When speed is bet­ter than size

Financial Mail - Investors Monthly - - Feature: Asset Management -

Pic­ture a car­i­ca­ture of a hulk­ing be­he­moth pit­ted against a small, nim­ble op­po­nent,

writes Jo­hann Barnard. The sto­ry­line is al­ways that the com­bat­ant able to move more swiftly has the up­per hand.

Over­lay this pic­ture onto the as­set man­age­ment busi­ness and the be­he­moth is the tra­di­tional, es­tab­lish­ment man­ager; the smaller, nim­bler char­ac­ter is the bou­tique as­set man­ager.

The anal­ogy fails to some ex­tent be­cause bou­tiques may be smaller as in­di­vid­ual firms, but jointly they man­age around R2.4 tril­lion of SA’s R5.2 tril­lion as­sets un­der man­age­ment.

These fig­ures are lifted from a study pub­lished late last year by RMI In­vest­ment Man­agers. In the study, the mar­ket is split be­tween the bank and in­surance-owned as­set man­agers and the in­de­pen­dent and true bou­tique man­agers.

So, the terms in­de­pen­dent or bou­tique are not syn­onyms for “small”. The re­port found that SA has 126 of these man­agers, but the top 10 man­age 76% of this R2.4 tril­lion pot. This fig­ure is swayed some­what by stal­warts such as Al­lan Gray, Coro­na­tion and Pru­den­tial be­ing counted among the 126 man­agers sur­veyed.

An as­pect of the David vs Go­liath anal­ogy that is closer to the truth is the ad­van­tage bou­tique man­agers have in be­ing able to move quickly. The claim is that larger in­sti­tu­tions are slower to re­act (mainly due to in­ter­nal pro­cesses and ap­provals) and may miss the chance to re­po­si­tion port­fo­lios.

There’s noth­ing like a cri­sis to cre­ate a chance for profit.

Though the large man­agers would un­doubt­edly be di­ver­si­fy­ing their risk, bou­tique man­agers like Cy Ja­cobs, co­founder of 36One As­set Man­age­ment, doubt their abil­ity to move quickly enough.

“We’ve made a change of about 15%-20% in our port­fo­lio in the past week,” he said at the be­gin­ning of April. “We’re all about pick­ing up op­por­tu­ni­ties and po­si­tion­ing our clients based on how we see the lay of the land, which has got a lot more neg­a­tive recently.

“So we’re po­si­tioned for a weaker SA and are not that in­vested in SA Inc. That view ob­vi­ously cost us last year, but we were able to mod­er­ate our view to cope with the macro drivers. And we’re now again chang­ing that be­cause we be­lieve that for now the pres­i­dent is en­trenched, the state is now fully cap­tured and we be­lieve we need to pro­tect our clients’ funds on a global ba­sis.”

36One has ad­justed cer­tain of its funds, man­date de­pen­dent, to be more heav­ily weighted to global as­sets.

Chris Meyer, CEO of RMI In­vest­ment Man­agers, says bou­tique man­agers have greater sim­plic­ity in de­ci­sion­mak­ing, lower com­plex­ity in prod­uct mix and nim­ble­ness, al­low them to take ad­van­tage of mar­ket volatil­ity.

“Peo­ple’s real net worth is go­ing back­wards,” Meyer says. “That’s a big change from the past 20 years when eq­uity mar­kets, even bond and prop­erty mar­kets, have de­liv­ered strong real re­turns. So clients worry about their abil­ity to gen­er­ate pos­i­tive real re­turns. Par­tic­u­larly when events make the abil­ity to fore­cast those re­turns next to im­pos­si­ble.”

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