Assets under management growth by black asset managers slows
Increased attention on building brand awareness and embracing new technologies such as social media should be adopted by black asset manager company executives to gain access to and communicate with the consumer, according to the ninth annual BEE.conomic survey, published by 27four Investment Managers, which was released last week.
The research also evaluates the impact the firms are making on the broader economy such as job creation, contribution to the fiscus, consumer education and the introduction of products that cater for the LSM (living standards measure) 4,5 and 6 market (the middle market). The sustainability of the firms is also measured.
“To truly transform the industry and create companies that can compete with the largest firms, there needs to be some consolidation among some of the smaller companies,” says Akona Mlamleli, head of transformation at 27four Investment Managers.
“Only through a consolidated effort can we create progressive institutions that can achieve significant economies of scale and compete with the larger players locally and globally.”
According to the survey, assets under management by black-owned asset management firms grew 1.76% from R408.3-billion in 2016 to R415.5-billion in 2017 – slower than the 32% leap from 2015’s R309.2-billion. This represents 9% of the total R4.6-trillion of assets available for management by private sector asset managers (out of a total savings pool of R7.9-trillion).
The number of black assets managers also expanded from 41 to 45 over the last year.
Since the inception of the survey in 2009, the amount of assets under black-owned asset managers has grown by 355% from R91.4-billion to R415.5-billion, and the number of asset managers participating in the survey has more than tripled from the 14 that were in the field for the first survey.
“The downturn in the economy has resulted in job losses, triggering retirement fund withdrawals, thereby shrinking the pool of retirement savings available for investment,” says Mlamleli.
According to the survey’s research, the top five black asset managers include Taquanta Asset Managers (which manages nearly 30% of the total assets under black-owned management), Aluwani Capital Partners, Mazi Asset Management, Kagiso Asset Management and Argon Asset Management. The top 10 black managers control over 86% of the industry assets and Taquanta Asset Managers still holds the top spot, managing more than twice the number of assets than that of second-placed Aluwani Capital Partners.
Twelve black-owned firms have less than R100-million in assets under management. While half the firms are younger than five years, those that are older than five years manage 82% of the industry assets.
Institutional investors now account for 79% of the industry assets compared to the 85% they made up last year, and retail assets now account for 21%, up from 15% in 2016. This signals that some asset managers have made good strides into the direct consumer market. As of December 31 2016, the total size of the Collective Investment Schemes (unit trusts) industry was R2-trillion, but the total value managed by black asset management firms was R87-billion, or 4% of the total. Of the 1 520-unit trusts registered, only 55 are managed by black-owned firms.
Black-owned asset managers now employ 586 people, 45% of whom are represented by women and 113 black portfolio managers with more than five years’ experience in money management.
“While the majority of firms focus on traditional fund management offerings such as long only equity and fixed income, it is pleasing to see the increased participation in the survey by managers outside of these conventional capabilities; this year saw the inclusion of a number of private equity fund managers,” says Mlamleli.
“This may also be reflective of changing trends in investor appetite outside of listed markets, where returns have been depressed, particularly on the domestic front.”
Asset managers procure a number of support services such as compliance, stock broking and administration from external service providers. Only 11% of external service providers used by the survey participants have a Level 1 B-BBEE contributor status.
“So while the industry has grown, the value chain remains largely untransformed,” says Mlamleli.
Access to markets remains an obstacle as black managers largely depend on direct relationships with institutional clients for product distribution and vehicles such as Linked Investment Service Providers (LISPS) remain inaccessible. None of the participants own a life company and only two have Collective Investment Schemes Management Companies.
The survey includes detailed sections on asset growth, investment products, human capital, responsible investment, socioeconomic impact, brand building and distribution, among others. It also features content from public and private sector influences and valuable input on the Revised Financial Sector Codes, which is the framework for the financial services industry.
While the growth in the size of the black asset management sector has been relatively slow from 2016 to 2017, it has shown resilience in the face of a recession in South Africa. There is growth in the number of black asset managers, particularly in Johannesburg, and the number of black asset managers has more than doubled since 2009, along with similar growth in assets under management. However, this represents less than a 10th of the total pie managed by the private sector.
The BEE.conomics survey is conducted annually to produce authoritative data and intelligence that measures the pace of transformation in South African asset management. The theme of this year’s publication is industrialisation of the financial services sector and how to grow progressive and competitive financial institutions that contribute to structural change in the economy. The publication unpacks the factors that contribute towards the lopsided topography of the sector and identifies solutions to strengthen the virtuous cycle of inclusive economic growth.
“It is encouraging to have received such great participation from the industry survey participants this year,” says Mlamleli.
“We have received strong feedback from the private and public sectors since our first edition, and the content has become integral to the formulation and debate around transformation policy.”
In its 9th year of publication, the survey has earned its reputation as the primary source for exclusive insight on the industry. The formulation and execution of this research endeavour is backed by a sound thesis executed by a team of highly skilled investment professionals with the relevant experience to draw cogent inferences on the findings.
The survey details success at market penetration, competition, barriers to entry and expansion, human capital development, preferential procurement, job creation, socioeconomic impact, access to financial services and various other industry trends. Also included is input and interviews with key stakeholders such as the department of trade and industry, The Association of Black Securities and Investment Professionals and The Association for Savings and Investment South Africa, and a number of articles that address pertinent topics such as the Revised Financial Sector Code and its expected impact on the private sector and retirement funds.