History locks black asset managers out of the club
Frustration about lack of transformation in the financial services sector is reaching a tipping point. The Financial Sector Charter Council was even renamed Financial Sector Transformation Charter to try and reassure players of colour that the industry is committed to transforming.
Some of the speakers at the recent Morningstar conference warned that if nothing changes, the industry might struggle to be relevant in a few years’ time.
Business Day spoke to Fatima Vawda, MD of 27four Investment Managers, who has been championing transformation for years.
Some say black-owned companies are quick to point fingers but most of their problems are self-made. These include not wanting to collaborate and failing to specialise and find their own niche. How would you react to that?
This is not correct. It creates an “us” and “them” discourse without wanting to understand the structural challenges faced by black asset managers.
The current concentrated structure makes it vulnerable to “herding” and “boys’ clubs”, resulting in the hegemony of a particular investment thesis, and seriously constrains innovation.
Herewith the structural challenges we face:
The incumbent life companies had many years of earning super-profits from investment products that were opaque and didn’t service their clients well. This has eroded the public trust over many years, making this a highly regulated environment where the pressure on fees is immense, creating a huge barrier for all new firms.
Sponsored umbrella funds that limit the inclusion of black participation.
Withholding access to decision makers at asset owners.
The vertical integration of incumbents.
Regulatory requirements that favour large, established firms. Limited access to capital. Lack of collaboration is ingrained in the industry and is in no way unique to any particular segment.
This is an industry that is highly protective of its intellectual property, and that is common to all asset managers, which is why we don’t see a high degree of collaboration anywhere in the industry.
We’ve had the Financial Sector Charter since 2004 and the Financial Sector Code, which has since been amended. Why do we still sit with an industry that remains largely untransformed?
Monitoring and appropriate sanctions are key to the institutionalisation of sound and ethical business practices.
Self-regulation is premised on the collective will of the industry and the associated resource allocation; unfortunately, the members have not been submitting their annual reports and the council has not been strict in asserting its regulatory and enforcement mandates. Consequently, there is a need for co-regulation.
The Association for Savings and Investment SA has pointed out that there is a lack of support for black asset managers from the client side as well. When they choose their underlying investments, they choose the bigger, wellknown companies.
The move to umbrella arrangements has entrenched the status quo of big business, as it is generally impossible for black asset managers to get their products onto the menu card of such funds.
Vertical integration has also proved exclusionary and in many ways promotes anticompetitive behaviour.
The clients are not sophisticated investors who are familiar with the players and they naturally gravitate to the names they know. The issue is largely with advisers who are not providing their clients with a full range of options.
Do you think there’s enough consumer awareness about black-owned companies that present an alternative to investing with major firms?
To become a household brand requires a large investment in marketing and brand spend. Without revenue growth through growth in assets under management, this is very difficult to achieve.
The large asset managers have deep pockets and have had many years to build their brands into household names.
There are way too many asset management companies out there 132,000, if I’m correct. Someone pointed out that obviously not everyone is going to be successful and that consolidation is needed for the smaller companies to achieve the necessary scale. If it’s that simple, why aren’t we consolidating?
If the playing field is level, then the opportunity exists for businesses to compete and for the strong ones to win. Our BEE.conomics survey had 48.
Our apartheid legacy of an economy that is characterised by monopolies and concentration appears to be institutionalised.
It is time to begin to rethink the structure of our economy. We must be competitive and we know it is small businesses that are creating the jobs.
Let’s start reimagining our economy that will be creating high-quality, decent employment opportunities, helping to create wealth for individual citizens and contributing to sustainable development.
People ask, ‘do you have to bring race to it? It’s about how long you’ve been in the industry, and not necessarily about your skin colour’. What is your experience in this regard?
Race matters in SA. Race matters especially when a whole segment of the population was denied access to the industry for many years, so if you talk about how long you’ve been in the industry, then it must be about race.
Black asset managers need track records. However, to get track records they have to demonstrate capability, and this is where race matters.