Transformation in SA’s asset management industry

The 2020 BEEconomics annual survey, Transformation in South African Asset Management, was released last month. Developed and published by 27four Investment Managers, this is the 12th edition of the report. The purpose of this survey is to map the progress of transformation in the local asset management sector and to showcase the universe of majority black owned, managed and controlled asset managers across both public and private markets. Here is a summary of the survey’s findings:

Black-owned market share

• Total assets managed by blackowned firms advanced to R668bn, an increase of 15% from 2019. There are 51 black-owned asset managers across public and private markets.

Impact of COVID-19

• Around half of all participants expect COVID-19 to have a negative impact on their bottom-line. Such firms have implemented cost-containment measures, which include reducing marketing budgets, deferring or cancelling planned investments, placing freezes on new hires, and taking bonus and salary sacrifices.

• The pandemic has brought impact investment to the forefront, as many debt and equity recovery funds have emerged to support businesses to mitigate the negative financial consequences inflicted by the economic slowdown.

Asset allocation trends and changes in the demand side

• Within public markets, just over 60% of industry assets are currently invested in low-risk money market and fixed income products. Exposure to domestic equities has fallen sharply – a reflection of lacklustre performance, low investor confidence, and an economy on its knees.

• Investors have become much more discerning and less tolerant of lacklustre performance and high fees, particularly in the case of active fund management.

Private markets, prescribed assets and change in regulations

• An already weak economy exacerbated by COVID-19 has left government seeking a new narrative to accelerate an economic recovery. As such, the idea of using prescribed assets to help foster economic growth has resurfaced – packaged in the form of an infrastructure fund to finance strategic projects by combining capital from the public and private sectors, retirement funds, development finance institutions and multilateral development banks.

• The resulting growth in appetite for impact investment through unlisted assets may precipitate a change to Regulation 28 of the Pension Funds Act, which currently caps private equity and hedge funds at 15%.

Scale and distribution

• Black-owned asset managers’ market share of the unit trust industry is now at 9%, represented by 25 firms managing 106 unit trust portfolios.

• Greater increase in mergers and acquisitions as companies harness skills, expertise and resources together in a shift towards greater market consolidation.

ESG

• The overwhelming majority of firms agree that the pandemic has once again exposed the fragility of the financial markets and current economic systems, and that a shift of alignment to achieving the UN SDGs is becoming urgent.

Socio-economic statistics

• The industry currently employs a total of 638 people, marginally down from last year.

• There was a marked improvement in the number of firms achieving profitability, as 76% of all firms indicated that they are profitable, up from 68% recorded in the previous year.

• Women representation at both ownership and directorship levels continue to disappoint relative to all other sectors within the economy (B-BBEE Commission, 2020).