A passion for success

Time of article published Nov 2, 2010

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Having started two flourishing investment companies, Allan Gray is using his wealth and talents to foster entrepreneurs who will share his commitment to excellence.

Allan Gray, the man behind the name behind the investment company, rarely gets behind a microphone. Although he is now in his seventies and lives in Bermuda, this is not the reason for his media shyness.

Gray is apparently still putting in a full day's work and he still visits South Africa. But, according to those who have worked with him, Gray likes to be successful without being famous.

Successful he certainly has been. Gray excelled academically, raised a family of three and started two flourishing investment companies.

Locally, Allan Gray has a reputation as a top-performing investment manager, and its global asset management partner, Orbis, has made a name for itself as a consistent long-term performer on the worldwide investment stage. International fund rating agency Standard & Poor's has given Orbis its stamp of approval, saying its track record is impressive. Orbis's Global Equity Fund is consistently in the top 10 percent of global equity funds.

Now, after achieving extraordinary heights as an investor and a businessman, Gray is topping a successful career as a philanthropist, with both huge personal generosity and innovation.

Gray was born in East London and studied at Rhodes University in Grahamstown. He qualified as a chartered accountant at the age of 22 and worked for the accounting firm Deloitte in both Cape Town and Johannesburg for four years.

He then headed for London for a year, before going to Boston, where he obtained an MBA from Harvard University's Business School in 1965.

Next, he joined Fidelity Management and Research in Boston, where he worked for eight years, including four years as a portfolio manager of the Fidelity Capital Fund, which, when Gray left in 1973, had investments then worth US$500 million.

Talk of the Securities Exchange Commission (SEC) requiring investment managers to have professional qualifications prompted Fidelity to send Gray on the Chartered Financial Analysts (CFA) programme, which he completed in 1969. According to a 2006 edition of CFA magazine, the programme had begun only six years earlier, in 1963.

The SEC never mandated any professional qualification for investment managers, but Gray told CFA magazine he did not regret obtaining the qualification, and on his return to South Africa in 1973 was this country's first CFA charter holder.

The eight years that Gray was at Fidelity were a stock pickers' market. The Dow Jones index moved “sideways” during that period, returning to more or less the same level it had been when Gray started at the company. Nevertheless, Fidelity still made money for its investors by choosing stocks carefully, and Gray learnt valuable stock-picking skills.

In a rare interview in 2001, Gray told Forbes magazine that when he began at Fidelity in 1965, the Dow Jones Industrial Average was at about 1 000, and 17 years later, in 1982, it was at 780. He said this made him realise the importance of preserving capital in absolute terms rather than trying to beat competing investment funds on a relative basis.

During his years at Fidelity, Gray's investment colleagues included Peter Lynch, who later made his name as a star manager of the global equity Magellan Fund, and Gerald Tsai, who ran the first publicly sold aggressive growth fund and later headed a canning company that he turned into a financial services giant. Gray's dream was not to follow in their footsteps but rather to start his own investment company and to introduce professional investment research and management methods to South Africa. In 1974, a year after returning to South Africa, he established Allan Gray Investment Counsel.

According to Allan Gray's website, at this time the “efficient market hypothesis” was popular in investment circles. This theory holds that markets are efficient and that share prices reflect all available information. The movement of share prices is haphazard and cannot be predicted in any meaningful way. The theory concludes that it is therefore impossible to consistently out-perform the market.

But Gray did not subscribe to the prevailing view. He was confident he knew how to deliver superior returns over the long term.

His beliefs proved well founded, and some 13 years later Allan Gray Investment Counsel had six partners and a staff of 36 and was managing R2.4 billion.

It was then 1987, and Gray decided to leave South Africa for London and the challenge of again managing assets invested in global markets.

In 1990, he launched the first three Orbis funds, domiciled in Bermuda, and he ultimately set up Orbis, headquartered in Bermuda, with his son, William, in 1998.

Today, Gray lives in Bermuda and is the executive chairman of Orbis Investment Management. He also serves as the chairman of Orbis Investment Advisory in London and is a non-executive director of Allan Gray Limited in South Africa.

In the 2001 interview with Forbes, Gray and William said they worked reasonable hours, and enjoyed boating, tennis and golf in their home town, Hamilton. But when it comes to managing money, Gray told Forbes: “We are very focused and, when it comes to investment performance, almost obsessed. It's the lifeblood of the firm.”

Gray also told Forbes that Orbis (and, for that matter, Allan Gray) does not employ salesmen, because “I'm a person who likes to let the results speak for themselves. We believe that investment products should be bought, not sold.”

