THE ROYAL TREATMENT
Royal Investment Managers is a black-owned investment holding company that acquires equity stakes in either existing or new asset management firms with a strong and unrelenting focus on diversity. Its primary focus is to partner with companies that meet its investment criteria and share its values. The company is proudly backed by Royal Bafokeng Holdings (RBH) and Rand Merchant Investment Holdings (RMI) through its subsidiary, RMI Investment Managers (RMI IM).
Royal Investment Managers provides access to a range of independent portfolio management services. This is done through their suite of affiliated investment managers, who manage money on behalf of retail and institutional clients. Royal’s inaugural affiliate is Sesfikile Capital (Pty) Ltd, a fully discretionary listed property fund manager with assets-under-management of R18 billion. Royal is proud to have Ethos Private Equity as its affiliate. Ethos Private Equity is the largest third-party private equity firm in South Africa. It was formed in 1984 as a mono-line buyout fund firm and has recently embarked on a strategy of building a fully-fledged sub-Saharan Africa Alternatives asset manager with the launch of the Mid-Market and the Mezzanine Funds.
Kabelo Rikhotso (photo) is the current founding CEO of Royal Investment Managers, a position he has held since March 2016. “I was born and raised in Pretoria by my grandparents. After matric, I went to study at the University of Cape Town where I graduated with a Bachelor of Science Degree in Mathematical Statistics. I did a BCom Honours in Financial Analysis and Portfolio Management. Thereafter, I returned to Gauteng at the end of 2003 and started working in 2004. During my working life, I also obtained a Master’s in Financial Economics from UJ, or then it was RAU, and I qualified as a CFA Charterholder, which is a global certification programme for investment analysts—offered by the CFA Institute (US), it is a global association of investment professionals that sets the standard for excellence in the industry,” he says.
His career started in 2003 at Momentum Outcome-based Solutions, where he was a Research Analyst and later a Portfolio Manager. In 2006, he joined the National Treasury as the Deputy Director for Market Risk, where he was involved in the optimisation of the Government Debt Portfolio, market risk management, operational risk and a variety of risk monitoring, valuation and reporting functions. In 2008, he joined Investment Solutions (IS), where he took on progressively challenging leadership roles, before being appointed as Head of Portfolio Management in 2013, a role which he held until September 2015.
“I had been working at Investment Solutions for just under eight years when I was bitten by the entrepreneurial bug. A friend of mine called me one evening and spoke to me about an opportunity and I started talking to the RBH and the RMI guys while I was at IS and eventually decided to take on the challenge of becoming the founding CEO of Royal Investment Managers. “I joined the company in March 2016 and, at the time it was just an idea on paper with no identity. The shareholders sort of had an idea of what the company was supposed to be doing but as CEO, I had to craft the strategy and the execution plan and decided to call it Royal Investment Managers.
“The vision is to build a business with a lasting legacy, largely through partnerships of highly rated affiliates. We want to be a preferred partner of choice for incumbents and new entrants within the asset management industry, but the underlying tone in all our partnerships is a strong diversity agenda. We will only partner with businesses that take diversity seriously,” Rikhotso explains.
The investment strategy of Royal Investment Managers compromises of four evaluating criteria, explains Rikhotso. He says that firstly, as you are buying into businesses that you will probably never sell, there needs to be a shared value between RIM and the business that they are going to partner with. There has to be mutual respect and trust.
“Secondly, the business has to be run with an owner-manager culture basis. We want businesses where the CEO/CIO and the team are not just employees but they are owners of the business, and they run the business like shareholders. That’s quite critical for us because if you have that, you know that already from day one as a shareholder, you have operators who already think like shareholders and not like employees, which is quite key. There’s a lot of research that shows that, generally, these types of businesses tend to do well,” he says.
He further explains that the quality of the business is assessed by evaluating the employees, company business philosophy, investment portfolio, portfolio construction, and performance or returns that they have generated over the years.
“More importantly, those returns need to be generated over different market cycles, and I will build up a scoresheet ranking all these factors used to determine whether it will be a good investment or not. We also look at acquiring equity stakes in different asset managment businesses that have a niche in a certain sector of the market. For example, Royal holds a minority stake in Sesfikile Capital, which is a specialist listed property asset manager and it is highly unlikely that well have another equity stake in a similar type of business; it makes no sense and creates unnecessary conflicts.
“Companies need to have a clear growth strategy that we believe is achievable, as that’s how we’re going to extract value for our shareholders. When I look at a business in my head, I not only need to think about present success but I need to think about what the next 10 years of this business are going to look like,” he explains.
Diversity is an important factor to Rikhotso. He firmly believes that companies that do not embrace diversity are not going to survive. For RIM, it’s fundamental that every business they partner with is sensitive to having the right demographics within their own companies. “We believe that diverse teams lead to better decision-making, enhanced creativity and super problem-solving. All things being equal, a diverse team with shared values is, therefore, more likely to outperform their less-diversified peers.
“We believe that diverse teams lead to better decision-making and, ultimately, better outcomes for the clients,” he says.
Rikhotso says that as a relatively new company, the RIM identity is still in the process of being shaped, and is directly influenced by their values. “We believe that out supportive but non-interfering approach ensures that our affiliates have autonomy to develop and grow their business successfully.
“One value that we want to be known for is excellence. I want people to understand that everything we do as RIM will be based on this value, so we challenge ourselves and our affiliates to be the best in what we do. Also, we will not compromise on integrity.
We deal with our affiliates, we deal with people’s money and capital from shareholders, so integrity and ethical business practices are non-negotiable.
“We are humble people who are backed by a community that we hold dearly in our hearts and excellent entrepreneurs with a very long track record.
We hope our affiliates’ clients and the investment industry will recognise RIM by its excellence, trustworthiness and ethical way of doing business. We hope that over the many years to come, as people get to know Royal Investment Managers and they see the results—through success of our affiliates and the creation shareholder value—that they come to value us as a leading black investment holding company within the investment industry,” he concludes.