Slow transformation holds back black asset managers
Just 42 of SA’s 130 asset managers are black-owned, says Alexander Forbes
SA’s asset management industry has been slow to transform, with black asset managers handling less than 5% of industry assets, says Alexander Forbes.
Just 42 of SA’s 130 asset managers were black-owned, Rob Southey, head of asset consultants at Alexander Forbes, said on Monday.
"None of the top 10 asset managers are black-owned."
The top 10 managers at June 2016, ranked in order of total assets under management, were: Old Mutual Investment Group, Coronation, Investec Asset Management, Allan Gray, Sanlam Investment Management, Stanlib, Investment Solutions, Prudential, Futuregrowth and Sanlam Multi-
The top five asset managers control 52% of the industry’s funds under management.
The bulk of these managers are subsidiaries of listed companies, which would be owned primarily by institutional shareholders, such as pension funds. The country’s largest pension fund by far is the Government Employees Pension Fund, with about R1.6-trillion in assets.
To properly penetrate that value chain is extremely difficult, as this level of scale … makes it impossible for small business to compete on price
Just two black asset managers, Taquanta and Aluwani, handle funds of more than R50bn, while 12 have funds of between R5bn and R50bn, and 28 have assets under management of less than R5bn.
The pace of transformation in the industry had been extremely slow, said Fatima Vawda, MD of 27four Investment Managers.
A few large players controlled industry value chains with a tight fist, she said.
"To properly penetrate that value chain is extremely difficult, as this level of scale … makes it impossible for small business to compete on price."
Capital accumulated by big business pre-1994 provided a head start that could not be ignored, Vawda said.
While 68% of SA’s asset management firms held a Level 1 or 2 broad-based black economic empowerment (B-BBEE) rating, this did not equate to adequate transformation.
"Big business has successfully mobilised their machinery to achieve high B-BBEE ratings … it is unfair to compare their ratings to that of organically grown, post-apartheid black business in procurement exercises," according to 27four’s 2016 survey on transformation in SA asset management.
Black asset managers faced a number of obstacles, including having to build a brand from scratch, Southey said.
Retirement fund trustees, who faced personal risk in allocating policyholders’ savings, preferred brand names, which were considered safer, he said.
"Financial advisers and consumers don’t know newer brands either. It’s also difficult for asset consultants [such as Alexander Forbes] to cover the full manager universe."
Incubation, whereby retirement funds ring-fenced a portion of money to invest with black asset managers, had helped managers build a track record and grow, Southey said.
The Mineworkers Provident Fund, which has assets under management of R28bn, had allocated more than R8bn (30%) to black asset managers and hoped to increase this to 50% in the next few years, said CEO Mkuseli Mbomvu.
The fund employed 11 black asset managers, five of which were incubator managers. On a rolling 12-month basis to the end of January 2017, the fund had returned 14%. "Transformation doesn’t have to come at the expense of returns," he said.
The fund hoped to be a case study demonstrating the success of incubation programmes.
"It’s fine to have B-BBEE compliance, but when are we going to develop smaller guys to be the Old Mutuals of the future?" Mbomvu said.