Good morning, ladies and gentlemen. Welcome to the Capital Markets Day of Investec Asset Management becoming 91 and you've just seen evidence that we have prepared for a rebranding. We've announced the new brand, which will take effect upon demerger. So during this presentation, in the circular, we refer to the 91 business. We still operate under the Investec brand until the merger is affected, but I hope you can see 90 or you saw the logic behind the brand choice and also you could be comfortable that we are well prepared to execute on that.
Just some housekeeping. We have many people dialed in. This is a webcast, not a live presentation in its format, so I'll be slightly more formal than usually. People in London should excuse me for that, so that we make sure that people who follow from their desks and on compute via their computers or their mobile phones can appreciate and get the whole entire presentation. Today's question and answer session is for shareholders and analysts.
The journalists will have their own individual sessions starting later today and tomorrow. So please allow us to just give the people who own our shares and who ultimately will be responsible for making the price the chance to use this opportunity. I welcome all the others who have dialed in and would like to now, along with my colleague, Kim MacFarlane, who is the finest director of the soon to be listed 91 and also an Executive Director of the Investec Group and currently Finance Director of Investec Asset Management to help us with the to work with me on the presentation. Actually, it's the 1st December or 3rd December, but on the 1st December, Kim and I have worked together for 26 years. So Kim, thank you very much.
And you didn't do what I asked you then, that's to keep staff numbers under 25. Ladies and gentlemen, it is important to start with why we're in business. And this business that I'm presenting today has developed clarity of purpose in a very fast changing world since its existence. Today, we're discussing a very significant step in the development of the Investec Group. I have my Co Chief Executive Officer, Fani Titi here and Nishlan Samoj, the Finance Director of Investec and Chief Financial Officer to answer any questions on the demerger if they may come up, but we had a call this morning specifically dealing with demerger questions.
So we will keep away from technical, but go on to the strategic rearm here today in this session, because this is part of the simplification journey of the Investec Group and it's also part of the next phase of growth for Investec Asset Management under the colors of 91. We're evolving our ownership and our structure, but we're not changing our name. We are changing our name, but we're not changing who we are, and that's really important. We are the same business that has evolved organically and sustainably over the last 3 almost 3 decades. And our purpose remains the same, investing for a better tomorrow.
And we do this by building a better firm, by trying to invest in a better way and by contributing to a better world. So thank you very much for taking the time to understand us better. Now let me just come back to the demerger rationale. Why does the demerger work for this business? It works because we will be in a more simple, more focused environment, which will facilitate growth.
And we've highlighted 4 benefits for the demerger, which is the value of independence in active asset management sector. I don't have to go into it. It is very well understood. It also creates a better context for employee ownership because now there is no cap or limit or we are far from the cap on employment employee ownership, which means we can satisfy the equity demand for our long term employees and many of our employees are in it for the long term, if not most. It is therefore we're therefore creating a structure which is ideal not only for talent retention, but also talent attraction in a very competitive talent game, which is the asset management industry.
And finally, it aligns us all, clients, shareholders and staff and the communities we serve, with the long term and not the short term. What will change is the shareholding structure upon demerger. Currently, Investec Plc and Investec Limited own 80% of the shares in Investec Asset Management and the staff owned collectively through a management vehicle 20%. The demerger will allow more a bigger free float, a free float of up to 60 5%, but given opportunity to the people who work in the business, along with new shareholders to buy in and add to their investment. This is not and may I just say it very clearly, said it before, this is not a liquidity moment for staff or anyone who's worked in this business.
This is an opportunity to invest more for the long term because there is a story ahead of us, which we're all as people who work in the business very excited to participate in. We are listing via or retaining the dual listed structure of the investor group because it enables us to remain connected with our roots, particularly the South African market. 91 will be premium listed in London, with a secondary listed on the JSE, that's 91 Plc, 91 Limited will be listed on the JSE exactly in parallel with the current Investec structure. That aligns us with all regulatory requirements. And finally, I just want to ensure that shareholders will all of you will have equivalent economic and voting rights.
No special votes, no controls, mechanism, etcetera. Our shareholders will have full rights as in any other PLC or Johannesburg listed company that is premium listed. We are changing our name, but not who we are. I think it's really, really important that this is a demerger of 2 of within a business that is not going to lead to massive change, particularly from a client side. That's really important.
We are the same business. We're just simply giving you transparency and clarity of what is inside the Investec group
and we're setting these
businesses on growth paths, which we each on their own growth path in order to maximize value and growth potential. In the circular, we've announced our Board. I'm not going to go through every member except to say this is a very experienced Board with significant international experience, PLC experience, strong governance experience and very exciting as well, very important, it is independent. Our new Chairman is Gareth Penny. Many of you may know him, but it's an independent he's an independent Chairman.
And finally, our Board is also has a very significant, I think 50% female representation, which we're very proud of. So we think we're in position to be a well governed independent business. Today, we're going to address 3 things in the agenda. Firstly, the key differentiators of this business in what is a very crowded market, then review our strategic principles and priorities, which you should know by now, but we'll go through them again and emphasize. And then finally, Kim will look at the financial or will cover the financial performance and the outlook of the business for the business.
This is a global asset manager with a very strong emerging market heritage and therefore, in tune with the current developments in the world As the world becomes more multipolar, as the economic weight shifts East, we will be confronting a very different world from the one many of us grew up in and many of us had to learn the trade. It has a unique culture and combines that with a high degree of employee ownership and that's an important differentiator from its listed peers. Then it has been built organically and sustainably over time. Yes, we've done 1 or 2 acquisitions along the way, but we've learned the value and the power of organic growth and that is hope that will be the prime driver for our future success. I've covered the point of emerging market heritage, which I think is important, but also a growth vector for the business as you'll see when I discuss the product offering to the market.
And finally, this is a distinctive this business provides distinctive specialist active strategies. That's what we do, No passive. We underemphasize core. We want to be relevant to our clients in a world where they demand more. This will not be achieved if we didn't have the right business setup.
