Old Mutual paid a lot in school fees for its move into boutiques
• For pension funds with a balanced mandate, an orchestra is preferable to a solo pianist
Like many businesses, asset management goes through phases of centralisation and decentralisation. In 1997 Bryan Hopkins left his job as a professor at the University of Cape Town to become chief investment officer of Old Mutual Asset Managers (OMAM) with this brief: to ensure that all clients in their respective products, predominantly its balanced fund in those days, had the same outcome.
Before that, in what we might now call the boutique model, there was a different outcome if you happened to be assigned to Arnold Shapiro than if you were assigned to, say, Charles de Kock. Before the centralised model was introduced, OMAM fund managers were free to ignore analysts’ recommendations and didn’t worry too much about attendance at meetings.
For a while in this attempt to build consistency, there was a significant shift of power to the analysts. Sanlam went through a similar process.
Hopkins’s great hero was Peter Lynch of the Fidelity Magellan Fund and a genius at picking unlikely shares. His favourite stock-picking technique was to go to the local mall with his family and test drive the specialist chains. We are all familiar with The Body Shop, but when Lynch first visited one he expected a car fitment centre. He was delighted that it was a personalcare chain where the products were made with all the ingredients you need for a good salad.
These days we are not so naive about the ability to pick shares that can consistently beat the market. Alpha, or excess return, is considered ephemeral. Nobody has replicated Lynch’s track record in the US market.
In SA the balance of power has shifted back to the portfolio manager.
I am not sure what made OMAM believe its centralised model wasn’t working. Most pension funds still seek balanced mandates, where fund managers working together as an orchestra will always win the mandate over a solo pianist.
As a trustee I was much more comfortable when the entire OMAM orchestra was running my money than I am now that it is run by half a dozen (not necessarily high-profile) fund managers and a couple of economists heavily influencing the choices.
There was a feeling, probably pushed on them by their advertising agency, that OMAM was not perceived to be cool, but it would be if it split into a dozen pieces. Somehow they could pretend to be entrepreneurial businesses, a bit like SABC3 pretending it isn’t part of the public broadcaster.
Old Mutual certainly paid a lot of school fees and it has closed boutiques such as Value and the ludicrously named Toros. Its most successful boutique is Futuregrowth. But as this was an acquisition, the management team has hard equity, and it has a strong enough brand to keep a healthy distance from the mother ship. The other boutique managers are to all intents and purposes still employees of Africa’s largest life office.
It was always going to make sense for Old Mutual’s alternatives business, including unlisted sectors such as private equity, to run separately: its main client is the Old Mutual life office. Old Mutual Investment Group, as it is now called, has grouped its quants and shariah businesses and its rather dull hedge funds into a “boutique” called Customised Solutions, combining the two most dreadful words in the MBA lexicon.
When Hywel George came down from Snowdonia to rebuild the boutique structure, he decided there was only room for one domestic equities shop. Commercially that was a good decision. But he could have made a plan to hold on to Electus Fund Managers, the only true boutique in the line-up where Neil Brown and Richard Hasson have adopted an entrepreneurial style. To add insult to injury, he forced them to hand back the emerging-markets business they had built up.
George could have followed the example of Sanlam, which still has a minority holding in Denker Capital, another mavericks’ haven run by Kokkie Kooyman and Claude van Cuyck.
Sanlam did not go through the same radical shake-up as Old Mutual, but it is still hard to follow its organogram. There are three entities: Sanlam Investment Group, run by Robert Roux; Sanlam Investments, run by Nersan Naidoo; and Sanlam Investment Management (SIM), run by Azola Mayekiso.
Sanlam put out a brochure explaining this, which included a picture of Naidoo sitting on an armchair in the dark. He was the spitting image of Michael Corleone in The Godfather.
SIM covers much the same ground as Old Mutual’s equity and balanced shops plus Futuregrowth. But index manager Satrix is run separately. Old Mutual in fact runs more index assets, but Satrix is still the premier passive brand with a lot more third-party money.
The most interesting decision Sanlam made was to set up an entirely self-contained team to run Sanlam’s on-balance sheet assets, combined with the credit skills of the group.
Roux tells me it was fortunate that he could deploy Gerhard Cruywagen (previously chief investment officer of SIM) to run the new unit, as Cruywagen and Sanlam have exactly the same risk profile.
A cautious man for a clearly vital job in the group.
Stanlib prefers the term “franchise” but it split itself into silos when Thabo Dloti moved over from Old Mutual. Some of these silos, such as value, have disappeared, but the nontraditional areas such as indexing and infrastructure add to complexity at a time when Stanlib’s very survival depends on the basics, beating benchmarks in equity and balanced funds.
OLD MUTUAL HAS CLOSED BOUTIQUES SUCH AS VALUE AND THE LUDICROUSLY NAMED TOROS. ITS MOST SUCCESSFUL IS FUTUREGROWTH