Fund manager Coronation bled assets for the third successive year off a gargantuan asset base as weak economic conditions worsened withdrawals from the local pension fund industry.
Net outflows slowed to R43.3bn over the year to September — from a peak of R79bn the prior year, the company said on Tuesday.
Coronation has suffered net outflows of R137.6bn since 2015, driven by poor performance, a sustained period of large inflows in prior periods and withdrawals from pension funds.
SA’s savings rate has consistently lagged its emerging market peers, with the weak economy, widespread job losses and overindebted consumers not helping matters.
Despite outflows, strong market gains led Coronation to post assets under management of R614bn at the end of September — its highest level yet for an annual reporting period and up from R599bn the previous year.
A reopening of its SA equity and multiasset portfolios to new institutional investors in March, after these had been closed for nearly five years, had yet to attract flows, with its local institutional business posting net outflows of R43.7bn.
Institutional clients took longer to make changes to asset allocation, said Coronation CEO Anton Pillay. “Twelve to 24 months would be a reasonable period before we start seeing flows. We will continue to engage with those new clients and encourage them to invest in our products.”
Coronation attracted R7.4bn in new flows from global investors, including retirement funds and family offices. “We find the overseas investors appreciate that we’re an emerging market company,” Pillay said. Coronation expected more flows once its global equity and global frontiers funds had established a five-year track record, two-and-a-half-years hence.
Coronation’s retail funds posted net outflows of R6.9bn, an improvement from net outflows of R18.4bn in the prior period. Net inflows into the retail unit trust industry had slipped from R127bn in 2015 to R30bn in 2017, Pillay said.
Coronation reported a 3.1% decline in revenue to R3.9bn over the year, with diluted headline earnings per share falling 2.3% to 437.5c.
David Talpert, an analyst at Avior Capital Markets, said he had expected slightly higher revenue due to higher performance fees. Flows had improved in the second half of the year, he said.
If the improved performance that started in March continued, Coronation was optimistic it could improve fees as a percentage of assets under management to 68-69 basis points, researchers at Arqaam Capital said. Commenting on the positioning of its funds, Coronation portfolio manager Neville Chester said it was reducing its overall equity exposure, from an overweight position at the start of the year. “Equity markets globally have run very hard and risks are still prevalent, despite the good macro numbers we’ve seen out of most economies.”
Still, Coronation was more exposed to equities than to government bonds, which were expensive globally, he said.
However, a local currency credit-rating downgrade could create bond-buying opportunities if the price of government bonds fell on forced selling by mandated investors. Exclusion from global bond indices could trigger sales exceeding R100bn.
South African asset managers were “underweight government bonds and are potentially a buffer that would start to buy should other managers be forced to sell”, Chester said.