Lily-white fi­nance

It’s time to change the fact that black as­set man­agers con­trol just 4.6% of as­sets in SA, writes Jo­hann Barnard

Financial Mail - Investors Monthly - - Feature: Asset Management -

One wouldn’t want to wish the min­ing in­dus­try’s un­rest and up­heaval on any­one. It has, how­ever, high­lighted the strife that in­equal­ity in pay and work­ing con­di­tions and the need for more eq­ui­table rep­re­sen­ta­tion can pro­duce.

The spotlight on the fi­nan­cial sec­tor is con­sid­er­ably dif­fer­ent.

By the broad­est def­i­ni­tion of fi­nan­cial ser­vices, the sec­tor con­trols about R12 tril­lion worth of as­sets, with around R9 tril­lion man­aged by SA’s 130 as­set man­age­ment com­pa­nies. Ac­cord­ing to fig­ures pro­vided to par­lia­ment last year, only R408.3bn (or 4.6%) is man­aged by black as­set man­age­ment com­pa­nies.

The ex­tent of this dis­tor­tion was laid bare last year when pub­lic hear­ings were held in par­lia­ment on trans­for­ma­tion in the sec­tor by the stand­ing com­mit­tee on fi­nance and the port­fo­lio com­mit­tee on trade and in­dus­try.

Fur­ther ev­i­dence of the sad state of affairs is avail­able in 27four In­vest­ment Man­agers’ an­nual BEE­co­nomics sur­vey. Ac­cord­ing to this study, black firms man­age about R415.5bn of the roughly R4.6 tril­lion avail­able for pri­vate sec­tor as­set man­agers.

This shows not only a lack of trans­for­ma­tion, but also high de­grees of con­cen­tra­tion in the mar­ket. The re­search shows that 10 firms man­age 86% of in­dus­try as­sets, with one firm con­trol­ling 29% of the mar­ket.

“It’s quite an in­ter­est­ing time where trans­for­ma­tion in the fi­nan­cial ser­vices sec­tor has reached a record high in terms of fo­cus and at­ten­tion from govern­ment and the pri­vate sec­tor,” says 27four MD Fa­tima Vawda.

“Mo­men­tum has built, and what came out of those par­lia­men­tary hear­ings was that there is a huge part of the pri­vate sec­tor that feels marginalised and feels they are not be­ing in­te­grated in the broader func­tion­ing of that sec­tor.”

Given the huge pools of money at stake, it would be naive to ex­pect en­trenched play­ers to re­lin­quish such a heady source of in­come. And if one wanted to politi­cise the de­bate, the fi­nan­cial sec­tor could eas­ily as­sume the man­tle as the poster child of “white mo­nop­oly cap­i­tal”.

As one in­dus­try player com­mented, there is lit­tle mo­ti­va­tion for those con­trol­ling the money to give up their po­si­tions.

One out­come from the par­lia­men­tary hear­ings that may break the shack­les was the sug­ges­tion from the depart­ment of trade & in­dus­try that state as­sets be man­aged by as­set man­agers with at least 51% black own­er­ship and/or level 4 broad-based BEE sta­tus. Add to this the amended fi­nan­cial sec­tor code that was pub­lished in De­cem­ber, and real progress might be on the cards.

It doesn’t suf­fer the same stigma as the min­ing char­ter and has been widely — but cau­tiously — lauded by the as­set man­age­ment in­dus­try.

“The char­ters are a good way for us to ar­tic­u­late what we’re try­ing to do, but it’s im­por­tant that we em­brace them and not cherry-pick what we like,” says Old Mu­tual In­vest­ment Group MD Khaya Go­bodo.

“Dra­co­nian and in­ter­ven­tion­ist leg­is­la­tion, I fear, will have un­in­tended out­comes such as those we’ve seen in the min­ing sec­tor. So, things that sub­stan­tially dis­tort the free flow of cap­i­tal to pur­sue the best out­comes are un­de­sir­able.”

Go­bodo says the way in which trans­for­ma­tion and in­clu­sion is mea­sured is im­por­tant. He ar­gues that mea­sur­ing only black-owned firms un­fairly dis­torts the pic­ture.

“We need to look at the full spec­trum of what trans­for­ma­tion is about in the as­set man­age­ment in­dus­try. Is 10% a high-enough num­ber for busi­nesses founded and man­aged by coura­geous black in­vest­ment pro­fes­sion­als? My gut an­swer is no.

“But what if we open the lens a lit­tle and ask what pro­por­tion of over­all savings are man­aged by black peo­ple, wher­ever they re­side? Be­cause as a trustee they want to know who, ul­ti­mately, is re­spon­si­ble for mak­ing in­vest­ment de­ci­sions.

“That num­ber is be­tween 18% and 25%. And is that num­ber high enough? My gut feel is no, but it’s not 10%.”

Broad­en­ing this lens to cap­ture the lead­er­ship of as­set man­age­ment com­pa­nies, he says, will show that nearly two-thirds of in­dus­try as­sets are un­der the in­flu­ence of black CEOs.

This view might be more ac­com­mo­dat­ing than own­ers of black firms might be will­ing to con­cede.

Mer­gence In­vest­ment Man­agers MD Masimo Mager­man says trans­for­ma­tion “is shack­led by the es­tab­lish­ment [that] still, to a large de­gree, di­rects and or­ches­trates out­comes”.

He says th­ese en­trenched play­ers are un­will­ing to lose mar­ket share in the in­ter­ests of trans­for­ma­tion.

“They will take, and have taken, mea­sures nec­es­sary to en­sure they sur­vive or even thrive by en­trench­ing their po­si­tion through lever­ag­ing their net­works, power and in­flu­ence where pos­si­ble.

“SA has es­tab­lished in­ter­me­di­aries [that] have mean­ing­ful in­flu­ence over a sub­stan­tial amount of savings. They are the mid­dle­men be­tween clients and as­set man­agers and their in­flu­ence should not be un­der­es­ti­mated. The fact is that th­ese in­ter­me­di­aries are largely un­trans­formed them­selves, and have es­tab­lished models and pre­ferred as­set man­agers [that] con­tinue to ben­e­fit from their ad­vice to clients.”

Royal In­vest­ment Man­agers CEO Ka­belo Rikhotso lays the blame for re­luc­tance to trans­form on a mis­guided be­lief that black in­vest­ment pro­fes­sion­als are poor per­form­ers and more risky.

This is not true, he says, with re­cent data from the Eskom Pen­sion & Prov­i­dent Fund show­ing that there is no ev­i­dence to sup­port this per­cep­tion.

“The is­sue of poor per­for­mance is not real. We saw Mazi Cap­i­tal win the 2018 Morn­ingstar award for best SA eq­uity fund, so we don’t be­lieve this bias is true.”

He adds that while black firms need to be given the op­por­tu­nity to man­age more as­sets, they also need to be given the sup­port to build sus­tain­able busi­nesses that can at­tract top tal­ent.

Royal In­vest­ment Man­agers is a black-owned in­vest­ment hold­ing com­pany backed by Royal Bafo­keng Hold­ings and RMI In­vest­ment Man­agers. It ac­quires mi­nor­ity stakes in as­set man­age­ment busi­nesses that em­brace di­ver­sity and pro­vides them with strate­gic sup­port.

Rikhotso says the chal­lenge for new en­trants into the mar­ket is to dif­fer­en­ti­ate them­selves from the rest of the field. He be­lieves it is less about in­vest­ment tal­ent and more about iden­ti­fy­ing your niche and pur­su­ing it.

“It is bet­ter to be great or the best in a few unique ca­pa­bil­i­ties than be­ing be­low-av­er­age across many prod­ucts.”

He adds that in­ter­ven­tions such as the char­ter are help­ful, but that as a black in­vest­ment pro­fes­sional he would want to be given an op­por­tu­nity not only be­cause of his race, but be­cause he’s good at what he does.

“First and fore­most it has to be on merit be­cause we have the ex­pe­ri­ence, qual­i­fi­ca­tions and track record and be­cause we be­lieve we can com­pete and de­liver su­pe­rior in­vest­ment re­sults.”

Much more needs to be done for the fi­nan­cial sec­tor to be­come truly re­flec­tive of SA. For con­sumers this is about hav­ing their in­ter­ests pro­tected, while for in­dus­try pro­fes­sion­als this is about be­ing recognised as just that — pro­fes­sion­als.

Pic­ture: 123RF — JRG SCHIEMANN

Khaya Go­bodo

Fa­tima Vawda

Ka­belo Rikhotso

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