BEE asset managers: Fresh thinking required

The proportion of BEE asset managers is still low, and models may have to be adjusted to correct this

In some respects, the black-owned fund management sector seems to have been a success story.

Since 2009, the sector’s assets have increased fourfold to R408bn. In the most recent edition of the authoritative BEEconomics survey produced by 27four Investment Managers, the growth in assets was 32% over 12 months, compared with barely 3% from the all share index.

A number of firms are also well out of the incubator stage, and would be considered mainstream. These include Kagiso, Mazi and Taquanta, with Vunani and Argon knocking at the door.
But 27four boss Fatima Vawda says the industry is skewed, with 24 firms offering SA active equity, only 11 offering SA active fixed income and just four providing offshore assets. And BEE managers still run less than 5% of the R8.9trillion total savings industry pool.

Vawda says time is no guarantee of success, as six of the 14 firms that are older than 19 years still have less than R5bn under management.

She says one of the clear trends is the split between Cape Town, which historically controlled about 80% of funds under management, and Johannesburg.

There was just one new BEE firm in Cape Town, bringing the total there to 14, but seven new firms in Gauteng, bringing that total to 27.

The biggest pluses of Gauteng are a much larger pool of black professionals and the presence of large clients in the province — for now BEE firms rely disproportionately on mega-funds such the Government Employees Pension Fund (GEPF) and the Eskom Pension & Provident Fund (EPPF).

The Public Investment Corp (PIC) handles the GEPF’s assets, based on the instructions it receives from GEPF trustees.

According to the PIC’s annual report, transformation in the asset management industry, particularly in listed equities, has been slow and much more needs to be done to alter its contours.

Altogether the PIC has allocated R57bn to black-owned managers spread over 14 firms; 10 are established equity and property managers and four are smaller developmental ones. In the past year spoils of R11.5bn went to four established managers who had impressed the PIC, and R2bn went to a developmental manager.

Of course, the GEPF is a defined-benefit fund with a government guarantee. Its members will get the promised pension whatever happens in the markets. But in the private sector, with a defined contribution arrangement, every rand not earned is effectively deducted from members. So it is not surprising that most consultants and trustees go for the easy option of choosing one of the established managers, such as Coronation, Allan Gray, Investec or Foord.

Credible firms continue to join the industry. The big change over the past year has been the spinning out of Aluwani Capital from Momentum. It was started with R68bn under management, most of it mandates from Momentum. Some of this has since been taken back, and it now runs R43bn.

Aluwani CEO Sibusiso Mabuza says he is careful not to link the battle in growing assets to the firm’s black-owned status.

“It could have everything to do with there being a lot of new players in a small market that may even be getting smaller. The economy is not creating enough jobs to grow the savings pool,” says Mabuza.

But he says it is time that intermediaries such as asset consultants, and asset owners such as pension fund trustees looked at BEE managers through a different lens.

Even the incubation programmes rolled out by the likes of the GEPF and the EPPF appear to have made no difference, as BEE firms still run the same proportion of savings — less than R1 in R20. And this is in spite of the quantity and quality of these firms having increased, especially in fixed income, where Aluwani and JM Busha now have well-established teams, while Kelebogile Moloko at Prowess offers a credible alternative.

Aluwani was one of the first BEE firms to have multi-asset capability on day one. Mabuza, speaking as the businessman in the outfit, says it is risky to focus everything on one product in such a cyclical market. The company is certainly taking a long-term view with its Africa equity and fixed-income products.

The Africa equity product, run by Mishnah Seth, has slumped as the market slides, particularly the biggest market, Nigeria.

An alternative to the incubation model has been rolled out by Rand Merchant Investments (RMI) Managers and its sister company, Royal Investment Managers, which is controlled by Royal Bafokeng Holdings. Instead of paternalistically doling out small mandates, RMI and Royal buy strategic shareholdings in fund managers. They then offer logistical support on issues such as regulation.

RMI is not explicitly focused on BEE managers, but it has a couple of well-established groups, Perpetua and Sentio, in its stable. Royal has only one portfolio company so far — property specialist Sesfikile.

Royal is headed by Kabelo Rikhotso, who was previously head of portfolio management at Investment Solutions. He says many founders of these firms are cash strapped and lack patient long-term capital to allow them to focus on investments. They often show a lack of creativity, copying and pasting their investment philosophy straight from Coronation or Allan Gray.

He believes the next wave of growth for BEE managers could come from umbrella funds that are large enough to allocate a small proportion of their assets, which will still be a meaningful amount for BEE managers.

But he says that in 20 years’ time the winners will not be pure BEE managers, and certainly not white managers, but those who learn to diversify and blend skills.