BEE.conomics
™
Transformation in South African asset management
17
su
st
ab n i a
le d
t go pmen o l e ev
als (SD Gs) to
t r an
sf o
rm
ou
rw
or
ld
2020
2
Contents Abbreviations
4
Criteria and methodology
5
Foreword by Polo Leteka Radebe, President of ABSIP
6
Executive summary
7
A: Overall participation statistics A1 Sector overview
12
A2 Colonialism, apartheid and democracy - the evolution of South African asset management
27
B: Public markets B1 Impact of COVID-19
36
B2 Fund facts
47
B3 Using machine learning to select the best asset managers
59
B4 B-BBEE scorecard
65
B5 The shift to umbrella funds - does consolidation support transformation?
74
B6 Business sustainability and societal impact
78
B7 Team
87
B8 Regulations all asset managers need to be aware of
96
B9 Compliance and operations
97
B10 Product distribution
110
B11 Brand building and industry influence
119
B12 Environmental, social and governance
128
B13 Investment performance
137
B14 List of participants
145
C: Private markets C1 Introduction
153
C2 Fund facts
154
C3 An investment consultant’s take on Regulation 28 and unlisted investments
186
C4 List of participants
188
Disclaimer / Terms and conditions of use
193
3
Abbreviations ABSIP
Association of Black Securities and Investment Professionals
ASISA
Association for Savings and Investment South Africa
AUM
Assets Under Management
B-BBEE
Broad-Based Black Economic Empowerment
CFA
Chartered Financial Analyst
CIS
Collective Investment Scheme
COFI Bill
Conduct of Financial Institutions Bill
CRISA
Code for Responsible Investing in South Africa
DFI
Development Finance Institution
DTI
Department of Trade and Industry
EAC
Effective Annual Cost
EME
Exempted Micro Enterprise
ESD
Enterprise and Supplier Development
ESG
Environmental, Social and Governance
FSC
Amended Financial Services Sector Code of 2017
FSCA
Financial Sector Conduct Authority
FSTC
Financial Sector Transformation Council
GEPF
Government Employees Pension Fund
GIPS
Global Investment Performance Standards
GP
General Partner
JSE
Johannesburg Stock Exchange
LDI
Liability Driven Investment
LISPs
Linked Investment Services Providers
LP
Limited Partner
LSM
Living Standards Measure
NPAT
Net Profit After Tax
PA
Prudential Authority
PIC
Public Investment Corporation
QSFI
Qualifying Small Financial Institution
SARB
South African Reserve Bank
SARS
South African Revenue Services
SAVCA
Southern Africa Venture Capital and Private Equity Association
SDGs
Sustainable Development Goals
SED
Socio-Economic Development
SOE
State Owned Enterprise
TER
Total Expense Ratio
TIC
Total Investment Charge
UCITS
Undertakings for Collective Investment in Transferable Securities
UN PRI
United Nations Principles for Responsible Investment 4
Criteria and methodology Purpose of the survey The purpose of this survey is to map the progress of transformation in the South African asset management sector and to showcase the universe of majority black-
owned, managed and controlled asset managers across both public and private markets.
Who would participate? Asset managers which met the following criteria were approved for participation in the survey: 1. The company is at least 51% black-owned where black people hold at least 51% of the economic interest and where black people hold at least 51% of exercisable voting rights. 2. At least 51% of the company’s board of directors are black.
4. The company is registered with the Financial Sector Conduct Authority for the business that the company carries out. Random checks were conducted by 27four to verify that each participant met the criteria. However, this was not independently vetted. All information was voluntarily provided as is by participating firms.
3. At least 51% of the company’s senior portfolio managers are black.
Research methodology All data is presented as at 30 June 2020. The graphic below articulates the research process followed.
1 Questionnaire design
Changing industry dynamics require an annual reassessment of the relevance of the questions asked.
2 Research content
A key feature of the survey is the inclusion of research articles of interest and interviews with stakeholders.
3 Asset manager universe
We cast our net wide to ensure that our universe is all-encompassing.
4 Invitation to participate
Asset managers were invited to complete the online questionnaire on 2 June 2020.
5 Submission deadline
The cut-off-date for participation was 14 July 2020.
6 Information collation
Information submitted was cleaned, verified, collated and presented in a visual format.
7 Commentary
Statistics, facts and figures were interpreted, observations made and commentary provided.
8 Publish
The completed product is assembled for artwork, final editing and publication.
The survey has been designed with comparability to previous years in mind. The report is also published
and made freely available for the benefit of all stakeholders across the savings and investments ecosystem. 5
The year 2020 is turning out to be a watershed moment for the world at large and for South Africa in particular. As a country with a unique history premised on years of historical injustices and a unique transitional project into democratic rule, the South African story always needs to be narrated and articulated in a manner that acknowledges the uniqueness of our society at large. The rise and the spread of the coronavirus pandemic has forced a reset of what the world thought were the rules of engagement and the ways of working and living. Similarly, in South Africa, it has forced us to confront so many of the fundamental fracture points inherent in our society that have become accepted rather than challenged. As a country that had a unique mission to proactively seek to heal and bridge the injustices of the past and map a future of shared prosperity and solidarity, South Africa by default had to come up with creative and innovative ways of bridging its great social divides.
Foreword by Polo Leteka Radebe, President of ABSIP
This is the basis of the various transformation initiatives and instruments that have been put in place over the past 25 years. Key to these instruments is the regulatory regime that seeks to provide guidance for various market participants in various sectors on what needs to be done in order to achieve meaningful transformation in the various areas that they are in. The role of transformation legislation in its various forms can therefore not be over-emphasised in the South African context. What also becomes very critical in relation to any form of regulation and social leadership is the ability to monitor the effectiveness of intervention instruments that have been proposed and implemented. To this end, the idea of a policy barometer is an important concept for a country like South Africa.
In our view, this survey serves as an important barometer that enables us to track the performance and progress of transformation within the sector over a particular period of time. The reason why tracking and monitoring transformation is quite important is that we all acknowledge that this sector is still dominated by a few market participants who possess significant market power. Such market power is amplified by the significant barriers of access for incomers. The new and emerging players in the asset management industry therefore need to be assisted in firstly understanding the market and also identifying points of entry. It is in a survey of this nature that we are able to identify whether such initiatives exist and if so what their effectiveness has been in ensuring that we open up the sector and create an ecosystem that is receptive to new entrants, and for black asset managers in particular, to be able to succeed within the sector. As 27four Investment Managers has conducted this BEE.conomics Transformation in South African Asset Management Survey for the past 12 years, it has become an important reference point for deliberations around the table within ABSIP structures in analysing and understanding the asset management industry and what its ongoing challenges are. It is with this in mind that we welcome the 2020 survey which indicates to us that not only do we still have a lot of work to do but also identifies particular areas of focus that must become the focus area for ABSIP and the various role players in the asset management sector going forward.
This is simply because whatever instruments of intervention are proposed and applied must be evaluated against objective benchmarks that provide insights into the effectiveness of such instruments in converging our society closer to shared characteristics rather than amplifying our historic divides. In the financial services sector, given its transversal and pervasive role across all sectors of our society and economy, it is even more important to not only put transformation measures in place but also to objectively assess and evaluate them. It is with this in mind that ABSIP is fully supportive of the 2020 Transformation in South African Asset Management Survey. 6
Executive summary 1. Black-owned market share • As at 30 June 2020, total assets managed by blackowned firms advanced to R668 Billion, an increase of 15% from last year. • There are 51 black-owned asset managers across both the public and private markets (2019: 50). • The universe of participants includes a small number of very large firms and a long tail of medium and small-sized firms. Median asset manager AUM is R1.6 Billion and mean AUM is R13.1 Billion. • Black market share of the total estimated South African savings and investment pool is 9%.
2. 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 a number of cost containment measures which include reducing marketing budgets, deferring or cancelling planned investments, placing freezes on new hires and taking bonus and salary sacrifices. • Only a handful of firms took advantage of government relief measures such as tax deferral holidays. • An overwhelming majority of firms envision a new world of work with less air travel and an increase in remote working and use of technology-based communication platforms. • The pandemic has also brought impact investment to the forefront as many debt and equity recovery funds have emerged to support businesses mitigate the negative financial consequences inflicted by the economic slowdown.
3. 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. These are also low margin products and require significant scale to drive profitability. Domestic equities have progressively been losing market share over the past decade and now make up just 22% of AUM having made up 50% of total AUM in 2010. Exposure to domestic equities has fallen sharply, a reflection of lacklustre performance,
low investor confidence and an economy on its knees. Outflows from domestic equities were equipoised by flows into domestic money market and fixed income, where the safety of real yields and low volatility was favoured by investors. The lion’s share of managers operating in the public markets space are focused on the management of specialist domestic equity mandates and have been the hardest hit by this shift. Managers with established fixed income and money market offerings gained the most. • Less than 2.5% of public markets AUM is managed in global mandates even though eleven firms have global offerings. It is unfortunate that managers with global offerings have not been able to build adequate scale even though institutions and individuals have taken full advantage of the global exchange control allowance. • The demand side in South Africa is changing, and investors have become much more discerning and less tolerant of lacklustre performance and high fees particularly in the case of active fund management. Institutional investors are also searching for diversified sources of return that can match long-term liabilities, cushion portfolios from the shocks of market selloffs, meet developmental goals and deliver inflation beating returns. Given these multiple objectives, we can expect the industry to gradually adapt to such pressures with more offerings emerging at opposite ends of the spectrum - costly high alpha alternatives where managers are paid for the delivery of longterm performance, and low-cost passive beta solutions.
4. Private markets, prescribed assets & 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. With expectations of capital flows into real assets, the asset management industry appears to be readying itself - new and existing firms are building capacity and skills to be able to manage such flows. 7
• Twenty private markets firms completed our survey this year, which have raised a total of R19.3 Billion across 30 funds, representing both an increase in participation and AUM from last year. While the overall asset size is encouraging, it is important to note that the universe of participating firms’ AUM is highly skewed, with many managers currently at subscale and continuing to experience challenges of long fundraising cycles. • 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%. Calls have been made by SAVCA to separate hedge funds from private equity and gradually increase the private equity limit. The Minister of Finance has publicly flirted with the idea of increasing the limit indicating that this is under review by the National Treasury. Similar calls have been made to amend CISCA to allow unit trusts to hold unlisted exposure.
5. Scale and distribution • There are now two firms who each manage more than R100 Billion and collectively represent almost half (48%) of total assets. Breaking beyond the R15 Billion mark appears to be the largest challenge for managers. Most private market participants fall in the <R1 Billion category. • Ninety percent of public market asset managers’ asset base is sourced from institutional investors such as retirement funds and are therefore concerned about the consolidation of retirement funds under umbrella arrangements. This apprehension is not without merit as argued in “The Shift to Umbrella Funds – Does Consolidation Support Transformation?”. • Retail penetration appears to be lethargically progressing with black-owned asset managers’ market share of the unit trust industry now at 9% represented by 25 firms managing 106 unit trust portfolios. • Firms also envision a greater increase in mergers and acquisitions as companies harness skills, expertise and resources together in a shift towards greater market consolidation.
6. 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.
7. Socio-economic statistics • The revenue model of asset management is built for scale, and so the increase in industry AUM did not translate into an increase in job creation. The industry currently employs a total of 638 people, marginally down from last year. • There was little movement in the demographic composition of asset manager teams since 2019. None of the managers’ teams are homogenous and positively reflect both race and gender diversity. • 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. • There was overall improvement in the size of public markets firms based on revenue as 44% (2019: 48%) are classified as EMEs, 34% (2019: 34%) as QSFIs and 22% (2019: 17%) as large enterprises. • Women representation at both ownership and directorship levels continue to disappoint relative to all other sectors within the economy (B-BBEE Commission, 2020). • Over half the universe of public markets managers procure less than 20% of services from more than 51% black-owned and / or 30% black women-owned businesses suggesting that the industries from which asset managers procure services from are largely untransformed. • Going into 2021, transformation of the financial sector will be in the spotlight with new legislation focused on achieving parity within the sector coming into play. Such legislation includes the Employment Equity Amendment Bill, currently in draft form, which will allow for the Minister of Employment and Labour to identify sectoral numerical targets to ensure representation reflective of our demographics. We can also expect to see the Conduct of Financial Institutions Bill come into effect, and an updated iteration of the Financial Sector Code gazetted.
• Twelve firms are signatories to the UN PRI. • Ninety percent of all firms integrate ESG into their investment processes and over two-thirds of public markets managers acknowledge that ESG factors have impacted the risk and return characteristics of the portfolios they manage. 8
9
1. No poverty
2. Zero hunger
3. Good health & well-being
4. Quality education
5. Gender equality
6. Clean water & sanitation
7. Affordable & clean energy
8. Decent work & economic growth
9. Industry, innovation & infrastructure
10. Reduced inequalities
11. Sustainable cities & communities
12. Responsible consumption & production
13. Climate action
14. Life below water
15. Life on land
16. Peace, justice & strong institutions
17 sustainable development goals (SDGs) to transform our world 17. Partnerships for the goals 10
Overall participation statistics 11
Sector overview Section highlights
8
Decent work & economic growth
51
R668 Billion
The number of black-owned asset managers across both public and private markets
Total industry AUM
R1.6 Billion
R13.1 Billion
Median asset manager AUM
Mean asset manager AUM
8.8%
8.7%
Black market share of the total estimated South African savings and investment pool
Black market share of the unit trust industry
10.5%
638
Black market share of the private markets industry
The number of people employed in the industry, down 4.5% from last year
76%
DECLINE
The percentage of profitable firms
Domestic equities have experienced the worst decline over the decade
12
a. Total number of participating firms and AUM 60
700
45
48
50
51
41
500
40
32 30
20
20
22
33
400
26
25
600
300
ZAR Billions
Number of firms
50
200
14
10
100 0
0
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
14
20
22
25
26
32
33
41
45
48
50
51
91,4
134,1
164,8
184,6
253,1
283,1
309,2
408,3
415,5
The disruption brought on by COVID-19 on the global financial system has forever changed the structure of asset management. Market volatility and capital depletion has been much more severe than that witnessed during the Global Financial Crisis of 20072008. Given how closely asset management revenues are tied to the capital markets, these are extremely uncertain times for the industry. Regardless of these difficult conditions the overall assets managed by blackowned firms advanced to R668 Billion (up 15% year on year). The number of firms who met our criteria for participation has now reached 51, comprising 31 managers focused on public markets, 19 on private
490,3 579,1
667.8
Number of firms Total AUM
markets and one manager with an offering across both markets. This growth, however, has not been widespread as risk off sentiment has favoured those asset managers with strong fixed income offerings. The outlook for the overall sector remains bleak as is evidenced by the share prices of publicly traded asset managers. Given the headwinds caused by the slowdown in our economy we expect to see consolidation across the industry, as well as growth in impact investment offerings that can advance social and economic sustainability objectives.
b. AUM breakdown by public and private markets participants 800 700 ZAR Billions
600
667.8
648.5
579,1
563,9
500 400 300 200 100
15,2 19.3
0 Public markets
Private markets 2019
Total 2020
The proportion of private market respondents has been increasing in recent years and now make up 39% of the dataset (20 out of 51), up by five new entrants since last yearâ&#x20AC;&#x2122;s publication. Private markets have in recent years experienced favourable momentum and this trend is expected to continue as investors seek sources of return that can achieve the dual objectives of inflation beating returns and contribute to the revitalisation of our economy. Investors have become increasingly frustrated with returns from the domestic listed markets which, represented by the All Share Index, has returned a paltry 4,16% annualised over the five years to 30 June 2020. There is also a lot more openness to the unlisted asset class than before.
13
c. Exits and entrants to the survey
Entrants
Public Markets
Private Markets
Public Markets
Private Markets
Ascension Capital Partners Eklavya Asset Managers Idwala Capital Makalani Management Company Medu Capital Tamela Capital Partners Volantis Capital Vuna Partners
Exits Acanthin Black Mountain Investment Management Convergence Partners Management Differential Capital Legacy Africa Fund Managers Pan-African Asset Management
2020 saw seven new participants join the survey with five firms operating in private markets and two in public markets. Makalani Management Company is not a new entrant to the survey. They previously only participated under public markets and now also participate under private markets. Idwala Capital and Tamela Capital Partners are both re-entries to the survey having previously participated in the 2018 edition. Budding new entrants Volantis Capital has come to market with a fixed income offering and Vuna Partners is a private
equity manager focused on the mid-market sector. There were a total of six exits this year, five in public markets and one in private markets. One of the six is no longer in operation. Reasons for non-participation include: missing the deadline to submit data, being focused on retail clients only, have experienced a contraction in AUM or not been successful in asset gathering, no longer meet the criteria for participation or find no value in participating.
14
d. Public markets participants Fund manager
Years in operation
AUM (ZAR Millions)
Total staff headcount
1
Prescient Investment Management
21.84
R100 694.68
38
2
Vunani Fund Managers
20.95
R42 158.65
33
3
Taquanta Asset Managers
20.77
R217 635.00
39
4
Kagiso Asset Management
18.59
R30 291.88
47
5
Makalani Management Company
15.89
R150.00
8
6
Mergence Investment Managers
15.76
R32 592.97
48
7
Argon Asset Management
15.26
R25 270.03
30
8
Aeon Investment Management
15.16
R12 377.62
8
9
Afena Capital
14.67
R4 152.32
12
10 Meago Asset Managers
14.30
R7 935.00
12
11 Sentio Capital Management
13.01
R15 894.00
20
12 All Weather Capital
12.17
R8 029.00
13
13 Prowess Investment Managers
11.59
R7 310.96
14
14 Balondolozi Investment Services
10.22
R5 454.00
16
15 Mianzo Asset Management
9.92
R7 700.00
14
16 First Avenue Investment Management
9.42
R5 646.76
6
17 Cachalia Capital
8.14
R822.00
3
18 Perpetua Investment Managers
7.75
R9 678.57
26
19 Benguela Global Fund Managers
7.36
R4 547.00
16
20 Terebinth Capital
7.25
R7 163.20
6
21 Fortitudine Vincimus Capital Advisors
5.92
R263.20
3
22 Lodestar Fund Managers
5.50
R904.00
2
23 Lunar Capital
5.46
R69.20
2
24 MSM Property Fund
4.91
R268.68
2
25 Independent Alternatives Investment Managers
4.91
R125.00
3
26 Aluwani Capital Partners
4.58
R87 421.26
34
27 Excelsia Capital
4.17
R1 221.10
10
28 Value Capital Partners
4.00
R5 480.02
16
29 Idwala Capital
2.92
R647.93
2
30 Lima Mbeu Investment Managers
2.81
R532.85
6
31 Ngwedi Investment Managers
1.92
R6 042.00
10
32 Volantis Capital
1.03
R0.00
4
R648 468.88
503
Total
15
e. Private markets participants Years in operation
AUM (ZAR Millions)
1 Medu Capital
18.48
R2 700.00
9
2 Makalani Management Company
15.89
R2 500.00
8
3 Senatla Capital
10.09
R635.00
8
4 Bopa Moruo Private Equity Fund Managers
8.50
R1 050.00
5
5 Ata Capital
8.42
R1 614.00
8
6 RH Managers
7.13
R1 532.03
12
7 Sanari Capital
6.65
R135.25
7
8 Moshe Capital
6.55
R50.00
9
Fund manager
Total staff headcount
9 Kleoss Capital
6.34
R850.00
5
10 PAPE Fund Managers
5.33
R1 580.00
1
11 Crede Capital Partners
5.08
R190.00
8
12 Third Way Investment Partners
5.00
R2 490.00
4
13 Ethos Mid Market Fund I
4.72
R2 500.00
8
14 Khumovest
4.71
R0.00
8
15 Eklavya Asset Managers
4.41
R0.00
2
16 Summit Africa
3.92
R496.00
11
17 Tamela Capital Partners
3.79
R500.00
12
18 FyreFem Fund Managers
2.81
R0.00
2
19 Ascension Capital Partners
2.38
R200.00
4
20 Vuna Partners
1.05
R300.00
2
Total
R19 322.27
143
f. All firms ranked by AUM R225 000 R200 000
ZAR Millions
R175 000 R150 000 R125 000 R100 000 R75 000 R50 000 R25 000
The graph confirms that the black-owned asset manager universe is made up of a small number of very large firms and a long tail of medium and small-sized firms.
Mean: R13 093.94 Million
Independent Alternatives Investment Managers Lunar Capital Moshe Capital Eklavya Asset Managers FyreFem Fund Managers Khumovest Volantis Capital
Median: R1 614 Million
MSM Property Fund Fortitudine Vincimus Capital Partners Ascension Capital Partners Crede Capital Partners Sanari Capital
Mergence Investment Managers Kagiso Asset Management Argon Asset Management Sentio Capital Management Aeon Investment Management Perpetua Investment Managers All Weather Capital Meago Asset Managers Mianzo Asset Management Prowess Investment Managers Terebinth Capital Ngwedi Investment Managers First Avenue Investment Management Value Capital Partners Balondolozi Investment Services Benguela Global Fund Managers Afena Capital Medu Capital Makalani Management Company Ethos Mid Market Fund I Third Way Investment Partners Ata Capital PAPE Fund Managers RH Managers Excelsia Capital Bopa Moruo Private Equity Fund Lodestar Fund Managers Kleoss Capital Cachalia Capital Idwala Capital Senatla Capital Lima Mbeu Investment Managers Tamela Capital Partners Summit Africa Vuna Partners
Taquanta Asset Managers Prescient Investment Management Aluwani Capital Partners Vunani Fund Managers
R0
This is evidenced by the difference between the mean value of AUM and the median. 16
g. Assets managed by firm size
2020
2019
Number of firms 2018
>100bn
2
1
1
1
1
50 to 100bn
1
2
1
1
1
30 to 50bn
3
2
2
2
2
15 to 30bn
2
3
4
3
4
5 to 15bn
11
9
6
6
5
1 to 5bn
11
13
11
11
10
<1bn
21
20
23
21
18
Total
51
50
48
45
41
Total AUM of firm in ZAR Billions
This year, Prescient Investment Management joins Taquanta Asset Managers in the plus R100 Billion club. Collectively the two managers represent almost half (48%) of total assets managed by all firms that participated in the survey. Breaking beyond the R15
2017
2016
Billion mark appears to be the largest challenge for managers. The majority of private market participants fall in the <R1 Billion category. Little has changed from previous years as the data re-affirms the lopsided topography of this group of managers.
% of industry assets
h. Combined market share of top firms by AUM 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
94,01% 76,83%
2014
91,26% 74,21%
2015
88,01% 69,89%
86,47% 68,59%
2016
64,96%
2017 Top 5
Concentration in the pool increased between 2019 and 2020 with the top five and ten firms now representing 72% and 86% of overall industry assets, respectively. The COVID-19 shock to the capital markets in February this year resulted in members of retirement funds switching out of growth portfolios into low risk portfolios
83,59%
2018
83,40% 67,04%
2019
85.96% 71.95%
2020
Top 10
heavily weighted to fixed income securities. Asset managers with established track records in fixed income, of which there are several in the top 10, were recipients of this flow. In this light, the increase in concentration levels is not surprising.
