As­sets un­der man­age­ment growth by black as­set man­agers slows

But some black as­set man­agers have made good strides into the di­rect con­sumer mar­ket

Mail & Guardian - - Irfa - Alf James

In­creased at­ten­tion on build­ing brand aware­ness and em­brac­ing new tech­nolo­gies such as so­cial me­dia should be adopted by black as­set man­ager com­pany ex­ec­u­tives to gain ac­cess to and com­mu­ni­cate with the con­sumer, ac­cord­ing to the ninth an­nual BEE.co­nomic sur­vey, pub­lished by 27four In­vest­ment Man­agers, which was re­leased last week.

The re­search also eval­u­ates the im­pact the firms are mak­ing on the broader economy such as job cre­ation, con­tri­bu­tion to the fis­cus, con­sumer ed­u­ca­tion and the in­tro­duc­tion of prod­ucts that cater for the LSM (liv­ing stan­dards mea­sure) 4,5 and 6 mar­ket (the mid­dle mar­ket). The sus­tain­abil­ity of the firms is also mea­sured.

“To truly trans­form the in­dus­try and cre­ate com­pa­nies that can com­pete with the largest firms, there needs to be some con­sol­i­da­tion among some of the smaller com­pa­nies,” says Akona Mlam­leli, head of trans­for­ma­tion at 27four In­vest­ment Man­agers.

“Only through a con­sol­i­dated ef­fort can we cre­ate pro­gres­sive in­sti­tu­tions that can achieve sig­nif­i­cant economies of scale and com­pete with the larger play­ers lo­cally and glob­ally.”

Ac­cord­ing to the sur­vey, as­sets un­der man­age­ment by black-owned as­set man­age­ment firms grew 1.76% from R408.3-bil­lion in 2016 to R415.5-bil­lion in 2017 – slower than the 32% leap from 2015’s R309.2bil­lion. This rep­re­sents 9% of the to­tal R4.6-tril­lion of as­sets avail­able for man­age­ment by pri­vate sec­tor as­set man­agers (out of a to­tal sav­ings pool of R7.9-tril­lion).

The num­ber of black as­sets man­agers also ex­panded from 41 to 45 over the last year.

Since the in­cep­tion of the sur­vey in 2009, the amount of as­sets un­der black-owned as­set man­agers has grown by 355% from R91.4-bil­lion to R415.5-bil­lion, and the num­ber of as­set man­agers par­tic­i­pat­ing in the sur­vey has more than tripled from the 14 that were in the field for the first sur­vey.

“The down­turn in the economy has re­sulted in job losses, trig­ger­ing re­tire­ment fund with­drawals, thereby shrink­ing the pool of re­tire­ment sav­ings avail­able for in­vest­ment,” says Mlam­leli.

Ac­cord­ing to the sur­vey’s re­search, the top five black as­set man­agers in­clude Taquanta As­set Man­agers (which man­ages nearly 30% of the to­tal as­sets un­der black-owned man­age­ment), Aluwani Cap­i­tal Part­ners, Mazi As­set Man­age­ment, Kag­iso As­set Man­age­ment and Ar­gon As­set Man­age­ment. The top 10 black man­agers con­trol over 86% of the in­dus­try as­sets and Taquanta As­set Man­agers still holds the top spot, man­ag­ing more than twice the num­ber of as­sets than that of sec­ond-placed Aluwani Cap­i­tal Part­ners.

Twelve black-owned firms have less than R100-mil­lion in as­sets un­der man­age­ment. While half the firms are younger than five years, those that are older than five years man­age 82% of the in­dus­try as­sets.

In­sti­tu­tional in­vestors now ac­count for 79% of the in­dus­try as­sets com­pared to the 85% they made up last year, and retail as­sets now ac­count for 21%, up from 15% in 2016. This sig­nals that some as­set man­agers have made good strides into the di­rect con­sumer mar­ket. As of De­cem­ber 31 2016, the to­tal size of the Col­lec­tive In­vest­ment Schemes (unit trusts) in­dus­try was R2-tril­lion, but the to­tal value man­aged by black as­set man­age­ment firms was R87-bil­lion, or 4% of the to­tal. Of the 1 520-unit trusts reg­is­tered, only 55 are man­aged by black­owned firms.

Black-owned as­set man­agers now em­ploy 586 peo­ple, 45% of whom are rep­re­sented by women and 113 black port­fo­lio man­agers with more than five years’ ex­pe­ri­ence in money man­age­ment.

“While the ma­jor­ity of firms fo­cus on tra­di­tional fund man­age­ment of­fer­ings such as long only equity and fixed in­come, it is pleas­ing to see the in­creased par­tic­i­pa­tion in the sur­vey by man­agers out­side of these con­ven­tional ca­pa­bil­i­ties; this year saw the in­clu­sion of a num­ber of pri­vate equity fund man­agers,” says Mlam­leli.