And I think it's really important to understand that this is a midsized business with superior global reach. We have access to large and sophisticated markets. We deal at the sophisticated end of the institutional and the advisor channels. We have significant growth potential across our existing skill sets. So we don't need to change massively in the near term to continue growing.
Of course, you have to be open to change as the markets evolve around you. And finally, the business has an attractive financial profile with high cash conversion and we want to emphasize our capital light business model. But at its heart, this is a people business. Our culture is a vital element of our long term success, and we strive to do the right things for clients, the communities we serve and our people. Our people are the freedom to be themselves, and we talk about freedom to create, but freedom to create within very clear parameters set by our values, set by the team context and set by the strategy.
We combine individual expression with collective ambition and team discipline. We wish to insist on result we always insist on results, but never at the expense of the human spirit. Relationships matter. Relationships with the outside world, relationships with clients, regulators, but relationships amongst ourselves, really, really important. We believe this is a team sport.
And finally, we balance our relentless drive with decency. It's all about the drive to be better. Every day we wake up, we think about building a better firm, investing in a better way and contributing to a better world. The evidence of this is clear if we look at the longevity and the stability across our business in terms of people. We are differentiated by the experience and the depth of our teams.
This is not a new management team positioning a turnaround or deal synergies. What we present today is a business which has been carefully built over almost 3 decades and which in our view has significant potential. Just to look at the numbers, you'll see that the leadership in each of our three pillars have been in place between 15 17 years and Executive Committee level, by the way, which has some new members, has 20 years with the firm, not 20 years in the industry. And therefore, if you go further into the business, you'll notice that the average tenure in each of our three pillars, the investment, the client and the operations pillar is on average 7 years. And we believe that provides an enormous strength, particularly in testing times.
But longevity itself is not enough. There has to be alignment. And we think ownership and alignment through our compensation model, which we followed since inception, has helped us to deliver value not only for shareholders, but also the markets with the clients we serve. And since 2013, when employee ownership was established by a buy in and may I just mention and be very clear, the management of Investec Asset Management did not get shares. They did not get them through dilution or anything.
They bought them with after tax money and they own them collectively for the long term. That's another differentiator. But now we have the opportunity to widen ownership for an through an employee benefits trust and our share schemes, which underlie that. And we also have the opportunity for the leadership group or the senior management group to continue to build their position in the business and own it collectively. So this is not a sellout, this is a buy in.
This business has been organically built over almost 30 years. This is the picture. Earnings have largely followed assets. We've had 3 distinct phases. We're going into the 4th phase now, the phase of independence, the phase of really, really using the platform that we've built over carefully built over so many years to benefit not only our clients, also our shareholders and to grow the business so that the staff can have an experience which is worthwhile and which allows them to express themselves and do business at the highest level, better firm, better investing for a better world.
I come back to our emerging market heritage. We were a single country business in a smallish or a midsized emerging market in 'ninety one. That has evolved through the internationalization phase to a business which operated in major developed markets, but ultimately never lost touch with the fact that we know how to invest globally and we know how to invest in emerging markets. And today about those of you who build models should note that about just under 60% of our asset exposure, I. E, of our investments we do on behalf of clients are exposed to emerging markets and about 40% of that to developed markets where we're also competitive and want to compete.
Our client base is well diversified. Our capital sources come from both the emerging and the developed markets, approximately 51% from developed and 49% from emerging markets, which means we have a well balanced supply of capital to invest. We do that through distinctive active specialist active strategies. On an asset class basis where you've come to know our business, we have about £54,000,000,000 out of our 121 in equities, £34,000,000 in fixed income, which is predominantly emerging market fixed income, dollars 22,000,000,000 in multi asset and approximately $4,000,000,000 in alternatives. You would have noticed that we manage these assets not purely by asset class, but by skill sets and we've organized our investment team in 6 skill sets, 3 of them are equity skill sets, the other 3 are asset class related fixed income alternatives and multi asset.
And you would also notice that the number of people, which I have in the slide here, is slightly different from what we presented in the 1st Capital Markets Day, simply because we're a dynamic firm and we move. So for example, we presented our fixed income as emerging market fixed income, but we've actually brought some of the developed market people over into the fixed income team since then because we felt that it was a more appropriate place and we focused our multi asset business on growth because we see a substantial growth opportunity. But largely, we serve the market in 2 ways. We provide specialist active strategies and outcomes. The outcomes is obviously more the outcomes product range is obviously more aligned to the multi asset side and to the solutions that clients purchase or invest in DC context.
In the DB context, it's more the specialist active outcomes. But those are the 2 things we do and we serve 2 channels as you'll see later. We have a diversity of skills and we have the capacity to grow. Those are 2 important components to our business. If you then look at investment performance, the Siletz Qua non of this industry, of this business, it's been good over time, solid.
But what's more important, we think we have adequate investment performance in the right areas where there will be demand and therefore we can continue to grow. But that is our core focus every day to beat benchmarks, you don't always beat them, to beat them and to deliver performance good performance relative to peers. In this chart, you see some evidence. It is very difficult though to report in aggregate level in an accurate way. And I think the relevant parties in each of our areas we compete how well we do against both peers and the benchmarks.
And at this point in time, we believe we have a strong performance platform to grow the business from. We move to our strategic principles and priorities in the business. Now they have not changed for many, many years. Let me recap. We offer organically developed investment capabilities through active segregated mandates or mutual funds to sophisticated clients.
Secondly, we operate globally in both institutional and the adviser channels and we serve those channels, all those markets through 5 clearly defined geographically defined client groups. And finally, we have an approach to growth, which is driven by structural medium to long term client demand and, of course, supported by competitive investment performance. So this is a patient, organic, long term and intergenerational business. Our strategic priorities, therefore, also don't change that often. Firstly, it is important that we are set on capturing the growth inherent in our current capability set.
So the current platform has growth space. Secondly, we developed differentiated strategies, anticipating client needs. Thirdly, we focused growth on professionally intermediated channels, institutional adviser. We stick to our knitting. This is not a direct business and hence, this is one of the reasons why this part of Investec changed its brand, whereas the B2C part, namely the Bank and Wealth area, which deals directly with individual clients, would have had a far bigger brand campaign to convince their market that the brand is still relevant.