17
i. Public markets - top ten firms by AUM
Rank 2020 (2019) (2018)
Fund manager
Years in operation
AUM (ZAR Millions)
1 (1) (1)
Taquanta Asset Managers
20.77
R217 635
2 (2) (*)
Prescient Investment Management
21.84
R100 695
3 (3) (2)
Aluwani Capital Partners
4.58
R87 421
4 (5) (7)
Vunani Fund Managers
20.95
R42 159
5 (4) (5)
Mergence Investment Managers
15.76
R32 583
6 (6) (4)
Kagiso Asset Management
18.59
R30 292
7 (7) (6)
Argon Asset Management
15.26
R25 270
8 (8) (8)
Sentio Capital Management
13.01
R15 894
9 (**) (**)
Aeon Investment Management
15.16
R12 378
10 (9) (10)
Perpetua Investment Managers
7.75
R9 679
Total
R574 005
*indicates new entrant to the survey **indicates new entrant to top 10
40%
35.57%
34.77%
30%
24.93%
20% 8.14%
10%
8.49%
6.13% 1.08%
0% -2.31%
-10%
-5.74%
-20% Aeon Investment Management
Sentio Capital Management
Argon Asset Management
Kagiso Asset Management
Mergence Investment Managers
Vunani Fund Managers
Aluwani Capital Partners
Prescient Investment Management
Aeon Investment Management appears in the table for the first time, having increased firm AUM by 8.49%, positioning the asset manager as the ninth largest public markets asset manager. Listed property manager Meago Asset Managers dropped out of the top 10 due to the decline in the performance of the sector, which saw the SA Listed Property Index drop by 40% over the period
Perpetua Investment Managers
-21.05%
-30% Taquanta Asset Managers
Annual increase/decrease in AUM
Annual increase/decrease in top 10 AUM:
1 July 2019 to 30 June 2020. Over the one year to 30 June 2020 the Capped SWIX Index delivered -10.78%. In line with this decline and outflows from the sector, domestic equity focused managers experienced the largest drop in AUM. Managers with fixed income offerings benefitted from better performance, and new inflows to the asset class.
18
j. Private markets - top ten firms by AUM
Rank 2020 (2019)
Fund manager
Years in operation
AUM (ZAR Millions)
1(*)
Medu Capital
18.48
R2 700
2(2)
Ethos Mid Market Fund I
4.72
R2 500
3(**)
Makalani Management Company
15.89
R2 500
4(3)
Third Way Investment Partners
5.00
R2 490
5(4)
Ata Capital
8.42
R1 614
6(5)
PAPE Fund Managers
5.33
R1 580
7(7)
RH Managers
7.13
R1 532
8(6)
Bopa Moruo Private Equity Fund Managers
8.50
R1 050
9(8)
Kleoss Capital
6.34
R850
10(9)
Senatla Capital
10.09
R635
Total
R17 451
*indicates new entrant to the survey **indicates new entrant to top 10
Both Medu Capital and Makalani Management Company make the top 10 this year with Summit Africa exiting the top 10. Many of the firms are still raising capital for fund closure, whereas some have closed and begun deployment. Overall private market assets have increased from R15.2 Billion recorded last year to R19.3 Billion this year - the top 10 account for 90% of this figure. This universe of managers include managers focused on private equity, debt, and infrastructure.
As South Africa responds to its developmental needs through infrastructure investment, inviting blended finance and public private partnership opportunities, we expect this pool of managers to benefit from such activity. The biggest tailwind for the industry is the expected increase in the retirement fund investment limit of 10% to private equity which we understand is currently under review by the National Treasury.
k. Black asset management market share of the overall savings pool in South Africa To calculate the total black market share of the regulated savings pool in South Africa we need to first calculate the total size of regulated savings stocks. This calculation is provided next and excludes short-term insurance, medical schemes and banking stocks. It is important to
note that there is no official source for this statistic and different figures have been quoted in the industry, varying from R6.5 Trillion to R8.5 Trillion. The values provided are from a range of sources which report at different times.
19
Total size of regulated savings stocks excluding banks, short-term insurance and medical schemes
Minus all of this:
Collective Investment Schemes (“CIS”) R2 535 Billion (30 June 2020, ASISA)
+
Institutional Investments in CIS Portfolios R1 615 Billion (30 June 2020, ASISA)
Retirement Funds R2 652 Billion (31 May 2020, FSCA Active Funds List)
+
Underwritten Retirement Funds R533 Billion (2018, FSCA Annual Report)
The total value of savings and investments managed by black-owned firms is R667.8 Billion which represents a market share of 9% of the overall regulated savings pool. It must be pointed out that not all regulated stocks are available for management by private sector asset managers, for example, the Public Investment Corporation in its 2019 Annual Report indicates that only 12% of all domestic listed equities are managed by external asset managers.
R8 000
Public Investment Corporation R2 131 Billion (31 March 2019, PIC Annual Report)
+
Long-Term Insurance R2 461 Billion (2020, ASISA)
Give us a total of:
R 7 631 Billion
R7 631
R7 000 R6 000
ZAR Billions
Add up all of this:
R5 000 R4 000 R3 000 R2 000
R668
R1 000 R0 Total size of South African savings pool
Total AUM managed by black-owned asset managers
l. Black asset manager market share of the unit trust industry in South Africa R3 000 R185
R221
ZAR Billions
R2 500 R2 000
According to ASISA the total value of ZAR denominated CIS portfolios as at 30 June 2020 was R2.54 Trillion up 5% from R2.41 Trillion recorded last year. Black asset managers’ market share of this total currently stands at 8.7%.
R1 500 R2 409
R2 535
2019
2020
R1 000 R500 R0 Total AUM of ZAR CIS funds as at 30 June
Total AUM of ZAR CIS funds managed by black-owned asset managers
20
CIS management company market share - top 10: 2020
2019
2018
2017
2016
2015
Allan Gray
Stanlib
Nedgroup
Old Mutual
Sanlam
Absa
Prescient
Prudential
10.7%
10.0%
9.6%
9.3%
8.3%
6.4%
6.1%
5.7%
4.1%
3.7%
Allan Gray
Coronation
Stanlib
Ninety One
Nedgroup
Old Mutual
Sanlam
Absa
Prudential
Prescient
12.2%
10.2%
9.7%
8.3%
7.6%
7.0%
6.5%
5.4%
4.5%
3.7%
Allan Gray
Coronation
Stanlib
Ninety One
Nedgroup
Old Mutual
Sanlam
Absa
Prudential
Prescient
12.3%
10.7%
9.3%
8.0%
7.8%
7.2%
6.7%
5.6%
4.9%
3.5%
Allan Gray
Coronation
Stanlib
Ninety One
Nedgroup
Old Mutual
Sanlam
Absa
Prudential
Foord
12.1%
11.0%
9.7%
8.7%
7.8%
7.3%
5.9%
4.8%
4.6%
3.5%
Coronation
Allan Gray
Stanlib
Ninety One
Old Mutual
Nedgroup
Sanlam
Absa
Prudential
Foord
12.0%
11.8%
10.1%
8.5%
7.9%
7.0%
5.5%
4.7%
4.6%
4.0%
Coronation
Allan Gray
Stanlib
Ninety One
Old Mutual
Nedgroup
Sanlam
Absa
Prudential
Foord
13.2%
12.0%
11.7%
8.4%
8.0%
6.7%
5.4%
4.8%
4.8%
3.8%
Coronation Ninety One
The top ten management companies account for on average 76% of total CIS AUM and have held onto their rankings with Allan Gray and Coronation dominating
the top 2 positions. The only black-owned firm appearing on this quilt is Prescient who entered the top 10 in 2018 and have subsequently moved to ninth position in 2020.
m. Black asset manager market share of the private markets industry in South Africa R 250
ZAR Billions
R200
R15
R19
R150 R100
R171
R184
2019
2020
R50
According to SAVCA the Southern Africa private equity industry recorded R184.4 Billion in AUM at the end of 2019, of which 82.4% (R151.9 Billion) of AUM were unrealised investments, with the remaining R32.5 Billion classified as undrawn commitments. The number of black private markets participants increased from 15 to 20 with a total AUM of R19.3 Billion representing 10.5% of total industry AUM.
R0
Total SAVCA industry AUM
Total AUM of private equity funds managed by black-owned asset managers
n. Participation and AUM by province Johannesburg: 35 firms R162.34 Billion AUM
Cape Town: 16 firms R505.47 Billion AUM
21
% of firms
0. B-BBEE contribution level 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
Non-Compliant 8 7 6 5 4 3 2 1 2014
2015
2016
2017
The criteria for participation in the survey is at least 51% black ownership. The majority of respondents are classified as EMEs and QSFIs and therefore automatically qualify under the FSC for either a level 1 or 2 rating,
2018
2020
2019
depending on their level of black ownership. There are a number of large enterprises in the survey pool, one of which holds a level 3 rating.
p. Total headcount vs AUM 668 586
600
563
400 300 216
239
273
299
332
700 600
466
500
200
638
500 400
346
300
ZAR Billions
Total staff headcount
700
200
152
100
100
0
0 2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
152
216
239
273
299
332
346
466
586
563
668
638
91,4
134,1
164,8 184,6
253,1 283,1
The revenue model of asset management is built for scale, as is demonstrated here. The increase in AUM did not translate into an increase in job creation. The increase in AUM was concentrated across three asset managers: Taquanta Asset Managers, Aluwani Capital Partners and Vunani Fund Managers, who saw their AUM rise by 36%, 25% and 35% respectively. However, over the period, Taquanta Asset Managers added one job, Aluwani Capital Partners lost one job and Vunani Fund Managers added three jobs.
309,2 408,3
415,5 490,3 579,1 667,8
Total staff headcount Total AUM
Firms have also responded prudently to COVID-19 by implementing cost containment measures such as deferring planned investments and not replacing staff losses with new hires. We also anticipate the demand side to change. The type of skills needed to respond to this shift will be different, which should see the composition of workforces within asset management begin to transform.
22
q. Demographics of all employees 100% Non-SA Female
90%
Non-SA Male
80%
SA Female White
% of firms
70%
SA Female Coloured
60%
SA Female Indian
50%
SA Female African
40%
SA Male White
30%
SA Male Coloured
20%
SA Male Indian
10%
SA Male African
0%
2010
2011
2012
2013
2014
2015
There was little movement in the demographic composition of black-owned asset manager teams since 2019. None of the managersâ&#x20AC;&#x2122; teams are homogenous and reflect both race and gender diversity. There was a marginal reduction in White Males and a slight improvement in Coloured Males. The seismic shift in the world of work brought on by the COVID-19 pandemic is placing greater emphasis on talent management. It is without doubt that diversity and inclusivity are a
2016
2017
2018
2019
2020
necessary requirement to promote stronger organisations and failing to achieve such targets will be costly for any asset management business. The influence of big data and fintech on the sector will also see the industry recruiting more data science and tech savvy skills whilst at the same time adjust to deal with a younger generation of talent who do not share the same expectations as previous generations.
r. Company profitability 100% 90% 80%
42,22%
37,50%
32,00%
23,53%
57,78%
62,50%
68,00%
76,47%
2017
2018
2019
2020
% of firms
70% 60% 50% 40% 30% 20% 10% 0%
No
Yes
There has been a marked improvement in the number of firms achieving profitability. This is a pleasing statistic but must be considered with caution as the full impact of COVID-19 has not filtered through the economy, and is expected to result in widescale business closures and retrenchments, forcing retirement fund exits and savings withdrawals. There are also a lot more asset managers in the market targeting this declining savings pool, and so investors will be much more discerning and less tolerant of lacklustre performance and high fees. This is particularly relevant in the case of active fund management. We therefore expect the industry to gradually adapt to such pressures with more offerings emerging at opposite ends of the spectrum - costly high alpha alternatives where managers are paid for the delivery of long-term performance, and low-cost passive beta solutions. Asset management is also built for scale, and so managers unable to achieve scale advantages will be crowded out in a tough economic environment.
