Old Mu­tual paid a lot in school fees for its move into bou­tiques

• For pen­sion funds with a bal­anced man­date, an orches­tra is prefer­able to a solo pi­anist

Business Day - - THE BOTTOM LINE - STEPHEN CRANSTON

Like many busi­nesses, as­set man­age­ment goes through phases of cen­tral­i­sa­tion and de­cen­tral­i­sa­tion. In 1997 Bryan Hop­kins left his job as a pro­fes­sor at the Univer­sity of Cape Town to be­come chief in­vest­ment of­fi­cer of Old Mu­tual As­set Man­agers (OMAM) with this brief: to en­sure that all clients in their re­spec­tive prod­ucts, pre­dom­i­nantly its bal­anced fund in those days, had the same out­come.

Be­fore that, in what we might now call the bou­tique model, there was a dif­fer­ent out­come if you hap­pened to be as­signed to Arnold Shapiro than if you were as­signed to, say, Charles de Kock. Be­fore the cen­tralised model was in­tro­duced, OMAM fund man­agers were free to ig­nore an­a­lysts’ rec­om­men­da­tions and didn’t worry too much about at­ten­dance at meet­ings.

For a while in this at­tempt to build con­sis­tency, there was a sig­nif­i­cant shift of power to the an­a­lysts. San­lam went through a sim­i­lar process.

Hop­kins’s great hero was Pe­ter Lynch of the Fidelity Mag­el­lan Fund and a ge­nius at pick­ing un­likely shares. His favourite stock-pick­ing tech­nique was to go to the lo­cal mall with his fam­ily and test drive the spe­cial­ist chains. We are all fa­mil­iar with The Body Shop, but when Lynch first vis­ited one he ex­pected a car fit­ment cen­tre. He was de­lighted that it was a per­son­al­care chain where the prod­ucts were made with all the in­gre­di­ents you need for a good salad.

These days we are not so naive about the abil­ity to pick shares that can con­sis­tently beat the mar­ket. Al­pha, or ex­cess re­turn, is con­sid­ered ephemeral. No­body has repli­cated Lynch’s track record in the US mar­ket.

In SA the balance of power has shifted back to the port­fo­lio man­ager.

I am not sure what made OMAM be­lieve its cen­tralised model wasn’t work­ing. Most pen­sion funds still seek bal­anced man­dates, where fund man­agers work­ing to­gether as an orches­tra will al­ways win the man­date over a solo pi­anist.

As a trus­tee I was much more com­fort­able when the en­tire OMAM orches­tra was run­ning my money than I am now that it is run by half a dozen (not nec­es­sar­ily high-pro­file) fund man­agers and a cou­ple of econ­o­mists heavily in­flu­enc­ing the choices.

There was a feel­ing, prob­a­bly pushed on them by their ad­ver­tis­ing agency, that OMAM was not per­ceived to be cool, but it would be if it split into a dozen pieces. Some­how they could pre­tend to be en­tre­pre­neur­ial busi­nesses, a bit like SABC3 pre­tend­ing it isn’t part of the pub­lic broad­caster.

Old Mu­tual cer­tainly paid a lot of school fees and it has closed bou­tiques such as Value and the lu­di­crously named Toros. Its most suc­cess­ful bou­tique is Futuregrowth. But as this was an ac­qui­si­tion, the man­age­ment team has hard eq­uity, and it has a strong enough brand to keep a healthy dis­tance from the mother ship. The other bou­tique man­agers are to all in­tents and pur­poses still em­ploy­ees of Africa’s largest life of­fice.

It was al­ways go­ing to make sense for Old Mu­tual’s al­ter­na­tives busi­ness, in­clud­ing un­listed sec­tors such as pri­vate eq­uity, to run separately: its main client is the Old Mu­tual life of­fice. Old Mu­tual In­vest­ment Group, as it is now called, has grouped its quants and shariah busi­nesses and its rather dull hedge funds into a “bou­tique” called Cus­tomised So­lu­tions, com­bin­ing the two most dread­ful words in the MBA lex­i­con.

When Hywel Ge­orge came down from Snow­do­nia to re­build the bou­tique struc­ture, he de­cided there was only room for one do­mes­tic eq­ui­ties shop. Com­mer­cially that was a good de­ci­sion. But he could have made a plan to hold on to Elec­tus Fund Man­agers, the only true bou­tique in the line-up where Neil Brown and Richard Has­son have adopted an en­tre­pre­neur­ial style. To add in­sult to in­jury, he forced them to hand back the emerg­ing-mar­kets busi­ness they had built up.

Ge­orge could have fol­lowed the ex­am­ple of San­lam, which still has a mi­nor­ity hold­ing in Denker Cap­i­tal, an­other mav­er­icks’ haven run by Kokkie Kooy­man and Claude van Cuyck.

San­lam did not go through the same rad­i­cal shake-up as Old Mu­tual, but it is still hard to fol­low its organogram. There are three en­ti­ties: San­lam In­vest­ment Group, run by Robert Roux; San­lam In­vest­ments, run by Ner­san Naidoo; and San­lam In­vest­ment Man­age­ment (SIM), run by Azola Mayek­iso.

San­lam put out a brochure ex­plain­ing this, which in­cluded a pic­ture of Naidoo sit­ting on an arm­chair in the dark. He was the spit­ting im­age of Michael Cor­leone in The God­fa­ther.

SIM cov­ers much the same ground as Old Mu­tual’s eq­uity and bal­anced shops plus Futuregrowth. But in­dex man­ager Sa­trix is run separately. Old Mu­tual in fact runs more in­dex as­sets, but Sa­trix is still the pre­mier pas­sive brand with a lot more third-party money.

The most in­ter­est­ing de­ci­sion San­lam made was to set up an en­tirely self-con­tained team to run San­lam’s on-balance sheet as­sets, com­bined with the credit skills of the group.

Roux tells me it was for­tu­nate that he could de­ploy Ger­hard Cruy­wa­gen (pre­vi­ously chief in­vest­ment of­fi­cer of SIM) to run the new unit, as Cruy­wa­gen and San­lam have ex­actly the same risk pro­file.

A cau­tious man for a clearly vi­tal job in the group.

Stan­lib prefers the term “fran­chise” but it split it­self into si­los when Thabo Dloti moved over from Old Mu­tual. Some of these si­los, such as value, have dis­ap­peared, but the non­tra­di­tional ar­eas such as in­dex­ing and in­fra­struc­ture add to com­plex­ity at a time when Stan­lib’s very sur­vival de­pends on the ba­sics, beat­ing bench­marks in eq­uity and bal­anced funds.

OLD MU­TUAL HAS CLOSED BOU­TIQUES SUCH AS VALUE AND THE LU­DI­CROUSLY NAMED TOROS. ITS MOST SUC­CESS­FUL IS FUTUREGROWTH

/Fi­nan­cial Mail

Shake-up: Thabo Dloti, when he be­came Stan­lib CEO in 2014, ini­ti­ated a de­cen­tral­i­sa­tion as he had done for Old Mu­tual.

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