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INTERVIEW – PIUS MUCHIRI, MD NABO CAPITAL

So who is Pius Muchiri?

Pius: It’s a good question. Thank you so much for having me!

‘Who am I?’ It’s a question that you have to ask yourself every day!

I am just a humble guy, born-again Christian, who wants to make a difference… and also very passionate about investing. I believe that my personal calling is to democratize investment… to make investment available to everybody and break the vicious cycle of poverty especially here in Africa.

That’s what we do here at Nabo Capital!

Let’s talk about your childhood. What was it like? Did you enjoy it?  

Pius: I had a great childhood. Very good parents. Thank God they’re still there! I come from a very staunch Christian family… a very loving family. And that has had an impact on the kind of man I’ve become.

Life experience is a big cornerstone when looking at how we all turn out. In my case, we started life very well. My dad was a banker but he lost his job at some point and everything changed.

Back then, when life was good, my mother used to say, ‘you will never really know what it is to be poor until the day you will not know where your next meal will come from.’ And that day surely came! It was difficult to pay school fees… We really didn’t know where our next meal would come from. It was a very tough time in our lives as a family.

What was going through your mind when this change of pace happened? How did it affect the choices that you made?

Pius: I took it in stride! I’ve reflected on it a lot, actually. I think it’s easier to come from a poor background and transition to a rich background than vice versa. I had very many questions at that tender age; questions about what really happened and how we ended up in that position.

I observed a lot of guys who had a fantastic life… Two cars parked outside, living in a nice neighborhood… And something, an event would happen- maybe they’d retire or the job would come to an end – and life would just take a plunge from thereon. I wanted to figure out why this tends to happen and if it could be prevented? I thought I’d find my answer in accounting and I actively pursued it.

After some time, about three years later, I wasn’t as convinced that that’s where the answer was. I thought back to when I was in campus, someone had come from the US and told us that Investment was a budding area and encouraged all of us to consider it and I did when an opportunity to join Centum came up in 2004, and that’s how I launched my career in Investment.

I think there’s more than just learning that determines where we end up in life. There’s the learning that we do in class and the informal learning as well. How much of an impact has informal learning had on what you’re doing right now?

Pius: I am where I am because of informal learning! Back when the internet was still very new I stumbled on an online mentor, Jim Rohn… he is now the late, and He remains one of the biggest influences of my life. Jim once said, “Formal education will give you a good living, and informal education will give you a fortune!”

He used to send an email to me every day and I would read it first thing in the morning at 5 am. He had all manner of advice on how you should tackle life. He helped me develop the appetite to read widely. Thanks to him I started implementing the concept of ‘Small Changes, Big Results’ where I’d split my reading time into 15 minute segments and use this time to read on the areas of my life that needed improvement.

Jim also helped me to come up with my pillars of success which are: Spiritual health, Family, physical health, mental health, Career, Finances, Relationships and Legacy. I would read up all these pillars, building on them brick by brick. It’s a continuous process and I’m still working on them to date!

Are there any kind of tips you want to give on Education, Say if the Education CS is reading this right now?

Pius: It’s interesting you touched on education because by extension, Nabo Capital is associated with Centum and Centum is very passionate about education. My personal opinion is that, when it comes to education delivery is what we really need to focus on.

Case in point, look at the guys going to the academies and the Ivy League Schools; they did the same calculus that you did, however if you meet them in the office today, they may seem better suited in some ways. The difference is how their education was delivered to them.

One example of what I mean is SABIS Runda, a school that Centum invested in. SABIS has a 99 percent success rate of sending kids to Ivy League schools. Which is interesting because they are not discriminative about who joins the school. They take everyone, regardless of aptitude.

I’ve taken an interest in understanding how the school operates, and it comes down to how they’ve broken down the concepts from kindergarten all the way to Grade twelve. They leverage on the latest technology to constantly monitor how each and every child is performing and have a system that makes sure no child is lagging behind. The performance of a teacher is literally measured against how well the worst performing student does. That puts the teacher on the side of the students.

So, what was the interview process like at Centum?

Pius: It was really interesting how the whole thing came together in the first place. A friend of mine just asked for my CV and I reluctantly gave it to him. I didn’t know that she was sending it to Centum. At that point I was working at Toyota East Africa as an accountant. I was still fresh at the company, with less than a year under my belt so I wasn’t very sure that I wanted to change jobs but I thought ‘why not give it a try’.

The first interview went pretty well and they called me back. Unfortunately, I couldn’t make it for the 2nd interview. (At Toyota we used to have an internal auditor who was more senior than the CEO, and he used to go around the world. On that day, he was in our offices and was auditing my section.) I tried to reschedule the interview but they thought I was not interested and decided to offer the job to someone else. Apparently, the person reported on a Monday, worked the whole morning, went for lunch and never came back!

