Firms need to em­u­late stars

The Star Early Edition - - BLACK ASSET MANAGERS -

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.

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