I think important to note that there's a 4th component to our priorities, which very important for us is we the biggest single challenge the world today faces is that of sustainability. Any business should take it seriously. But in this business, where we are stewards of long term capital and long term outcomes for our clients. We need to take it even more seriously. So more about that later.
This is very well known. It's BCG data just so showing where the growth in the active industry is. Now this is not a small industry relative to our business. We talk about anything between sort of €80,000,000,000,000 and €101,000,000,000,000 funds to be professionally managed. We talk about revenue pool somewhere around €300,000,000,000 in the very near future.
We operate and focus on 3 areas which are growing, the active specialist solutions and alternatives area. Now clearly in alternatives, we are pretty small at the moment, more about that in due course. But we believe even in the current areas where we are significant players, there remains growth if you do your job well enough. And that's the focus of this business, not how big we can be, not how many businesses we can buy, but whether we can do our job well enough. And that takes a great deal of application and a great deal of bandwidth and time.
And therefore, we are quite comfortable that we can capture the growth that we can focus on the growth inherent in our current capability set rather than do too many new things in the near term. Clearly, in equities, at all our asset classes, we have a global opportunity, but also regional opportunities. And I'll explain that when I take you through how we evolve and develop the business. Then you'll understand why global there's a global and regional interplay. But in all of these areas, we feel or many of these areas, we feel there is a significant growth left in the current construct of the business.
So let me take you through how our business tends to evolve over time. Firstly, a lot of it is bottom up, not top down. We have creative people who see opportunities, who exploit opportunities and that's very, very important. And they stay there for a long time, which means we can trust their judgment. But at the turn of the century, we didn't have a global equities platform in this business.
And those days, those of you who have my color here will remember that global portfolios were made up of regional components rather inefficiently. One of the targets we set ourselves is to develop a genuine global equities platform and ultimately leave space for different styles or different ways of doing it. And an example is our 4 factor platform, which is one of our biggest equity platforms or our biggest equity platform indeed. We really worked from bottoms up saying how would we do this without armies of analysts spread around the world, without regional building blocks. Therefore, how do we screen, how do we efficiently look at the market and how we then interpret the data quickly and efficiently and regularly without behavioral bias to pick the right stocks for a global portfolio.
And that, of course, has evolved to a very significant capability today. Similarly, on the value side, we followed the same process and later our quality equity capability evolved in very much the same way. People believing in a certain thing, in a certain way of investing and then evolving it, but doing it in a genuine global way. And today, we have a substantial global equities business, which we've evolved into a regional equities business because if you know if you can compare, you know when markets are cheap, you then understand markets better and you dig deeper and you dig into it into that. So out of the global platforms, we have also evolved and developed some significantly competitive very competitive regionals, one which I'll refer later on this slide.
But similarly with fixed income on a different way. We used to manage fixed income in emerging in a single emerging market in a local currency and it was quite obvious to us that the world will evolve from just developed market fixed income to what was then a higher yield and still is a higher yield opportunity in as bond markets grow around the world. And we turned that starting point into an emerging market fixed income platform investing in both dollar debt and local currency. And today, we're a substantial competitor and if people mention that category, our name will come up. But it's again, it was built by portfolio managers who saw the opportunity, who then built teams around them.
We hired skill in, but we didn't hire a ready made team. We built that over time so the IP is part of our business and part of who we are. And today, that is a very important platform in our business. Our multi asset business was a rather traditional multi asset business, which went into then diversified growth and others. But after the crisis, we realized investors were seeking income and investors were seeking income and they were chasing yield and we didn't think that was a good thing.
We still think the yield chasing may end up to some extent in tiers. What we did, we took one of our best people or best sub teams in the multi asset team and said, we need a multi asset income solution for clients, particularly DC clients or adviser intermediated clients, which can capture some of the opportunity, but manage some of the risks and these major risks involved in this search for income and in the thirst for income. And today, one of our fastest growing platforms is our global multi asset income platform, largely in the adviser space, but it's also attracting institutional opportunity. But we've put a team there and a leader there who's been with us for many decades, which we could trust. So this is the way we evolve.
Similarly, from our Global Equities platform, we developed an Asia offering. Once you're in Asia, you can't ignore China. And again, portfolio managers and his colleague came and said, well, we think China is a huge alpha opportunity. We want to be part of it. Long before raising assets, we started investing money, some of the money of clients who would allow us, some of the money of other portfolios and we who wanted which wanted exposure to China.
Today, we have a very, very competitive China, Asia or onshore track record that is going to could translate if we operate the business correctly into very significant growth in the long term. Obviously, this has been postponed by what's currently going on between the U. S. And China. We would have and we were actually planning for some action in the near term, but the someone who tweets a lot got in between us and that growth.
But we are confident that developing those skill sets for the long term and ultimately applying client funds in them when you really understand, when you really know what you're doing, when you proven what you're doing is the way to evolve. So as a shareholder, don't expect quick fixes, don't expect quick changes in strategy, don't expect us to one day be offering the market one thing, the other day, the other. If it gets tough where we are, we will simply tough it out. Finally, in the sustainability world, there is a great deal of action at the moment. We have also looked at offering clients who want specifically or specific sustainability oriented offerings.
Number 1, positive inclusion public markets product or strategies. Number 2, there's an ever growing impact space, which is largely driven around infrastructure and credit. We've been there for quite a while, you'll see later in the presentation and that is an area where we again will show commitment probably ahead of significant client flows because those skill sets are simply necessary. But we also agree that ESG in a broader way, but also sustainability needs to be embedded right through your investment platform to remain competitive. So that hopefully gives you a sense of how we evolve as a business.
This is an important picture of because global it's not just what we do, it's who we reach matters. We are the midsize business with an invested global client platform. It's taken a long time to do. It's taken a great deal of diligence from our teams. And today, I can show you here the detail of what we have.