Sometime later in the year… around October, I met one of their senior managers. He explained that he was sorry that they didn’t call me but they just didn’t think I wanted the job. He mentioned that they had decided to do fresh interviews and that they still had my contacts.

True to his word, the following week they called me and I reported. I was interviewed in the office by the then CEO, Peter Mwangi, and we spoke a lot about cars and many other things apart from the job itself. And when he said that we were done, I could barely believe it. Apparently, he had already made up his mind! He wrapped up the interview saying “It’s not just about the technical competence, it’s about the attitude.” They were looking for someone who would fit the job and be part of a team and he thought that I would be a good fit. He gave me the chance and I jumped straight into it.

I really liked the people who were there…. James Mworia was there, David Owino was there… Risper Alaro as well. Even before I joined the company the way these people lived their lives was already challenging me in every aspect. I had done my homework on who all these people were and I thought that they were a great bunch of guys. I joined them in late 2004… It’s been 14 years and I can’t explain how quickly time has passed but it’s been very exciting!

So these 14 years go by. You were a young man, now you’re getting older… wiser. You decide to start-up Nabo Capital. What pushed you to make this move?

Pius: So when James Mworia took over as CEO in 2008, he kicked off with Centum 2.0 Strategy in 2009. We did a couple of things:

Number one, we unbundled the portfolio. Whereas before we used to manage all of the types of assets in one basket, we said let’s have a private equity portfolio with a dedicated team, the same for public market and same for real estate.

And over that period of time, from 2009 to 2014, we had very remarkable success and that triggered something; people were coming to us and asking, “How can we participate on this on this track record without necessarily buying the Centum share?”

So Centum being a listed company, the only way it could accommodate other people’s money was by forming an outfit outside of itself that would be regulated by the Capital Markets Authority (CMA). This happened around 2013-2014. That’s when we incorporated Nabo Capital. Nabo means number one in Maasai language, which reflects our aspiration in Africa.

My team and I spanned out of Centum in 2013, branded the outfit, formulated the strategy, and began our journey of replicating our successes at Centum, this time for third party clients. And that’s what we’ve been doing until today. We’ve been managing institutional and ultra-high net worth clients.

How does that translate to the way that you lead at Nabo Capital?

Pius: When we were spinning off into Nabo Capital, we decided that as we grow big we also need to grow small. When I joined Centum we were just about 14. Today I have a team that is almost equal to that; I have a team of about 15 people.  And the Centum culture, that anchored our successes, has transcended into Nabo Capital; entrepreneurial, engaging, bold, willing to push boundaries, and very result-oriented.

I have had to also give my team the same opportunities that I was given. I give them the space to learn, make mistakes, correct and grow. When we started Nabo Capital, I was the one who was traveling all across Africa in search for opportunities. Today, I’ve taught others under me who now also travel across the continent to look for opportunities for our clients. I trust every member of the team.

Trust is a very tricky subject. And for someone who is trying to democratize this investment… why should anyone trust you?

Pius: That is a good question. First and foremost, trust cannot be based on corporate values. It needs to be based on some deep grounded personal values. I like asking people, “When you say you are a man/woman of integrity, where is this integrity coming from?” For us, the integrity is key and you can see it in our corporate DNA.

I’m a born-again Christian, I’ve been for many years, and that is the person that I bring to the office. The authentic me. Those biblical principles inform our interactions with each other as well as our interactions with our clients. I find that to be very important and real.

We’re also very careful about who we recruit to join us. You need to be a man of integrity, or a woman of integrity, in your own personal capacity. We’ve been very fortunate. We’ve never had a case of fraud over for the last 14 years. I can only narrow it down to great personal and corporate values and a robust incentivize program that aligns the interests of the shareholders, directors and management team.

There are a few people reading who don’t really believe that faith is enough. Let me ask it in this way: What’s your track record been? Also what is your relationship like with the Capital Markets Authority (CMA)?

Pius: We are regulated by the Capital Markets Authority. In fact, leave alone Nabo, Centum was listed from day one, since 1967. That made it very easy for us when we spun off and formed Nabo Capital. In fact, some of the most interesting feedback that I’ve gotten from the regulator is that our processes, documentation and audit trail has been impressive compared to what they usually see in a other emergent licensees.

We have been investing for over 50 years as a Centum Group. We’ve invested in real estate, in private equity and public markets over those years. We’ve made mistakes, learnt many lessons, corrected and continued refining our craft. We’ve had very many wins and our track record speaks for itself. Our investment process, culture and philosophy are proven by a track record that stands out among the best in the continent.