23
s. Trends in asset allocation 100% 90% % of industry assets
80%
Offshore
70%
Multi-Asset Class (Absolute Return and Balanced)
60%
South Africa Listed Property
50%
South Africa Money Market
40% 30%
South Africa Fixed Income
20%
South Africa Equity
10% 0% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
This graph displays the trend in asset allocation, of the top six investment strategies, collectively employed by public market participants over the last decade. Exposure to domestic equities has fallen sharply over the period, a reflection of a lost decade of lacklustre performance, low investor confidence and an economy on its knees. This situation has been exacerbated by the shockwaves of COVID-19. Outflows from domestic equities were equipoised by flows into domestic money market and fixed income, where the safety of real yields and low volatility was favoured by investors. The lionâ&#x20AC;&#x2122;s share of managers operating in the public markets space are focused on the management of specialist domestic equity mandates and have been the hardest hit by this shift. Those managers who have consistently underperformed have been the biggest losers. Domestic listed property managers have shared a similar, if not worse fate given the selloff in the sector. Managers with established fixed income and money market offerings have gained the most. There are only a handful of managers with global offerings which explains the low allocation to this asset class.
There is no doubt that the demand side is changing, and institutional investors are searching for diversified sources of return that can match long-term liabilities, cushion portfolios from the shocks of market selloffs, meet developmental goals and deliver inflation beating returns. Whilst much of this is cyclical in the context of interest rates, we cannot ignore the influence of structural challenges facing our capital markets and the economy on investor behaviour. Managers focused only on the management of a single asset class will need to guarantee exceptional performance, whilst others may choose to diversify across product offerings to protect their businesses from downturns in any specific asset class at any given time.
24
25
2
Zero hunger
26
Colonialism, apartheid and democracy - the evolution of South African asset management Asset management plays a critical role in the functioning of the South African economy through the efficient mobilisation and allocation of savings. The sector supports financial market infrastructure and ensures the smooth functioning of the capital markets, a barometer of the health of an economy. The sector is also a significant contributor to GDP. In fact, financial services as a whole is the largest contributor to GDP, at 22%1. The asset management industry is also wellregulated, thereby providing trust, confidence, and stability to the financial system.
Period before democracy 1845-1947 Colonial rule Period of Anglo Boer Wars, British rule, Union of SA
1948-1993 National Party rule Period of apartheid based on racial segregation
South Africaâ&#x20AC;&#x2122;s status as the most mature financial market in Africa is a culmination of its evolution from colonialism, through apartheid, and its eventual entry into the global marketplace following democracy in 1994. The structure and institutionalisation of the sector has largely been influenced by the politics of the day. This review explores the periods before and after democracy and is subdivided into distinct periods of political reign, control, and leadership.
Period after democracy 1994-2008 ANC rule Golden period of democracy
2009-today ANC rule Period of political and economic crisis
We look at how each of these periods shaped South African asset management and explore what lies ahead.
1845 - 1947: Era of colonisation The institutionalisation of the savings and investments sector began with the establishment of insurers and banks in the 19th century, which saw the emergence of the bancassurance model. This model of cross shareholding between insurers and banks remains prevalent today. For example, Sanlam and Absa share a relationship, as do Old Mutual and Nedbank, Liberty and Standard Bank, and Momentum and FirstRand. The bancassurance model also gave birth to the asset management industry as these financial institutions established investment management arms, to manage
life and other assets. According to Alexander Forbes2, as at the end of 2019, insurer owned asset management firms Old Mutual Investment Group, Sanlam Investment Management, Stanlib Asset Management and Momentum Asset Managers are ranked one, five, six and thirteen by total assets under management respectively. On this basis, one could argue that South Africa has never really conceptualised a new economy and that the colonial or apartheid structure remains intact with a few companies, their subsidiaries, and associated companies dominating the sector.
1. PwC, Africa Asset Management 2020 2. Alexander Forbes Manager Watch Annual Survey 2019
27
It was also during this period, in 1882, that the first recorded pension fund was introduced in the Transvaal Republic3 which set the foundation for formalised retirement savings. The next big step in the development of the financial sector was the launch of the Johannesburg Stock Exchange (â&#x20AC;&#x153;JSEâ&#x20AC;?) in 1887, today ranked the nineteenth4 largest stock exchange in the world with a market capitalisation of R15.7 Trillion5. The JSE have successfully held this monopoly until recently when in 2016, the regulator began approving the licensing of four new exchanges: ZAR X, A2X, 4AX, and Equity Express Securities Exchange. The JSE, however, remains the primary exchange catering for trade in stocks, bonds, commodity and interest rate derivatives.
apartheid based on racial segregation eventually leading to large-scale unrest and bannings. In response, the United Nations introduced world-wide economic and financial sanctions against South Africa in 1986. Exchange controls are a remnant of such a past, where they were used to limit the outflow of capital to support macro-economic stability. This, however limited the growth of our capital markets. An important milestone for retirement funds was the passing of the Pension Funds Act in 1956 which put in place the regulatory framework for the sector and remains the primary legislation governing retirement funds today. The Act made provision for the appointment of a Pension Fund Registrar and for the registration, incorporation, regulation, and dissolution of pension funds. Apartheid savings laws, however, were discriminatory and prejudiced black workers. The scene was set for a hard-won battle by trade unions to set up retirement funds designed to improve their members benefits, leading to the establishment of Defined Contribution Provident Funds in the 1980s. The graph below presents the growth in formal retirement savings in South Africa since the period before democracy.
A defining moment for the development of public pensions was the passing of the Public Debt Commissioners Act in 1911, which laid the foundation for the present-day Public Investment Corporation. This Act created a single government entity which was able to manage and control government funds, borrow against pension fund assets, and finance government budget deficits.
1948 - 1993: Emergence of apartheid This period can be described as the darkest period in our history, a period marred by social policies of
18 000 000
R5 000 000
16 000 000
R4 500 000
14 000 000
R4 000 000 R3 500 000
12 000 000
R3 000 000
10 000 000
R2 500 000 8 000 000
R2 000 000
6 000 000
R1 500 000
4 000 000
R1 000 000
2 000 000
R500 000
AUM Millions
Number of members
Total retirement fund AUM and member size
0
Private sector assets
GEPF and other SOEs assets
Private sector members
GEPF and other SOEs members
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
0
Source: FSCA Annual Reports
3. Van der Berg, S., 2002, Issues in South African Social Security 4. jse.co.za 5. As at 20 July 2020
28
The move to Defined Contribution Funds triggered the entry of independent asset managers to the market. Ninety One (previously Investec Asset Management) and Coronation Fund Managers are examples of such independent firms which today are global brands and rank second and third by total assets under management in South Africa, respectively. The rapid rise of independent asset manager participation was not inclusive. At the end of this period there were no black owned, managed, and controlled asset management companies in South Africa. Another watershed juncture in the development of South African asset management was the passing of unit trust legislation in 1965, which saw the launch of South Africaâ&#x20AC;&#x2122;s first unit trust. The legal framework to pool savings was a first step towards providing consumer access to the capital markets and an alternative to banking products, thereby enhancing the role of asset management. The growth in AUM and number of registered unit trusts is presented below.
Total AUM and number of registered unit trusts R3 500 R3 000 2 000 R2 500 1 500
R2 000 R1 500
1 000
R1 000
ZAR Billions
Number of unit trusts
2 500
500 R500 0
Source: ASISA
ZAR unit trusts total asset size
Foreign currency unit trusts total asset size
Number of ZAR unit trusts
Number of foreign currency unit trusts
Mar-20
Mar-19
Mar-18
Mar-17
Mar-16
Mar-15
Mar-14
Mar-13
Mar-12
Mar-11
Mar-10
Mar-09
Mar-08
Mar-07
Mar-06
Mar-05
Mar-04
Mar-03
Mar-02
Mar-01
Mar-00
0
The next iteration of the Public Debt Commissioners Act of 1911, before the corporatisation of the Public Investment Corporation in 2005, was the passing of the Public Investment Commissioners Act of 1984. The Commission began to play an investment management role over public funds and fulfil its mandate as a debt provider to the apartheid government. This was essentially a policy of prescribed assets, effectively forcing pension funds and insurers to invest in government-backed securities. Prescribed assets were later abolished in 1989 but subsequently resurfaced in 2017 at the launch of the election manifesto of the African National Congress.
29
1994 – 2008: Democracy! This was a period of exuberance when apartheid laws were finally abolished. The first democratic election was held in 1994, a new constitution was founded, and sanctions were lifted. It was the golden period for growth in our capital markets as we entered the global marketplace, and exchange controls were relaxed. According to a report published by Business for SA6, “during this period GDP doubled in USD terms to $287bn, debt to GDP almost halved to 27.8%, we secured an investment grade rating in 1999, foreign direct investment grew 30 fold to $12bn and tax revenues grew by 550%”.
The unlocking of the economy and our participation on the global stage catalysed the strengthening of our financial market infrastructure, stimulating widespread innovation and development. Trading volumes in our bond and equity markets rose sharply, our derivatives market flourished, electronic trading was introduced, and we saw improvements in the clearing and settlement of securities. Many foreign financial institutions set up offices in South Africa - the resultant competition and improvement of liquidity contributed to job creation and innovation. The increase in foreign participation in our capital markets is demonstrated in the graph delow.
R 20
R60 000
R18
R40 000
USDZAR
R 16
R20 000
R 14 R0
R 12 R 10
-R20 000
R8
-R40 000
R6
ZAR Millions
Foreign participation in South African capital markets since democracy
-R60 000
R4 -R80 000
R2
-100 000
Net foreign purchases of shares
In 1999 South Africa became a founding member of the G20. This has significance since subsequent regulatory reforms introduced in the financial sector have been premised on G20 principles. Policymakers and regulators have often been criticised for being too focused on meeting international standards without considering important parochial features of the domestic economy. Putting it bluntly, the policies failed to transform the financial services industry to broaden the participation of black people in the sector. An example of South Africa fulfilling its G20 commitments was when in 2015 hedge funds which were previously unregulated, became regulated under the Collective Investment Schemes Control Act (“CISCA”). Under the new legislation hedge funds were required to be registered under CISCA approved Hedge Fund Management Companies. However, the licensing approach was not supportive of new black entrants, inadvertently entrenching the dominant positioning of incumbents. This has been corrected in subsequent legislation such as the Insurance Act and the Draft Conduct of Financial Institutions Bill, where the regulator has adopted a more developmental approach and is explicitly supportive of transformation imperatives.
Net foreign purchases of bonds
Jan 20
Mar 19
Jul 17
May 18
Sep 16
Jan 15
Nov 15
Mar 14
Jul 12
May 13
Sep 11
Jan 10
Nov 10
Mar 09
Jul 07
May 08
Sep 06
Jan 05
Nov 05
Mar 04
Jul 02
May 03
Sep 01
Jan 00
Nov 00
Mar 99
Jul 97
May 98
Sep 96
Jan 95
Nov 95
Mar 94
R0
USDZAR
The historic Financial Sector Summit was held in 2002, where Nedlac social partners committed to the development of a Black Economic Empowerment (“BEE”) Charter for the financial services sector. The Charter was signed in 2003 and came into effect in 2004. The next iteration of the Charter was the Financial Sector Code of 2012 followed by the Amended Financial Sector Code of 2017. The last iteration included a voluntary BBBEE Scorecard for the Top 100 retirement funds, which obliged them to report to the Financial Sector Transformation Council (”FSTC”) on their preferential procurement activities, on an annual basis. This was a significant win for black owned asset management firms, furthering representation and ownership reflective of our demographics across the industry. The current Code is under review and it is expected that this dispensation will move from voluntary to compulsory in the next iteration of the legislation. The illustration which follows shows a historic timeline of the evolution of the Financial Sector Code.
