[TOP STORY] How CoreShares will fit into 10X investments

‘It’ll give us much more scale and depth across the organisation, and I think…reduce costs through time’: MD Gareth Stobie..

SIMON BROWN: I’m chatting now with Gareth Stobie, managing director at CoreShares. Late Thursday afternoon [there was the] announcement that 10X Investments would be acquiring CoreShares.

Read: 10X Investments to buy CoreShares, creating a R31bn business

Gareth, I appreciate the early morning time. A big deal, I think, in our industry, particularly in the passive and low-cost [investing] space. A lot of your clients contacted me on Thursday afternoon, Friday [with] a bunch of questions. The first one everyone’s asking is: ‘Any changes to the CoreShares product offering, or does the current offering kind of stay as is?’

GARETH STOBIE: Morning, Simon. The short answer is that there are going to be no changes in the short term. We are busy working through a process at the moment with 10X to look at our combined product set and [see] how to make [it] stronger and better. The reality is, if we look at our ETF (exchange traded fund) range, we’ve got a lot of products that have done really nicely.

We’ve a loyal set of customers and it’s certainly not our intention to change anything on a wholesale basis. It’ll be business as usual for the most part.

SIMON BROWN: You’ve got a couple of niche products. When I say ‘niche’, I’m thinking of your top 50, rather than the traditional top 40. You’ve got the pref shares as well; you got some interesting property ones where you focus on yield as a metric for weighting. Is it potentially to expand in time and look at some of those gaps, and maybe add to product offerings?

GARETH STOBIE: That’s exactly right. If I look at this transaction through a client lens, it’s going to afford us the opportunity to be more expansive with our product set, look at new opportunities both in the ETF market and the traditional CIS (collective investment scheme) market. One thing the transaction has allowed us to do is bulk up scales in our combined organisations.

So, after this deal has happened, we are going to have R31 billion under management.

That sort of scale allows us to be more expansive in our thinking and also home in on particular client needs and invest in new areas of exploration, … ESG, for instance, all of the thematic-type investing that one is used to.

So yes, it’ll give us much more scale and depth across the organisation, and I think that’ll be good for customers. Combined scale also helps us to reduce costs through time. Those are some of the key reasons for doing it.

SIMON BROWN: That scale’s not unimportant. It gives you that critical mass, it gives you a base into which to put new products. I would then also take it a step further and say it makes the new combined entity the largest independent in the passive low-cost [arena] – although Sygnia might slightly disagree with that – and certainly we can debate that point. But it does make you significant in terms of size.

GARETH STOBIE: That’s right. If you look at the passive space globally gathering scale and being a market leader, you don’t necessarily have to be the biggest, but you need to be right up there, which is important because, from an issuer’s perspective or from a management perspective, it’s a key ingredient to success in making our business sustainable over the longer term.

Again, if I look at it from a client’s point of view, the larger the asset manager is the more scale we have to invest in service and our technology platform, as I’ve already mentioned, new products and so forth. So yeah, it is a critical aspect to winning within this market, bearing in mind that the margins we charge or the fees that we charge are significantly lower than our active peer group., and it’s one of the core value propositions. That’s why one needs to do it.

SIMON BROWN: Yeah. I take the point. I’m thinking Vanguard, I’m thinking BlackRock in the US – two giants in the industry who are able by their size to offer total expense ratios that are fractions of a percent.

One question I’ve been asked a heck of a lot on email and Twitter, everywhere else, is [about] OUTvest, which is owned by OUTsurance. You provide the product into that. Will there be any change to that relationship, because a number of people really like the OUTvest product, particularly the low-cost RA [retirement annuity]?

GARETH STOBIE: Yeah. CoreShares has walked quite a journey with OUTsurance – both OUTsurance Holdings, which was one of our shareholders for this transaction, and the development of OUTvest. So certainly in the foreseeable future we’re going to continue to support that product set. It’s a brilliant platform that OUTsurance has built, and we are going to be supporting the product range and running the underlying portfolios for them.

SIMON BROWN: A last question; two parts to it. Will there perhaps be some brand changes in time for the CoreShares product as it moves perhaps under 10X branding? And is there a timeline for when the deal will conclude?

GARETH STOBIE: From a brand perspective, the longer-term plan is to migrate to the 10X brand. I think they’ve done a wonderful job in terms of building up a consumer brand and they are well liked in the retail market.

In terms of the timing of the transaction, everything’s out of the way other than the regulatory step, which is obviously an important one. We are expecting to hear back from the regulators soon. So we expect [resolution] over the next few weeks or so.

SIMON BROWN: So a couple of weeks, perhaps, maybe a couple of months if the regulators are having some coffee breaks.

Gareth Stobie, managing director of CoreShares, as always I appreciate the early morning time.

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