history, so to speak, with lunch seemingly being as important to the culture of the business today as back then – and still free.
Allan’s lunchtime antics extended to clients. I loved how, at client lunches in the boardroom (at 101 St Georges), Allan would secretly press a call button mounted underneath the table, which would result in Ellen arriving with the next course, apparently summoned by telepathy.
Growth opportunities
At the time I came on board, Allan was pursuing his idea of developing a retirement product in a life licence with investment pooling and payroll deductions. I was employed to develop systems for this business. As it turned out, we only managed to get a life licence 12 years later! In the interim, I maintained and developed the code for the fund accounting/trading/manager system.
Despite being very new and largely unheard of at the time, we developed the system on early PCs using a so-called third-generation database and coding tool called dBase III. We had very little of the technology we take for granted today – no email, for instance. Not being content with software development, I had a lot of fun installing new technology and basically took responsibility for anything related to computers – from crawling under people’s desks connecting plugs to building networks.
By 1992 I was managing the IT and Portfolio Administration teams, and later became part of the management team, first as a partner, then as a director. The company was growing and there was lots of opportunity to grow with it. We were still dominated by investment professionals, which meant any non-investment roles were fair game. I started taking on more responsibilities – from looking after the Legal, Compliance and Facilities teams to managing the building. Over the years, I have managed pretty much every department, except for the Investment team!
I had the opportunity to work with and learn from true industry legends. Although Allan was already moving overseas to set up Orbis when I joined, the high standards he set for himself raised the bar for everyone. His knowledge was awe-inspiring.
Allan had a unique approach to running the business, and his founding principles and values endure today.
I also gained a huge amount from working with Jack Mitchell, a gracious man of massive intellect, who was managing director after Francois van der Merwe. Jack had a big presence and a fiery temper – but was also very good with people. He taught me how to take minutes properly, and his sharp-mindedness challenged me to always try find something valuable to say.
An enduring approach
Allan had a unique approach to running the business, and his founding principles and values endure today. Allan used to say: “Underpromise and overachieve.” I have tried to apply this in all aspects of my life. I also learnt from him that if you want people to succeed, you need to motivate them, then empower them, then trust them to get on with it.
I witnessed this first-hand in the early ’90s when Allan effectively handed the business over to two young but very promising individuals: chief operating officer Mark Herdman, and exceptionally talented chief investment officer Simon Marais. From that point in time, the investment and business sides of the business were run separately. Following this model that had been successful elsewhere in the world, Allan rightly believed that investment decisions should not be subject to operational and other pressures. He wanted the investment professionals to be 100% focused on managing investments. Allan also used to say that if you look after the clients (investment performance and client service), i.e. look after the revenues, the costs will look after themselves.
It is a highly ethical and moral place where there is no cognitive dissonance between what is right for clients, one’s own ethics and the business’s ethics.
Aligning business and client interests was always top of mind. This was achieved by remaining unlisted, with staff as shareholders. These two aspects combine to give staff a long-term view, and the business the ability to make decisions with long-term impact and to stay the course during periods of underperformance and low fees. One example of this in practice is performance fees, where the business and client interests are aligned in that the business does well if clients do well.
Client needs (rather than wants) have always been considered first and foremost in developing products and services. The first product of the business was segregated portfolio management, initially intended for high net worth individuals and later for retirement funds. This was not really by design; there were no other investment vehicles available at the time. The second-generation product we developed was pooled portfolio management. We did this first in the form of unit trusts (the Allan Gray Equity Fund was launched in 1998) and a few years later in pooled portfolios in a life company.
There were lots of examples of innovation along the way. One is our portfolio management system, which has enabled us to manage the assets of many client portfolios using a small number of managers, while ensuring that each client benefits from the investment views of all the managers.
Looking back; looking forward
In my view, the quality of the people employed has contributed to the success of the business, along with the clear and unchanged investment philosophy that we have stuck to for 50 years through multiple investment cycles, and our focus on excellent client service across the Institutional and Retail businesses.
Looking into the future, the biggest risk is the political, governmental and economic deterioration of South Africa. This deterioration will continue to have a massive impact on the savings industry, the economic welfare of our current and future client base, the quality of education, the talent pool of future employees, and so on. There are many other key risks, but they are all a lot more manageable than this one.
To be successful in the future, we need to continue to follow the same business philosophy as we have over the past 50 years, namely putting clients’ interests at the core of everything we do. This may sound trite and pretentious, but it has worked well for this business. We must also continue to employ top people, and we must continue to meet their needs.
Allan Gray’s legacy lives on in philanthropy and the firm. Long-term wealth creation remains the purpose of the company, unchanged.