What are asset managers delivering?

Are they meeting investors’ needs?
Investec Asset Management (now known as Ninety One) was named best fund house with a larger fund range at this year's Morningstar Awards. Image: Moneyweb

The biggest trend in the global asset management industry in the last two decades has unquestionably been the rise in passive investing. It has placed active managers under a level of scrutiny they have never felt before.

“Research from JP Morgan shows that over the last 20 years flows into traditional long-only active funds have flattened,” says Kyle Hulett, head of asset allocation at Sygnia Asset Management. “Passive, on the other hand, has had positive inflows of $4 trillion in the US alone. That is a massive shift.”

Primarily, this has been due to a growing focus on the fees being charged by active managers. As growing amounts of research have shown that very few fund managers outperform a broad market index over meaningful periods of time, investors have seen the value in low-cost, passive alternatives.

Extra pressure

In South Africa, this awareness of the importance of costs has been heightened in the current low-return environment.

“Fees are being squashed at all levels, because when returns are low you notice what you are paying even more,” says Hulett. “Passive has always been a big focus of our philosophy, and a component of all our funds is passive to allow investors to benefit from that lower cost.”

As this cost-sensitivity among investors has increased, many active managers have responded by lowering their fees. However, this alone is not enough.

“I think the fee pressure is being felt mostly by those who have historically struggled to deliver competitive returns,” says Thabo Khojane, MD of Ninety One Africa (formerly Investec Asset Management). “From our perspective it’s about value for money rather than just the level. That doesn’t only look at costs, but also at outcomes.”

The real scrutiny is therefore falling on active managers who have failed to meet investors’ expectations.

Value proposition

“If I look at our flagship high equity multi-asset fund, the Investec Opportunity Fund, the proposition is fairly clear – to deliver equity-market-like returns net of fees, at half the volatility of the equity market,” Khojane explains. “If we’re able to do that, investors are comfortable with the fees that come with it. But for those who have been below average in terms of outcomes, I think fee pressure is significant.”

Put another way, the rising influence of passive investing has not only forced active managers to lower their fees, but also to consider what value they are actually delivering.

“One thing we definitely know is that you need to justify your fee, because investors have alternatives now,” says Duggan Matthews, investment specialist at Marriott. “We’ve always been confident that we can add something beyond performance, which is providing sustainable income. That is different to what an index tracker provides and different to what our major competitors offer.”

It is also something that can be far more reliably and predictably produced than simple outperformance. This is an example of managing portfolios for a particular outcome, which is where the biggest opportunity in active management may well lie.

Giving investors what they need

“Solutions are something [that is] changing the industry,” says Lourens Coetzee, investment specialist at Marriott. “You can’t just offer equities, for example. You need to package them in something that’s useful to clients.”

Matthews agrees: “If you are going to be in this industry for a long time as a small player, you are going to have to do something different. The bigger guys with huge investment teams can take on the outperformance game, and passive can give you the market. Outside of that, I think the industry is crying out for more outcome-based models, where the benchmark doesn’t have to be the index – it could be a plan or an outcome or a goal.”

Investec Asset Management (Ninety One) was recognised as the best fund house with a larger fund range at this year’s Morningstar Awards. Sygnia and Marriott were runners-up in the category.




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“Duggan Matthews, investment specialist at Marriott. “We’ve always been confident that we can add something beyond performance, which is providing sustainable income“

Stuck record of year by year gone by but no example to show of

Fund managers seldom outperform the indices so the contributors in this article either don’t need the average investor or are happy to con the wealthy few. Either way comical to read their excuses

What should he be saying? What do you say to promote your products/services? Do you charge the same fee even if your product/service under-delivers? Comments like yours show not only ignorance but a complete disregard for the incredibly high level of investment management we have in this country.

“From our perspective it’s about value for money rather than just the level. That doesn’t only look at costs, but also at outcomes.”

Eccept of course that only the costs are guaranteed, not the outcome. “Value for money” means that you know what you are getting for your money before you fork it out.

What is surprising are large houses with significant assets that continually under deliver over extended periods…there are so many to choose from …have a look at Old Mutual Investors fund…over ten years of underperformance but still 10bln in assets…only the staff earning fees and salaries benefit!

With the corruption and lawlessness in our country I would be very careful which company I entrust with my life savings. Seems that a lot of used car salesmen are getting involved in the industry.

ETF’s are the way to go. Thank you, Jack Bogle, from Vanguard! You saved us from the fund managers.

Really! From the many Bogle articles you can access online he was clearly not a fan of ETFs. More likely fund managers will save you from yourself.

The problem is (and will remain) that the future is unpredictable. Therefore, whether it is a fancy fund manager with a huge salary, or Joe Soap sitting at home, running his little portfolio, the outcome will be totally unpredictable. What, then, does a fund manager do differently than Joe Soap? In the past they more readily had access to information, which Joe Soap didn’t have. With Aunty Google around, that is not the case anymore, so the problem for a fund manager is to warrant his salary, when he can do no better than somebody with a computer and internet access. It will be interesting to watch what they will come up with (a plan, an outcome or a goal) that they think will be enough to warrant their salary, for it sure as heck is not their ability to predict future outcomes. Me thinks that the availability of information and predictive tools, will basically make their job (and huge salary) redundant on the long run.

“Traders, guns and money” by Satyajit Das. Have a read, it’s worth your time.

With apologies to Winston:

“ Never in the field of human commerce was so much taken from so many by so few”.

The concept of “professionals” being paid based on how much they manage rather than by how well they manage is absurd as a dentist that charges for a filling based on his patient’s wealth. Madness defined.

End of comments.



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