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10 facts about SA fund managers you should know

Glacier unpacks the industry.

Glacier by Sanlam has released an analysis of the South African asset management industry that has uncovered some fascinating statistics about investment teams and how they operate. The survey covered 146 funds across the South African multi-asset low-equity, medium-equity, high-equity, flexible, and general-equity categories.

The findings should certainly give asset managers themselves as well as investors and financial advisors something to think about:

1. Almost half of all fund managers obtained their undergraduate degrees from UCT

Source: Glacier by Sanlam

While UCT is an excellent university with a strong financial programme, and the asset management industry is concentrated in Cape Town and so will naturally draw from it, this is still an incredible statistic. It certainly raises questions about diversity.

2. Almost half of all fund managers are CFA charter holders, yet on average they underperform fund managers who are not

Across the sample, 49% of fund managers were CFA charter holders. However, on average across all categories, fund managers with a CFA qualification underperformed (10.24%) managers without (11.59%) a CFA qualification over the past five years.

“Having a CFA is almost the ticket to the game within asset management, but if you look at performance it doesn’t look like having a CFA is doing what its supposed to be doing,” says Leigh Kohler, head of research at Glacier. “I think there is so much power in diversity generally and I think when it comes to hiring of investment talent, it seems that attending UCT and having a CFA has become the benchmark, and that does create some homogeneity. I think from a recruitment perspective asset managers probably need to look at diversifying their UCT and CFA risk.”

3. Only 18% of investment professionals are female

The industry very clearly remains male dominated. Not only is less than one in five investment professionals a woman, but in the entire sample of 146 funds, only one woman held the position of portfolio manager.

4. Average employment equity (race) representation is 31%

While there is a commitment from many companies in the industry to improve their employment equity, it still appears to be happening more slowly than many of them would like.

“You shouldn’t define diversity as strictly along racial or gender lines, as ultimately the benefit of diversity is the diversity of thought,” says Kohler. “But people from diverse backgrounds, naturally view the world differently, and so I think the long-term outcome of increased diversity must be beneficial for investment decision making.”

5. The average size of an investment team is 11 people

“This was very interesting for me because we often speak about teams being either big or small, but how do we define that?” says Kohler. “It must be relative to something.”

This study suggests that any team of 10 people or fewer in South Africa can be considered relatively small, and 12 or more relatively large.

6. Big teams can outperform

Glacier analysed the sizes of investment teams against their five-year standard deviation and performance numbers. This did not reveal what the optimal team size might be, but rather that it’s actually possible for any sized team to perform well.

Investment team size
Size Average 5 year std deviation Average annualised 5 year return
1 – 3 9.22% 12.42%
4 – 6 7.76% 10.88%
7 – 9 9.19% 7.37%
10 – 12 7.98% 11.58%
13 – 15 7.17% 10.27%
19 – 21 7.34% 11.40%
34 – 36 7.79% 13.16%
46 – 48 8.32% 12.09%

Source: Glacier by Sanlam

“I sit on many forums with peers and many of them have a resistance to large teams,” says Kohler. “They believe that large teams lead to slower decision making. That may be true, but this result says that while their decision making may be slower, it may also be better.”

7. Confusion around who makes decisions affects returns

Whenever there is an investment team behind a fund, there needs to be clarity on who is making the final portfolio construction decisions. Glacier found that there are only small differences in performance whether those decisions are made collectively or only by a single individual. However, when it’s a combination of both, performance suffers.

Decision making – individual or team
  Average 5 year std deviation Average annualised 5 year return
Individual 7.71% 10.77%
Team 8.12% 11.28%
Both 8.78% 6.77%

Source: Glacier by Sanlam

“If there isn’t clarity on how decisions are made, we see that as a red flag,” Kohler says. “You can’t have both individual and team-based decision making. You need to be clear.”

8. Managers without a model underperform

While only 3% of the sample said that they don’t make use of any model when investing and instead rely entirely on their gut instincts, the performance of this segment is significantly worse than for managers who have proper processes in place.

