Asset management industry: PIC could break old white club

Although the Public Investment Corporation (PIC) has nurtured black-owned asset management firms by giving them funds to manage over many years, there’s still sufficient scope for it to drive transformation, says 27four Investment Managers.

According to an annual BEEconomics survey produced by 27four, black-owned asset management firms now control R416 billion of SA’s investing and savings industry. This represents 9% of the total R4.6 trillion of savings and investments managed by the private sector as at June 30 2017.

The assets managed by black-owned firms grew by 1.76% from R408 billion in 2016 to R415 billion in 2017. Since the inception of the survey in 2009, the value has grown more than four-fold from R91.4 billion to R416 billion.

Source: 27four

Arguably the PIC has a responsibility to give smaller black fund managers a hand due to its sheer size. With R1.8 trillion worth of assets under management on behalf of the Government Employees Pension Fund and other government funds, it is the largest money manager in the country

The 27four survey shows that 16% of the PIC’s assets are managed by private asset managers and the remaining 84% is managed in-house.

Claire Rentzke, 27four’s head of manager research, says there is a lot the PIC could do to increase the level of its assets that are managed by private asset managers, which would boost the number of black-owned firms. “Only 16% of their assets are outsourced. There could be huge scope for the PIC to double that number,” she tells Moneyweb.

“The PIC has done an incredible amount and benefitted the participants in the survey [black-owned firms]. For many, their client is the PIC.”

At the same time, the PIC has become a hindrance due to its dominance in the asset management industry. “Because the PIC has a huge asset base, they will often dwarf the client base of black asset managers. A black asset manager would come into the industry and target assets from the PIC. And that’s all they focus on. It then becomes a problem when the PIC decides to redeploy their assets somewhere else,” says Rentzke.

After all, the PIC and other asset consultants could deploy investment money to well-established firms including Allan Gray, Investec, Coronation, and Stanlib.

According to the PIC’s 2016 annual report, it has allocated R57 billion across 14 firms with Broad-Based Black Economic Empowerment (B-BBEE) credentials; ten established local equity and property managers and four developmental firms. The PIC says these 14 black-owned firms used their PIC fees to hire black investment professionals and train inexperienced black graduates – creating 876 job opportunities.

Last year alone, R11.5 billion was allocated to established black-owned managers: R9.5 billion to four established B-BBEE managers and R2 billion went to a developmental manager.

The methodology of the 27four research includes an online survey of 45 black asset management firms.  The firms have a minimum of 50% black individuals in senior fund management positions, a minimum of 50% black ownership with voting rights, and a minimum of 50% black representation at board level. To determine the value of the saving and investment industry, 27four used figures from the Association for Savings and Investment SA (Asisa).

Asisa’s figures – which are compiled using figures made available by retirement funds to the Financial Services Board and Reserve Bank – include the value of retirement fund assets, life company assets, and collective investment schemes.

“The downturn in the economy has resulted in job losses, triggering retirement fund withdrawals, thereby shrinking the pool of retirement savings available for investment,” says Akona Mlamleli, the head of transformation at 27four.

The shrinking pool of savings means limited market share for black asset managers, says Sibongiseni Mbatha, the president of the Association of Black Securities and Investment Professionals.

Mbatha says black managers could increase their market share in SA’s investing and savings industry “three fold in the next 18 to 24 months” if state-owned enterprises like Eskom and Transnet included black-firms in the management of their pension funds.

The top ten black asset managers in the survey include Taquanta Asset Managers, Aluwani Capital Partners, Mazi Asset Management, Kagiso Asset Management, Argon Asset Management, Mergence Investment Managers, Vunani Fund Managers, Meago Asset Managers, Senito Capital Management and Perpetua Investment Managers. These firms control 86.5% (or R359 billion) of the R416 billion total asset value controlled by black-owned firms. (See below).

Source: 27four

The recently revised Regulation 28 of the Pension Funds Act, which notes that trustees should give consideration to black managers or B-BBEE, is expected to be a game changer when it comes to transformation in the asset management industry. But this is not a dead cert, says Rentzke.

“There’s nothing that forces trustees to consider black managers. Trustees need to consider BEE requirement and responsible investing. The trustees will put a broad policy on B-BBEE, but there might be nothing that translates to action. For most funds B-BBEE sits as an option.”

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