Glacier by Sanlam has released an analysis of the South African asset management industry that has uncovered some fascinating statistics about investment teams and how they operate. The survey covered 146 funds across the South African multi-asset low-equity, medium-equity, high-equity, flexible, and general-equity categories.
The findings should certainly give asset managers themselves as well as investors and financial advis0rs something to think about:
While UCT is an excellent university with a strong financial programme, and the asset management industry is concentrated in Cape Town and so will naturally draw from it, this is still an incredible statistic. It certainly raises questions about diversity.
2. Almost half of all fund managers are CFA charter holders, yet on average they underperform fund managers who are not
Across the sample, 49% of fund managers were CFA charter holders. However, on average across all categories, fund managers with a CFA qualification underperformed (10.24%) managers without (11.59%) a CFA qualification over the past five years.
“Having a CFA is almost the ticket to the game within asset management, but if you look at performance it doesn’t look like having a CFA is doing what its supposed to be doing,” says Leigh Kohler, head of research at Glacier. “I think there is so much power in diversity generally and I think when it comes to hiring of investment talent, it seems that attending UCT and having a CFA has become the benchmark, and that does create some homogeneity. I think from a recruitment perspective asset managers probably need to look at diversifying their UCT and CFA risk.”
3. Only 18% of investment professionals are female
The industry very clearly remains male dominated. Not only is less than one in five investment professionals a woman, but in the entire sample of 146 funds, only one woman held the position of portfolio manager.
4. Average employment equity (race) representation is 31%
While there is a commitment from many companies in the industry to improve their employment equity, it still appears to be happening more slowly than many of them would like.
“You shouldn’t define diversity as strictly along racial or gender lines, as ultimately the benefit of diversity is the diversity of thought,” says Kohler. “But people from diverse backgrounds, naturally view the world differently, and so I think the long-term outcome of increased diversity must be beneficial for investment decision making.”
5. The average size of an investment team is 11 people
“This was very interesting for me because we often speak about teams being either big or small, but how do we define that?” says Kohler. “It must be relative to something.”
This study suggests that any team of 10 people or fewer in South Africa can be considered relatively small, and 12 or more relatively large.
6. Big teams can outperform
Glacier analysed the sizes of investment teams against their five-year standard deviation and performance numbers. This did not reveal what the optimal team size might be, but rather that it’s actually possible for any sized team to perform well.
“I sit on many forums with peers and many of them have a resistance to large teams,” says Kohler. “They believe that large teams lead to slower decision making. That may be true, but this result says that while their decision making may be slower, it may also be better.”
7. Confusion around who makes decisions affects returns
Whenever there is an investment team behind a fund, there needs to be clarity on who is making the final portfolio construction decisions. Glacier found that there are only small differences in performance whether those decisions are made collectively or only by a single individual. However, when it’s a combination of both, performance suffers.
“If there isn’t clarity on how decisions are made, we see that as a red flag,” Kohler says. “You can’t have both individual and team-based decision making. You need to be clear.”
8. Managers without a model underperform
While only 3% of the sample said that they don’t make use of any model when investing and instead rely entirely on their gut instincts, the performance of this segment is significantly worse than for managers who have proper processes in place.
“You would think that all fund managers would be using some model or process and then basing their decisions on that, but there are some who admit that process is not important to them,” says Kohler. “It’s a small part of the sample, but it seems that doesn’t work.”
9. The majority of managers invest in their own funds
Overall, Glacier found that 85% of investment professionals invest in the funds they manage. However, only 26% invest more than half of their discretionary wealth in their own funds, and just 3% invest all of their discretionary wealth.
10. Most fund managers own shares in their company
Glacier found that 81% of investment professionals are shareholders in the asset management companies they work for.
“This suggests that there is alignment between the asset allocators and the management company,” says Kohler. “This is positive because this is a long-term incentive.”
Glacier also found that fund managers who are shareholders outperformed those who aren’t over the last five years.
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