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Black multi-manager sets ambitious growth target

Weaver Investment Management hopes to amass R5bn in assets under management in three years.

Majority black-owned multi-manager Weaver Investment Management has set an ambitious target to grow its assets under management to R5 billion over the next three years.

Although the firm’s predecessor, Gatzo Independent Investment Advisors, had some institutional clients along its 12-year journey, it focused mainly on managing multi-manager portfolios for a network of independent brokers in the retail market. Its institutional book disappeared following corporate action at one of its major clients.

The rebrand follows a decision to widen the scope of its service offering and an official shift in focus to the institutional side of the market. It will however retain the retail side of the business, which has R250 million in assets under management.  

“We get to R1 billion assets under management by the end of 2019, [and] we will actually break even,” says CEO Owen Khumalo.

CIO Ngoni Gwatidzo adds: “One billion is enough for us to be able to sleep without worrying, but of course we are setting our sights much higher than that.”

The cost-conscious duo behind Weaver Investment Management, CEO Owen Khumalo (left) and CIO Ngoni Gwatidzo. Picture: Moneyweb

Sector challenge 

Many black investment firms have found it difficult to win market share. According to the 2018 BEE.conomics survey on transformation in the asset management industry, only around 10% of the R5 trillion available for management by private sector managers is managed by majority black-owned asset managers. Several firms have been in operation for over a decade but still have below R10 billion in assets under management.

Khumalo believes the fact that so little money has been placed with black managers is the result of a perception problem. The arguments that black assets managers don’t have a track record and need to prove themselves no longer hold water, he says. Quite a few black managers have been operating for more than a decade and have demonstrated performance capability.

He adds that there aren’t many asset consulting and multi-manager businesses that are empowered. While the industry has done a great job of highlighting the problems, solutions haven’t been forthcoming.

The gap

The challenge is that there are retirement funds that want to invest in a responsible manner on the one hand, and asset managers – specifically black asset managers with very little in terms of assets – on the other. The space in the middle, where asset consultants and multi-managers operate is, he says, where a concerted effort needs to take place to build a bridge between the two groups.

“Hence we’ve launched Weaver to provide those two essential services as an asset consultant and a multi-manager business.” 

The name of the firm was inspired by the weaver bird, a species known for its nest-building ability and prevalent in sub-Saharan Africa.

Market share strategy

With the economy unlikely to lend a helping hand in growing pension fund assets, any meaningful expansion will have to come from taking market share from competitors.

Khumalo estimates the size of the multi-managers market to be around R1 trillion.

“If we take 5% market share, that is a R50 billion slice of the pie, which is substantial for us.”

The firm’s value proposition is rooted in three pillars – transformation, low costs and independence.  

“Transformation for us is key,” says Khumalo. “But that needs to be done in a responsible manner, so we are not going to be emotional about it or politically charged about it and say we are only going to allocate money to black asset managers. We blend.”

As a starting point, it will allocate an average of 30% to black asset managers. The plan is for this to reach 50% over time.

A compelling proposition at a lower cost

With regards to cost, Khumalo says that by blending active and passive solutions in a portfolio the firm can offer better diversification benefits and risk management while also lowering cost. The total expense ratio of its Balanced Fund, which targets CPI plus 6%, is 0.69% with no performance fees charged by the underlying asset managers.

While the cost seems competitive to the point where one wonders if it will be able to build a sustainable business, Khumalo says a traditional asset manager probably needs more assets than a multi-manager as it requires a robust research system, a significant research team and portfolio managers.

“You probably need nothing less than R3 billion under management to actually break even [as a traditional manager], whereas for us as a multi-manager, we don’t need as much but we’ve also taken the decision from a business perspective that we will not ramp up costs.”

Gwatidzo admits there have been questions about how it is going to run the business without “any team” behind it, but says it will appoint more people as assets arrive.

No-frills approach

He says they have learned from history – most of their forerunners have set up shop with an economist, an accountant, a strategist, a Bloomberg terminal, iNet and Morningstar subscriptions, and top-notch chartered financial analysts (CFAs).

“All this costs money and above all they would choose very fancy premises, so the overheads are quite high, but for us, we have deliberately chosen to be very frugal in terms of our approach to expenses.”

Weaver is based in an unassuming office park in Bryanston, Johannesburg.

While the firm received funding from the Association for Savings and Investment South Africa (Asisa) through its enterprise development initiative towards the end of 2018, the business was funded from their pockets for more than a year.

“You see this table? This glass [on top of it]? It’s not that we love glass, but we wanted to cover up [the table],” Gwatidzo quips. “It is all second-hand furniture and all that, and we are just very, very, very conservative in terms of cost, but the prospects are quite exciting.”

Women empowerment group Miya Investments is among the firm’s shareholders. Weaver officially opened its doors on Thursday.

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How many assets managers that only have a decade of track record have more than a billion under management? Surely the perception that funds are better placed with long established players is not unique to black fund managers but to all fund managers.

Good to see Zimbabweans making an impression on our asset management industry. However, they cannot be viewed as a ‘BEE manager’.

I found a mutual fund that outperformed every fund on the JSE over a period of 1,3,5 years and aĺthough I can only use my yearly allowance to send offsore, I’m not looking to local managers soon

If your unique selling point is that you’re black, well, I have no words.

Congratulations.

The SA multimanager market needs a shake-up. Too many asset gatherers (Sanlam, Old Mut etc.) with little incentive to perform well. The others spend more time drafting surveys of all sorts.

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