Decision making – intuition or model
  Average 5 year std deviation Average annualised 5 year return
SA equity general 10.07% 12.23%
SA multi asset flexible 6.96% 12.68%
SA equity general 11.96% 6.25%
SA multi asset flexible 8.35% 9.88%
SA equity general 11.14% 11.27%
SA multi asset flexible 7.69% 12.81%

Source: Glacier by Sanlam

“You would think that all fund managers would be using some model or process and then basing their decisions on that, but there are some who admit that process is not important to them,” says Kohler. “It’s a small part of the sample, but it seems that doesn’t work.”

9. The majority of managers invest in their own funds

Overall, Glacier found that 85% of investment professionals invest in the funds they manage. However, only 26% invest more than half of their discretionary wealth in their own funds, and just 3% invest all of their discretionary wealth.

10. Most fund managers own shares in their company

Glacier found that 81% of investment professionals are shareholders in the asset management companies they work for.

“This suggests that there is alignment between the asset allocators and the management company,” says Kohler. “This is positive because this is a long-term incentive.”

Glacier also found that fund managers who are shareholders outperformed those who aren’t over the last five years.

Share ownership
  Average 5 year std deviation Average annualised 5 year return
No 7.46% 9.44%
Yes 8.18% 11.28%

Source: Glacier by Sanlam

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To Glacier (by Sanlam mind you – to whom I also entrusted my pension our funds to!)

”What a dust have I rais’d ! quoth the fly upon the couch”

Thomas Fuller (1654 – 1734)

“Glacier found that 81% of investment professionals are shareholders in the asset management companies they work for.”

Conflict of interest right there.

If you advise your clients to use your company’s products then you make more money off of it. Therefore you will be biased.

Whereas I am all in favour of a good Glacier-bashing, I believe you might be confusing the investment function (focus of this article) with the advisory function (not mentioned here at all, although granted Sanlam also has their own tied-agency advisors, which I agree will not give you objective advice – but this is a separate discussion entirely?)

What this tells me is that the true wealth creation lies in PROFITEERING from asset management services, not from USING asset management services

Very interesting. I would also like to know how the funds perform vs where the graduates studied.

It is worth noting that, “The highest average performance over five years was generated by fund managers who attended the University of the Free State (UFS) – 13.25%” (BusinessTech: 2018). Furthermore, “There is no significant difference in returns between Tier 1 – 3 universities”. In other words, UCT’s strong financial programme does not necessarily create strong performance among its graduates. Perhaps, their graduates dominate the field because of University’s reputation and the concentration of asset management industry in Cape Town rather than the financial programme offered.

Outstanding example of the Old Boys’ network. But that doesn’t mean it’s effective.

Take note that these CFA “qualified” managers underperform the “unqualified.”
So, are the “unqualified” in fact better than random average, or is CFA poorer than a monkey throwing darts at the stockmarket page? Makes you think, doesn’t it?

You are welcome to use the monkeys if you prefer Navigator – let us all know how that works out for you 😉

Disappointing article, specifically for leaving out the single most important AM fact:

Am interested to know what the average annual salary & bonuses paid are, please. (not given as % of profit, but in Rands)

(Certainly nothing to be shy about?)

Inconsistent performance over 5 years frequent occurence. What happened for example at Foord (that also manage Nedgroup Stable Fund with 4.5% underperformance over last 3 years). Other facts that play huge role in performance would be international experience and political analysis.

Most younger fund managers probably have a CFA. Most (all?) older ones probably do not. It may be that the more experienced FM gets better performance. If I was to hand over my cash to one or other 30 year old to manage I would choose the one with a CFA.

Greaqt point Ice and it perfectly illustrate the main problem with unscientific studies like this. Multiple factors at play. To make the conclusion that having a CFA makes you a worse fund manager is rubbish.

You might very well find that fund managers with the letter a in their first names outperforms fund managers without the letter a in their names.

Also: “The survey covered 146 funds across the South African multi-asset low-equity, medium-equity, high-equity, flexible, and general-equity categories.” Surely the class of fund has a bearing on expected performance? Low equity should give you lower returns at a lower risk through-the -cycle. This will surely have a major influence on the “study”.

