Q&A

Financial Mail - Investors Monthly - - Contents -

Neal Frone­man of Sibanye Gold

up the industry — like BoE, Syfrets and UAL — have sim­ply faded away,” he says.

Lo­gan says that at the same time, some in­ven­tive as­set man­agers have come to mar­ket with win­ning for­mu­las that po­si­tion their busi­nesses well for years to come.

“But th­ese for­mu­las can get em­bed­ded so deeply in the cul­ture and ethos that when cir­cum­stances shift in the mar­ket th­ese com­pa­nies can some­times find it dif­fi­cult to adapt or change.”

In­deed, the per­for­mances of An­chor and Syg­nia must be seen against the fast-chang­ing back­drop of the as­set man­age­ment seg­ment.

A num­ber of niche play­ers, es­pe­cially those with a deep value bent, have been bat­tling to cope with se­ri­ous out­flows of funds, as pro­longed mar­ket mo­men­tum ren­ders their metic­u­lous stock-pick­ing styles in­ef­fec­tual.

Cadiz had per­haps the most pub­lic fall from grace. Its ex­ec­u­tives seemed un­able to stop the steady leak­ing of funds un­der man­age­ment as its per­for­mance dwin­dled.

Even­tu­ally, in April this year, Stel­lar Cap­i­tal, an in­vest­ment com­pany aligned with re­tail ty­coon Christo Wiese, stepped in with a buy­out of­fer pitched be­low Cadiz’s tan­gi­ble net as­set value.

Charles Pet­tit, CEO of Stel­lar Cap­i­tal Part­ners, is con­fi­dent that Cadiz can be re­sus­ci­tated.

“We’ve bought into a turn­around. It’s a tough busi­ness, but ul­ti­mately there is the chance to se­cure an­nu­ity type in­come flows, which is the Holy Grail.”

Pet­tit ar­gues that the chances of mega-merg­ers in the lo­cal as­set man­age­ment sec­tor are re­mote, though a crowded mar­ket does mean some con­sol­i­da­tion among smaller play­ers is pos­si­ble.

“At Cadiz, we think we have the right team in place to re­verse out­flows. We think or­ganic growth is the way to go, and have plans to be dis­rup­tive in the mar­ket. I won’t com­ment on th­ese plans yet, but Cadiz has a lot of tal­ent in its team that per­haps was not prop­erly utilised be­fore,” he says.

Syg­nia and An­chor might be hog­ging the spot­light, but in­vestors might do well to look at some of the less-hyped play­ers, who qui­etly ply their trade in niches that lie out­side the shadow of the big­ger as­set man­agers.

They in­clude Pre­scient, PSG Kon­sult, Vu­nani, Ef­fi­cient, Pere­grine and the re­cently listed N-Vest, which all hold vi­able niches.

Pre­scient, which has a sub­stan­tial R67bn of as­sets un­der man­age­ment, trades at an earn­ings mul­ti­ple of 12,5 times with a yield of over 5%.

Pere­grine, which owns other financial ser­vices busi­nesses aside from its as­set man­age­ment hub un­der Citadel, trades at a 19 times earn­ings mul­ti­ple and also of­fers a yield of over 5%.

The rat­ings on Ef­fi­cient and PSG Kon­sult are a lit­tle head­ier, prob­a­bly as a re­sult of the mar­ket fac­tor­ing in cor­po­rate ac­tion.

Vu­nani has toughed out a pro­longed turn­around, and CEO Ethan Dube is de­ter­mined the com­pany will go it alone.

“Our fund man­age­ment busi­ness is get­ting close to R20bn, and we are mak­ing money off it. Our re­cently ac­quired Fair­heads busi­ness, which is largely an ad­min­is­tra­tion busi­ness, is sta­ble and ca­pa­ble of gen­er­at­ing an­nual net profit of be­tween R60m to R70m.”

Dube, how­ever, rightly warns that there is sig­nif­i­cant ex­e­cu­tion risk when un­der­tak­ing cor­po­rate ac­tion in the as­set man­age­ment space, where peo­ple are key as­sets.

PSG Kon­sult, with Jan­nie Mou­ton’s op­por­tunis­tic PSG Group as a backer, might be re­garded as a prime can­di­date to move and shake in the sec­tor. But PSG CEO Piet Mou­ton says its or­ganic growth plan is work­ing just fine.

Mou­ton sats PSG Kon­sult’s re­sults for the six months to Au­gust showed as­sets un­der man­age­ment up a sprightly 17% to R151bn, and as­sets un­der ad­min­is­tra­tion jump­ing 21% to R321bn.

But per­haps a more ap­pro­pri­ate gauge of sen­ti­ment for JSE-listed wealth man­age­ment stocks is the re­cent shift in the share price of Corona­tion, which has been the poster child for listed fund man­age­ment en­deav­ours.

Af­ter a near decade of con­sis­tent share price growth, driven by strong earn­ings and a gen­er­ous div­i­dend, Corona­tion this year suf­fered a sharp down­ward cor­rec­tion, drop­ping from a high of around R112 to around R69.

On fun­da­men­tals, this seems an un­rea­son­able drop.

Aside from an em­bar­rass­ing ex­po­sure to the col­lapsed African Bank, there’s not much fun­da­men­tally un­sound about Corona­tion’s busi­ness model.

But the down­beat sen­ti­ment from Corona­tion’s ex­ec­u­tives prob­a­bly spooked in­vestors.

Last Novem­ber, Corona­tion CEO An­ton Pil­lay re­it­er­ated a warn­ing that in­vestors should ex­pect lower re­turns from mar­kets.

Pil­lay re­minded in­vestors that Corona­tion was a cycli­cal busi­ness highly geared to mar­ket re­turns, and share­hold­ers shouldn’t ex­pect earn­ings to grow ev­ery year off its high base.

Corona­tion has lost around 35% of its mar­ket value this year, yet its lat­est trad­ing up­date sug­gests as­sets un­der man­age­ment have grown 8% from R588bn from Septem­ber last year to R636bn by June.

But cru­cially, Corona­tion al­ready had R636bn of as­sets un­der man­age­ment at the end of March, which means, for the first time in a long time, it has seen no quar­terly growth.

Any sug­ges­tion that Corona­tion has stalled will re­in­force the no­tion that new list­ings like An­chor and Syg­nia are in strong po­si­tions to snatch

❛❛ It’s a tough busi­ness, but ul­ti­mately there is the chance to se­cure an­nu­ity type in­come flows

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