Kenyan-born Edwin Dande is the founder of Cytonn Investments, an alternative investment management and real estate company, with offices in Nairobi and DC Metro area. Cytonn, which was founded in 2014 and has more than $800 million in assets under management, is primarily focused on offering alternative investment solutions to global institutional investors, individual high net-worth investors, local institutional investors and diaspora investors interested in the East-African region. Its investment solutions are based on four main products: real estate, structured solutions, private equity and advisory.
Dande, 40, studied for an MBA at Wharton and had stints at Lehman Brothers and Bank Of America before returning to Kenya in 2011 where he took up the position as CEO of Britam Asset Managers, a subsidiary company of Britam Holdings, a public listed insurance and financial services firm in Kenya. In 2014, along with a few colleagues at Britam, he controversially branched out to establish Cytonn.
He recently spoke to me recounting the early days, musing on the journey so far, and talking about Cytonn’s plans for the future.
Tell me about your professional and educational background.
I am an accountant and an investment banker. I had the good fortune of starting my career as an accountant and investment banker at KPMG and Lehman Brothers respectively; I say good fortune because when I started, they were both underdogs in their respective industries, so they had to hassle to compete, and in both firms, I learned how to outcompete with fewer resources, with speed and accuracy of execution as the competitive advantage. Besides the two firms, I have also worked at Bank of America, Merrill Lynch, Britam and now Cytonn, which I hope will be my last gig. Education – Bachelor of Science Degree in Accounting from the Monmouth University, I hold an MBA, Finance Major from the Wharton School University of Pennsylvania and, and I am also a Certified Public Accountant. Having said all the above, my greatest professional and career education has been working under highly capable and demanding teams early in my career, you can’t get that in school.
Walk me through the earliest beginnings of Cytonn and what motivated you and senior executives of Britam to leave and set up your own shop. I remember there was some bad blood between you and your former employer; do you care to revisit it?
First, let me say Britam is a great brand in Kenya with a rich heritage of 50 years in this market and it’s a brand we are proud about, and especially proud about our time there. We ran the asset management business of the group for 3 years, and in that time, we were able to grow the company from $130 million of assets under management to $700 million and profits from $200,000 to over $3 million. However, the tensions between a captive asset manager within a diversified financial services group is common and that was our point of departure; when an asset manager in a diversified financial services group gets a good deal, who does it belong to: the group, the insurance arm or the asset management client? For us it was clear our fiduciary duty is to our investing clients. Consequently we decided it was better pursuing our trade from an independent platform where we could solely be focused on the interest of our clients. It may not be common in this market, but it is very common for investment teams to group up and launch their own brand. Of course our former employers sued us with all manner of baseless claims, and thankfully in our new constitutional dispensations, the courts are fairly reliable and all the matters at this point have either been withdrawn or are at the tail end. But we have no issues at all with our former employers, they may have issues with us, which from our perspective are really just trying to cut down a competitor, but so far, it has strengthened our resolve.
I don’t imagine that it has been smooth sailing all through at Cytonn. There have been rocky times for Cytonn, some of which were trumpeted by the media. What episodes stand out the most for you, and what have you learned along the way?
Our course it has not been smooth sailing but we are also at our best with our backs against the wall. We had to concurrently launch a new brand, attract talent, raise funds while fighting over 12 different lawsuits. However, we knew that our product in the market was unique. Majority of the market is invested in traditional markets (equities, fixed income and bank deposits), which together have returned about 10 to 12% per annum over the last 5 to 7 years. Yet investment grade real estate and private equity, has returned roughly 20 to 25% per annum. It does not seem to make sense that investors prefer lower returns. They have not just had access. Consequently, we were confident that if we can develop investment grade real estate products, the market would literally eat it up. That is who we have grown from the original 4 founders to 250 staff, from zero projects to now 13 projects worth over $800 million and we expect to close 2017 with at least $5 million in profits. The initial negative media campaign was rough on us and our reputation as a firm and individuals; the attempt to use the criminal justice system was very scary from a personal point of view because it touches on personal liberties, but we were able to get a judicial review to stop all that harassment; the prospects of losing personal income was also scary, but we knew the market was hungry for our products.
What have we learned? For me it has enhanced my confidence in the future prospects. The business world is where the political world used to be 15 to 20 years ago, where the political landscape was dominated by a single party, single ideology and in the interest of the powers that be, it was not about the Kenyan public. Business, especially the investments business, is still largely under the control of a few players, not necessarily in the interest of clients. For the economy to grow, to create more jobs and deliver more innovative solutions, we have to open up the business environment to more players and allow innovative products. The established players simply do not want that, they shall go to great lengths using the justice system and even regulators to try and distract competition, but fortunately we are on the right side of history – you can never stop innovation and progress. The banks tried it with Mpesa, finally they are working together.
You’ve grown so fast, and within a space of just 3 years, Cytonn is now an alternative wealth manager that has more than $800 million in assets under management. How did you pull this off?