And what is interesting is since 2010, we've grown faster in terms of net flows in most of the markets we serve except in our original African market where we've grown with the market. And if you look at the numbers of people and the assets, you can see that in the European time zone about excluding Africa, about SEK40 1,000,000,000 for a similar amount in from Africa. And then the Americas from a late start now about €17,000,000,000 under management that is both North and South America. And in Asia, Asia Pac a 20 odd 1000000000 platform which we expect to grow significantly. So a well diversified source of capital and that's really important in this world where overexposure can affect the firm.
But we think we can grow in all these markets and particularly the one where we haven't grown fast relative to the market and that is South Africa, we think we're positioned as a business to grow or at least be positioned to capture some growth, not necessarily market size growth because the market is not going to grow that much, but relative growth I. E. Market share. If you just look at our position, having a very strong position as the largest third party manager, we have identified 3 areas which are under penetrated by our firm, which is the institutional equity space, adviser multi asset and fixed income, so those three areas. We've also our proposition is very clear in that market is that of a high conviction specialist as it is across the world, but we have industry leading service platform and that does make a difference in this business.
We have very, very strong people there, experienced leadership team and a well resourced and rejuvenated, but long tenured investment team and a high commitment to the diversity and transformation requirements of that market. And on top of that, I would never have said we think we can grow if we didn't have a track record that speaks to it. We stick to our knitting. We for a very long time served 2 market niches, the sophisticated institutional end, I. E, consultant intermediated or sophisticated trustee board market, including sovereign wealth funds, including foundations and other sophisticated clients and on the advisor side.
And what's happened recently is the advisor platforms I. E. Bank and independent financial advisor platforms or insurance platforms have become increasingly sophisticated. So both these markets actually do not purchase off brand, they purchase strategies from you that they or invest in your strategies when they know your people well, when they know your business and they know your processes. And that is what we focus on.
So you will not see lots of high street activity from us because that's not who we are or where we see significant growth. Now clearly the institutional channel is much larger at this point in time. Revenues are closer linked institutional and advisor, but in both areas, we see significant opportunity and we will stick to these channels for the foreseeable future. I think we've spoken a lot in the years to come about the adviser channel and just want to show you that the plumbing has been done for a sustainable growth phase in this channel. And it's really all about getting access to major platforms, linking your firm the firm to them, linking our people to them, knowing the people in those platforms.
And all we've shown in this chart is in our major regions, we've displayed the fact that we have access to the key platforms. And of course you can always sign up more, but you really if we work this infrastructure hard, there is significant growth for the business. And of course, knowing that adviser product is of late at least, significant part of that was in the income side and in the fixed income side, which means it didn't just have it's not just an equity sale, it's often a solutions engagement with a client, but we've shown significant growth in this area. And more interesting, since we started focusing on the solutions part of our business, largely since 2015, we have shown faster growth there because that is where that's where the investor that comes out of the pension system or the investor that generates extra net wealth goes and it goes to adviser or a bank platform to help them find a solution and that is an area that we see as a significant growth opportunity for the business. So advisor and institutional, in the institutional channel, again important, it's about the client facing team.
It's about a very clear product presentation of focus and relevant specialist strategies, which are offered to them backed up by investment teams they know and understand. We have substantial consultant traction in our major markets and therefore the endorsement to approach the right the kind of clients we deal with. An example here is the North American institutional market, which is a very big market, Just showing you the growth even in a very short term there, dollars 25,000,000,000,000 market. Of course, we can't address all of that market. There is specific niches in that market we address.
But if you look at the demand away the swing away from domestic to international strategies that plays to strength. And then finally, from a growth point of view, the evidence is how we've grown our U. S. Institutional footprint since 2010 and you see it at the bottom of the chart. But we believe that there is significant growth opportunity in spite of the move to passive, in spite of all the other headwinds that are so often spoken about when people think about the active management industry.
I almost want to say to people who talk about that all industries are tough. It's not just this one. Talk to any businessman, there's always competition from something and we just better get used to it. We probably had an easy ride in the beginning of this industry. Finally, sustainability really matters, but in our case, it starts with purpose.
Our purpose, which if you ask any the people of Investec Asset Management, if you ask them whether they've agreed with us, were they part of it, they know it. It's all about investing for a better tomorrow. And it's all about the three things I've repeated I've mentioned to you earlier: building a better firm, investing in a better way and contributing to a better world. Now we have to ensure that sustainability is at the core of our business. How do we do that?
Well, we've broken it into 3 key channels. The one is how we invest. We have to invest in a way where ESG is embedded in what we do, where all our investment strategies understand. Now, of course, this is work in progress. Of course, no one's perfect.
And by the way, we're not trying to become a sustainability boutique, because we think the mainstream should be sustainable. And actually, that's the growth rather than copying the very successful boutiques which you all know. So it's invest. Secondly, it's engage. Now it's how we engage the market out there, society out there.
And that if you follow the Internet or just go do a search for that, you'll know that my senior colleagues and I have been very, very clear about the fact that we will contribute in the discussion and the debate around dealing with these channels, not only climate, but the broader sustainability channels, challenges that humanity is facing. And in that engagement means thought leadership, it means participation in industry and other activities and it means showing clearly putting our colors to the master of sustainability as a business. And finally, how we inhabit. Now as we prepare to become a public company, we need to report. We need to report clearly on that and you should hold us to account.
Now in our business, we don't have a smoke stack business, but we do fly a lot. We are aiming to be carbon neutral in our 1st year of reporting, but that's of course scope 2. We can't account for our portfolio companies and our clients, which is a further level of carbon neutrality you can achieve. I think it's important to understand that we engage widely and here's some evidence of all the from of all the activities we as a firm and some of us individually have engaged whether it's inclusive capitalism, whether it's a recent joining of the Impact Investing Institute here in the UK, there are many others. But since 2,008, we've been thinking about this because we developed we engaged in the impact investing world since then.
