Simon Marais: CEO slayer

One man is changing the way directors and executives relate to shareholders.

Dr Simon Marais, a South African born physicist-turned-investment-funds-manager – is the founder and part-owner of Allan Gray (formerly called Orbis Funds Management).

Marais began writing cheques in 2006, investing more that $200 million into seven biotechnology companies in the first year. At the time, he had $450 million under management.

Today, he has over $2.4 billion under management. “It’s been okay,” Marais told LeadingCompany today.

The secret of his success? “We are different in the way we pick stock, and we tend to care more, be more activist. We are deemed to be more serious about the stock we invest in,” he says.

Track record

Marais’ active, public approach to funds management is sending shivers down the spine of the directors and management of Australian listed companies. He has no qualms about agitating for change. He has come up against some of Australia’s most powerful directors and business owners, including the wealthiest woman in Australia, Gina Rinehart.

Over recent months and years, Marais’ activism has seen him:

• Call for the chair of PaperlinX, Harry Boon, to be removed, in order to unseat the company’s CEO.
• Refuse to support to Gina Rinehart’s pitch for two board seats at Fairfax Media until she affirmed publicly that she would act in the interest of all shareholders.
• Agitate for a private equity takeover of the cleaning company, Spotless, against the recommendation of the board and chair, Peter Smedley.
• Help spark a bidding war for Hastings Diversified Utilities Fund.
• Comment on proposed changes to the ASX listing rules.
• Help remove three directors in one afternoon from Salmon company, Tassal.
• Agitate successfully for Valad Property Group to be bought out by Blackstone.
• Shift the terms of a merger between Centro Retail and the beleaguered Centro Properties.

Marais will not say which company’s board will be next to feel the scorch of his scrutiny. “The next guy who doesn’t act in the interests of shareholders, I suppose,” he says.

It might be Fairfax. Marais is not happy with the Fairfax board, who today appointed former CEO of Ernst & Young and currently chair of David Jones, James Millar. “I don’t know what I think about it, but I can’t say that I am delighted that they have not spoken to shareholders,” he says.

A refreshing change

Stephen Mayne, a director of the Australian Shareholders Association, who has a reputation for asking directors hard questions at company AGMs, says Marais is a welcome presence in the Australian investment scene.

“He is very bright. I saw him perform in a debate at a recent conference. He is a straight talker, honest, tough, with a great investment track record,” he says. “He picks appropriate fights. I am impressed with how he stood up to Gina Rinehart, and took a long handle to the PaperlinX board, which is appropriate given the company’s woeful performance.”

The results speak for themselves. The three years return from the $1.2 billion Alan Gray Australian Equities Fund is 21.7% compared to the S&P/ASX300 Accumulated Index return of 11.4%. The second, smaller Allan Gray Opportunities Fund, started in July last year, has returned 6.7% compared to RBA Cash of 3.5%. There are 12 institutional investors and about 500 individuals reaping the benefits of Marais’ unequivocal style.

Dean Paatsch, founder of institutional governance adviser, Ownership Matters, says Australian shareholders are too passive. “Australian shareholders are blessed with powers… they can vote directors off the board, but the average incumbent director gets 96% of the vote,” he says. “It is clear that shareholders are not 96% happy and Allan Gray’s approach is refreshing, to see all those tools used.”

Investment virgin

Marais began in the field with no expertise. Trained as a physicist, he was tempted away from science when a friend introduced him to Allan Gray, the founder of the funds management company bearing his name, in 1991. Marais became a director in two years. Within five years, he was chief investment office and by 2001, he was chairman.

Marais insists recruits in the Australian office are also new to the field. He looks for smart people, trains them, and “gives them a chance”.  He says he now “probably has too many” staff – 25 – but maintains his recruitment of non-professionals. “Financial services overpay relative to other industries. You can get much better people; we hire PhDs from all over the world and can attract them to us.”

The father of three came to Australia to escape the gloomy weather of London, where he headed Allan Gray’s operations for three years.

Marias jumped at Gray’s offer of a joint venture for the Australian operation. Although staff received some equity last year, Marais says he still owns nearly half of the company.

The ASX offered opportunities to excel at Marais’ main game: buying underperforming stocks and taking a role in seeing them improve. It takes time, usually between three and five years, to see the results.

It’s called value investing by one of the veterans of a similar approach, Robert Maple-Brown, the founder of Maple Brown Abbot. Although Maple-Brown has retired as the head of that fund, it is still active and can be found on the same share registers as Allan Gray.

Marais prefers the tagline: contrarian investing. He has it emblazoned on the company website; “Therefore, the shares we invest in are often widely disliked by the broking community and vilified in the popular press. Being contrarian is the most difficult of investment disciplines, but also the most rewarding over the long-term.”

What gets him mad

Critics of shareholder activism complain that investors do not know the ins and outs of the companies they back, the real coalface problems, but Marais is not having a bar of it. “If they were that clever, how come they let the executive salary thing get so out of hand?” he says. “If they really have on-the-ground-understanding, I am happy to go with them as long as they say, I will be personally liable if it all goes wrong. That is not what they do.”

The best performer

Biotechnology company, Acrux, is Marais’ best performer.

Among his first batch of investments in 2006, when its stock price hovered between 50 and 60 cents, the company did not have a product, or revenue at the time, let alone a profit.

Acrux is the exception to Marias’ portfolio, having been little trouble under the leadership of CEO Richard Treagus, and chair and early investor, Ross Dobinson. The company has made license deals worth close to $100 million.

Today, the share price is worth around $4, an 800% increase.