You are currently viewing our desktop site, do you want to visit our Mobile web app instead?
 Registered users can save articles to their personal articles list. Login here or sign up here

Changing the face of asset management

Black-owned firms need to find ways to stand out.

Over the past 10 years assets managed by black-owned firms participating in the BEE.conomics survey on transformation in the asset management industry have grown from R91.4 billion to R579.1 billion. While this shows an industry moving in a positive direction, black-owned investment firms still enjoy only a marginal market share.

Source: BEE.conomics

In the unit trust space specifically, black-owned firms manage just 70 of the 1 599 registered collective investment schemes in South Africa. Their market share by assets under management in this space is 7.8%.

This figure does increase slightly if one looks at the wider industry. Excluding assets held and managed internally by big retirement funds such as the Government Employees Pension Fund (GEPF), the market share of black-owned asset managers is 11%.

Shape of the industry

Even this is however somewhat skewed by the presence of a few large firms. The five biggest asset managers that participated in the survey – Taquanta Asset Managers, Prescient Investment Management, Aluwani Capital Partners, Mergence Investment Managers and Vunani Fund Managers – together manage over two thirds of all the money invested with black-owned firms. The 10 largest account for over 83%.

The majority, however, have assets under management of less than R5 billion.

Source: BEE.conomics

Nadir Thokan, portfolio manager at 27four Investment Managers, which runs the survey, says it is clear over the years the survey has been running that there has been a trend of black-owned firms gradually increasing their presence in the industry. This has been aided to a large degree by the legislative environment.

“If you look at B-BBEE legislation, and that the retirement fund scorecard has now been put in place for retirement funds to consider who they procure services from, all of that is very supportive of black asset managers increasing their market share,” Thokan points out.

However, managers should not rely on this alone.

“The interesting trend to watch out for is that the legislation lifts all black asset managers to a certain level,” Thokan says. “But we are at the point where, within this universe, those with the best strategies and the most capable people driving those strategies will be able to leverage these tailwinds the best and be able to scale the most.”

New clients

This will be particularly important in the retail space, which covers individual investors and their advisors. Black-owned firms have a lot of room to grow here, but this is an area where service, performance and product offering are more important than ownership credentials.

“The bottom line is that currently only around 9% of the assets managed by black-owned asset managers comes from retail sources,” Thokan says. “Around 91% is from institutional sources. To have a strategy to better penetrate the retail market, you have to do things in a more differentiated way.”

He feels the real opportunity is in developing products that are more accessible to the average South African.

“In general, investment products have been targeted at the middle class and upper middle class,” says Thokan. “The problem with that space is that it’s now overcrowded. There is also a lot of debate about how much value active asset managers add versus passive. Those who are going to catapult into the future are those who can come up with a strategy to compete in the uncaptured part of the South African market – the income earners that haven’t been served by the established asset managers.”

To do this will require a multi-faceted approach, specifically making use of technology.

Social media offers particular advantages in terms of marketing.

“Conventional means of advertising are extremely expensive,” Thokan notes. “Taking out a wall advertisement at the airport is not accessible to most black-owned asset managers, but social media can disrupt that form of marketing.”

Disruption

The use of technology in business operations will also offer new efficiencies that firms will have to exploit.

“Firstly, it will be critical in terms of how you collect contributions, and secondly in terms of how you invest them at a fair cost so that costs are not eating away a significant chunk of the returns,” Thokan says.

He believes there is huge potential for disrupting asset management in this way, similar to what Capitec has achieved in the banking sector.

“Twenty-five years ago the big banks laughed Capitec’s business model out of the room,” Thokan says. “Now it is third largest bank by market capitalisation in South Africa because it worked out how use technology in order to capture that lower income market. There was just no competition in that space.”

He believes asset managers who think along the same lines can gain a meaningful advantage.

“Firms who are taking this seriously, running successful campaigns, building their brands, and launching products specifically for lower income markets, are the ones that I think are going to be successful,” Thokan says.

Get access to Moneyweb's financial intelligence and support quality journalism for only
R63/month or R630/year.
Sign up here, cancel at any time.

AUTHOR PROFILE

COMMENTS   8

To comment, you must be registered and logged in.

LOGIN HERE

Don't have an account?
Sign up for FREE

Many people don’t take BBBEE companies serious.

It is unfortunately as a result of the actual law insinuating that these companies need protection on the basis of race and that their people and services are somehow substandard. Why else do they need protection?

What an insult.

Dear Patrick,
Interesting article but surely the issue is that the entire industry is changing rapidly.
The proper US firms, Vanguard , Blackrocks ishares,State Street etc. now offer extremely low cost ETFs which the vast majority of funds are unable to beat from a performance/liquidity/leverage capacity point of view.
The flow of information is so fast these days that with a little research a private small investor starts up over 100bps-150bps by avoiding active managers who fail to deliver consistent alpha. In a low inflation, low growth, low interest rate environment this is huge!
As for investing in South African equities-well in the last couple of years it has not been the space to be in( take Naspers out of the JSE and the performance has been shocking!) -so other than ticking a BEE box where will the value come from these new firms?

Want to stand out? Want to be attractive to pension funds and investors? Quite simple: No one cares about your BBBBBBBEE scorecard or ownership. No one cares about your glossy marketing material either.

Just deliver consistent and solid returns year after year at reasonable cost and investors will take notice. Money goes where it gets returns, it really is that simple.

Many people and some transformation denialists don’t realize that the asset management industry is a wonderful transformation success story. When you add the PIC – should you most definitely should – , level 2 or better status fund managers and BEE managers the majority of institutional asset are managed by this group of managers. Companies that base their business models and commercial viability on an untransformed asset management industry are totally misrepresenting the true picture and preventing the industry from telling a great transformation story. I ‘shame on you’ to those people and companies.

What puzzles me is that there has obviously been wealth accumulation amongst black people over the last 20 odd years, yet it seems little of this has found its way into the hands of black fund managers.

Some black managers have actually performed very well, so its not performance issue. Not saying black people should only invest with black fund managers, if anything it supports my own view that I could not give a hoot about the colour of the perosn managing my money. However if the development of a black owned fund management industry is something that is important to black people then maybe the onus is on black individuals to put their money with black fund managers…

Dear Author

Please carefully consider the implications of your words.

What about the impact of minorities on the industry? What about the futures of those young men and women, who worked hard to get into the industry, who are not minorities and who don’t have backing of family money? They get forgotten irrespective of merit and must leave SA.

How would the words sting if there was an article about how the financial journalism industry is dominated by minorities and that their jobs should be transferred to BBBEE?

Again, remember what goes around comes around.

Correction: What about the futures of those young men and women who worked hard to get into the industry, who ARE minorities.

Load All 8 Comments
End of comments.

LATEST CURRENCIES  

USD / ZAR
GBP / ZAR
EUR / ZAR
Insider GOLD
ONLY R63pm

Moneyweb's premium subscription is a membership service which will give you access to a number of tools to take charge of your investments.
Choose a yearly subscription at R630pa - SAVE R126

Get instant access to all our tools and content. Monthly subscription can be cancelled at any time.

Podcasts

NEWSLETTERS WEB APP SHOP PORTFOLIO TOOL TRENDING CPD HUB

Follow us:

Search Articles:Advanced Search
Click a Company: