Bold steps needed to catapult BEE managers into the spotlight
• Survey on black funds cites prominence of consultants and lack of advertising as obstacles
There was a predictable reaction to the launch of the 27four annual black asset management survey last week: change has been too limited, and trustees and consultants are to blame.
In fact, there have been some achievements. It might not seem much that 9% of industry assets totalling R416bn is managed by black firms. But in the 1990s wave of new black managers, the share peaked at about 2.5%.
There is always a high attrition rate among boutique managers, black or white. The trustees’ duty is to get maximum return at appropriate risk for members. Fiduciary duties do not extend to supporting already well-paid fund managers.
At the survey launch, a speaker suggested it was time for most trustees to be replaced with more radical types. But the real enemy is apathy: not a single black person or any women stood for a trustee position at our pension fund.
Some businesses have still grown to what might be considered critical mass. Taquanta, one of the few survivors of the 1990s boom, has R122bn under management. The fund has taken a pragmatic approach as its marquee-name investment professionals are two whites schooled in the despised mainstream asset management industry, Stephen Roberts and Stephen Rogers.
Kagiso has been around almost as long, although it started as a “bantustan” venture set up by Coronation specifically to attract state and parastatal clients. Thys du Toit and his team at Coronation decided that Kagiso could not compete with the mother ship, so it was restricted to index mandates.
Ironically, the Public Investment Corporation, the main target, did not give out index funds to black managers as expected: some years later, it gave quite aggressive mandates.
It took a while for Kagiso to shake off its image as an index, or at least quants, manager but the business is certainly competitive and arguably already part of the mainstream.
Mazi, with R42bn, has Malungelo Zilimbola, formerly with Investec, RMB and later, a disciple of enigmatic investor Patrice Moyal at Visio.
Aluwani is an interesting case, as it was started by Momentum once it had decided to wind down its fundamental active equity business. With Momentum as a 40% shareholder, it has been able to land some institutional balanced and equity mandates.
After nearly 13 years, Argon and Mergence, with about R25bn each, look as though they will survive to the next generation. They play a lively part in debates about investment and the economy.
Vunani, once known as Peregrine Quant, also has critical mass with about R18bn.
But, there is still a long tail of managers who must be eating into their seed capital to survive. The cast of characters keeps changing like a Broadway show: some well-known names such as Cachalia Capital, JM Busha and Sesfikile were excluded. Newcomers included Cloud Atlas, Idwala, Nisela and Value Capital Partners.
There are a few fallen angels. Afena Capital, once one of the leaders, has fallen to R3.8bn.
Many of the companies with almost no assets are alternative asset managers, some of which already have credible names in the institutional market, such as Fulu Makwetla and John Oliphant at Third Way. But you must wonder, for example, why Seriti Asset Management has no assets at all after three years.
The stock answer is that the consultants are blocking the road. Asset consulting is dominated by two parties, Willis Towers Watson and Alexander Forbes, and a combined Sanlam and Absa consultants will be a respectable third.
Consulting is conservative, given that it is dominated by actuaries, but even in this closed shop, black-controlled Selekane has emerged and deserves more support.
I hope consultants go back to their role of advising, leaving trustees to make the decisions.
27four boss Fatima Vawda says most black economic empowerment (BEE) managers rely on consultants or direct relationships with clients for distribution. Some are very accomplished, such as Sibusiso Mabuza at Aluwani and Mothobi Seseli at Argon. But old-school schmoozing won’t be enough — even with good investment performance. Vawda says firms need to develop more mundane distribution channels such as umbrella funds, linked investment service providers and even financial advisers. Not that financial advisers have been much help: it is the least transformed industry in the country.
But someone has to take the first step. Out of the 45 firms in the survey, just 21 have registered unit trusts. It appears that cultivating global institutional investors is a lot easier, as 22% of the firms now have global clients. There is no commitment to build retail brands at the BEE firms, with less than 1% of revenue spent on advertising. Allan Gray and Coronation realised more than a decade ago that they had to build up national brands. Otherwise they would battle for recognition against big spenders such as Old Mutual and Sanlam.
It will take a brave BEE firm to start. Now 90% of BEE retail assets are held by Taquanta. But almost all this money has been gathered by Nedgroup, Nedbank’s unit trust arm, which uses Taquanta to manage most of its fixed income mandates. Taquanta is certainly not a household name.
The advertising from BEE firms seems to be hit and miss. It is also, as Vawda points out, oldfashioned — 81% use print, while just a third use social media and less than 19% use radio. Just 11% use Facebook or Twitter to communicate with investors. Many still consider this too frivolous, but even serious webinars are used by only 2% of firms.
AFTER NEARLY 13 YEARS, ARGON AND MERGENCE, WITH ABOUT R25BN EACH, LOOK AS THOUGH THEY WILL SURVIVE TO THE NEXT GENERATION