I would believe investing money across frontier markets itself is impacting and emerging markets has delivered positive impact. But in the sort of more technical sense that of measuring your true impact, we've been in for it for some time and we want to grow it. But we also want to grow the integration and make sure our integration is at the highest level across our investment platforms and we need to develop public market solutions, public markets inclusion strategies, which clients can and investors can identify with because we can sense and a recent survey we commissioned confirmed that there is significant client demand in that area. So sustainability is part of what we do. It's inherent to what we do, but we're not trying to be a sustainability specialist or boutique.
We're a mainstream money management firm. Let me recap our strategic priorities. It's capture the growth inherent to our current capability set, develop differentiated strategies, anticipating client needs and I the latter example is one of those. Focus our growth on the professionally intermediated channels both institutional advisor and finally make sure that sustainability is at the core of our business. So now I'm going to ask Kim MacFarlane to come and take you through the financials and look and deal with some of our outlook questions.
Thank you, Kim. Kim.
Thank you very much, and good morning, everybody. I'm going to probably be quite formal in the way I present here, so please bear with me. There's quite a few numbers here, and I just want to make sure that I can clearly articulate, both especially for people actually listening to this recording as well. But to start, I'd like to remind you that these the figures I'm going to show here are all reported numbers that you've actually seen already. And in many ways, just a continuum of some of the numbers that we showed at the CMD, gosh, just over a year ago.
There is, however, one key change on how I presented these numbers at the first CMD, and that is I've actually excluded the silica operating profit from these figures. This, therefore, allows me just to on the Pure Asset Management business, which I think is what we want to do here. Okay. And then to clarify, silica is a 100% owned subsidiary of Investec Asset Management. It's an established industry utility with more than £100,000,000,000 of assets under administration, so it's mainly in third party business as well.
It has just over or just under actually 500 employees. But as you'll see on a later slide, it actually doesn't generate material profit because the idea is always that it would go and reinvest whatever profits it had back into its platform. So through these slides here, I just want to emphasize that you can see here we have a long track record of organic growth. And as Hendrik mentioned earlier, our AUM growth going back to 2,009 has a CAGR of 15%. Over this period as well, our operating revenue base has grown from 190,000,000 to £541,000,000 and this is predominantly management fees.
We have, however, experienced a declining management fee rate as experienced by much of our industry, although we still consider this to be strong at the 48 bps. We have continued to invest in our people and our capabilities from our existing capital base, And this was reflected in our operating expense line. Yes, although discipline and spend, it has increased with the business growth that we've experienced. And finally, our operating profit has grown across the cycles. Although our operating margin has fluctuated around the 33% to 34% with some recent downward pressure, This is a highly cash generative business, as you're going to see later on.
So it's important to highlight here the diversity within our business model. Our revenues and our profits are sourced from a range of asset classes, strategies and geographies. We have limited concentration risk in any particular area, meaning that we have financial robustness, which limits our vulnerability to specific market shocks and factors. So this slide, which is again something I showed last time, breaks down our AUM growth over the past now 6.5 years. The key message here is the consistency and strength of our organic growth, again something Henrik referenced earlier.
We had strong net flows last year and again have done so this year to date. Our average talk ratio has been strong, around about the 5%. And we do recognize this figure is actually high. And therefore, at this point, I would caution on you using this going forward. As you can note, that even as we saw in FY 'seventeen, this actually can go negative on us.
The next slide. Okay. As mentioned and reflected here, over the past 6.5 years, our distribution team has generated net flows in every year other than FY 'seventeen. This demonstrates to us our client relevance. Clients engage with us and commit with us on an ongoing basis, even in a moving market.
So yes, we had a strong start. FY 'twenty was 3,200,000,000 of flows, of positive flows, that's net flows in fact. And in the first six months in the first 6 months, against 6,100,000,000 of net flows in the prior year. And this is against the backdrop of increasing volatility in global markets where many others have actually been experiencing and suffered outflows. Net flows are broadly spread with no dependence on any one asset class or region, as you can see bar graphs here.
And in line with our business model, this is a mixture for FY 2019. We had fixed income net flows from Europe and AfroClient Group, and that's reflected in that green bars and 4 factor equity from U. K. And the AfroClient Group, and the equities there in blue. And for HY120 in the first half of this year, we've had strong flows from fixed income, again from Americas, Client Group, Europe and the Africa Client Group.
And we had strong flows from 4 Factor and Quality Equity from Europe and the Africa Client Group. So as you can see, quite diverse, different asset classes, different strategies and different regions. And as Hendrik was talking about earlier, you can also see we've had particularly strong net flows in the adviser channels since FY 2018, which is in line with our strategy. Okay. So now these are the Asset Management operating earnings.
As I mentioned earlier, I've stripped out and I show on the next slide the silica profit and the net interest income because I believe this is a clear way of actually showing our business here. The other thing I just want to highlight here, I've not adjusted the NII, the net interest income for IFRS 16. Therefore, what I've got here are like for like comparators and ensures, therefore, that the operating margin that you see here is a true position of our business. The adjustment for '20 should be 1,400,000. That's the IFRS 16 adjustment.
And so now I've left that in our operating expenses line. Know some firms do it differently, but I thought that would be a good way of putting it across at this point. Our revenues are mainly driven by high quality management fees, which have increased in line with the growth of the AUM, as you saw earlier. Diversification and product evolution helps us to defend our fee levels, which are currently around 48 bps. You'll see here performance fee mandates are predominantly based in South Africa and only comprise a small portion of our total operating income.
And I'd like to point out that we don't expect this to grow or to change larger going forward. I've also shown here the FX gains and losses, and these arise from the USD S. D. To GBP movement. In fact, one of the challenges we have is that as a firm, we report here in GBP, And you have to recognize that less than 20% of our revenue is GBP based.
And therefore, intermonth movement in the revenue is U. S.-based sorry, sorry, again. There's been 20% of revenue as GBP based, and intramunt movement in the USD to GBP exchange rate results in FX gains and losses. So just over 40% of our revenue is USD based, with the balance being in ZAR, emerging markets and other currencies. In fact, the 3 concerns I think we believe we have as a business that puts it at financial risk are beta, low alpha and a strong sterling.
