EDITORIAL: Solving skewed asset management sector not black and white
Black asset managers have come out swinging in recent weeks, arguing it’s unfair that 26 years since the advent of democracy they oversee just 9% of SA’s total savings and investment pool.
Deputy finance minister David Masondo cited the 9% figure in a December 3 speech to the Black Business Council, in which he said the Financial Sector Conduct Authority would be scrutinising more closely the transformation efforts of asset managers, responsible for overseeing the savings of SA workers.
Masondo also mounted a stern defence of state intervention, saying SA’s severe racial inequality was the very result of state intervention, and therefore only state intervention could undo the damage its previous manifestations had wrought.
What was lost in the ensuing debate was whether the 9% figure had any credence. After all, if the government is going to formulate policy based on that number, then we must be certain it’s an accurate reflection of the reality. An accurate diagnosis is a prerequisite for taking the correct remedial action.
The widely cited 9% figure has its origins in an annual report by 27four Investment Managers called “BEE.conomics”. In the 2020 report, 27four found that as of June 30 2020, a mere 32 black-owned asset managers oversaw R668bn, equivalent to just 9% of SA’s total savings pool of R7.63-trillion.
On the face of it, 27four’s 9% figure doesn’t add up. For example, the Public Investment Corporation (PIC) alone oversees R1.907-trillion. Add in the Eskom Pension and Provident Fund, the Transnet Pension Fund, as well as the Mineworkers Provident Fund, and the figure swells to over R2-trillion, three times the amount arrived at by the asset manager.
Fatima Vawda, MD of 27four and the brains behind the report, acknowledges this and says her intention was always to track the growth of privately owned black asset managers. Hence the 9% figure excludes the PIC, which incidentally is the biggest asset manager on the African continent.
Interestingly, Vawda tells us that the R668bn cited in the 27four report would probably be at least R50bn larger if all black asset managers participated. For example, in the 2020 report, two long-standing black asset managers (Mazi and Oasis) did not participate. The 2021 report is also likely to be complicated by Sanlam’s decision to sell 25% of its investment business to Patrice Motsepe’s African Rainbow Capital Financial Services, a move that will qualify the asset manager as black-owned. Given that Sanlam Investments oversees R400bn in assets, it could substantially alter 27four’s R668bn figure.
The PIC’s 2020 annual report states that of the R150.5bn of its assets overseen by external fund managers, black-owned entities with more than 51% black ownership and 30% black management control oversaw R86bn, or 57% of externalised assets held by domestic investment firms.
But if the government is so intent on intervening to promote black asset managers, why not externalise the remaining 43% to them as well? What’s also notable is that the R86bn the PIC grants to black asset managers constitutes just 4.5% of its total assets.
But besides all the arguments for or against state intervention and transformation, there’s actually a bigger issue at play. Speak to anyone with an understanding of the local investment landscape and they’ll tell you that SA has too many asset managers and unit trusts. Most sector experts say the industry would benefit from consolidation, a trend that has been seen globally as the move to low-cost, passive products squeezed margins and emphasised a need for scale if a company is going to be profitable after meeting its expenses.
So while the government may have noble intentions to increase the number of black asset managers, it risks further fragmenting an already cluttered industry, and may set new entrants up for failure. The aim to open up the space to black asset managers is a noble one, but the government also needs to be aware of potential unintended consequences.
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