Face of asset management in SA transforming at steady pace
• Industry needs to do more to help develop the country and tackle poverty and inequality
The two most significant challenges we face as SA is to solve the desperate levels of poverty and massive inequality. That is why black economic empowerment (BEE) and transformation are such pivotal conversations for us to have.
These conversations are particularly relevant in the asset management industry, not only because the industry should transform for its own sake, but because it plays such a pivotal role in the allocation of capital, which is essential for the growth, development and evolution of the economy.
In recent times the conversation around transformation in the asset management industry has been narrowly focused on the portion of assets that are managed by black firms. This is an important yardstick because it tells you the extent to which businesses founded and managed by black people have come to play a more meaningful role in the industry and, therefore, the economy at large.
If we look at data from the 27FOUR annual 2017 Transformation in South African Asset Management Survey, it would suggest that black companies manage about 9% of total industry assets, which are worth about R4.6-trillion and represent SA’s stock of savings. No matter which angle you look at this from, it’s an embarrassingly low percentage.
However, that is not the entire story, and it is worth widening the lens on transformation in the industry by going back to first principles.
What do people really care about? They care about the extent to which black investment professionals are actually making investment decisions, the proportion of firms led by black executives and, finally, the proportion of black ownership in the industry. We therefore need to consider transformation on the basis of these three pillars if we want to get closer to establishing how well — or badly — the industry has done as far as transformation goes.
First, let’s look at the proportion of assets managed by black investment professionals at not only black but all firms. Second, let’s look at the number of black executives who are leading those businesses and deciding who makes the investment choices on behalf of clients. Third, let’s look at the average level of black equity ownership in those businesses.
If we take the emotion out of it, the data paints a slightly different picture — not, by any means, one that says we have arrived in the promised land but certainly an interesting picture worth considering and debating.
When it comes to the proportion of assets managed by black investment professionals, the only reliable, publicly available information is unit trust data. In this respect, Morningstar’s database indicates that black investment professionals manage about 18.5% of industry retail assets excluding funds of funds, multi-manager and money market funds (75% of total retail assets).
It’s not too great a leap to assume the same to be true in the institutional industry. In fact, the proportion of black investment fund managers could well be higher given the more intense pressure on managers of institutional assets to transform compared with the retail industry.
On the second pillar relating to the leadership profile of the industry, five of the top 10 largest fund management businesses are led by black executives. That means almost 60% of the industry’s total assets under management, including life funds, are overseen by black CEs, as reflected in the Alexander Forbes Survey of Retirement Fund Managers to June 2017.
Finally, if we use the top 10 investment houses as a proxy, the average level of equity ownership by black people through BEE schemes and/or direct equity stakes is 26%, based on black ownership/economic interest figures published on their broad-based BEE scores.
So in fact, if we take some of the emotion out of the debate, I’d venture to say the industry has come a significant way as far as transformation is concerned. But we clearly still have a long way to go. It is therefore important that we maintain vigilance and continue investing and making progress in transformation if we are to hold ourselves to a higher standard.
The industry manages other people’s hard-earned money. That makes us fiduciaries, which compels us to act with due care, skill and diligence in their best interests. And we can include transformation, in addition to investment outcomes, as being in their best interest. So maybe, like a few other industries, we are being held to a particularly high standard — and rightly so.
As such, it is important for clients and SA as a whole to continue holding up a mirror to the industry to keep us honest as we journey to change the face of asset management.
WE MANAGE PEOPLE’S HARD-EARNED MONEY. THAT MAKES US FIDUCIARIES, WHICH COMPELS US TO ACT WITH CARE