Because you have to note further that over 50% of our cost base is in sterling. I'll leave you to do the maths on that. So as you can reflect here, total operating revenue increased by 7% over the past 6 months and 6% in the prior year. Our operating expenses increased at a similar rate in the past 6 months to be at 7%, and therefore, this obviously results in operating profit increasing to 7%. Our operating profit margin has remained stable since 2019 at around about 32%.
And recently, we've had some downward pressure on this as the cost of MiFID had now been included into our cost base. Our headcount has increased to over 1100 employees, again supporting our needs to invest in our growth. So this continues to bring us to what our reported profit was. As I said, I mentioned and introduced silica earlier, our transfer agency business in South Africa, This is something we established back in 1999. And I'm now showing the profit separately.
And as you can see, this is not a material figure. I will note that this does include revenue from IEM. I'll come on to more detail on exceptional items later because I think it's something I just actually do want to expand on. But these mainly represent the nonrecurring demerger expense related costs for HY 120. I'll also show our tax here, and our effective tax rate has been stable around 20% to 20%, and we don't expect, all things being equal that is, for this to change materially going forward.
So therefore, this results in our reported profit after tax being largely flat over the period.
All right.
Let me now go into a little bit more depth onto the actual cost of the business before I get onto the exceptional items. And I'm just going to focus mainly on the last 6 months because it has largely followed a similar trend to what we saw in the prior year, and I now went into a bit of detail on these numbers last time as well. Again, as you can see here, twothree of our cost base is staff related. This is a people business, as we keep talking about and Hendrik referenced earlier, and therefore, we do invest in this heavily. The material growth over the past 6 years has obviously been people.
Our headcount growth grew by another 1% in the past 6 months and 8% for the full prior year. This is fairly evenly spread across the business, although there was a recent focus on growing headcount in North America. I'd like to clarify that over 50% of our staff costs are variable, so we believe we're well positioned to protect our margins and our balance sheet in a market downturn. System and information costs you see also continue to grow, as was also seen last year. And this is a mixture of MiFID costs coming through, which again is we've seen right across the industry, and these numbers are baked into our figures, and a continual investment into our IT systems.
We have an ongoing agenda reviewing our systems and manage our spend here closely to align with our business objectives, efficiency and growth plans. There are, however, no material spends forecasted here, which is largely focused on data and looking to improve a number of our front office decision making tools. The other thing we've had to do is invest into new offices, a material one being the London offices, where we are currently having to expense double rental. We do move next May into the new offices, which is actually just across the road here. But unfortunately, we will then have to turn our focus to our smaller New York and Hong Kong offices where we're going to have to make changes there as well.
So on the right well, on the little bar chart there, on the right there, I've gone and shown a breakdown of some of the other numbers. So our remaining staff costs are broken down into the following key areas, largely being around fund admin and system costs. As I said last time, we outsourced a large portion of our back and middle office operations. And this, I do believe, has shown cost advantages and has really helped us to grow and scale our business on a global basis because it's given us that global footprint.
And this
is something we don't plan to change going forward. Other costs are around growth in legal other costs, which is in there shown, are around growth in legal, professional and regulatory spend. Just something to highlight here. That increase of €8,000,000 in the bottom graph there from FY 'nineteen looks high. This is largely because we had to in FY 'eighteen, had a number of credit adjustments.
So the starting base was actually understated in FY 'eighteen. In that period, we actually had some large refunds around VAT and some other similar type of recoveries. So that sort of exaggerates that €8,000,000 growth in other in the blue at the bottom there. I'd also like to point out that we benefited from the SA Low Cost base of many of our operational and IT services operate out of our Cape Town base. And that graph below, as I said, in blue, just shows what the prior year cost growth and, as mentioned, it does have a similar trend.
Okay. At the last EMD, we flagged that transitionary costs related to the demerger from the Investec group would be manageable. The ongoing in fact, the ongoing additional costs represent less than 1% of our FY 'twenty costs, and therefore, we believe they're not material to our financials. They're generally in line with what we anticipated and discussed last time and based on what we anticipated these costs to be. And I think this really reflects how independently we have operated thus far, even whilst being part of the group.
And in fact, I think I touched a little bit more detail on this last time when I showed that the dependencies were limited to IT, some HR services, workplace and a few other central services. But let me go through the slide quite carefully because I think it's an important one, and I know we've had a lot of questions in this particular area. So to start at the top there in the graphs, I've shown what the expenses were for FY 'nineteen, what we've actually expensed in the first half of this financial year and then some of my estimates going forward for HY 'twenty, and then give you a little bit of guidance as to how these numbers will actually pan out in the financial year 2021. So the first line, I've got recurring operating expenses, and these include new corporate functions and some and an increase in some of the replacement services that were previously undertaken by the group. Now these costs will stabilize, except that and I'd like to highlight this point that we do anticipate an increase in our market in our recurring marketing spend from 2020 onwards.
So that's really where the guidance is coming through there. Operating nonrecurring expenses, which is the second line I've shown there, include the double accommodation costs, okay, that's not related to the actual demerger, but I put that in there. And also cost of duplicate services as we transition from the group. So these are costs that we've had to run double, like payroll and some of these, for example, general ledger moves, which we've had to do at the same time. Quite obviously, these costs are going to run off next year, and they will obviously trend to nil going forward as well.
And then the last one are the exceptional items, which you'll see I showed below the line earlier, and we've excluded these from the operating expenses. And these are the one off project costs of the actual demerger and specifically costs around the rebranding of IAM to 91. So these we will obviously these will decrease from what you've seen here in 2020. And again, looking forward, these will trend to nil as well. So let me be clear on one point here.
We anticipate that the increase in the recurring operating expenses, which is the top line I've got there, will actually increase, and that's going to be largely around marketing spend going forward. And this is going to be offset by the decline in the nonrecurring operating expenses, which you've got on that second in the second line there. Therefore, the net effect will be flat for these recurring operating expenses. Moving on. We have a single operating platform in place, and this has given us a proven ability to scale.