6. A New Inclusive Economic Future for South Africa 2020
30
History of the Financial Sector Code
2002 Financial Sector Summit – Nedlac – make commitment to the development of a BEE Charter for the financial services sector
2003 Financial Sector Charter signed B-BBEE Act gazetted
2004 Financial Sector Charter– comes into effect on 1 Jan 2004
2007 dti Generic Codes of Good Practice gazetted – superior legal status to Charters
Another profound milestone for asset management worldwide was the launch of the United Nations Principles for Responsible Investment (“PRI”) in April 2006, an organisation dedicated to promote the incorporation of environmental, social, and corporate governance factors (“ESG”) into investment decisionmaking. The Government Employees Pension Fund of South Africa was a founding signatory to the PRI. Since then the PRI has grown to 3 2477signatories worldwide representing over US$100 Trillion in assets under management. Currently 61 South African institutions (asset managers and asset owners) are signatories to the PRI.
2012 Financial Sector Code gazetted – 26 Nov 2012
2013 Revised dti Generic Codes of Good Practice gazetted – 11 Oct 2013
2017
2019
Amended Financial Sector Code gazetted on 1 December 2017
FSTC commences review of the Amended Financial Sector Code. As part of this review process all recommendations made by SCOF and the PCTI are being taken into consideration
Parliament holds public hearings on transformation of the financial sector. Standing Committee on Finance (”SCOF”) and the Portfolio Committee on Trade and Industry (”PCTI”) release report on financial sector transformation which is adopted by Parliament
Ironically, just one year after the launch of the PRI, the global financial crisis laid bare the vulnerabilities of the global financial system.
2009 – today: Lost years Following the global financial crisis of 2007-2008, regulators responded by revising regulations to strengthen the financial system and to protect consumers and economies. South Africa responded through the passing of the Financial Sector Regulation Act in 2017 giving effect to what is referred to as the Twin Peaks system of financial regulation. This regulation is aimed at making the sector safer and closing any regulatory gaps within the system. Under Twin Peaks, two new regulators came into operation: the Prudential Authority which is the regulator of financial institutions, and the Financial Sector Conduct Authority which regulates market conduct with respect to ethics and transparency. The reform process is ongoing with the next phase being the harmonisation of the legal landscape within which financial institutions operate. The draft Conduct of Financial Institutions Bill published in December 2018 represents this new legal framework. This Bill is also best placed to give legal effect to transformation requirements in support of targets agreed through the Financial Sector Transformation Council and specified in the Financial Sector Code.
Whilst much has been achieved since 1994, the extent to which economic growth has been shared equitably amongst all South Africans has not been adequate for the requirements of a stable, integrated, and prosperous society. Over the last decade rising levels of unemployment, highly unequal distribution of income, and low levels of growth and investment have become deeply entrenched. Our economy was also subjected to the lethal triple cocktail of greed, weak governance and inadequate oversight, overshadowed by state capture and malfeasance. South Africa subsequently lost its investment grade rating and our fiscal position has deteriorated sharply, with debt to GDP expected to exceed 100% by 2023. An already weak economic position has been exacerbated by COVID-19, leaving government desperately 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
7. unpri.org
31
sectors, retirement funds, development finance institutions and multilateral development banks. With expectations of capital flows into real assets, the asset management industry appears to be readying itself new and existing firms are building capacity and skills to be able to manage such flows. The COVID-19 pandemic has also brought impact investment to the forefront with many new debt and equity funds popping up to support businesses in their efforts to mitigate the negative economic impact, whilst providing investors with a competitive return. 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%. Calls have been made by the Southern African Venture Capital and Private Equity Association to separate hedge funds from private equity and gradually increase the private equity limit. The Minister of Finance has publicly flirted with the idea of increasing the limit indicating that this is under review by the National Treasury. Similarly calls have been made to amend CISCA to allow unit trusts to hold unlisted exposure. The growth in private equity and the decline in the listed markets is presented in the graph below.
700
200 180 160 140 120 100 80 60 40 20 0
600 500 400 300 200 100
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
0
ZAR Billions
Average number of shares
Private equity vs the JSE
Average number of listed shares per year excluding cash shells, trusts and ETFs
Private Equity AUM
What then does the future hold for South African asset management? The two-century long trajectory described here sheds some light on the way forward for the asset management sector. The pendulum swing from prescribed to unprescribed, and back, reflects the changing social and economic dynamic in our country. These are tidal forces, to which the asset management industry must adapt, with transformation being a vital component. There are a number of developing trends facing the sector - we list our top three which we anticipate will have the most significant influence: 1 ESG will take centre stage. Both asset owners and policymakers will be uncompromising in their efforts to promote a more sustainable financial sector and economy. There will be a rise in demand for impact investment aligned to meeting UN Sustainable Development Goals, a collection of 17 global goals designed to be a â&#x20AC;&#x153;blueprint to achieve a better and more sustainable future for allâ&#x20AC;?8. We will also see an increase in public private partnerships and blended finance investments.
2 The number of listings on the JSE will continue to decline as businesses seek alternative sources of capital through, for example, private equity. This will result in concentrated listed markets offering limited diversification benefits, thus negatively impacting active asset managers who are primarily focused on the domestic equity markets. The rise in passive investing is also expected to continue. 3 Transformation of the financial sector will be in the spotlight with new legislation focused on achieving real parity within the sector coming into play. Such legislation includes the Employment Equity Amendment Bill, currently in draft form, which will allow for the Minister of Employment and Labour to identify sectoral numerical targets to ensure representation reflective of our demographics. We can also expect to see the Conduct of Financial Institutions Bill come into effect, and an updated iteration of the Financial Sector Code gazetted.
8. United Nations
32
33
15
Life on land
34
Public markets 35
Public markets
3
Impact of COVID-19 Section highlights
Good health & well-being
41%
66%
Of firms expect a drop in revenue/ profits for this financial year
Of firms have implemented cost containment measures
CHANGE
84%
Unanimous agreement that the world of work has forever changed
Of firms see a rise in appetite for impact investment aligned to the UN SDGs
94%
78%
Of firms believe that global allocations should be channelled through local firms
Of firms expect an increase in M&A activity
36
In the first week of January with South Africa continuing its sojourn into the New Dawn with a 20/20 vision of growth and possibility, there was little anticipation of what was to be in the coming months. COVID-19 has come to the fore with dramatic economic and social implications - not only in South Africa, but across the globe. The global pandemic has brought into question predicted trajectories for economic growth, employment, profitability, sustainable development and - vital within
the South African context - B-BBEE. Whatever gains have been made in the past decade are potentially set to be undermined and possibly reversed. On the other hand, this moment could be the tipping point to spearhead B-BBEE as the economy prepares itself for a period of uncertainty. The asset management sector - like all other sectors - will be affected in the short, medium and longterm - and this section therefore considers the COVID19 impact.
a. Top 3 concerns with respect to COVID-19
25 20
2 4 3rd biggest concern 2nd biggest concern Biggest concern
3
15 9
6 1
Loss of client confidence in capital markets
Financial impact: profitability, liquidity and capital resources
0
3 3 1
Early into the pandemic a range of concerns have been raised across asset management firms. The biggest concern identified is the bottom-line: the financial impact vis-a-vis profitability, liquidity and capital resources. This speaks to the direct short-term hard-hitting impact of COVID-19. Another major concern is the loss of client confidence in the capital markets and not having enough information to make good decisions matched with a reduction in staff morale and productivity. This speaks
8 6
3 2
4 2
3
Key supply chain disruption: fund administrator/valuator
7
6
Reduction in staff morale and productivity
5
4
Regulatory changes
19
Cyber security risks
10
Not having enough information to make good decisions
Number of firms
30
to a combination of external (client) and internal (humanresources) concerns - suggesting that a dual-strategy to mitigate the impact is foremost in mind. Other concerns include regulatory changes (with potential enhanced state intervention in the economy), cyber threats and supply chain issues with the domino-effect COVID-19 is likely to have within established lines of supply.
37
% of firms
b. COVID-19 impact on firm revenue and profits 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
40.63%
40.63%
18.74%
We do not expect any impact on revenue and/or profits Decrease in revenue and/or profits Increase in revenue and/or profits
Forty percent of asset management firms are confident and do not expect any impact on revenue and/or profits, suggesting confidence in a range of factors such as financial market performance and stable market share. This is in stark contrast with an equal number of firms on the other end of the spectrum expecting a decrease in profit and/or revenue this year because of the pandemic. The remaining firms making up close to 20% of the dataset are optimistic and see a more positive impact with an increase in revenue and/or profits by year end, suggesting that the pandemic may provide opportunities for growth, greater market share and gains piggy-backed perhaps on the losses of other players unable to absorb the unexpected shock of the pandemic.
c. Implementation of cost containment measures
34.38%
No Yes
65.62%
Two-thirds of asset management firms have implemented cost-containment measures. This on its own suggests a robust environment able to act in response to the anticipated impact in an imperfect market, affected in the main by lack of information and high uncertainty. One-third have not implemented costcontainment measures and this could be due to marketstrength, dominance and/or confidence in the market to absorb what may be perceived to be a short-term impact on the economy. There may also be structural constraints in place such as size, duration in the market, sunk costs and other factors affecting the ability to act and/or react to COVID-19.
38
Measures implemented: 14 12
Number of firms
10 8 6 4 2
Although not an examination of the quantum of costcontainment within the sector, a range of short-term measures have been taken to steady the ship. Majority of firms went straight for reducing the marketing budget, defer or cancel planned investments and place a freeze on new hires. Other key internal saving amongst firms include bonus and salary sacrifices - suggesting that some of the immediate cost-containment measures
Other
Re-insource some previously outsourced functions
Reduce marketing budget
Reduce IT budget
Defer or cancel planned investments
Bonus sacrifices
Salary sacrifices
Froze new hires
0
come from reducing increments and bonuses until greater certainty emerges. The major cost-containment measures across firms are at this juncture low-hanging fruit based on established infrastructure and human resources with zero to little expansion. The assumption behind the measures is that they will allow the impact to be absorbed without negatively impacting the medium to long-term sustainability trajectory of the business.
39
d. Government relief measures utilised 25 21
Number of firms
20
15
10
8 5
5
2
2
1
1
An overwhelming majority of firms sought no relief at all from government, suggesting that this segment is sustainable and able to seek internal and/or private means of ensuring sustainability, with the ability to absorb the COVID-19 shock to the system. Those requiring defibrillation did so mainly through tax deferral
None
Grants
Other benefits at the state or local level
Loan and loan guarantees
UIF relief through the Department of Employment
Small business relief through the Department of Small Business
Filing monthly VAT refunds
Tax relief for donations made to the Solidarity Fund
Skills Development Levy payment holiday
Provisional tax deferral
PAYE tax deferral
The expansion of the Employment Tax Incentive
0
holidays and relief. UIF relief is negligible in the industry. At a glance, this snapshot suggests little confidence in support from government or no reliance on the stateâ&#x20AC;&#x2122;s ability and capacity to intervene in the market to protect the sector.
40
e. Expectations of a post - COVID-19 world of work 32
Decrease Increase Revert to preCOVID-19
Number of firms
24
28
32
32
30
29
27
32
24
16
8
The major changes envisioned in the post-COVID environment intuitively witness a decrease in air-travel and face-to-face engagement with clients and industry stakeholders. This is met by a concomitant increase in more online/digital platforms, remote working by staff and firms seeing an increased focus on the health and well-being of staff. This highlights the importance of people and skills within the industry and ensuring that productivity and skills are retained. It is interesting to note that one of the main cost-containment measures
8 Physically attend conferences such as Batseta/IRF/CFA etc.
4 Use of webinars to host events
3
Face-to-face roadshows
2
Investment in digital infrastructure
Remote working by staff
Use of digital communication platforms such as Zoom
4 Airline travel
0
Focus on health and well-being of staff
1
identified earlier is a reduction in technology expenditure, yet in the post-COVID environment most firms see an increase in a technology dependent modality of work. This suggest that firms may already have key technology systems and platforms in place and that virtual work has already been implemented industry-wide, albeit not at the level currently witnessed at the peak of the pandemic and in the post-COVID world going forward.
f. Increase in institutional investorsâ&#x20AC;&#x2122; appetite for impact investment with a focus on the UN SDGs 15.62% No Yes
COVID-19 has been a tipping point and a wake-up call with regards to medium to long-term sustainability. The fragility of markets and the current systems have been highlighted under COVID, with a shift in thinking more aligned with the UN SDGs increasingly coming to the fore. It is therefore no accident that close to 85% - an overwhelming majority of asset management firms are thinking more acutely with regards to the alignment of investment with the SDGs.