When you’re looking at the market, how do you determine what to invest in?

Pius: Again, our heritage is very rich and we have learnt very many lessons. We came up with a philosophy that we call “the 4 Ps,” as a guideline on what kind of companies should pass through our filter.

The first one is Partner. We have learnt the hard way over the years, there is nothing as important as investing alongside a strategic partner. What do I mean by a strategic partner? This is an institution that is specialized in doing that kind of business. So we see ourselves as financial investors, not strategic investors.

Number two, we look at Profit. When I say profit, I do not mean accounting profit but economic profit. We ask ourselves “If I put one million shillings in this black box (company) what is likely to come out?” We always prefer companies that have a higher return than their cost of capital. That spread, between the return and cost of capital, is the one thing that gives us confidence that they have a viable business model and they know what they are doing. There are very many companies that we come across, which have survived over many years, but they are actually destroying wealth.

Number three, we look at potential and say it is not good enough to have a good partner and a decent history of positive economic profit. We always ask ourselves “does this company have a future?” We used to have a company some years back called Kodak. We don’t see much of it today since the iPhone came around. Now everybody is taking photos using their phones.

If one invested in Kodak based on their past successes, you would have missed the big changes in the future and destroyed wealth. We try our best to identify trends and themes that would have the most impact on companies and wealth creation going into the future.

The fourth thing that we look at is Price. We say ‘a good company is not necessarily a good investment and a bad company is not necessarily a bad investment’. You need to put a good company on a weighing scale and ask yourself, ‘considering the prevailing price in the market, is the company overpriced, under priced or fairly priced?’ We prefer to go into under priced companies, and at worst, a fairly priced company if it has good prospects.

So that is what we generally look for. And because of our private equity background, we tend to go unusually deep in our research. We will do a lot of work, do all the channel checks, speak to their suppliers, speak to the people who are connected with that business and really put together a mosaic that can help us to make an opinion that we can stand behind.

What kind of year-to-year returns do you get?

Pius: We have different asset classes.

We’ve become known more to be equity investors. If you look at our portfolio that we run for Centum, which we’re allowed to speak publicly about; we had an average return of about 17.4 percent on the dollar over the last 9 years. That portfolio invests across Africa, save for South Africa.

And that return was at some point about 29 percent, it’s just the last five years that have been most difficult, because we’ve had two downturns that have diluted that particular return. I think once markets recover, you’ll see that return go back to above 20’s.

We’ve had one of the best track records as far as equity performance across the continent is concerned. On the fixed income side, we also have a good track record. More specifically money market, we have consistently been ranked among the top 5 with returns ranging between 10 and 12 percent.

What missed opportunities do you reflect on and think, I wish I got that?

Pius: I think as an investment professional, you will always have missed opportunities. It’s a question of, out of 10 opportunities in the market, can you get the six, seven or eight? I remember Safaricom had a bad time at some point, when Airtel came in and slashed tariffs by 67 percent.

That sort of distorted investors’ wealth because it got sliced in one day and that wealth moved to the consumers. That caused a lot of heartache and it took some investors quite a bit to overcome that psychological impact.I can say that we probably would have made more money in Safaricom if we came in much earlier.

But I think it’s one of the companies that have surprised very many people in the investment world, local and international. If you told people three years ago that Safaricom would touch 30, they would have said, ‘not possible’! But, again, what they’ve been able to do in terms of innovation and reinventing themselves every time they’ve been faced with stiff competition has really been a great story coming out of Africa.

Let’s talk about foreign interests coming to Africa. How should Africans handle themselves better? What advice would you give to policy makers who are in charge these kinds of deals?

Pius: First and foremost, we need foreign direct investment.

Africa is in a unique position; we have very glaring gaps. And that’s why we register above average GDP growth compared to the developed economies. This glaring gaps are opportunities for us to invest in.

We are also in a unique position because we have more opportunities than the capital that is here. The only way that we can close on these opportunities is by opening up ourselves to foreign direct investments.

Now this needs to be done in a disciplined way with the right policies. It needs to be beneficial to our investors who are coming from out there and also to the local communities where this money being poured into.

Speaking to governments, I’d say we need to make better deals for ourselves so that we are not an economy where others are extracting profits.

We need to make sure that we are negotiating deals which are fair for us and for those who are investing. When I look across the world, and look at some of the capital cities that we would consider to be our benchmark, look at London, look at New York, look at Paris, Dubai; what they have in common is that they opened themselves up.

It’s hard to say, when you’re in New York, ‘this is a native of New York’, it’s hard to say, when you’re in Dubai, ‘this is an Emirati’, because they actually have more immigrants than the locals.