“This may also be re­flec­tive of chang­ing trends in in­vestor ap­petite out­side of listed mar­kets, where re­turns have been de­pressed, par­tic­u­larly on the do­mes­tic front.”

As­set man­agers pro­cure a num­ber of sup­port ser­vices such as com­pli­ance, stock broking and ad­min­is­tra­tion from ex­ter­nal ser­vice providers. Only 11% of ex­ter­nal ser­vice providers used by the sur­vey par­tic­i­pants have a Level 1 B-BBEE con­trib­u­tor sta­tus.

“So while the in­dus­try has grown, the value chain re­mains largely un­trans­formed,” says Mlam­leli.

Ac­cess to mar­kets re­mains an ob­sta­cle as black man­agers largely de­pend on di­rect re­la­tion­ships with in­sti­tu­tional clients for prod­uct dis­tri­bu­tion and ve­hi­cles such as Linked In­vest­ment Ser­vice Providers (LISPS) re­main in­ac­ces­si­ble. None of the par­tic­i­pants own a life com­pany and only two have Col­lec­tive In­vest­ment Schemes Man­age­ment Com­pa­nies.

The sur­vey in­cludes de­tailed sec­tions on as­set growth, in­vest­ment prod­ucts, hu­man cap­i­tal, re­spon­si­ble in­vest­ment, so­cioe­co­nomic im­pact, brand build­ing and dis­tri­bu­tion, among oth­ers. It also fea­tures con­tent from pub­lic and pri­vate sec­tor in­flu­ences and valu­able in­put on the Re­vised Fi­nan­cial Sec­tor Codes, which is the frame­work for the fi­nan­cial ser­vices in­dus­try.

While the growth in the size of the black as­set man­age­ment sec­tor has been rel­a­tively slow from 2016 to 2017, it has shown re­silience in the face of a re­ces­sion in South Africa. There is growth in the num­ber of black as­set man­agers, par­tic­u­larly in Jo­han­nes­burg, and the num­ber of black as­set man­agers has more than dou­bled since 2009, along with sim­i­lar growth in as­sets un­der man­age­ment. How­ever, this rep­re­sents less than a 10th of the to­tal pie man­aged by the pri­vate sec­tor.

The BEE.co­nomics sur­vey is con­ducted an­nu­ally to pro­duce au­thor­i­ta­tive data and in­tel­li­gence that mea­sures the pace of trans­for­ma­tion in South African as­set man­age­ment. The theme of this year’s pub­li­ca­tion is in­dus­tri­al­i­sa­tion of the fi­nan­cial ser­vices sec­tor and how to grow pro­gres­sive and com­pet­i­tive fi­nan­cial in­sti­tu­tions that con­trib­ute to struc­tural change in the economy. The pub­li­ca­tion un­packs the factors that con­trib­ute to­wards the lop­sided to­pog­ra­phy of the sec­tor and iden­ti­fies so­lu­tions to strengthen the vir­tu­ous cy­cle of in­clu­sive eco­nomic growth.

“It is en­cour­ag­ing to have re­ceived such great par­tic­i­pa­tion from the in­dus­try sur­vey par­tic­i­pants this year,” says Mlam­leli.

“We have re­ceived strong feed­back from the pri­vate and pub­lic sec­tors since our first edi­tion, and the con­tent has be­come in­te­gral to the for­mu­la­tion and de­bate around trans­for­ma­tion pol­icy.”

In its 9th year of pub­li­ca­tion, the sur­vey has earned its rep­u­ta­tion as the pri­mary source for exclusive in­sight on the in­dus­try. The for­mu­la­tion and ex­e­cu­tion of this re­search en­deav­our is backed by a sound the­sis ex­e­cuted by a team of highly skilled in­vest­ment pro­fes­sion­als with the rel­e­vant ex­pe­ri­ence to draw co­gent in­fer­ences on the find­ings.

The sur­vey de­tails suc­cess at mar­ket pen­e­tra­tion, com­pe­ti­tion, bar­ri­ers to en­try and ex­pan­sion, hu­man cap­i­tal de­vel­op­ment, pref­er­en­tial pro­cure­ment, job cre­ation, so­cioe­co­nomic im­pact, ac­cess to fi­nan­cial ser­vices and var­i­ous other in­dus­try trends. Also in­cluded is in­put and in­ter­views with key stake­hold­ers such as the department of trade and in­dus­try, The As­so­ci­a­tion of Black Se­cu­ri­ties and In­vest­ment Pro­fes­sion­als and The As­so­ci­a­tion for Sav­ings and In­vest­ment South Africa, and a num­ber of ar­ti­cles that ad­dress per­ti­nent top­ics such as the Re­vised Fi­nan­cial Sec­tor Code and its ex­pected im­pact on the pri­vate sec­tor and re­tire­ment funds.

Akona Mlam­leli, head of trans­for­ma­tion at 27four In­vest­ment Man­agers. Photo: Sup­plied

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