Re­port shows long term growth

The Star Early Edition - - BLACK ASSET MANAGERS -

THE re­cently re­leased 27Four BEE Fund Man­ager Survey shows the sec­tor grew by 12 per­cent in 2014 to R283.1bn and by 210 per­cent since 2009.

Not­with­stand­ing a pedes­trian 2014, it paints an op­ti­mistic pic­ture of the rise of majority black-owned and man­aged as­set man­agers in South Africa, al­beit with the pro­viso it comes of a low base.

With eight new firms hav­ing en­tered the survey in 2014 to a to­tal of 32, that fig­ure rep­re­sents a 23 per­cent in­crease over 2013.

How­ever, the chal­lenge faced by th­ese 32 firms is their rel­a­tively small mar­ket share, the R283.1bn of as­sets un­der man­age­ment is just 4.4 per­cent of the R6.5 tril­lion to­tal in­dus­try.

Mothobi Se­seli, CEO of Ar­gon As­set Man­age­ment, a global award win­ning firm which cur­rently has com­mit­ted client as­sets un­der man­age­ment in ex­cess of R24bn, ex­plains that it takes time to es­tab­lish a trusted brand.

“When one is deal­ing with other peo­ple’s money, this cre­ates a fidu­ciary re­la­tion­ship, which like all re­la­tion­ships is sub­ject to a trust spec­trum or con­tin­uum. Most times there is a trust deficit”.

“He lists long-term per­for­mance as one of the ma­jor cri­te­ria for es­tab- lish­ing trust and brand­ing, and here the re­port finds that 18 black firms have been in op­er­a­tion for less than four years (with three years be­ing the min­i­mum pe­riod over which one can gauge per­for­mance, and also states that the low mar­ket share is not for want of per­for­mance by those with a track record.

“A sub­set of th­ese firms have demon­strated ster­ling per­for­mance, con­sis­tently de­liv­er­ing re­turns ahead of their bench­marks and larger in­dus­try peers,” the re­port states.

Se­seli points out that the Ar­gon SA Bond Fund is placed sec­ond in the Alexan­der Forbes Spe­cial­ist Bond Survey for the three years to Septem­ber 2014, ahead of stal­warts such as Corona­tion, Stan­lib, Pre­scient and In­vestec. In the more com­pet­i­tive SA Eq­uity Fund cat­e­gory it is placed sixth in the Alexan­der Forbes Spe­cial­ist Eq­uity Survey over three years (and sec­ond over one year, pipped only by Al­lan Gray).

In the Ab­so­lute Re­turn CPI+4 per­cent do­mes­tic cat­e­gory Ar­gon is placed first in the one year and three year time pe­ri­ods. “Th­ese are all up­per quar­tile place­ments in peer rel­a­tive sur­veys, which is a po­si­tion most man­agers work hard at at­tain­ing,” he says.

Se­seli also points out that while support by gov­ern­ment and gov­ern­ment re­lated in­sti­tu­tions is ab­so­lutely crit­i­cal, the pri­vate sec­tor needs to embrace trans­for­ma­tion more mean­ing­fully.

“Meet­ing the aspi­ra­tional needs of African so­ci­ety is a risk man­age­ment re­quire­ment of enor­mous im­por­tance to­day. Both the pub­lic and pri­vate sec­tors have a huge role to play in this re­gard.”

The re­port also brings up the dreaded word ‘pre­scrip­tion’, stat­ing: “Some in­dus­try play­ers are also call­ing for gov­ern­ment in­ter­ven­tion to put this group of firms onto a steeper in­cline so that they can go beyond the four per­cent of to­tal in­vest­ment and sav­ings that they man­age cur­rently.

“Pre­scrip­tion some say is the only way for mean­ing­ful trans­for­ma­tion within the in­dus­try.”

Se­seli’s view is that pre­scrip­tion per­haps has a role to play, al­beit limited. “Be­cause we op­er­ate in the ‘other peo­ple’s money’ space, a range of fac­tors could be con­sid­ered as mean­ing­ful, such as per­for­mance, re­la­tion­ships, val­ues, brand, pro­cesses and peo­ple.