We also need to attract people with good skill sets to come into the continent. For a long time, the continent of Africa suffered from brain drain. It’s time we also need to attract back, not just our own who have gone out there and become experts in their own fields. We also need to attract experts from the U.S., from abroad, to come and help us to unlock this potential that we have spoken about for so long.

Someone made a joke one day and said that the second most popular name for Nigeria is potential. And I can really relate to that. Ever since I’ve been going to Nigeria, it’s always been a story of ‘you cannot afford to miss Nigeria, because Nigeria will not wait for you’. But the realization of that potential has been painfully slow. The potential is there, you just need the right people and the right policies.

What challenges did you face and think, ‘I can’t get past this’?

Pius: I think there are many challenges.

I think for me, my biggest challenge has been really moving Nabo from an idea to a real vibrant organization, which should make value for itself without necessarily piggy backing on Centum. I’d say Centum was a comfort zone for me, because the buck stops with James Mworia but here the buck stops with me. I remember having a chat with James, I was just about to make the move and he told me “Opportunities don’t come dressed in convenience.” So you’ve got to take the opportunity and persist through the challenges that come with execution.

The other challenge comes from the fact that I have 15 plus employees and a majority of them are very young people, and they have pegged their careers on me. I constantly ask myself if I can promise these guys a great career, a meaningful career that history can be written about.

Another big lesson for me has been knowing when it’s time to cut my losses. It’s a lesson that I take with me till today, I’ve learnt not to be afraid to cut my losses. If an investment has turned out bad, I am always willing to get out and move on to something else.

What’s the highest point of your career so far?

Pius: I think for me, the way I measure my high is with the clients: my clients’ highs are my highs and clients’ lows are my lows.

I can mention a few. In 2009, we began a portfolio that I was managing on behalf of Centum. I was given Kshs.2.3 billion ($23 million) and I was told, go invest in the continent.

We only had one percent of our portfolio outside of Kenya and I had never invested outside of the country.

I remember we went out there, and my first flight was to Nigeria; throughout that flight, I prayed to the end, because I did not know who I was going to meet on the ground. I didn’t have contacts in the ground. When I landed, it is like everything had just fallen into place. To cut the long story short, we had a very successful five-year period. I think during that period up from $23 million we made in excess of $60 million. I remember at the height of it, 2014, 63% of our portfolio was invested outside Kenya and we were importing 80% of our investment income.

We literally import GDP into Kenya by investing across the continent. It was also a proof of concept and it’s on the back of that, that Nabo Capital was launched. Because we had really proven that, in Africa, opportunity was real; we had tested it with our own money, and we had brought money back home plus handsome returns.

My second high is really the opportunity to start from scratch and this is one of the most unique things about Centum and its culture. Anything is possible, as long as it’s legal, of course.

Your limitations are really designed by you and not by the organization. I was given a platform to manage a portfolio and that platform became Nabo Capital. And to see Nabo capital come to life, attract clients from all over the world and make money for them has been an unending high for me. Every day I ask myself, ‘are we really building an institution that will last more than 100 years?’ We’ve done a lot of work over the last six years to set up the right foundation, the right culture, to have the right people, to have the right philosophy of investing. It’s been exciting and it’s still getting much better.

Walking in I saw quite a few young people. Do you ever see yourself in them? And if you ever met 20-year version of yourself, what would you tell him?

Pius: I sat in this same office, probably in this seat when I was recruited 14 years ago. I was a young man, about 28 years old.

Today, my team consists of people that were wearing shorts in lower primary school when I was being recruited into the Centum Group.  They are now working for me and it’s my opportunity now to create opportunities for them, so that a couple of years from now they’ll be the ones telling this story, but from the other side of the table.

I do see a lot of myself in them. They are probably smarter than I was those days. I see a lot of promise in them; they are very sober and they love the challenge. Their opportunity is bigger than it was for me, because now we’re talking about an African opportunity.

Our team at this point has much more of a global mindset than we did when we were starting out. I’m very confident that quite a number of the CEOs that will be in this industry over the coming years will come from the people that we have right here.

What’s next for you, what’s next for Nabo Capital?

Pius: We’ve spent the last five-six years laying the foundation. The next step for us is scaling up.

We are speaking to all kinds of clients out there, sovereign wealth funds, endowments and global pensions. We want to bring them to the continent, to hold their hand when it comes to investing in Africa.

The opportunity for us is not just in Kenya; the opportunity is in the entire continent. We see the Nabo name becoming a household name across the continent, probably having a few offices around the continent just to make sure our boots are firmly on the ground where the action is really happening.

I think my biggest job is setting up Nabo Capital for success for the next 100 years!

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