Report shows long term growth
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.