Slow ride to uhuru for black-owned asset managers
What started out as a datagathering exercise 11 years ago to get a handle on the degree of participation by black-owned asset managers in the asset management sector has morphed into an annual socioeconomic research study providing data-driven evidence and analysis on the state of financial inclusion in SA.
The 2019 edition of “BEE. conomics Transformation in SA Asset Management” offers revealing observations on the changing face of the savings and investments industry. The sector is reeling in a lowgrowth economy and needs to find a balance between delivering value to customers and meeting the investment needs of the economy while concurrently restructuring for a demographic fit.
Our findings present an almost Darwinian analogy — where the fittest survive, new species proliferate, others mutate and some go extinct. In 2009 there were 14 blackowned asset managers managing about R90bn. Today this has grown to about R600bn managed by more than 50 players.
However, the industry comprises a small number of very large firms and a long tail of medium and small firms of which half are exempted microenterprises with annual turnover of less than R10m. Scale continues to favour those who can access markets through strong distribution, leverage advances in technology and attract experienced talent.
Most are independently established companies with only a handful the product of broad-based BEE (B-BBEE) transactions. Overall, normalisation of the asset management sector in SA remains slow, particularly when it comes to ownership and executive management.
The proportion of blackowned asset managers focused on private markets — real assets such as private equity and infrastructure — has been growing in recent years. This shift shows a changing investor appetite, fuelled by five years of low returns from the JSE and a growing focus on long-term investment that can support the economy, drive job creation and deliver inflationbeating returns. To put this into a context of rolling fiveyear returns, the current period matches the poorest period of performance for the JSE in the past 30 years.
Its depth and breadth has only become worse. The number of companies listed has halved from a peak in 1990 (696) to 354 now. Values and volumes traded have consistently fallen, creating a vacuum, preventing shares lower down the market cap spectrum from rerating.
Over the past decade, the largest JSE companies have squandered more than R161bn in failed investments outside SA. A simple calculation shows if this money had been spent on job creation at R200,000 per direct job, we could have created about 300,000 jobs over five years. Productively invested into our economy, the multiplier effect and contribution to economic growth would have been overwhelmingly positive.
Such factual arguments support solutions such as prescribed assets in the same way that excessively high medical costs and poor coverage will make National Health Insurance a reality.
When it comes to the largest risks to their growth strategy, black-owned asset managers are chary about political interference and economic policy uncertainty
— as concerned as they are about the spectre of low economic growth and a shrinking savings pool. They are also concerned about the silent restructuring of the retirement fund industry through umbrella funds.
THE VAST MAJORITY BELIEVE SOME REGULATIONS INADVERTENTLY RAISE BARRIERS TO ENTRY AND IMPEDE EMERGING BLACK ENTERPRISES
The vast majority of firms believe some regulations have the inadvertent effect of raising barriers to entry and impeding the growth of emerging black enterprises. The view of B-BBEE law appears to be incongruous; most firms support legislation that will enhance their market share, such as the B-BBEE scorecard for retirement funds, but do not score well on procurement from blackowned enterprises.
On environmental, social and governance (ESG) issues, most asset managers agree that ESG has affected their portfolios’ risk and return characteristics and that ESG can help root out corruption in the public and private sectors. They agree that the demand for greater accountability and scrutiny over how firms are run and the wider effect on stakeholders go beyond pure price-valuation measures.
Our findings indicate that as the asset management sector normalises to reflect effective participation by all South Africans, the diversity of views on the pathways for growth and development of the sector will increase and a review will be needed of the mechanisms leveraged to create a robust, inclusive and competitive sector. B-BBEE law, and the financial sector code in particular, are overly complex and hard to apply.