Cash and offshore are king to PSG as it weathers storm

Investment and insurance holding company PSG Financial Services, formerly known as PSG Konsult, reported double-digit growth in assets under management in the year to end-February, bolstered by cash and offshore exposure, which helped it weather the low-growth SA environment.

The group reported a 15% increase to R406.9bn in assets under its care in the period under review, with its cash cow wealth management business doing the heavy lifting. The Cape Town-based company attracted more clients in the period, which helped it report net clients’ inflows of R23bn.

PSG Wealth, which contributes more than 60% of its earnings, reported the strongest growth in assets under management — growing by 16% to R355.1bn. PSG Asset Management grew 7% to R51.8bn, while PSG Insure’s gross written premium increased 13% to R7bn.

Group CEO Francois Gouws said the generational relationship in the wealth business and having long-term advisers advising clients had put the group in good stead.

“We are all happy with the results. The JSE was down 6% in the year. The offsetting factors were cash returns which were a bit up because of a rise in interest rates. The international markets also did quite well,” Gouws said.

“We got a mix of assets that contributed to the market value increase, mostly from international markets exposure, and exposure to cash. The other big factor in wealth management is that we accumulated another R20bn in new money. That is quite significant.”

Offshore

Asset allocators have deployed capital offshore after SA retirement funds were given the green light to increase their offshore allocations to 45% from 30% via the implementation of regulation 28 in 2022.

The government designed regulation 28 to protect investors against poorly diversified investment portfolios by ensuring that pre-retirees invest their money in a sensible way without too much exposure to risky assets.

Gouws said a combination of regulation 28 and the performance of the equities markets offshore assisted in producing the results it reported.

“SA has been difficult. There has been a loss of confidence in economic growth. We see this in valuations of equities and bonds. So that money has tended to go offshore. South Africans in general are equity orientated and so the majority of those assets have gone into offshore equities,” he said.

Asset manager Coronation last week said its SA equity portfolio was heavily tilted towards global businesses that were not beholden to domestic economic headwinds, warning that the current low valuations might present a value trap for overeager investors looking to buy on the cheap.

A value trap occurs when an investor looks at the fundamentals and market price of a stock, and it appears the stock is valued at a discount (cheap to own), but it ends up not being the case. The illusion causes the investor to think that they will be able to invest in the stock and beat the market, but they end up with either a negative or lacklustre return.

PSG’s upbeat results and strong liquidity position saw it increase its total dividend distribution to shareholders to 42c per share, up from 36c in the previous year.

Gouws said he was pleased with how the group’s strategy was unfolding and would continue to invest in the business to secure its prospects for long-term growth.

“We have always been confident that resourceful South Africans will build a better future for themselves and their children. Nevertheless, current economic activity remains depressed, and expectations have continued to plummet to new lows. As a business we will continue to monitor local and global events and the associated impact on the group’s clients and other stakeholders, and adjust our approach if required,” Gouws said.

“Irrespective of the short-term challenges, we remain confident in our long-term strategy and will continue to invest in our businesses, thereby securing prospects for growth.”

Correction: April 18 2024
An earlier version of this story had the year-end date of end-December instead of end-February. 

khumalok@businesslive.co.za