Asset management firm Sygnia plans to replicate its model of low-cost investment products in the UK market, where it seeks to acquire a platform business that will shore up its offshore earnings.
Sygnia is on the prowl for a start-up business in the UK to sell its index-tracking funds, exchange-traded funds (ETFs) and robo advisory products, as it sees upside to the region’s mature investment market.
Magda Wierzycka, CEO of Sygnia, said the company is attracted by the UK’s highly-regulated financial and investment advisory industry, which makes it easy to do business.
“There is a lot of technology-driven startups in the UK’s financial services industry, be it mobile banking and robo advisors. And that talks about what we are trying to do in SA and the type of products that have been developed in SA,” Wierzycka told Moneyweb.
Sygnia might conclude an acquisition in the UK by the third quarter.
Sygnia’s focus in SA has been to disrupt the traditional asset management market by using technology platforms to offer low-cost investment products. It will carry the same philosophy in its upcoming UK business.
“There’s a huge focus in the UK by regulators to lower the costs of savings and service provisions in terms of advice. Just like in SA, we are looking for digital tools that will radically lower costs.”
Underscoring the use of digital tools and technology, Sygnia plans to launch offshore ETFs and a fourth industrial revolution ETF, which invests in companies in fields of 3D printing, drone technologies, quantum computing and autonomous vehicles.
Wierzycka believes that the recent decision by Britain to leave the European Union will help it acquire a business as more corporates are expected to locate their operations from the greater part of Europe to the UK. “There will be a lot of changes and any uncertainty creates opportunities,” she said.
Continued economic and political uncertainty in SA has prompted asset management firms to seek growth in offshore markets, as they struggle to attract new clients and a new pool of savings in their home market given the financial pressures on consumers.
“The SA asset management industry is shrinking. There is no job creation and there are mass retrenchments, which is leading to consumers withdrawing funds from their savings pool to survive.
“It’s a tough environment for asset management companies. We could have had greater inflows if the economy was growing.”
In this precarious environment, asset managers can achieve growth in two areas: take marketshare from competitors (active and passive asset managers) or build clout in offshore markets.
In recent months, Sygnia has chosen the latter. It acquired db X-tracker (DBX) from Deutsche Group for R325 million, adding ETFs to its focus (low-cost unit trusts, umbrella and retirement annuity funds).
DBX, which already boasts 30 000 investors, added R12 billion worth of assets under management to Sygnia. DBX ETFs, which offer exposure to multiple assets classes including equities, commodities, bonds and currencies, will be rebranded to Sygnia Itrix ETFs.
The acquisition of DBX and management of US assets via investment management firm BlackRock will push Sygnia’s revenue derived from offshore markets to 50%. This figure will be higher once the acquisition of its UK platform is completed.
Sygnia announced this week that it will embark on a rights offer to partly fund the acquisition of DBX. It plans to raise R160 million via the issue of 17.7 million shares at R9/share. The balance of the acquisition cost will be funded by debt and existing cash resources.
Sygnia grew its assets under management as at June 30 2017, to R162 billion from R159 billion on March 31 2017. It expects the value of its assets to swell by R6.1 billion in the third and fourth quarters.