And at the same time, we will continue to invest to support our long term growth ambitions. And in this regard, we will look for additional initiatives to enhance our efficiencies, and these are going to be in the form of further outsourcing across the value chain. We work very closely with Safe Street, one of our key outsourced partners. In fact, one of our partners that go back to 2,004. And with them, we've outsourced both our back and our middle office.
And we do believe there's further scope in the long run for them to move further along that operational value chain with us. 2nd area is improving investment technology. I mentioned this earlier and actually closely links to the previous point there as well. We will look to automate and approve the work done around our investment decision making tools, especially within the front office. Continued low cost location usage.
This is effectively looking to move further activities to our operational base in Cape Town. And the last one is evaluating the opportunities. What does this mean? This means understanding the prize in more detail versus the cost of the actual launch of any opportunity we go into. And also to be clear, we don't anticipate opportunity we go into.
And also to be clear, we don't anticipate any material outlays for these efficiency initiatives. This is an important but short slide. We benefit from a clean, uncomplicated balance sheet with over £2,000,000 of equity. Our capital position is head of our regulatory requirements, and therefore, we have no intention of seeking external finance in any form. We also continue to largely expense all our costs and have avoided in the past and the future well, and have avoided encumbering the balance sheet for any capitalized costs.
And lastly, as we all mentioned I've mentioned earlier and so is Hendrik, we are a highly cash generative business, which supports our dividend paying capacity while maintaining meaningful investment into our business. To note, as you can see from the slide, we have paid out 1,300,000,000 in dividends from FY 'nine. Going forward, we will target a payout ratio of 50% of operating earnings adjusted for tax. We will then pay a special dividend, which will comprise surplus retained earnings not needed for regulatory or specific investment needs. This will be agreed with our Board of Directors at our Board meetings.
We are listing at the end of the financial period, as you saw in the circular, So the first dividend for new shareholders will be paid in respect of the 6 months ending 30 September 2020. At this point, I'll now hand back to Hendrik.
Thank you. Thank you, Kim. Ladies and gentlemen, I'd like to just remind you of something again, that we are not trying to change the capital light model. We're not raising capital in this demerger. We have no intention to.
We want to stick to the model you've come to know that has delivered that flow of cash to shareholders and added value to clients. And furthermore, very importantly, I'm saying for the 3rd time today, senior management or staff are not selling out, they're investing. This is an opportunity to create a model where external shareholders can be allowed or have the opportunity to partner with the management team growing a knowledge intensive capital light business or knowledge intensive people intensive capital light business for the long run. So allow me just to summarize the strategy or to go through the your papers are here on top of mine. To go through the final strategy summary because I think it is important.
You have a business which has a strong track record both in investments and as a business. You have a very clear culture combined with team longevity. You have an excellent client base. I mean, this business has we've built the client base to die for. We need to do more with them for the long run.
It has global reach. It has a clear ownership model, which aligns interests. Importantly, our growth strategy builds on existing strength and we remain to keep our business model simple and capital light. And we have 4 attributes now which we hold dearly and which we think will be very important in helping us add value over time namely independence, focus, clarity, combined with highly motivated people. So in an industry where people are increasingly often very negative about the prospects, we see opportunities or growth opportunities for those businesses, which operate to the right standard and we're going to give our best to operate to the right standard in the years to come.
Going to Winston Churchill, he said, a pessimist sees the difficulty in every opportunity. An optimist sees the opportunity in every difficulty. Today, I'm an optimist, ladies and gentlemen. Thank you very much. Can we have we'll now take questions.
We'll start with questions from the room in London. After that, those of you who have can e mail or you can do it now, e mail questions. They'll be read out and we'll try and answer them to the best of our abilities. So any questions from the room? And please, when you answer the ask the question, identify yourself.
It's good for all the people on the call to know.
Hi, good morning. It's Is
the mic working? Yes.
Hello? Yes. Hi, good morning. It's Gurjit Kambo from JPMorgan. Three questions.
So firstly, just in terms of the capacity in the business, you mentioned a couple of times that you do see this quite a lot of capacity. It would just be useful to understand how much you believe you can scale up the assets under management without significant investment? So that's the first question. The second one was around how do you see yourself in terms of your relationship with platforms? Obviously, you talked about advisers and the institutional market.
In the U. K, platforms are increasingly becoming more and more important in terms of distribution channels. How are you looking at platforms globally across your business? And then just finally, in terms of the revenue margins, I know you've seen some sort of attrition in the margins there. Given you've had a bigger shift in terms of flows from the adviser channel, I would expect that to be margin positive rather than negative.
Is it something around the mix of assets potentially? Those three questions.
I think we start with capacity. Across our key platforms, We have capacity to grow, but I may add that we are mindful of capacity where in order to preserve alpha. So this is not a free for all everything go to $1,000,000,000,000 business. But we believe that across our key platforms as we sit today, there is significant capacity to grow the business. And I think one of the things we do as a firm is we also evolve what we do because if you look at your business completely statically, you don't use the skill sets optimally to serve clients.
So if you go back to the explanation of how we evolve strategies that I gave quite a lot of time to in the presentation, just think of that. And therefore to make a pure static projection is probably not entirely appropriate. I think importantly from a platform point of view, we've lived in a world of platforms. In fact, we own a platform in South Africa, a mutual fund platform in the business. So we understand how it works to get access and we also understand very importantly from an advisor point of view sophisticated advisor platforms, whether it's large retail banking groups, global or regional, they are increasingly buying in an institutional way, which means the historic fee differential between what we call mutual fund or advisor business and institutional business is fading and you're actually priced for your alpha.
So for us, given where we come from, now you know the story of the drunk Irishman who stood outside the pub asking the other drunk Irishman, how do I get home? And the other drunk Irishman told him, you start from here. So the start we have is actually very much in line with the future. If we had a very large branded direct distributed mutual fund business, we would have really worried about these things. It's not for us a huge concern.
