Fatima Vawda is the managing director of 27four
See the full results infographic here
The annual 27four Investment Managers survey on asset management has found that a promising group of black-owned, managed and controlled asset management companies in the South African financial services sector has emerged and has the potential to significantly change the industry.
The group is a dynamic one with some firms in operation for more than 14 years. Many of these firms are owned and managed by experienced professionals who honed their skills in established financial outfits.
Major findings of the survey include that there has been a 23% year-on-year increase in the number of black asset management companies; the total industry assets managed by majority black-owned firms were R283.1-million during the period under review; Gauteng has become the dominant location for black firms, accounting for 19 managers based in Johannesburg; black firms manage 4.4 % of the total South African investment and savings industry; 18 black firms have been in operation for less than four years; and 10 companies (out of 32) manage 94% of the total assets managed by black firms.
“But despite several firms performing very strongly, there are still difficulties in attracting funds. Many black-owned firms argue that they require an additional R1-billion of assets in order to employ an investment professional that has the skills necessary to support robust investment performance,” says Fatima Vawda, managing director of 27four.
At the moment, she says, firms tend to largely manage assets from institutional sources such as retirement funds.
“When one looks at some of the star performers within the broader industry, we note that they have successfully used the unit trust market and a differentiated product offering to develop their brand.”
There is an important lesson in this. Black-owned firms can learn from the successes of some of South Africa’s leading brands to strategically develop and position their own brands. Vawda says one market that has potential and that black-managed firms have not been able to penetrate is the unit trust segment, which is currently valued at more than R1.6-trillion.
“There exists an opportunity to diversify away from the competitive institutional market and make an aggressive entry into the retail market, capitalising on a growing black middle class with disposable income. Also for the taking is generous regulatory reform that allows South African retirement funds to invest in socially responsible investments, unlisted assets, hedge funds, offshore, and African investments. The opportunity to diversify skill and create differentiated product is unlimited,” adds Vawda.
Sectoral challenges
As seed investor representing asset owners and being in a position to gain insight into the challenges faced by the industry, 27four has identified six initiatives that could help with long-term sustainability and success. First is active participation by black-owned firms within an industry body. This will ensure that these firms have the opportunity to shape the national agenda and influence policy and reform. Second, some of the smaller managers should consider consolidation and benefit from skills pooling, resources, and economies of scale. Third, the researchers suggest that black-owned asset management firms engage with the regulator to create a more enabling environment where a shortage of resources does not prejudice firms to compete on an equal footing relative to larger industry players. Fourth, 27four suggests that asset manager laterally position their brands to penetrate the retail market and differentiate their product offerings to become competitive and capture new sources of assets. Fifth is a call for sponsored umbrella funds to facilitate transformation. Participating employers and members must insist that these funds consider the inclusion of portfolios managed by black asset managers. Finally, the researchers suggest that asset owners insist that broad-based black economic empowerment procurement levels be achieved from the entire supply chain of service providers, including asset consultants, actuaries, employee benefits consultants, fund administrators, platforms, and so on.
Despite the challenges, Vawda is confident that with consistent support from asset allocators, this group of black asset managers will grow and become influential in their own right.
“We would also like to thank all the managers for making this study possible and for the many investors who make up the R283.1-billion currently being managed by this group of managers. With some hard work and perseverance, the industry has a bright future ahead of it,” she concludes.
What is the 27four survey?
Since 2009, 27four Investment Managers has been conducting an annual industry wide survey of black fund management firms in South Africa. The survey has been designed to effectively measure the progress of transformation within the industry.
Over the years, it has evolved and been adapted to become one of the leading sources of data and statistics for policy makers and the investment community to evaluate and understand the sector.
It also provides institutional investors with access to a new generation of black investment firms that are typically excluded from mainstream consultant searches, due to their smaller asset sizes and short tenure in business.
This article forms part of a larger supplement which can be found here. The supplement has been made possible by the Mail & Guardian’s advertisers and the content has been signed off by 27four or the advertiser.