The South African asset management industry hasn’t experienced the kind of transformation one would have wanted more than 20 years after democracy, an asset consultant says.
Rob Southey, head of asset consultants at Alexander Forbes, says of over 130 South African asset managers, only 42 are black-owned. Of these, only two firms – Taquanta and Aluwani – manage in excess of R50 billion in assets. Twelve of them have amassed between R5 billion and R50 billion, while 28 manage less than R5 billion.
South Africa’s biggest asset managers manage in excess of R400 billion each.
“It is a bit of an indictment of the industry that we are so slow [to transform].”
None of the top 10 South African asset managers are black-owned, with five asset managers managing 52% of industry assets. According to 27Four Investment Managers’ 2016 BEE.conomics survey black asset managers only manage about 5% of the overall South African savings and investment industry.
The issue around transformation is often an emotive one, which is complicated by the methodology used to differentiate asset managers.
Southey says while one real black manager may have a poor B-BBEE rating, another manager may have a very good rating, but not really be regarded as a black manager due to the inner workings of the rating system. It should therefore be used with caution.
“It is nice to have and it is good to see but it doesn’t necessarily always tell the whole story.”
Regulation 28 of the Pension Funds Act notes that trustees should give consideration to black managers or B-BBEE, but does not explicitly define the term.
An analysis of the performance of black-owned managers in the Alexander Forbes Manager Watch Surveys for the three years to December 31 2016 in the local equity, bond and listed property space show that up and coming black managers are performing in line with other mainstream managers.
But black asset managers face various other obstacles.
Southey says black asset managers starting businesses generally start with only one asset class, build up the capability and develop from there. This process can be challenging.
In the unit trust market in particular the absence of a strong distribution framework can make it very difficult to grow the asset base.
Moreover, black managers often don’t have a strong brand like their mainstream competitors. As a result, investors don’t ask their financial planners to invest their money with these managers. They may not even be aware of their existence. In turn, financial advisors may also be reluctant to recommend their products.
Southey says asset consultants find it difficult to cover a lot of managers and could be concerned that smaller firms may not survive. Some clients also prefer to stick to existing managers due to specific worries related to their funds (such as death claims or a retrenchment exercise).
Ultimately, it is difficult to start a business.
“Just because you are a good portfolio manager, doesn’t mean that you are a good business manager.”
Southey says there is no doubt that trustees prefer brand names.
“If you are a board of trustees, nobody is ever going to pat you on the back and say well done for appointing a small manager who is now great, but boy are they going to cane you if you get it wrong.”
Southey says incubation can play a meaningful role in supporting black asset managers, but transformation efforts should not be limited to incubation.
He stresses however that allocating funds to black managers is not about charity.
“These are managers that compete with any mainstream manager on their own right. It is just that they happen to be smaller, they don’t have a brand and then automatically consultants and trustees tend to be a little bit more cautious.”
While the impact of slow transformation in the asset management industry should be indifferent for the individual client in a retirement fund, it has a significant impact on society, Southey says.
It is just not acceptable that black managers manage only 5% of the assets. Transformation will remove some of the risk of just five asset managers managing 52% of industry assets, he says.
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