In need of a shake-up
The asset management landscape is still changing, but at a glacial pace. According to Alexander Forbes’s annual retirement survey, there were no changes in 2020 to the composition of its most popular survey, the “Large Manager Watch” (LMW) — it remains the playground of the Allan Grays and Coronations of the world.
The LMW still has no true BEE managers, though technically Sanlam Investments now ticks all the boxes, as it is 25% owned by African Rainbow Capital.
One reason pension funds want to back BEE managers is to support entrepreneurs and help start new businesses, not just to back the old favourites wearing different hats.
Still, there has been progress. Kagiso Asset Management is included in the Willis Towers Watson equivalent of the LMW, and Kagiso would be the first choice for trustees requiring a competitive BEE balanced mandate. In the broader Forbes “Best Investment View” survey, another BEE balanced manager has joined the pack: Balondolozi. Its founder, Pedro Samuel, once one of the sales gurus at Prescient, is exactly the kind of BEE entrepreneur who should be supported by institutional investors.
But the number of traditional managers in this universe continues to grow as well, with the entry of Truffle Global Balanced and the ClucasGray Equilibrium Fund. Perhaps trustees would have more confidence in two BEE managers which have launched domestic-only portfolios — Aeon and Perpetua, though there will be some key man risk from their founders, Asief Mohamed at Aeon and Delphine Govender at Perpetua.
Forbes shows that the number of strategies available, from balanced to bond and medical aid to sharia, has increased over the past two years from 412 to 485. But the one-stop balanced fund remains a compelling option. And as so few managers outside the top 10 have been trusted with these mandates, it could take a decade or more before there are significant flows to boutique managers, BEE or not.
Core competence focus
Even when houses fall out of favour with unit trust investors, they still maintain substantial assets, especially when they manage captive life portfolios such as the smoothed bonus business, where investment performance is never transparent. For example, Old Mutual might be only the sixth-largest unit trust manager but it is the largest asset manager in SA, according to Forbes, with
R606bn under its belt. And that excludes its fixed income-focused subsidiary Futuregrowth, with R180bn. Ninety One is just behind, with R604bn, but it would be at least three times as big if the money it runs for foreign clients is included.
Maybe it is time for Old Mutual, and the other life offices, to exit asset management, in which they have rarely had exciting returns for years? Rather, they should focus on their core competence as a life office. Then Old Mutual Investment Group can be divided into genuine boutiques, not notional ones.
Momentum is almost there when it comes to exiting asset management. It is now a multimanager at heart. It has spun off most of its direct asset management capabilities into Aluwani, and Aluwani has a substantial R85bn under management, making it the third-largest BEE fund manager behind Taquanta and Prescient. All three are best known for their fixed-income portfolios, which are almost always low margin.
At the very least, life offices should consider following Sanlam’s example of separating the team that manages the life money from the one managing third-party funds.
Maybe it is time for Old Mutual, and the other life offices, to exit asset management