Sygnia to test the chilly waters of Britain with low-cost approach
• Asset manager wants to be a disrupter in a place where South African success has low profile
When South African business people start to view the country as a small pond they get ambitions to move abroad. The first port of call is almost always the UK, where tycoons from Ernest Oppenheimer to Donald Gordon dropped anchor.
Is there much to show for it? De Beers carries on its secretive way while the Gordon family no longer controls that excellent UK property portfolio, now Intu and Capital & Counties.
There have been quite embarrassing experiences, such as Standard Bank, which had ambitions to build a significant merchant banking business in London but was subsequently forced to wind down.
Under the radar are the UK investments of Douw Steyn: comparethemarket.com uses a meerkat in its advertising yet many people I talked to in London were unaware of the South African links in the business, and the UK version of Steyn’s Budget Insurance certainly doesn’t take a biltong-and-braai approach to its marketing.
Has Discovery ever been under the radar? Many in the UK might not realise Vitality Life and Health are part of a South African group, but I’m sure the salespeople are.
The more visible South African brands are Old Mutual and Investec. I expect the Old Mutual brand will be phased out soon after the managed separation. Its UK business now has an indigenous British management team headed by Manchester’s Paul Feeney. Investec is the one brand that seems to have found a permanent home in those islands, though not without several bumps in the road.
I have mixed feelings when I hear that Sygnia is looking at setting up a UK business. I know that unlike previous corporate raiders such as Gordon and Mark Weinberg, Sygnia founder Magda Wierzycka isn’t going there to get a mention in the Queen’s Birthday Honours — Dame Magda doesn’t sound right. And she assures me she has no plans to carry on her part-time career as an activist over there. Good news for British corporate crooks.
There is so much more for Sygnia to do in SA. Its umbrella fund has about R4bn under management, but its main rivals are 15 to 20 times larger. It can’t afford to take its eye off the ball in the fight for passive investments, in which it has two strong opponents, Satrix in the Sanlam camp and 10X, in which founder Steven Nathan has positioned himself successfully as the king of low fees.
However, the South African management is more than capable of running the business here. It would be no bad thing if the spotlight moved away from Sygnia’s charismatic, perfectionist founder. She seems to draw the paparazzi almost as effectively as Kim Kardashian and Meghan Markle.
Wierzycka believes there is room for disruption in UK financial services. She says that even though our legislation is based on the British model, in many ways it is behind us. She describes the recent UK Retail Distribution Review as little more than a diluted version of the original South African Financial Advisory and Intermediary Services (FAIS) Act — commissions have not disappeared they simply have to be negotiated.
Such tricks as initial fees on unit trusts and bid-offer spreads are long gone in SA but alive and well in the UK.
Wierzycka plans to go by her married name, Mrs Peile, in London. She believes there has to be demand for Sygnia’s lowcost products on a low-cost platform. But it will take time. Even US giant Vanguard has a modest £300m under management after almost a year.
The UK is particularly behind on living annuities, particularly hybrid annuities, which allow living annuities to convert to life annuities with longevity guarantees. A version of its Sygnia For Life hybrid annuity would fill a need in the UK.
I am sure Sygnia could disrupt the sleepy world of British master trusts, a much less dynamic version of SA’s umbrella funds. Sygnia would be able to piggyback off its existing systems, even run much of the back office from Cape Town. Or if it made more economic sense it could outsource the admin to another closer emerging market such as Poland.
A key decision will be how to approach the distribution strategy. Realistically, Sygnia would need some tied distribution, but that would immediately add to business risk. The liability of financial advisers is taken much more seriously than it is here.
The product range will go well beyond the low-cost passive products. The Skeleton range — with the slogan “you can’t be too rich or too thin — may have the headline low cost of 0.4%. But the cash cows will be products such as the Fourth Industrial Revolution Fund, which was 12% ahead of the benchmark broad US S&P 500 over the past 12 months.
Wierzycka says the returns from cash and bonds have been so low that after eight years a cash portfolio in the UK would be worth just 25%.
The only saving grace was the individual savings account, which was the model for SA’s tax-free savings account.
For now Wierzycka says she is just putting lines in the water, because if she doesn’t she won’t catch any fish. But she won’t just be waiting for life to happen. She briefly worked in the Coronation London offices so she is not naive about the obstacles of coming into a mature and sometimes insular market.
The business might have to use a different name as “Sygnia” sounds too much like a secret cult in a Dan Brown novel.
Wierzycka says Sygnia is highly unlikely to offer funds of hedge funds in the UK. This was the original product line when Sygnia opened its doors with the inspiring name of IQVest. She says hedge funds have come to the party in Sygnia’s multiasset portfolios for 11 out of 13 years. But over the past two years, along with most of the industry, returns have been flat to negative. Besides, it will dilute (as it has done in SA) Sygnia’s positioning as a low-cost business.
Sygnia could make it work if they allow the A team to stay in SA and mainly recruit locals in the UK. There are some superficial similarities between the two countries’ financial services industries, but local knowledge would be critical.
IT MAY HAVE TO USE A DIFFERENT NAME AS ‘SYGNIA’ SOUNDS TOO MUCH LIKE A SECRET CULT IN A DAN BROWN NOVEL