Coronation’s crown slips as waning retirement market and JSE hit home
Coronation, one of SA’s largest asset managers, says it has borne the brunt of a depressed economy, a declining retirement-savings market with formal employment falling and what it described as the JSE’s “mediocre return”.
The company reported a 1.8% decline in revenue in the year to end-September, while assets under management fell 4.4% to R586bn, the lowest in five years.
Coronation’s revenue growth is dependent on two things: market returns and the ability to generate returns above the index benchmark through active asset management.
The all share is down 14.18% so far in 2018. Coronation’s fund fact sheets show that its South African specialist equity fund, Houseview Equity, has underperformed the benchmark by 3% year to date.
“On average, the equity market actually underperformed cash for the last three years, and you had bonds, property and equity underperforming cash in 2018.
“Second, we had good long-term performance, but our alpha [the ability to outperform the benchmark index] over certain strategies in the short term has been disappointing,” said Coronation CEO Anton Pillay.
Avior Capital Markets analyst David Talpert said that while investment returns would
have played a role, underperforming the “[Coronation] have underperformed benchmarks over the past year. This has resulted in a decrease in performance fees and net outflows,” he said.
Coronation reported total net outflows of R31bn, of which R22.6bn stemmed from local institutional portfolios.
Global funds managed on behalf of international retirement clients had net outflows of R4.2bn. Retail business net outflows also amounted to R4.2bn.
Although Coronation does not disclose separately the share of its revenue that comes from fees, Pillay said the short-term performance of their emerging-market and SA equity funds came under pressure.
Wessel Badenhorst, stock analyst at 36ONE Asset Management, said that Coronation’s woes were more to do with the short-term outcome of its asset-allocation decisions and stock selection. Coronation was one of the asset managers that were burned by exposure to Steinhoff in the past year.
"While weaker local equity markets impact Coronation’s earnings, the company can also mitigate the impact thereof through stock selection within its equity offerings as well as allocation to different asset classes in its multi-asset funds," Badenhorst said.
He said a large portion of Coronation’s business depended on multi-asset funds which investors typically used to save for or during retirement.
"We have seen formal employment in SA declining for several years, which, together with a tendency to withdraw retirement savings when switching jobs, is currently a headwind for investment growth at the asset managers."
Coronation’s institutional business, which manages R346bn — mostly made up of R285bn of local pension assets — recorded net outflows of R22.6bn in the past financial year. The business has been experiencing outflows for the past three years because of structural decline in the retirement market, and due to the fact
that it was closed to new institutional investors. It reopened to new institutional clients in March 2017.
Coronation’s product portfolio spans local and global equity funds, multi-asset portfolios, as well as fixed interest portfolios. The extent to which the company can invest in different asset classes is determined by what it has promised its clients in each portfolio.
"As a long-term valuation driven asset manager, there will be times where we take positions in the market that are contrarian. We are happy to sit through the noise in the short term," Pillay said.