Firms need to emulate stars
CORONATION FUND MANAGERS tends to be the role model for any aspirant small asset manager. The 27Four BEE Fund Manager Survey highlights this phenomenon. They started operations in Cape Town in 1993 with 15 staff and no assets under management. As at June 2014, Coronation’s assets under management totaled R576bn.
The report states: “Black-owned firms can learn from the successes of some of South Africa’s leading brands to strategically develop and position their own brands.”
“It points to Coronation’s success in the retail unit trust market as the way forward for black-owned firms. It is not a market that they have yet tapped to any great degree, as the report states: “Currently the firms tend to largely manage assets from institutional sources such as retirement funds.”
Sharif Hoosen, director of Meago Asset Managers, explains: “Barriers to entry are high within the asset management space, with black fund managers required to prove themselves to asset consultants by gaining a track record of fund management despite having limited access to capital in the initial years to build a viable business.
“In addition, the larger established asset managers have access to substantial balance sheets and thereby able to control the retail distribution platforms to a large extent, through brand recognition, hefty marketing and established broker networks, making it more difficult to grow a retail product. The challenge for BEE fund managers is to list their products on these platforms, but cannot because of the [smaller] size of assets under management and branding.
“To get to a certain size you need scale and inflows and it is always a chicken and egg situation, because without the platform you cannot grow your size and with limited budgets. Branding and marketing becomes more difficult,” says Hoosen.
“Consequently, the institutional space becomes the more viable option to pursue when growing your business. The initial challenge with this is being able to provide these institutions with the track record before they are willing to provide you with any assets to manage – again a chicken and egg situation and very frustrating.”
Therefore, Meago’s focus is predominantly in the institutional space, with clients originating from both the private and public sector. The asset management supply chain starts with a client, being a pension fund or the general public, followed by the asset consultant and the asset manager. In most instances the asset consultant is the go-between the asset manager and the pension fund.
“This relationship in most instances makes it difficult for asset managers to have a direct relation- ship with pension funds and to explore ways to increase the allocation to the asset manager. This also creates potential for perceived conflicts of interest when the asset consultant is able to offer other consulting services to asset managers, and advisory services to pension funds,” says Hoosen.
With a primarily pension fund client base, Meago operates in a specialised listed property fund management space as compared to the boutique general equity asset managers where differentiation is difficult.
Listed property is particularly suited for pension fund clients as it has a medium to long term investment horizon in line with that of the typical pension fund. “Meago’s research reveals that over the last 20 years, the sector only had one year of negative total return and hence is suited to pension funds looking for predictable but attractive returns,” says Hoosen.