I always just wonder why fund managers constantly get stick for everything under the sun but people are more than happy to hand over 1% + to the middlemen that then come up with rubbish like this.

there is only one thing to know about fun damagers:

Compound income is indeed a miracle, but she has a Fugly cousin called Compound Fees.

One day, hopefully soon, somebody will write the story about the biggest disservice to capitalism, investors, and capital allocation that the world ever saw. The Zuptas’ capture does not have a patch on the financial services industry – capture.

Never before have so many given so much to such an undeserving bunch of oxygen thieves.

“One day, hopefully soon, somebody will write the story about the biggest disservice to capitalism, investors, and capital allocation that the world ever saw.”

So how do you propose capital should be allocated if not by reasonably intelligent, qualified and therefore well paid people?

Do you think anybody will render that service for free? Would you prefer underpaid, demotivated and unskilled people to do it? Or do you believe in central allocation of capital i.e. communism?

Passive investing does not allocate capital – it merely follows the pattern of allocation done by active managers.

Reality is that this is a market based economy, people get paid relative to their skills and the risk that they take. For every star fund manager that rakes in millions there are 10 failed boutiques, where equally qualified individuals tried to build a business and worked as hard as the successfull manager and yet did not succeed. It is a highly stressfull occupation that leaves little room for a work life balance.

I really fail to understand the hatred and constant vitriol directed at the fund management industry. It is just people trying to do a job and earn a living and yes there are a few that do very well, the same as in every industry. But just because Whitey Basson earns millions does not mean that the franchisee of your local 7/11 rakes it in. Trust me I know!


Capital allocation : Not by 30y old MBA’s with spreadsheets that have never worked in real industry and glaze over when you ask them three questions about an industry. Even more so when they work for firms charging absurd fees. You can buy SPY as proxy on the S&P500 with an expense ratio of 0.09%. That is not a typo!!! Less than a tenth of a percent.

I do get that pensions must be invested and somebody must do it, but take a look at the billions accumulated by for example the Coronation owners and tell me that they deserved it? They have created nothing

Every time a fund does poorly, it gets shuffled or its comparitives changed. They and doctors get to bury their mistakes. But doctors don’t do it deliberately.

I have some respect for a few of the VC and PE firms with advisory boards of actual achievers and in general these firms do actually help create new jobs and businesses. Maybe there should be a requirement that you are not allowed near capital allocation until you have actually run a real business for a decade or two.

Why the vitriol? Because they make it so damned easy.

Johan but how do the allocation of the S&P500 get determined? It is determined by the valuations that fund managers place on the shares. Passive funds merely leach onto the work done by others.

The misconception is that a fund managers contribution to society must be measured by its ability to beat the index – or alpha. That is a fund managers goal yes. But it is mathematically impossible for fund managers to all beat the index. It is a zero sum game. The greater return for investors however comes from beta or the return the market as a whole makes. Now it is not always obvious how fund managers contribute to beta but what do you think the returns of the stock market would be like if there was no fund managers evaluating businesses listed on the stock exchange?

A perfect illustartion would be to look at the returns and the volatility of the Alt-x which is by and large ignored by fund managers and is largely the domain of retail investors. That would be the market as a whole.

Companies quite often de-list from the Alt X because valuations are low which makes cost of capital high.

I think I adressed your point regarding Coronation. That is the nature of capitalism – to the victor goes the spoils. Is Whitey Basson really so dramatically better a shopekeeper than everybody that has tried and failed to open a shop? Did he really work so much harder than all the little corner shop keepers that he has destroyed over the years? Did he create more jobs than teh jobs he destroyed by putting little guys out of business? If you question if Coronation’s owners deserved its vast rewards you are questioning the very nature of capitalism that rests on asymetric rewards. That is a completely different debate.

Notwarren – exactly. Strongly agreed.

GPs, fiseos, mechanics,banks, contractors, builders etc etc – they all charge their fees and they all make mistakes.

Joining the choir of negativity and critisizing is so typical on forums like this.

But you have to do solid homework and take responsibility in what funds you invest and when (cycles).

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