This one is a simple one:
1. First is our culture and people. We have a very high performance culture. Cytonn people are incredibly talented and hard working. We hired 55% of our staff right out of campus, so that we can infuse #TheCytonnWay to doing things, we generally shy away from hiring experienced people, they likely bring tainted culture and an entitlement mentality. We like people who are hungry to succeed, have a great attitude, can work very hard, and operate in a team context. At the highest level of the firm, we are fully invested in the firm and cannot pursue any other business.
2. Second, we focused on a niche. There is no other brand in the region that has real estate development and investment management on one platform, it is only Cytonn. Through this coupling of real estate development and real estate finance, we are able to deliver real estate development and real estate backed returns faster than anyone else.
3. Third is we have put a lot of effort and investment in our processes and technology. I would say Cytonn is probably the most automated firm in this country and we have built most of our applications in-house, from the portfolio management system, HR system, CRM all in-house, pretty much other than our accounting system, SAP, we have built and integrated all our processes onto one platform.
If you have great products in a niche, great people with a high performing culture and great processes, you can grow very fast and create an exceptional brand. That is what we have done.
What exactly does Cytonn do as an alternative asset manager; what are the services your company offers, and why should investors put money with you?
We raise money from our clients and deploy in high returning investments, primarily real estate. But we are also growing our quoted private equity business, this is where we invest in companies that is our view are undervalued. That is how we have accumulated a stake and are now the 14th largest shareholder in KCB Group.
Cytonn channels a lot of clients’ funds into real estate, yet there have been legitimate concerns that Kenya is on the precipice of a real estate bubble which might burst anytime now. Do you share these sentiments, and are you still confident that property is still the investment vehicle of choice for investors who are looking to generate exponential returns?
The Kenyan real estate market is still in its nascent stage and is just being institutionalized. A real estate bubble typically occurs in well-established real estate markets where there is easy access to credit. The Kenyan market is thus not experiencing a bubble but the normal real estate cycles of rising demand, peaking market, falling market then bottoming out, and the rapid price increments witnessed are because the Kenyan real estate market is in the rising phase that is characterized by low supply amidst high demand leading to an increase in prices. When supply matches the demand, we are likely to experience cooling off of prices and higher vacancies as some sub markets have started showing. Largely the Kenyan real estate market remains a developer’s market, and our outlook for real estate remains positive, driven by the high returns being earned in the sector that are projected to continue. Cytonn currently has 11 investment ready Real Estate projects. These are mostly in the residential theme.
What are the challenges of running an alternative investment management company in Kenya?
Our biggest challenge is getting and retaining talent. First, asset class is new to the country so there is a skills gap and secondly, the culture for alternative investments, given that they are more complex, requires an intense high performing work culture. As you know, third world countries like ourselves are not necessarily known for high performing work culture. So talent is rare to come by.
What are Cytonn’s future ambitions for Africa? Or do you just plan to be a Kenyan company.
At the moment, our primary focus is development of real estate and market penetration in the Kenyan market though private equity. However, we have recently expanded to accommodate regional markets and are currently undergoing market research in Rwanda and Uganda. This in turn means that in the near future we will expand our business into the East African market, and then into the wider African market.
Economists have revised their view of Kenya’s economy, owing to slower growth, high inflation and political uncertainty ahead of the August 8 elections. Does this give you sleepless nights? How will that affect investment flows to the region? What are the prospects for Kenya in such an environment?
In the second quarter of 2016, we have seen the Kenya National Treasury revise their projection down to 5.7% from 5.9%, the World Bank revise their projection down to 5.5% from 6.0%, and the IMF revise their GDP projections down 5.3% from 5.7%. They all sighted the drought’s effect on inflation and agricultural production, slowing private sector credit growth and recovery of global oil prices.
However, does this give us sleepless nights? No it doesn’t, because in our view, the upcoming elections will have a general neutral effect on the investment environment even as we expect the government to fulfil its commitment to a politically stable business environment during and after elections, as the main factor that will influence both local and foreign investor sentiments. Otherwise, we are of the view that the markets are driven by other stronger forces, which we do not expect to be easily swayed by the election climate.
We expect the general elections to have a neutral effect on Foreign Direct Investments as we have already seen a number of international brands that have announced planned entry into the Kenyan market this year with examples of Volkswagen, Wrigley’s, and Johnson and Johnson, which are evidence of investor confidence in the government to fulfil their election commitment.
In our view, the real estate market will remain largely stable in 2017. There is likely to be a slowdown in transaction volumes being witnessed in the 2nd and 3rd quarter just at the run up to the election date. On the other hand, developers are likely to rush to get approvals for developments ahead of elections to avoid possible delays and inconveniences that may result during the transition period, should a new government win the election. Therefore, if calm elections are held, we are likely to not only witness increased investment and rolling out of projects but also increased prices, selling and marketing of real estate as the economy stabilizes after the elections. It is hence the right time to invest for a discerning investor, both for the long run and short run as the market tries to adjust to the electioneering period for gains immediately after and in the longer run for capital appreciation.
As Warren Buffet says, “you only know who is swimming naked when the tide goes out”; for us we see this challenging environment as an opportunity to distinguish ourselves as players who can execute in both challenging and good environments. We are acquiring assets at attractive prices that is why we have picked a significant stake in KCB, we are hiring great talent that may not be accessible in bountiful times, and we are expanding in the country and regionally.