Polite and demanding

Rob Dower, Allan Gray's chief operating officer, says while many men of his age and material success would have long since retired, Gray still works a full day, dividing his time between investment, business and philanthropic issues.

Dower says that Gray still travels to South Africa, and, although he is not actively involved in managing either investments or the company here, will join investment and board meetings when in town.

“Allan has the energy of a much younger person,” Dower says. “He will happily sit through a demanding full-day meeting and carry on to dinner with the team afterwards.”

He says Gray thinks hard about issues and does not hold back in debate, “asking tough questions that expose the quality of one's thinking, while his manner is disarming, soft-spoken and even-tempered.

“For one of the world's best investors, it is incredible the way he combines both politeness and his demanding mind,” Dower says.

Anet Ahern, the head of industrial research at Sanlam Investment Management Global, worked with Gray when he was in the Allan Gray office in Cape Town. She started in the administration office, before moving on to the trading desk and finally being responsible, under strict supervision, for a small piece of the local investment portfolio. She left Allan Gray in 1994.

Ahern says Gray is the ultimate professional who believes that if you get the little things right, you will also get the big things right.

If he was late for an investment meeting, he would not come in, she says. He was always on time and always prepared for a meeting.

She also says she never saw him dress down anyone, because he was always respectful.

At one stage, before the advent of computerised charts and up-to-the-second market data, Ahern would each day plot dots on charts for Gray to monitor the local market. After plotting a dot incorrectly on a chart one day, Gray politely explained to her why it was important that she got them right.

Ahern says Gray was good at choosing the right disciples to continue the business the way he wanted it run. Employees who proved to be unsuitable - mostly people who did not have a good work ethic - found an envelope on their desks terminating their employment.

Gray was very unemotional about investing but never disregarded anything, Ahern says. Although Allan Gray, as an asset manager, is regarded as having a bottom-up approach to investing, she says Gray also took macro-economic factors and charts into account when considering an investment.

She and many others learnt the Allan Gray investment way, Ahern says, and still manage money using the same approach. Once you have learnt it, she says, you are always affected by it.

It certainly seems that Gray's legacy is the successful philosophy and processes he began at both Allan Gray and Orbis.

The philanthropist

After starting two successful investment companies, Gray has turned to founding a philanthropic venture, which might seem like a new direction, but he regards it as an extension of his first two businesses in which he sought to make a difference. The latest venture has the potential to contribute to the lives of its “clients” just as the investment managers do for theirs, and Gray's personal contribution to this business has the potential to vie with the legacy he has left at Allan Gray and Orbis.

Gray has long been making donations to worthy causes. He and his wife, Gill, started the Allan and Gill Gray Charitable Trust in 1979, and it has donated to numerous conservation and other philanthropic efforts over the years.

Gray's more recent philanthropic pursuits are aimed at fostering entrepreneurs who will create jobs and address high unemployment and poverty. He has set up both a foundation to fund the education of those primarily from disadvantaged backgrounds who have the potential to become entrepreneurs and a venture capital fund to assist them to get businesses off the ground.

In 2005, Gray established the Allan Gray Orbis Foundation, which identifies potential entrepreneurs and provides full funding for their schooling and/or tertiary education, as well as mentoring them so that they can realise their dreams, irrespective of their economic circumstances.

In 2007, Gray sold 20 percent of his shares in Allan Gray to E2, a black economic empowerment scheme, which will use the dividends it earns from the shares to provide subsidised financing to future entrepreneurs fostered by the foundation.

The foundation is funded biannually by a donation from Allan Gray, the asset manager, of five percent of its pre-tax profits (or seven percent of its after-tax profits). However, as these profits vary and would result in a fluctuating income for the foundation, Gray has personally backed the foundation's income through more than R1.1 billion he invested on its behalf in an endowment. The endowment was funded with the proceeds of the sale of his shares in the asset manager to E2.

Anthony Farr, the chief executive officer of the Allan Gray Orbis Foundation, says Gray describes the endowment as a safety blanket for the foundation.

Gray has also set up similar foundations in three other Southern African countries where Allan Gray manages investments. The foundations in Namibia, Botswana and Swaziland manage both educational and entrepreneurial funding. They also benefit from funds from the endowment when necessary.

The South African foundation was originally intended to fund the university studies of potential entrepreneurs through fellowships. However, after recognising that the education system has failed many potential entrepreneurs, the foundation has extended its role to offering scholarships at good high schools, Farr says.

