Changing the face of asset management
MONEYWEB / 18 SEPTEMBER 2019 - 07.00 / PATRICK CAIRNS
Black-owned firms need to find ways to stand out.
Over the past 10 years assets managed by black-owned firms participating in the BEE.conomics survey on transformation in the asset management industry have grown from R91.4 billion to R579.1 billion. While this shows an industry moving in a positive direction, black-owned investment firms still enjoy only a marginal market share.
Market share is likely to go to those who come up with ways to serve lower income earners and reach them in a low-cost, high-impact way. Image: Nadine Hutton, Bloomberg
In the unit trust space specifically, black-owned firms manage just 70 of the 1 599 registered collective investment schemes in South Africa. Their market share by assets under management in this space is 7.8%.
This figure does increase slightly if one looks at the wider industry. Excluding assets held and managed internally by big retirement funds such as the Government Employees Pension Fund (GEPF), the market share of black-owned asset managers is 11%
Shape of the industry
Even this is however somewhat skewed by the presence of a few large firms. The five biggest asset managers that participated in the survey – Taquanta Asset Managers, Prescient Investment Management, Aluwani Capital Partners, Mergence Investment Managers and Vunani Fund Managers – together manage over two thirds of all the money invested with black-owned firms. The 10 largest account for over 83%.
The majority, however, have assets under management of less than R5 billion.
Nadir Thokan, portfolio manager at 27four Investment Managers, which runs the survey, says it is clear over the years the survey has been running that there has been a trend of black-owned firms gradually increasing their presence in the industry. This has been aided to a large degree by the legislative environment.
“If you look at B-BBEE legislation, and that the retirement fund scorecard has now been put in place for retirement funds to consider who they procure services from, all of that is very supportive of black asset managers increasing their market share,” Thokan points out.
However, managers should not rely on this alone.
“The interesting trend to watch out for is that the legislation lifts all black asset managers to a certain level,” Thokan says. “But we are at the point where, within this universe, those with the best strategies and the most capable people driving those strategies will be able to leverage these tailwinds the best and be able to scale the most.”
This will be particularly important in the retail space, which covers individual investors and their advisors. Black-owned firms have a lot of room to grow here, but this is an area where service, performance and product offering are more important than ownership credentials.
“The bottom line is that currently only around 9% of the assets managed by black-owned asset managers comes from retail sources,” Thokan says. “Around 91% is from institutional sources. To have a strategy to better penetrate the retail market, you have to do things in a more differentiated way.”
He feels the real opportunity is in developing products that are more accessible to the average South African.
“In general, investment products have been targeted at the middle class and upper middle class,” says Thokan. “The problem with that space is that it’s now overcrowded. There is also a lot of debate about how much value active asset managers add versus passive. Those who are going to catapult into the future are those who can come up with a strategy to compete in the uncaptured part of the South African market – the income earners that haven’t been served by the established asset managers.”
To do this will require a multi-faceted approach, specifically making use of technology.
Social media offers particular advantages in terms of marketing.
“Conventional means of advertising are extremely expensive,” Thokan notes. “Taking out a wall advertisement at the airport is not accessible to most black-owned asset managers, but social media can disrupt that form of marketing.”
The use of technology in business operations will also offer new efficiencies that firms will have to exploit.
“Firstly, it will be critical in terms of how you collect contributions, and secondly in terms of how you invest them at a fair cost so that costs are not eating away a significant chunk of the returns,” Thokan says.
He believes there is huge potential for disrupting asset management in this way, similar to what Capitec has achieved in the banking sector.
“Twenty-five years ago the big banks laughed Capitec’s business model out of the room,” Thokan says. “Now it is third largest bank by market capitalisation in South Africa because it worked out how use technology in order to capture that lower income market. There was just no competition in that space.”
He believes asset managers who think along the same lines can gain a meaningful advantage.
“Firms who are taking this seriously, running successful campaigns, building their brands, and launching products specifically for lower income markets, are the ones that I think are going to be successful,” Thokan says.
Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER