RYK VAN NIEKERK: Asset management group, Sygnia, reported results for the six months to the end of March on Monday. The group’s turnover rose by 10% to R230 million, the headline earnings rose 25% to 32 cents per share, the dividend was kept unchanged at 25 cents per share, while the assets under management rose by 26% to R228 billion. On the line is Magda Wierzycka, she’s the CEO of Sygnia. Magda, welcome to the show, you state in the results announcement that it was a very challenging period but a 25% Heps growth and a 26% increase in funds under management seems to be very solid, especially if you compare it to Coronation that recently reported a drop in assets under management and a 26% decline in headline earnings.
MAGDA WIERZYCKA: Thanks so much for having me on the show. Look, we are so happy with our results, I think it has been a very challenging environment. If you think about the last quarter of last year with the market drop both in South Africa and internationally by 20%, there was a sharp recovery in the first quarter in various sectors, so we are travelling through fairly troubled investment waters. But I think we’ve got a few things that work for us, one is that we are a low-cost asset manager, so in this period of volatility we’re super cautious about cost, about fees, about transparency that completely plays to our marketing proposition, which is the lowest cost savings and invest product in South Africa and then we have been very fortunate to deliver very good returns to our investors. So it’s top investment performance across all of our products, unit trusts, institutional market and that has attracted quite a lot of inflows. There are some very pleasing numbers, for instance the number of retail investors using our platform has doubled to 16 000 people, the number of members in our umbrella fund has doubled to 30 000 people. In fact, in our world we’ve had a fairly good period but we’re living through such uncertain times that I am very cautious to sing praises from the rooftops.
RYK VAN NIEKERK: You also state in the notes to the results announcement that regulations are becoming very onerous and that the regulating body for the financial services industry, the FSCA, encourages consolidation, how does that affect the industry?
MAGDA WIERZYCKA: That’s a massive trend, National Treasury and FSCA a couple of years ago announced that from a regulatory perspective they want to reduce the number of standalone retirement funds to 200 and at the moment you have roughly 1 600 of those funds. If you look back, ten years ago there were 15 000 registered retirement funds. So what’s happening in the institutional side of the market, the retirement funds side of the market, is that a lot of corporates are abandoning the concept of running their own retirement funds and are collapsing their retirement funds into these super funds, these umbrella funds and then obviously these umbrella funds aim to be a kind of one-stop-shop solution, so they provide investments, they provide the death and disability benefit, they provide the post-retirement product kind of plugged into the umbrella fund. The large insurers are the big players in this space and they’ve recognised in the last, say, five years that this is their opportunity to reclaim the assets back from the boutique asset managers. So the boutique asset managers as much as they are huge and no longer boutique but nonetheless, it’s your Coronations, your Allan Grays, your Investecs and suddenly you have Sanlam and Liberty and Momentum and Old Mutual effectively sucking in assets away from the standalone asset managers and that is a massive, massive trend that I think many people are under-appreciating, particularly active asset managers.
We launched our umbrella fund about four years ago and it has grown to just under R6 billion in size now and my biggest regret is that I didn’t launch our umbrella fund ten years ago, that I only recognised the trend four years ago, I should have been quicker out of the starting blocks. But nonetheless despite the fact that it’s only R6 billion in size it’s already the sixth or seventh largest umbrella fund in South Africa. So I see that consolidation as posing a huge threat to standalone asset managers and a big opportunity for life insurers.
RYK VAN NIEKERK: How does this impact investors?
MAGDA WIERZYCKA: A couple of things, one is be vigilant, I would be very vigilant about becoming a member of a fund where you don’t have the option to select what you can invest in, where you are automatically pushed into a particular investment solution. One of the initiatives of the regulator, in addition to driving the consolidation, they do it through a whole lot of mechanisms, mostly regulation around boards of trustees and making it very difficult to run a standalone fund, but one of the pieces of regulation that has come out is complete fee disclosure because as much as you can drive all these assets into the hands of these umbrella funds, mostly run by and sponsored by life insurance companies, it’s no good having these super funds if they are overcharging.
