Black fund management a small sector, but it packs a big punch
With only 668 workers, this group manages 7% of all SA savings and investments, or R579bn
The black-owned fund-management sector may employ only 668 people, but it is a powerful lobby group. No other tiny grouping, which would not even take up a floor of one of the bank head offices, would merit the glossy annual survey BEEconomics, produced by Fatima Vawda at 27four.
It is a fragmented group as 50 firms manage R579bn of client assets, or 7% of SA’s savings and investments. A third of these businesses are unprofitable, primarily because their assets are subscale.
Some are equipped to make a living with a small asset pool, such as Cachalia Capital, which has just R750m after six years. But founder Mashuda Cassim can be patient as she extends the track record she built up on the RMB Value Fund.
It is the top performer since inception. But is there enough bread and gravy to support the 11 staff at Afena Capital from R5.2bn? And that is after nearly 14 years in the market.
The 12 staff of the rather unfortunately named Legacy Africa have to feed off the income from R3.9bn in assets. These days, “legacy” usually refers to outdated IT systems.
The biggest news of the year was the entry of Prescient Investment Management as the second-largest manager in the survey with R93bn under management. It isn’t very different from the Prescient of 12 months ago. Guy Toms is still the chief investment officer.
The main difference has been that Sithega, owned by former insurance executives Thabo Dloti and Themba Baloyi, has come in as a 25% shareholder, making it majority blackowned. Like the largest manager in the survey, Taquanta, Prescient is not a black manager from birth. But it has been able to acquire enough black shareholding to tick that box. Kagiso, the sixth-largest with R28.5bn, also started as an offshoot of Coronation, in which the main trigger-pullers were Gavin Wood and Paul van Rensburg, but it was black-controlled so as to attract money from the Public Investment Corporation (PIC) and parastatal funds, which was not open to Coronation.
It now has predominantly black business and investment teams. Sibusiso Mabuza and Patrick Mathidi, the founders of Aluwani, were given a once-ina-lifetime opportunity about three years ago as Momentum had decided to phase itself out of active equity management and gave the team, who were leaving the old RMB Asset Management, a large chunk of the internal Momentum money and some key unit trusts such as the Top 25 fund. But it has not been an ideologically based blacks-only manager and Conrad Wood, the former head of fixed income at RMB, was also a founder of Aluwani.
Vunani, the fifth-largest, was founded as Peregrine Quant, but it has evolved from a predominantly white-run quant shop to a mainly black active manager. Tony Bell recently handed over the reins as chief investment officer to Safs Narker. It has grown its asset base to R31bn and is the second-largest in retail assets (after Prescient) with R5.6bn in unit trusts sold through Mi-Plan.
Retail assets still account for less than 9% of total black managers’ assets. Frankly, while black shareholding helps win business from large state pension funds and many institutional consultants, most financial advisers are unmoved and if anything prefer the comfort of the established brands.
But other fund managers were started by black managers from scratch.
Mergence, with R33bn, was started by Masimo Magerman. Unlike most of its competitors, which focused almost exclusively on domestic equity, it has offered more sophisticated products such as real return funds and hedge funds. It is now playing a proactive part in the restructuring of Brait.
Argon was started by Mothobi Seseli to be a genuine black company at a time when many BEE managers still had white trigger-pullers. Its asset base has fluctuated relative to archrival Afena, founded at about the same time, but it is now almost five times bigger at R25bn. If fund management worked in the same way as the paper-clip industry, these two firms would have merged by now.
Other organic black managers that have reached scale include Sentio, with R17bn, which uses a shrewd blend of quant and fundamental investment techniques. Perpetua, with R12bn, is relatively new at just under seven years old. It probably has the best-known personality in this sector through its founder and CIO Delphine Govender, who also appears regularly on the talk circuit promoting the black fund management sector. Perpetua has attracted assets even though it has underperformed. The cycle has not favoured Govender’s value management style, but she had already built up a strong record as one of Allan Gray’s senior equity managers.
Many of these managers were formed during the property boom. Meago, under Jay Padayatchi and Thabo Ramushu, got out of the starting blocks as manager of the Absa property fund but has now built up R12bn of assets even after losing this account. Sesfikile does not appear in the survey on a technicality, but it has accumulated R17bn in the property sector.
The survey shows that most BEE managers rely heavily on a few clients. In 43% of firms the largest single client, more often than not the PIC, makes up more than 40% of assets under management, and in less than a quarter makes up less than 20% of assets. The top five clients make up at least 80% of assets in 40% of the universe. In none of the managers do the top five make up less than 20% of the total, and this takes both retail and institutional clients into account.
Prescient offers the widest range of products and strategies at 11. It is the only BEE manager of infrastructure funds. Just behind it is Vunani and Kagiso with eight, and Benguela with seven.
RETAIL ASSETS STILL ACCOUNT FOR LESS THAN 9% OF TOTAL BLACK MANAGERS’ ASSETS
IN 43% OF FIRMS, THE LARGEST SINGLE CLIENT ... MAKES UP MORE THAN 40% OF ASSETS