And then finally, as far as revenue margins, I've sort of answered it. It's the price for Elfa. Now what we need to do as a firm is stand our ground and not just for the sake of having flow volume, hand over alpha, scarce alpha product or strategies to the market at a below fair price. And the whole focus here is what is fair, what is the right, because you remember you're selling in our business, we don't sell historic alpha, we sell prospective or the hope of alpha. What price is right for a client to pay?
There's a huge debate raging out there. We are firmly in one corner believing it's something that's valuable because over time, if you can add your bit of alpha to the portfolio, you make a fundamental difference to lives, to the way people live, to the amount of money they had as opposed to simply going for the cheap option. So I think that's really our response to that. We'll keep updating you on how the industry sees it and how market conditions see it. But there is a discussion out there and it's a battle of ideas.
We believe we have a good idea, but it's not the only idea in the industry. Thank you. Any other questions?
It's Mike Werner from UBS. Just two questions. I guess first, when you mentioned about the balance sheet, just going through the demerger, and I don't know the business all that well, but we certainly see a number of unit linked products on there, think between $8,000,000,000 $9,000,000,000 both on the asset and liability side. I assume there's very little, I guess, market risk from your perspective. But how do the regulators look at that from a capital perspective?
And do you need to retain capital and hold capital against that? That's the first one. And then second, I guess just kind of tailing on to the previous question, we've seen kind of flat operating profit margins for the past decade, generally, for Investec, where generally, we have expected to see maybe or I would have expected to see a little bit more scale opportunity to kind of build those operating profit margins. You talked about some opportunities at the end of the session, Kim. And I was just wondering how do you think about that at least over the next 3 to 5 years?
Yes.
You're right. It's quite difficult. But you said you've got the big elements on our balance sheet that are coming through there. And they are linked. They're all unit linked policies.
This is in our South African business and the assurance company that we actually have there. And the regular the market because it's linked, there is we don't carry the market risk. It's very a one for one relationship. And yes, we are required to carry capital against that. So there is a capital held against our business and it is a separate regulated entity in South Africa as well.
So I think that probably I'd like to get answers to your first question there.
Can you just maybe one point on that? We don't expect to replicate that in the rest of the world in our business because it's a peculiar preference of South African, particularly institutions small institutional investors to pool via life vehicles. Why? When our industry started, it was all dominated by life companies and there was a lot of regulatory advantage used in the process. So we don't in any way see this as a in that sense as a part of the model for the rest of the world.
Mutual funds are perfectly adequate for pooling.
And to your second point, yes, as I said, we have built the platform over time. The platform is there. It is ready to scale. I That's really the job of other parts of our organization to do it. Unfortunately, our expense base, as I mentioned earlier, has been hit with some large recurring costs.
One of them like the whole industry has been hit with is around MiFID. I mean MiFID, if I look at how our margin has deteriorated had that slight deterioration, it was two factors that hit it. 1 was the double accommodation, which is in above the line there, but we will have the new offices are more expensive. But I think the big one was MiFID, which again had a factor there. So I think the expense base is there.
The platform is very much there as well. It's a case of the assets coming onto it.
But also
And sorry, the last point is one of the things I do believe, and Hendrik and I debate this quite a lot, is having State Street as my 3rd party administrator. So there's not going to be there's no need to build big platforms. We've obviously, as I said, worked with them since 2004 in that space. And I have other third party administration as well, but they're in Q1.
I think in addition to what Kim said, we are not going into the world of tech spend for the sake of tech spend for the sake of being fashionable. We use technology and preferably our partners, but my colleague John Green invented a very nice acronym, Triple MC, not the MCC, Triple MC, multi market, multi channel business. Multi market, multi channel businesses grow, they create inherent growth, but they don't run at extreme operating margins and they don't scale like single country, single strategy businesses and we have no intention to. We've had this debate interestingly, this debate about 25 years ago with the Board, we had this debate. There were a few boutiques growing around us and guys retiring early and looking fantastic operating margins through the roof and our Board gave us a lot of trouble.
And we then resolved, said, no, this is not what we do. We have a long term story. We're a high reinvestment rate business and we want to make sure we have access to the right kind of capital and importantly able to employ the right kind of people. Now if you think of our business post the internationalization phase, initially you come out, initially you're at the sort of beginning end of the industry, then you start building and getting hiring better people, better people come to you, but actually they do quite well where they are. And if you can't accommodate them and they can't accommodate their long term aspirations, you won't have them, but they are the ones who ultimately scale you into the top end of the market.
Simultaneously, the top when the top end of the market starts buying you, they don't pay as much on a basis point basis as the bottom end of the market. And we've been through that process. And that's what I why I think having come through with a reasonably flat, I mean, it's still slightly declining, but a reasonably flat fee margin and ultimately operating margin given the reinvestment rate is good. We should at some point, but it is not in the near term where I can we can stand up here and promise you the benefits of scale. And if you look at our larger competitors, we're very similar to a shop just over the rodeo, which is 4 times our size.
It's not that different. And so the illusion of super scale in a triple MC business is would be inappropriate to sell to you. Any other questions? Do we have questions online? Contributions will also be welcome, maybe questions are better.
No questions. So those who are thinking about it or who couldn't understand what we said but want to read all the papers, you're very welcome to send it to Investor Relations. What is really important now is that we get your support for the rest of this process. We are putting this to shareholders. We strongly believe, backed by our Board, Fani and I, that this is good for the current Investec shareholder and good for the future shareholders, because we are not about size, we're about clarity and focus.
And we will keep updating you on there's a prospectus coming with some more detail on this business. We try to stay high level and make sure the model is very clearly articulated, but there will be more detail for you to go through if you haven't enjoyed is it the 300 and how many page 50 page circular, there will be more paper coming your way, but we think we're on track to deliver. And by the way, very importantly, this is not market dependent because it's largely a demerger, it is what it is. If the markets go down as they went down last night, we will not change course because we've set the firm on a course and we believe it's the right course. Any questions?
Last ones, Varuny, I've filled some time to make sure that anyone wants to ask a question. So no one, thank you very much to all those who dialed in and for those who were in London. We appreciate your attention and we look forward to delivering on this project in the Q1 of next year. Thank you very much.