So, there’s a piece of regulation, which became effective on March 1, which forces all umbrella funds and all asset managers to disclose all tiers of fees and costs inherent in the product offering. I know that people are going to tap dance like cats on a hot tin roof around that disclosure but as a member of a retirement fund you should become or at least be acutely aware and ensure that your employer provides you with information relating to what is available to you within that umbrella that you now are being obliged to contribute to, what are your investment options, what are the costs inherent in those investment options? Lots of those umbrella funds obviously push their own asset management products ahead of anybody else but on the other side they do make other cheaper portfolios available. People will have to start becoming vigilant. If the employer is not going to look after your best interest in the retirement space then as a member and given that that is your biggest pot of savings outside of your house, then you as a member need to become more informed yourself about what is happening to your retirement fund money.
Latest revelations at PIC inquiry
RYK VAN NIEKERK: Not too many people are doing that. Just lastly, you have been very vocal about state capture and corporate governance, both in the public and private sector, what do you make of the revelations at the inquiry into developments at the PIC?
MAGDA WIERZYCKA: Well, I’ve been following that with a huge amount of interest, I have listened to absolutely every session that has played out and that has been streamed online. What we are seeing at the PIC hearing, if you take a little bit of a step back, PIC manages money on behalf of the Government Employees Pension Fund, it is as close to a sovereign wealth fund as South Africa ever comes, it’s R2 trillion in assets, it’s the largest pot of money in this country. It has always attracted shady characters who wanted to benefit from that pot and I am not talking about right now, I’m talking about when the National Party was in power and there were always deals within deals being struck.
Certainly the level of absolutely scandalous transactions that the PIC executives have embarked upon in order to self-enrich themselves in the past, let’s assume since Brian Molefe was CEO, because I think all of this really started, the grand scale heist started under his leadership when Dan Matjila was the chief investment officer of the fund and then he became the CEO and what is so clear is that literally every single transaction that the PIC entered into, so not buying listed shares necessarily, although there is some dirt in that as well, but almost every transaction under their watch has been tainted by some form of corruption, some kind of referral fee, middleman and what is so troubling about it is not only the individuals involved because I think the NPA will catch up with them but the amount of value destruction in that fund, the fact that the funding levels of that fund have gone down and I have seen the numbers, I don’t think they are in the public domain but the deterioration of funding of that fund has deteriorated at a very, very worrying rate and that becomes a burden on the taxpayers of South Africa. If that fund cannot meet its pension obligation to medical doctors, nurses, municipal workers, the police force, then the taxpayer has to step in.
So, it’s the individuals there but what I find more troubling around all these big transactions being described in graphic detail at the PIC commission of inquiry is the number of legal advisors, auditors, this entire financial ecosystem, which surrounded these transactions, where people were not committing the fraud but they were certainly looking the other way and you really have to question the role of the entire financial services ecosystem, all these people and the fact that they enabled this to happen, that no one blew the whistle, that they took their fees and looked the other way. I think that goes to the integrity of many professions in South Africa and many professions should be looking at themselves right now and saying what is going wrong in the system, where are the checks and balances, what do we need to do to improve this environment.
RYK VAN NIEKERK: What would you do if you were a member of that Government Employees Pension Fund?
MAGDA WIERZYCKA: I would hold the board of trustees of the Government Employees Pension Fund accountable. Above the PIC, which is the asset manager, where all this corruption happened, sits a board of trustees of the fund itself, I would want to know who those people are, what are their responsibilities, what on earth are they doing in terms of paying attention. They are obliged by an act of law to outsource the management of that fund to the PIC. But having said that, that does not indemnify them from being accountable for the performance of that fund, for being accountable for what happens to that R2 trillion and, to me, the weakest structure in this is that board of trustees and I think that they should be held to account, I don’t think they’ve done their job, each and every one of them. I really think that the ultimate fiduciary responsibility for insuring that that fund is well managed, that the risk-management processes are in place. If there are people sitting around a table, who, again, through permission enabled this theft to happen then I’m just absolutely appalled.
RYK VAN NIEKERK: We’ll have to leave it there, thank you Magda. That was Magda Wierzycka, she’s the CEO of Sygnia.