“All could be cap­tured rather loosely un­der the la­bel trust. I be­lieve if we find a way to sig­nif­i­cantly co­op­er­ate as dif­fer­ent role-play­ers in or­der to build mu­tual un­der­stand­ing and en­hance trust lev­els, we are prob­a­bly in a much bet­ter po­si­tion than if we are forced into pre­scrip­tion.

“Un­doubt­edly though, there are other spa­ces where pre­scrip­tion might be the only op­tion.”

The re­port notes that as­set own­ers and al­lo­ca­tors pre­fer to uti­lize es­tab­lished brands for non-tra­di­tional of- fer­ings like un­listed as­sets, hedge funds and off­shore, thereby re­strict­ing black firms to tra­di­tional of­fer­ings in or­der to cap­ture client bases.

For in­stance, the re­port finds that 55 per­cent of as­sets un­der man­age­ment are in long-only do­mes­tic ac­tive eq­uity man­dates fol­lowed by money mar­ket man­dates rep­re­sent­ing 26 per­cent of the to­tal as­set pool man­aged by black fund man­agers.

With re­tire­ment re­form im­mi­nent, Se­seli says the fu­ture of as­set man­age­ment will be “all about re­tail”.

“The re­tire­ment re­form process is evolv­ing this in­dus­try into a ‘world of one’, as­set man­agers need to talk to in­di­vid­ual fund mem­bers, IFAs and the like, and to do that ef­fec­tively they have to have re­tail prod­ucts, which are CIS (Col­lec­tive In­vest­ment Schemes) ve­hi­cles.”

The re­port is equally con­fi­dent. It states that sig­na­to­ries to the Fi­nan­cial Ser­vices Char­ter (FSC) “vowed to support the FSC’s pro­cure­ment and en­ter­prise de­vel­op­ment ini­tia­tives…

“As we achieve our tar­gets out­lined in the FSC, we re­main con­fi­dent that this black as­set man­age­ment sec­tor will grow by leaps and bounds to in­crease its as­sets un­der man­age­ment to well beyond the 4 per­cent of to­tal as­sets that it cur­rently man­ages”.

The re­port finds a con­sid­er­able level of con­cen­tra­tion with just two fund man­agers (Taquanta As­set Man­agers with 32 per­cent – largely money mar­ket as­sets and Kag­iso As­set Man­age­ment with 25 per­cent – largely en­hanced in­dex prod­ucts) rep­re­sent­ing 55 per­cent of to­tal as­sets; and the top 10 com­pa­nies man­ag­ing 94 per­cent of the to­tal, out of a to­tal of 32.

How­ever, the level of con­cen­tra­tion is de­clin­ing with each suc­ces­sive year – the per­cent­age of the top five hav­ing fallen from 82 per­cent in 2011 to 77 per­cent in 2104.

While trans­for­ma­tion is tak­ing place across the en­tire in­dus­try, Se­seli be­lieves it is ex­tremely im­por­tant to have majority black-owned as­set man­agers for partly aspi­ra­tional rea­sons.

“It’s im­por­tant from the per­spec­tive of nor­mal­is­ing so­ci­ety by giv­ing black mar­ket par­tic­i­pants skin in the game. In South Africa there are too many peo­ple with too lit­tle to lose if it goes wrong.

Psy­cho­log­i­cally it is im­por­tant to build and to have sub­stan­tial role mod­els who rep­re­sent the val­ues or­di­nary South Africans as­pire to.

Right now, when South African kids are look­ing to grad­u­ate at univer­sity and con­tem­plat­ing an as­set man­age­ment ca­reer, an Afrikaner child looks to San­lam, an English kid to Al­lan Gray, an In­dian kid per­haps to Oa­sis – but what firm does the African kid look up to?” says Se­seli.

Sharif Hoosen, di­rec­tor of Meago As­set Man­agers, adds: “One has to look at trans­for­ma­tion within the con­text of the South African de­mo­graphic pro­file and land­scape.

Black owned as­set man­agers are as com­pe­tent as the tra­di­tional houses and hence there is space for them to ex­ist in­de­pen­dently. “

“In ad­di­tion, their ex­is­tence pro­vides hope for black firms look­ing to grow within the broader fi­nan­cial ser­vices sec­tor, which by virtue of the large bar­ri­ers that ex­ist, has not seen the emer­gence of large black-owned en­ti­ties.

Mothobi Se­seli, CEO

of Ar­gon As­set Man­age­ment.

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