Re­volv­ing doors

at OM’s multi-bou­tique

Finweek English Edition - - Companies & markets - SHAUN HAR­RIS

HIGH STAFF TURNOVER in the as­set man­age­ment in­dus­try is noth­ing new. It’s that type of busi­ness. But when two se­nior port­fo­lio man­agers are among re­cent res­ig­na­tions fol­low­ing the im­ple­men­ta­tion of a new busi­ness model partly de­signed to re­tain key staff, there could be a prob­lem.

Old Mu­tual In­vest­ment Group SA (Omigsa) ap­pears to be fac­ing that dilemma. And un­der its new “multi-bou­tique in­vest­ment house” struc­ture, be­ing a ma­jor part of listed Old Mu­tual SA isn’t help­ing ei­ther. Most as­set man­agers – par­tic­u­larly the small, in­de­pen­dently owned bou­tiques – don’t want to be part of a listed group, say­ing re­lent­less fo­cus on quar­terly per­for­mance in­ter­feres with longer-term in­vest­ment goals.

The res­ig­na­tions of se­nior port­fo­lio man­ager and Omigsa vet­eran Al­wyn van der Merwe and Arno Lawrenz, head of fixed in­come in­vest­ments, come as a blow to the as­set man­ager. Both are of­fi­cially work­ing off no­tice pe­ri­ods with Omig-

sa, so there’s a sort of soft gag in place.

How­ever, both have al­ready left Omigsa: Van der Merwe starts at San­lam In­vest­ment Man­age­ment at the be­gin­ning of May, and in­dus­try in­sid­ers say Lawrenz plans to launch his own spe­cial­ist fixed in­come as­set man­age­ment com­pany, At­lantic Cap­i­tal, to­wards mid-year.

Ear­lier this year newly re­named Omigsa, SA’s largest in­vest­ment house, de­cided to split the busi­ness into 12 dif­fer­ent in­vest­ment “bou­tiques”. That was a bold move for an es­tab­lished as­set man­ager, and in­cluded changes to the fee struc­ture to align man­ager in­come with per­for­mance and an at­tempt to give man­agers more in­de­pen­dent con­trol over the funds they run and their in­vest­ment de­ci­sions.

The new model is now be­ing put to the test and there are ca­su­al­ties. Thabo Dloti, CEO of Omigsa, says he’s con­cerned but still be­lieves in the longer-term ben­e­fits of the new model. “None of the res­ig­na­tions has been well re­ceived, es­pe­cially as we changed our busi­ness model to keep staff. But I don’t be­lieve it’s the model; we’re go­ing through a big cul­tural change com­pared to the sta­bil­ity the old Omam (Old Mu­tual As­set Man­agers), we’re ask­ing our staff to do more than un­der the old sys­tem and some peo­ple might not be pre­pared to take the risk they have to for the com­men­su­rate re­ward.”

That’s one way of look­ing at it. How­ever, it doesn’t fully ex­plain all the res­ig­na­tions. The gen­eral ex­per­tise flow in the in­dus­try has been from the larger es­tab­lished houses to small bou­tiques or start-ups, which en­tail a lot more risk for the in­di­vid­u­als con­cerned.

Lawrenz, widely re­garded as one of the in­dus­try’s top fixed in­vest­ment pro­fes­sion­als, will ap­par­ently be the ma­jor share­holder in his new com­pany, which im­plies he’ll be putting a lot of his per­sonal cap­i­tal into the busi­ness.

Late last year Douw Steenekamp, head of eq­uity re­search at Omigsa and man­ager of the Old Mu­tual High Yield Op­por­tu­nity Fund, left to join Rowan Wil­liams-Short’s new start-up as­set man­ager, Or­thog­o­nal In­vest­ments.

This would also en­tail more risk, even more than un­der Omigsa’s new model. So, risk aside, per­haps the multi-bou­tique model isn’t of­fer­ing some man­agers as much in­de­pen­dence and con­trol as they’d like.

Would Dloti con­sider chang­ing the model? “From the out­side, the mar­ket’s point of view, peo­ple see the res­ig­na­tions. But I’m en­cour­aged by what I see in­ter­nally. Clients are hap­pier and the fund man­agers are spend­ing more time with them. I can see the long-term ben­e­fits of this cul­tural change, I be­lieve we’re on the right path.”

Dloti ac­cepts as “fair com­ment” that Omigsa’s new fixed in­come bou­tique might not be clearly de­fined, but says it’s only round one. “Round two is still to come. We’ll look at changes in that bou­tique.”

But the pres­sure of be­ing part of a listed group re­mains. In­de­pen­dent as­set man­agers such as Frater make it clear they feel as­set man­agers shouldn’t be listed, ar­gu­ing quar­terly per­for­mance re­views and the pres­sure to pro­duce prof­its within the time­frame of a fi­nan­cial year are not con­ducive to long-term in­vest­ing.

If any­thing, per­haps Omigsa should ad­just its model to try and of­fer fund man­agers more true in­de­pen­dence and own­er­ship – and, if nec­es­sary, put up with pe­ri­ods of un­der­per­for­mance if longer-term re­turns jus­tify it.

New model won’t suit ev­ery­one. Thabo Dloti

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