Although E2 will focus on providing subsidised financing to former fellows of the foundation, it will also fund potential entrepreneurs who are not fellows but who want to achieve social transformation.

Farr says the foundation is funding 210 fellows across universities in the Western Cape, Gauteng and the Eastern Cape, and 94 scholars at schools in Southern Africa. Eighty-nine percent of these fellows and scholars are black.

In addition to funding their studies and accommodation at university or school, the foundation works with scholars and fellows to develop an entrepreneurial mindset and leadership qualities through various programmes, Farr says.

After graduating, fellows are expected to get some work experience. A few years later, when they feel they can start their own business and have a good business idea, they can approach E2 for assistance.

Mahesh Cooper, a director of Allan Gray, is a member of the board of trustees of the Allan Gray Orbis Foundation and a trustee of E2.

He says although the foundation is run by Farr and the board of local trustees, Gray remains the patron of the foundation. In that role, Cooper says, Gray takes a keen interest in what is happening at the foundation and how it is evolving. The foundation, in turn, benefits from his wisdom and guidance, Cooper says.

Farr says Gray has thrown a huge amount of energy and thinking into the foundation.

Cooper says Gray is a phenomenal person who has achieved extraordinary things and yet still takes time to have discussions with staff and individuals.

While the foundation and the empowerment company are intended to help the broader community, Gray has not forgotten that among the staff of Allan Gray there may be those who need a helping hand. He and Gill have undertaken to pay for the school and university education of children of Allan Gray staff who earn less than R300 000 a year.

As if his generous donations to these Southern African foundations and E2 were not enough, in the latest Orbis annual report, William Gray says his family is in the process of implementing plans to vest voting control of Orbis in an independent body, “while simultaneously dedicating the economic benefits from their controlling interest to the separately governed Orbis Founders Philanthropies in an effort to help those less fortunate in our society realise their full potential”.

Cooper says it is too early to release further details of the plan and its focus, but the Orbis Founders Philanthropies will replicate what Gray has done locally: use the profits generated by the asset manager to “level the playing field” by fostering bright young entrepreneurial minds.

What Gray has done through the Allan Gray Orbis Foundation is extraordinary and humbling to us all, Cooper says.

Unfazed by wealth

Farr says working with Gray has been an incredible privilege. “He genuinely believes in excellence and this is the reason for the success he has had in all his businesses.”

Gray has a very clear understanding of what he is trying to achieve, Farr says, and the philosophy and principles that will drive that achievement. He applies those principles consistently and his success is a result of that discipline, Farr says.

“Allan has an expectation about what can be achieved, and it can be a challenge to meet those demands all the time.”

Farr says Gray has accumulated net assets of extraordinary proportions but it has made no difference to him. “I imagine he is the same person now as he was 30 years ago when he was running Allan Gray in South Africa.”

There is nothing ostentatious about Gray, Farr says, and the trappings of wealth do not feature on his radar. Gray will not even hire a fancy car while visiting South Africa, Farr says.

“He is wonderfully aware of costs in a prudent but not a miserly way.

“Working with him is very humbling and inspiring,” Farr concludes.

Despite running two investment businesses and being a philanthropist, Gray has also helped his community by serving on various boards. He is currently on the board of the Bermuda Institute of Ocean Sciences. He has served on both the board of governors of the University of Cape Town (UCT) and Rhodes University, and in 1995 Rhodes awarded him an honorary doctorate of law.

In 2008, some 20 years after he left South Africa, Gray was honoured at the Cape Times KPMG Business Personality of the Year Awards, presented in association with the UCT Graduate School of Business. The award recognises Cape Town-based business personalities who have shown strong strategic insight and leadership, an excellent financial track record, and who have taken up the challenge of broad-based black economic empowerment and transformation through ownership and management structures, corporate social responsibility and hands-on involvement in the community.

The judges noted that Allan Gray is the largest privately owned investment management company in South Africa that has produced benchmark-beating returns over a sustained period. They attributed this to Gray's strong strategic insight and leadership, and to the team he has built at the investment manager.

They also noted his “very significant and generous donation” to the Allan Gray Orbis Foundation.

Despite the fact that Gray no longer lives in Cape Town, the judges felt he was deserving of the award, because he had played a significant role in building Allan Gray into what it is today, and his legacy lives on in the group's success and through the work of the foundation and the empowerment company.

Investors and those who have benefited from Gray's generosity will no doubt agree that he has a business personality that deserves to be honoured for much longer than just one year.

This article was first published in Personal Finance magazine, 2nd Quarter 2010.

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