CAPE TOWN – One of the biggest challenges facing the local asset management industry is transformation. Black asset managers still have only around 4% to 5% of assets under management in the country.
This is despite many large pension funds, particularly those of state-owned enterprises, having imperatives that they need to meet in terms of giving mandates to black-owned companies. It has nevertheless been difficult for these asset managers to gain a major foothold.
Chris Meyer, the CEO of RMI Investment Managers, says that about 28% of the boutique managers in South Africa are black, however the challenge remains to make these businesses sustainable.
“Like with any boutique manager, you get successful portfolio managers trying to run a business, and that’s a very different dynamic,” Meyer says. “Just because you’re a good fund manager, doesn’t mean you’re going to be good at all the things that running an asset management business requires.”
Given that there is a clear commercial opportunity in participating in the growth of the black asset management industry, RMI Investment Managers made a decision to set up a separate company that focuses particularly on this part of the market. Royal Investment Managers, which has Royal Bafokeng Holdings as its main shareholder, operates on a similar model to RMI Investment Managers itself, but will partner with predominantly black-owned asset managers.
“The reason we decided to set up a separate entity with Royal Bafokeng is that we think the business does need its own identity and majority black ownership,” Meyer explains. “It can’t just be an economic ownership model. It has to have a strong transformation objective in terms of what it does and who it employs.”
The affiliate model used by both companies is to take minority equity stakes in boutique asset managers and then support their growth and sustainability. This includes strategic input, distribution and succession planning.
“For the affiliates of Royal Investment Managers, what they will be getting is not just a shareholder that can bring black ownership credentials, but a business that is exclusively focused on asset management,” Meyer explains. “What comes with that is permanent, patient capital, and a deep understanding of the industry that can really help the business.”
Royal Investment Managers recently completed its first transaction by taking a stake in specialist listed property managers Sesfikile Capital. This is a company that has built up an exceptional reputation in a very short space of time, which makes the transaction significant for both parties. It gives Sesfikile a huge boost in its plans to grow its global and retail business, and it confirms the standard of asset manager that Royal Investment Managers is looking to work with.
“Royal wants to partner with affiliates that share our values and culture,” says Royal Investment Managers CEO Kabelo Rikhotso. “This is a team that I have known for many years and I know how they operate. They occupy a niche space that is under-represented, especially among black companies. There are probably only three property managers in the country who are of high quality that deliver consistent alpha to clients, and Sesfikile is one of them.”
Rikhotso says that Royal Investment Managers has plans to partner with around six to eight affiliates over the short term, each with different skill sets. Having started with a listed property manager, the company is in the process of identifying other specialist managers in areas such as fixed income, hedge funds, global equities, private equity and local equity.
“Ideally we want these managers to be diversified, because we don’t want affiliates that all play in the same space,” he says. “But at the same time they have to be very good at what they do. Just because they are black does not mean that we are going to partner with them.”
Rikhotso says that a big part of what Royal Investment Managers brings to its affiliates will be enhanced credibility.
“It would be remiss of me to say that black asset managers face different challenges to any other small asset managers, but the reality is that there is a perception that if you are a black asset manager you are more risky,” he says. “What Royal as an institution brings is gravitas, credibility and a reputation.”
In addition, the company will provide a distribution network and a wealth of expertise to assist affiliates with their growth plans.
“I’ve been in the asset management industry for 13 years and I have interacted with many fund managers,” Rikhotso says. “I know the guys who’ve done well, and why they’ve done well. I know the guys who’ve done badly and what went wrong. So we will add a lot of value at a strategic level by sitting on our affiliates’ boards and helping to formulate strategies for these companies going forward.”
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