84.38%
41
g. Become South Africa centric by allocating global exposure to domestic asset managers 6.25%
No Yes
One of the key implications of COVID-19 is the development of a more direct â&#x20AC;&#x153;act local-think globalâ&#x20AC;? approach with a view to harness investment to protect national resources. Almost 94% of asset management firms are in favour of a South Africa centric approach. They would like to see global allocations of domestic investors being channelled through local firms. The benefit to local asset managers is clear - they see this as a means to protect gains made to date and build on the platform already in place.
93.75%
h. Change in regulations to cater for returns from wider than just the quoted economy 100% 90% 80%
No 34.38%
34.38%
65.62%
65.62%
Regulation 28 unlisted assets exposure should increase
Unit trust legislation should allow for investment into unlisted assets
Yes
% of firms
70% 60% 50% 40% 30% 20% 10% 0%
Most firms - two-thirds in fact - feel there needs to be greater levels of deregulation in both the pensions and unit trust markets by opening avenues for a more diversified investment portfolio. This reflects the prevailing view that equity markets, which are vulnerable to shocks such as COVID-19, should be balanced by expanding the return base.
i. COVID-19 will lead to an increase in mergers and acquisitions amongst asset management firms 21.88% No Yes
78.12%
Most asset investment firms envision a greater increase in mergers and acquisitions, because of the pandemic. This is aligned and congruent with the earlier views that more of the globally directed investment should be harnessed locally within firms that have capability to invest globally. Such moves will be a major factor prompting growth and consolidation within the industry and will potentially be the driving force crowding out the smaller firms, or alternatively crowding them in through greater levels of corporate activity. It could be a win-win for growth in this segment as fewer firms harness skills, expertise and resources together in a shift towards greater market consolidation, thus protecting overall black-market share of the sector. 42
Number 3 factor Number 2 factor Top factor
2 1 8
20 12
6
It is telling that black-owned asset management firms rate survival as the top factor that would drive consolidation of the sector. This is worrying, in that existential threats to smaller firms is top of mind in the current environment. Building scale, as well as distribution channels are also seen as important factors driving mergers and acquisitions, consistent with a view
3
2 1
2 1 Current product offering is out of favour
Gain access to distribution
Build AUM scale through merging products and talent
2
Regulatory complexity
6
Fee compression
5 1 3 Improve B-BBEE rating to increase market share
100 90 80 70 60 50 40 30 20 10 0
To survive: distressed because of drop in AUM and requires capital partner
Number of firms
j. Top 3 factors driving corporate activity
that the sector has not achieved maturity, and scale. Building on the reflections in the previous question, consolidation and pooling of resources could have a positive impact by enhancing sustainability and contribute to the strategic and visionary imperative to harness energies and expertise to protect B-BBEE sector gains.
43
k. Largest business risk factors in a post-COVID-19 environment
24
17
19
5
7
8
11
13
15
4
4
21 High
16
12
22
17
16
9
23
9
6
The thrust of the environmental snapshot analysis is that most asset managers surveyed are frustrated by economic policy uncertainty, slow economic growth, high government debt, and financial market performance and volatility. Firms are divided on the threat of competition a limited market brings and whether they can withstand the de-risking of portfolios
Investment style is out of favour with the current market cycle
Changing investor demand and behaviour
8
Members of retirement funds de-risking
8
Political interference
Subdued performance from capital markets
9
1
Economic policy uncertainty
1
7
Excessive market volatility
4
Low economic growth and government indebtedness
10
0
Low
14
Overly complex and costly regulatory environment
8
Medium
10
10
Cannibalism between asset managers for a pool of capital that is not growing
Numberof firms
32
by retirement funds. Also, the risks associated with changing investor demand and behaviour is seen as significant. The regulatory environment and political interference also emerge as a concern for many companies. Encouragingly, most respondents feel that their investment performance signatures are resilient, or can be adapted, to the post COVID-19 environment.
l. B-BBEE elements most likely to be negatively impacted because of COVID-19
Numberof firms
35 30
5 (most negatively)
25
4
20
3
15
2
10
1 (least negatively)
5
There is still a rainbow at both ends of the COVID-19 storm. Most asset management firms do not see any major negative impact on their B-BBEE ratings. The main ones to keep an eye out on are skills development, and the impact on the socio-economic environment. ESD
Socio-Economic Development and Consumer Education
Procurement and ESD
Skills Development
Management Control
Ownership
0
and procurement scores are also a concern. The results indicate that black-owned managers are confident in their ability to maintain control of their businesses but concerned about how external factors will influence their B-BBEE rating. 44
45
7
Affordable & clean energy
46
Public markets
Fund facts Section highlights 12
90%
+28%
Of client base is institutional
Growth in domestic money market and bonds AUM
-8%
34%
Decline in domestic equities AUM
Of managers classify their performance style signature as Value
THREATS Managers see Umbrella Funds and a shrinking JSE as the largest threats to their businesses
Responsible consumption & production
47
a. Investor base 3,61%
8,91%
10.41%
Percentage of industry assets
100%
Strong retail inflows have lifted retail market share to just over 10% of overall assets. This growth has largely come from Prescient Investment Management, Vunani Fund Managers and Terebinth Capital, whose retail AUM have grown considerably over this reporting period. The shift by retail consumers to low risk fixed income products has benefitted these managers, who all have competitive solutions in this space. In recent years, the industry has witnessed a meaningful shift in the intermediary space towards the use of Discretionary Fund Managers (â&#x20AC;?DFMsâ&#x20AC;?). These are independent researchers who assist financial advisors when making portfolio recommendations to their clients. Asset managers looking to grow their retail market share should work on getting onto the buy lists of such DFMs. The impending Retail Distribution Review legislation is also expected to further disrupt the industry.
90% 80% 70% 60% 50%
96,39%
91,09%
89.59%
2018
2019
2020
40% 30% 20% 10% 0% Institutional
Retail
b. Number of institutional clients 25 Number of firms
21 20 16 15 9
10
7
5
3
2
1
2 0
0 No clients 2019
2020
0-20
20-40
40-60
0
60-80
1
2
80-100
2
1
>100
Number of institutional clients
There was a notable reduction in the 0-20 bracket during this period of reporting and a welcome increase to the 20-40 and 40-60 buckets. The decrease in the >100 bucket was offset by an equal increase in the 80-100 bucket. Asset managers compete for the same pool of assets from the same group of investors, and so gaining market share requires firms to innovate and differentiate in order to stay ahead of the competition. The COVID-19 lockdown has also slowed decision making at some investor institutions.
Many are waiting to see how the pandemic unfolds, given the performance dislocation between the real economy and the capital markets. Defined Contribution funds, particularly those offering member investment choice, witnessed large scale panic from members when the pandemic first hit equity markets in February 2020. This motivated members to switch from growth portfolios into low risk options, which resulted in institutions disinvesting from domestic equities. Those asset managers who only focus on the domestic equity market were most affected by these switches, whilst those with diversified offerings coped better.
48
c. Largest client as a percentage of total AUM 14
12
Number of firms
12
12
10
10
8 7
8
7 5
6
4
4 1
2
1
0 0%-20% 2019
20%-40%
40%-60%
60%-80%
80%-100%
Largest client % of AUM
2020
This is a satisfying trend as the data evidences year on year improvement in the diversity of client portfolios. An acceptable target for key client exposure is below 20% of overall firm AUM and ten firms now fall into this bracket. Every growing enterpriseâ&#x20AC;&#x2122;s priority is to mitigate key account risk through diversifying its revenue base. Building resilience to such vulnerabilities is not an easy task, especially in the current economic environment. It is therefore critical that businesses exposed to such risk focus on client retention by continually building
trust with existing clients and looking for new pathways to expansion. Asset management, like all other industries impacted by the pandemic, will have its own casualties, with businesses in financially weak positions most impacted, while those with scale coming out stronger. Black-owned asset managers face the added burden of structural challenges that underscore their participation and representation within the financial services sector. We hope the pandemic will serve as an impetus to address such structural impediments.
d. Top five clients as a percentage of total AUM 16
14
Number of firms
14 11
12 10
9
8
10
11
7
6 4
2
2
1
0 No clients 2019
2020
0
0
0%-20%
1
1
20%-40%
40%-60%
60%-80%
80%-100%
Top five clients % of AUM
There was an overall improvement in the number of firms where the top 5 clients make up between 80% and 100% of total firm AUM. There are no businesses where the top 5 clients make up less than 20% of total firm AUM. There are a handful of managers with large asset bases followed by a large segment of mid and
small sized firms. This is evidenced by the difference between the mean value of AUM and the median where the median is much lower than the mean because of the small number of managers with large AUM as demonstrated in Section A, Sector Overview.
49
e. Top five asset managers by institutional assets Top five asset managers by institutional assets
Years in operation
ZAR Millions
Taquanta Asset Managers
20.77
R217 635
Aluwani Capital Partners
4.58
R87 017
Prescient Investment Management
21.84
R59 295
Vunani Fund Managers
20.95
R33 269
Mergence Investment Managers
15.76
R32 413
Total
R429 629
scale have been rewarded.
There were no new entrants or exits to this table for this reporting period. Unsurprisingly, with institutional clients representing 90% of AUM, the assets of the top five managers are predominantly institutional. Domestic retirement funds represent the majority of institutional assets. Aluwani Capital Partners achieved another strong year of institutional growth leaping 25% from R69.5 Billion to R87 Billion. The demand by institutions for fixed income strategies has been strong and those with
What is disappointing to note is that no incumbent asset managers, over this reporting period, have made sufficient progress on their B-BBEE status to be considered for inclusion in this publication, signalling a slowdown in efforts by large established corporations to transform meaningfully.
f. Top five asset managers by retail assets
Top five asset managers by retail assets
Years in operation
ZAR Millions
Prescient Investment Management
21.84
R41 400
Vunani Fund Managers
20.95
R8 890
Kagiso Asset Management
18.59
R5 764
Terebinth Capital
7.25
R4 544
Sentio Capital Management
13.01
R 1 155
Total
There has been some movement in the fourth and fifth position this year with Terebinth Capital and Sentio Capital Management entering the top 5, and Value Capital Partners and First Avenue Investment Management exiting the top 5. The retail market remains highly intermediated and in anticipation of the Retail Distribution Review legislation independent financial advisors are gradually outsourcing asset allocation and fund picking responsibilities to DFMs. Over the last three years, according to statistics made
R61 752
available by ASISA, more than 50% of annual unit trust flows were allocated to defensive interest-bearing funds. For the year ending March 2020, such funds saw inflows in excess of R150 Billion, while domestic equities (including listed property) and Regulation 28 multi-asset class unit trusts, saw net outflows of R23 Billion and R35 Billion respectively. Global funds also experienced net positive flows. As such those asset managers with respectable income and global offerings and access to distribution prospered from such shifts. 50
g. Total number of products managed per firm
Fund manager
Total number of products managed
Aeon Investment Management
3
Afena Capital
2
All Weather Capital
4
Aluwani Capital Partners
7
Argon Asset Management
4
Balondolozi Investment Services
6
Benguela Global Fund Managers
2
Cachalia Capital
1
Excelsia Capital
4
First Avenue Investment Management
2
Fortitudine Vincimus Capital Advisors
1
Idwala Capital
2
Independent Alternatives Investment Managers
2
Kagiso Asset Management
8
Lima Mbeu Investment Managers
2
Lodestar Fund Managers
1
Lunar Capital
1
Makalani Management Company
1
Meago Asset Managers
3
Mergence Investment Managers
4
Mianzo Asset Management
4
MSM Property Fund
2
Ngwedi Investment Managers
3
Perpetua Investment Managers
3
Prescient Investment Management
8
Prowess Investment Managers
4
Sentio Capital Management
5
Taquanta Asset Managers
5
Terebinth Capital
3
Value Capital Partners
1
Volantis Capital
0
Vunani Fund Managers Total
South Africa Active Equity
South Africa Passive/ Index Equity
South Africa Active Fixed Income
South Africa Passive/ Index Fixed Income
South Africa LDI
South Africa Money Market
South Africa Listed Property
Shariâ&#x20AC;&#x2122;ah (Equity and Balanced)
South Africa SRI
South Africa Hedge Funds
Multi-Asset Class (Absolute Return and Balanced)
Offshore
Infrastructure
Africa Listed Equity
Other
20
7
14
3
3
12
4
2
1
6
16
11
1
1
5
8 106
51
h. Percentage of industry assets versus number of products managed
35% % of industry assets
8
7
7
6
6
30%
6
5
25%
5
20%
3
15% 10%
4 3
2 1
1
1
5%
2
1
0%
Number of firms
40%
1 0
0
1
2
3
4
5
6
7
8
Number of products managed Percentage of industry assets
Six firms currently manage 76% of the total public market asset pool. The maximum number of products managed by a single asset manager is eight. More than half of the dataset manages three or less products. Firms focused on single strategies or asset classes face the risk of saturation during periods of declining demand, as has been the case with domestic hedge funds and listed property for example. On the other hand, the benefits of specialisation are the ability to build scale, promote efficiencies and develop a brand that is recognised for the companyâ&#x20AC;&#x2122;s core skill.
Number of firms
Start-up and emerging asset manager investment teams are generally small and attention is focused on first proving their worth through the delivery of solid performance on a single product, which would allow them to build a reputation, gather assets and grow revenue. Once the milestone of sustainability is reached new talent and product is added and business models evolve to maintain market relevance.
52
40%
40
35%
35 30
30% 25%
24 20
25
20% 15% 10%
12 3
4
3
15
11
7
5%
20
16
14
6 2
5 1
1
10
Number of firms
% total AUM by product
i. Mandates currently managed
5
1
0
Over 60% of industry assets are currently invested in low risk money market and fixed income products. These are also low margin products and require significant scale to drive profitability. Domestic equities have progressively been losing market share over the past decade and now make up just 22% of AUM. To put this into perspective, this asset class made up 50% of total AUM in 2010. Internationally the adoption of passive investing has been remarkably successful, and is in fact on course to overtake actively managed market share. South Africa, whilst behind currently, is slowly beginning to play catch-up, especially amongst nonblack-owned asset managers. The largest threat to the domestic equity market is the growth of the unlisted markets. More companies will choose alternative routes to raise capital, and should prescribed assets be introduced in the form of infra-
Other
Africa Listed Equity
Infrastructure
Offshore
Multi-Asset Class (Absolute Return and Balanced)
South Africa Hedge Funds
South Africa SRI (all)
Shariâ&#x20AC;&#x2122;ah (Equity and Balanced)
South Africa Listed Property
South Africa Money Market
South Africa LDI
South Africa Passive/Index Fixed Income
South Africa Active Fixed Income
South Africa Passive/Index Equity
South Africa Active Equity
0%
% total AUM by product Number of firms
structure investment, it is most likely that the budget for this exposure will come from the listed markets. Hedge funds and African listed equities have been on the decline for several years; sub-par returns and high fees have lowered investor confidence in the strategy/asset class with only a handful of managers operating in this space. Less than 2.5% of AUM is managed in global mandates even though eleven firms have global offerings. COVID-19 has incited an air of protectionism, with an increasing number of institutions clamouring to utilise local skills for the management of global assets. It is unfortunate that managers with global offerings have not been able to build adequate scale despite the fact that institutions have taken full advantage of the global allowed exchange control limit.
53
j. Rand size of mandate growth 700 000
Asset size ZAR Millions
600 000 500 000 400 000 300 000 200 000 100 000 0 2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
South Africa Active Equity
South Africa SRI (all)
South Africa Passive/Index Equity
South Africa Hedge Funds
South Africa Active Fixed Income
Infrastructure
South Africa Passive/Index Fixed Income
Multi-Asset Class (Absolute Return and Balanced)
South Africa LDI
Offshore
South Africa Money Market
Africa Listed Equity
South Africa Listed Property
Other
Shariâ&#x20AC;&#x2122;ah (Equity and Balanced)
The asset class which has witnessed the most conspicuous growth over the course of the last three years has been domestic fixed income, both nominal bonds and money market. Heightened economic uncertainty and exceptionally poor returns from domestic equities have pushed investors into such lower risk asset classes. COVID-19 monetary stimulus effected through a series of interest rate cuts has now reduced the real return opportunity of money market. However, given ongoing uncertainty we are unlikely to see investors aggressively flock back into domestic equities. Central banks globally have responded to the COVID19 economic fallout by slashing interest rates to near zero with some even going negative, leaving global fixed
income investors hungry for yield. In such an environment, the yields on some emerging market debt remain attractive. We can expect South African bonds to continue to benefit under these conditions as developed market interest rates are likely to remain low for the foreseeable future. Downside risks remain on the quality of our debt and policy reforms relative to other emerging market peers. It is therefore unlikely that we will see a dramatic shift out of this asset class. Interestingly, investors have preferred investing actively in bonds even though managersâ&#x20AC;&#x2122; ability to outperform the All Bond Index by any significant margin has been poor. There was limited movement in the other strategies and asset classes.
54
k. Mandate growth as a percentage of industry assets 100% 90% % of industry assets
80% 70% 60% 50% 40% 30% 20% 10% 0% 2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
South Africa Active Equity
South Africa SRI (all)
South Africa Passive/Index Equity
South Africa Hedge Funds
South Africa Active Fixed Income
Infrastructure
South Africa Passive/Index Fixed Income
Offshore
South Africa LDI
Multi-Asset Class (Absolute Return and Balanced)
South Africa Money Market
Africa Listed Equity
South Africa Listed Property
Other
Shariâ&#x20AC;&#x2122;ah (Equity and Balanced)
The shift in allocation patterns over the last decade has benefited some and hurt others. Whilst some of these shifts are cyclical others tend to gradually accelerate and eventually become a reality. Managers who take the time to understand such evolving patterns are bound to find future success and take the lead. Some of these trends include ESG, embracing the use of big data,
understanding the role of asset management in the economy as a steward and allocator of capital and responding to client needs more effectively so as to achieve better outcomes. Managers who do not respond to such underlying forces will ultimately fall out of favour and be displaced.
55
l. Implementation of mandates 100% 90% % of industry assets
80%
16.14% 1.74%
16.05%
15.21%
4.16%
4.45%
20.88%
13.98%
70%
22.13% 33.32%
35.92%
11.38%
3.83%
6.18%
60% 50% 40%
Unit trusts/Mutual funds/UCITS Life policy
82.12%
79.79%
80.34%
65.14%
71.69%
55.30%
60.25%
2014
2015
2016
2017
2018
2019
2020
Segregated
30% 20% 10% 0%
The proportion of assets managed on a segregated basis increased to 60% of total AUM, followed by 4% invested on life balance sheets and 36% invested through unit trusts and its global equivalent UCITS. Pooling arrangements have grown over the last four years given
the expansion in retail AUM and a client base that is no longer made up of only the very large retirement funds in the country.
m. Fee models
% of industry assets
100%
Alignment of interests is best captured through fee models. Performance-based fees remain a relatively small part of the industryâ&#x20AC;&#x2122;s revenue generation, with only 16% of AUM subject to management and performancebased fees. Interestingly a small proportion of assets are managed on a performance fee basis only. Fee compression on active mandates will continue, especially in an environment where the low-cost passive sector has delivered better returns than active management.
80% 60% 40% 20% 1.53%
0% 2019
2020
Management plus performance fee Fixed management fee only Performance fee only
56
n. Active manager styles 3.13%
18.75%
34.36% Momentum Value Growth 21.88%
Low Volatility Quality No Style Classified
6.25%
15.63%
While style in South Africa is difficult to determine because of our smaller bourse, concentration to Rand hedge counters and illiquidity, we can classify the styles utilised by domestic active managers into the five styles described in the chart. Just over a third of managers classify their style of investing as Value, followed by Quality, then Growth, Low Volatility and lastly Momentum. Understanding a manager’s style is important to allocators who seek to diversify their equity exposure through optimal style blending. Nineteen percent of equity managers do not classify their investment approach under any specific style.
o. Threats and opportunities The number of stand-alone retirement funds will continue to decline in favour of umbrella arrangements
Prescribed assets becomes a reality
Artificial intelligence and big data will influence the investment decision making of asset managers
2020 Opportunity
Demand for passive investment strategies will grow
2019 Opportunity
There will be an increase in the adoption of responsible investment practices by asset management firms
2020 Threat 2019 Threat
There will be an increase in appetite for private equity and real assets by retirement funds
The number of companies listed on public markets will continue to decline
0%
20%
40%
60%
80%
100%
% of firms
Black-owned asset managers are worried about the consolidation of retirement funds under umbrella arrangements. This apprehension is not without merit as argued in “The Shift to Umbrella Funds - Does Consolidation Support Transformation?” Interestingly, the number of managers who see prescribed assets as a risk has declined, and may mean that managers feel more comfortable with the ‘revised’ prescribed assets narrative of public private partnerships in infrastructure investment. They potentially see a role for themselves under this scenario. Concomitantly there is growing insecurity amongst managers of the growth in appetite for private market investments indicating that managers
in the public markets space are conflicted as to how these developments will play out. Managers in general agree on and recognise the importance of artificial intelligence in helping identify complex patterns to improve investment processes. This dataset appears undecided when it comes to passive and rules-based investing and whether the strategy will grow in South Africa. Managers unanimously agree on the importance of responsible investment practices. Concerns around the depth and breadth of listed markets in South Africa has increased and is a primary concern amongst the firms.
57
58
Using machine learning to select the best asset managers As a selector of asset managers, 27four strives to provide its clients with the best risk-adjusted returns by identifying managers who can consistently outperform investable benchmarks. We also remain committed to the principles of diversity and inclusiveness through our support of black-owned, managed and controlled asset managers. One of the tools that can facilitate the integration of our goals and our principles is the emerging science of machine learning. In this article we shed some light on this groundbreaking technology, and how 27four is actively developing machine learning techniques for the selection of asset managers. To most people, the notion of machines thinking and making decisions sounds like the theme of an 80’s science fiction novel. What society doesn’t always fully grasp is that we are already reliant on computer programs (algorithms) for the completion of daily tasks, ranging from menial to complex. Applications range from social media, kitchen appliances, to smart phones and systems that govern credit card transactions. A simple example is a spam filter on your email. The programmed algorithm that determines whether an email is spam learns from your actions in terms of what messages are 1) read, 2) read and deleted or 3) not read and deleted. The algorithm does this by determining a set of attributes that best predict whether the email is spam or not. These attributes include whether or not the email contains ‘WARNING’ or ‘PROPOSAL’ in the subject line or body (both have become common in spam and phishing emails). Importantly, the algorithm learns to identify spam by analysing your actions, and therefore organically adapts its rules to maximise its accuracy. This process is best known as machine learning.
Investment decisions and machine learning The use of machine learning can be synthesised into two discrete fields, namely classification and regression. The output of classification is generally binary i.e. ‘yes‚’ or ‘no’ but can be extended to categorical classification, such is the case in alphanumeric character recognition. This is how automatic number plate recognition works. Regression would consider forecasting continuous numbers (such as rainfall or temperatures) and generally can be used with data that are indexed by time. The biggest difference is that classification is generally found to be more accurate than regression-based time-series prediction. Obviously, it would be wonderful to be able to predict the direction of the JSE or yields in government bonds, but the current set of tools available have limited predictive ability (if it weren’t the case, there would be a few more millionaires walking around). There is however benefit in converting time-based questions into classification problems. Consider multi-managed multi-asset class funds. There are two sources of return or alpha for such a fund. The first is strategic asset allocation, which involves determining the optimal weights in different asset classes that will translate into the highest risk-adjusted return. The second and equally important source of alpha is manager selection, requiring the ability to identify managers that are best placed to exceed their respective benchmarks. We have found that machine learning can assist in finding the best managers. But first, let’s frame the problem.
Arthur Samuel, a pioneer in the field of computer gaming and artificial intelligence, is credited with the popularisation of the term ‘machine learning’ where he defined it as ‘the field of study that gives computers the ability to learn without being explicitly programmed’. Given that machine learning is all around us, why isn’t it applied to investments? We at 27four believe the question should be phrased differently. Instead of asking why, the real question is ‘how?’
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How do active managers perform? For the purposes of illustration, consider the figure below that describes South African general equity manager aggregate performance from 2009 to 2019. The figure shows excess performance over the SWIX/Capped SWIX benchmark over a 1, 3 and 5 year period. For example, the maroon bar for 2009 implies only 30% of managers outperformed the benchmark
while in 2018 almost 70% successfully outperformed the benchmark over a one-year period. Turning to the green bars for the same years, only 23% of managers outperformed over a full five-year cycle from 20052009 while 31% outperformed the benchmark over the 2014-2018 period. The respective averages of the discrete periods considered are shown in table 1.
Figure 1: Percentage of active equity managers that outperform the SWIX / Capped SWIX benchmark Active Manager Performance - Percentage > Benchmark 70% 60% 50% 40% 30% 20% 10% 0% 2009
2010
2011
2012
2013
1 Year
2014 2 Year
2015
2016
2017
2018
2019
3 Year
Table 1: Average equity manager outperformance over the SWIX / Capped SWIX benchmark
Period
Percentage > Benchmark
1 Year
35,59%
3 Year
25,33%
5 Year
19,87%
The results provide evidence in favour of the commonly quoted adage that the majority of active managers fail to outperform their respective benchmarks over longholding periods. The results show that over a typical investment cycle of 5 years, only 20% of active managers actually outperform the benchmark on average. Therefore, the best option for any investor or multimanager would be to just buy the benchmarks via a passive tracker fund. Such a conclusion is logical but heavily contingent on the assumption that the 20% of managers that outperform their benchmarks are unidentifiable. But what if machine learning can be used to identify the minority of active managers that will deliver alpha?
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A classification problem Identification of managers that will outperform their respective benchmarks can be articulated as a ‘classification’ machine learning problem. Simply put, by using a number of explanatory variables (or ‘features’ as used in the machine learning lexicon), can we determine which managers have a higher probability of outperforming the benchmark? Let us consider a number of attributes that we would focus on as investors when evaluating managers, such as: • • • • • • • • •
Historical cumulative performance Risk-adjusted performance Performance consistency Style Proportion of return explained by style vs. manager skill Tracking error Active share (off-benchmark share bets) Active sector (off-benchmark sector bets) Concentration of small capitalisation and illiquid holdings
Theoretically, we could rank managers using the above set of attributes by assigning an equal weight to each. This simple heuristic makes sense but fails to determine which attribute is most important and whether the current combination of attributes has predictive power. Machine learning solves this by optimising the weight of each attribute based on which contribute most to future performance. Mathematically, the problem can be expressed as
perft = w1F1,t-1 + w2F2,t-1 + ...+ wnFn,t-1 Where perft is future performance of a manager, Fn represents each attribute and wn represents the weight or importance of each attribute. The objective of any machine learning algorithm is to optimise wn in order to determine perft with the highest level of accuracy.
Figure 2: Manager attributes Manager Attributes
1,0
0,8
0,6
0,4
0,2
0,0 A1
A2
A3
A4
A5
A6
A7
A8
A9 A10 A11 A12 A13 A14 A15 A16 A17 A18 A19 A20 A21 A22 A23 A24 A25 A26 A27 A28 A29 A30 A31 A32 A33 A34 A35 A36
Figure 2 shows an excerpt from the 27four machine learning model that considers ten managers, two of whom outperform the benchmark (blue and maroon stars), across 36 attributes. The purpose of a machine learning algorithm is to detect a pattern across the
features that best predict which managers have the highest probability of outperforming the benchmark. One can then use the model to determine a prediction for each manager, in the form of a probability of outperforming the benchmark. 61
Machine learning output Going into the details of each machine learning model available is well beyond the scope of this article, however, we have found that on average, we can predict with an accuracy of around 65% - 75% whether a manager will outperform the benchmark over the next twelve to eighteen months. Generally, it is best practice to utilise multiple machine learning models to define a composite machine learning score. Typical output is described in figure 3 that follows.
Figure 3: Machine learning output Machine Learning Output
Prob. % of outperforming benchmark
100%
80%
60%
40%
20%
0% Top Man. 1
Top Man. 2 Logistic
Top Man. 3
Top Man. 4
Top Man. 5
RandFor
The figure describes output of each machine learning model applied and depicts the top 10 managers based on a composite score across the five models. This method is not only beneficial for arriving at a short-list of managers but can be used to evaluate a current portfolio by ascertaining the combined probability of exceeding the benchmark. Therefore, we now have the ability, with a high level of accuracy, to determine which managers will add the most value to a portfolio by generating benchmark beating returns.
Conclusion In summary, even though the adoption of machine learning in the investment space has been relatively slow, there are very clear benefits to its application. We find the biggest benefit to be the ability to bridge the gap between passive investing and active management. It is certainly true that the majority of active managers underperform the benchmark, but machine learning
SVM
Top Man. 6
Top Man. 7
LightGBM
Top Man. 8
Top Man. 9
Top Man. 10
Catboost
provides the ability to rank managers based on a scientifically based prediction of their future performance. Therefore, machine learning provides tools for identification of the minority of active managers that can truly add alpha. An additional, and very important, advantage of machine learning is that the biases that limit our decisions as humans can be identified and avoided. There is obviously no absolute certainty in the outcome of any methodology. But accuracy rates in the region of 70% are very promising, especially when considering the rate of progress in both machine learning algorithms and technology. In the near future, we envision that accuracy rates could increase by an additional 10% to 20%, meaning that the science of selecting managers is indeed a science and not just an art. Watch this space!
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6
Clean water & sanitation
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Public markets
B-BBEE scorecard Section highlights
10
44%
34%
Of firms are EMEs
Of firms are QSFIs
22% Of firms are large
Reduced inequalities
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a. Affidavit or B-BBEE verification certificate submitted 31.25%
Just over two thirds of asset managers submitted affidavits indicating that the dataset is largely made up of EMEs and QSFIs.
68.75%
Affidavit Verification Certificate
b. Classification by revenue 100% 90% % of firms
80% 70%
48.57%
43.75% 34,29%
How participants are classified in terms of B-BBEE sheds light on the relative strength and size of black-owned asset management firms. Under the FSC, an EME, QSFI and Generic enterprise is classified as follows:
60% 50% 40% 30%
17,14% 34.29%
34.38%
20% 10%
17.14%
21.87%
2019
2020
EME
Total annual revenue of up to R10 Million
QSFI
Total annual revenue of more than R10 Million but less than R50 Million
Generic Total annual revenue of more than R50 Million
0%
EME QSFI Generic (Large)
There has been little movement between the three revenue bands in the year that has passed. There are currently only seven firms in this segment who generate annual turnover greater than R50 Million, another confirmation that the industry is made up of a handful of large managers and a long tail of mid-sized and small managers.
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c. B-BBEE contribution level 60%
% of firms
50%
50.00% 46.88%
40% 30% 20% 37 10% 3.13%
0,00%
0,00%
0,00%
0,00%
0,00%
0,00%
3
4
5
6
7
8
NonCompliant
0% 1
2
Under the FSC an EME or QSFI which is 100% blackowned qualifies for elevation to a level one contributor and an EME or QSFI that is at least 51% black-owned qualifies for elevation to a level two contributor. Given that 78% of this universe is classified as an EME or QSFI it is understandable that most managers hold level 1 and 2 ratings. Hence the outlier with a level three rating must be a large enterprise.
sector remains stubbornly low relative to other sectors (24,75% relative to national average of 29,66%). In fact, black ownership in the financial sector appears to be decreasing annually in comparison to other sectors that have witnessed an increase, indicating that a lot more work needs to be done to transform the sector.
According to the annual report published by the B-BBEE Commission in 2020, black ownership in the financial
d. B-BBEE verification There were ten firms who provided B-BBEE verification certificates and the verification agencies appointed is provided in the graph below of which AQRate is the preferred provider of this service.
Number of firms
5 4 3 2 1 0 Renaissance SA Ratings
AQRate
Premier Verification
BEE Online
Authentic Rating Solutions
Moore Stephens
Empowerlogic
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e. Generic (large) enterprise scores
B-BBEE contribution level
B-BBEE contribution level: 4 3 2 1 0 Aluwani Capital Partners
Argon Asset Kagiso Asset Management Management
Mergence Investment Managers
Prescient Investment Management
Taquanta Asset Managers
Vunani Fund Management
Sub-element scores: Socio-Economic Development and Consumer Education Vunani Fund Managers Taquanta Asset Managers
Procurement and ESD
Prescient Investment Management Skills Development
Mergence Investment Managers Kagiso Asset Management
Management Control
Argon Asset Management Aluwani Capital Partners
Ownership
0
5
10
15
20
25
30
35
40
Sub-element scores
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Under the FSC Generic entities are measured against the following scorecard:
Element
Points
Ownership
25
Management Control
20
Skills Development
20
Procurement and ESD
35
Socio-Economic Development and Consumer Education
5
Total
105
Seven out of 32 asset managers active in the public markets space are currently classified as Generic enterprises and have B-BBEE ratings of between one and three. Four of the seven managers meet the ownership target. None of the managers meet the
Management Control and the Skills Development targets. Three managers meet the Procurement and ESD target and six managers meet the Socio-Economic and Consumer Education target.
f. Board of directors 2019
Number of directors:
2020
Number of firms
12 10
10 8
8
8
7 6
6
5 4
4
4
3
3
2
2
2
1
1
1
1
1
0 1
2
3
4
5
6
7
8
9
69
Number of independent non-executive directors:
2019 2020
15
14 13
Number of firms
12 9
9 8
8
6
5 4
4
3 1 0
0 0
2
1
Exactly half of the firms surveyed have four or less directors serving on their boards. Most firms have one or two independent non-executive directors. The
3
60% 40%
42.86%
43.75%
14,28%
12.50%
2019
2020
50%-60%
60%-80%
6
5
8.56%
12.50%
22.86%
21.88%
34,29%
28.12%
34,29%
37.50%
2019
2020
40%
0
80%-100% 40%-60%
The representation of women on boards continues to disappoint in 2020. There was a marginal uptick of women participation in the 60%-80% band. It could also speak to a concerted effort amongst a few firms to
0
60%
20%
20% 0
80%
43.75% % of firms
% of firms
42.86%
1
Percentage of directors who are black female South African: 100%
100%
0
increase to two independents this year suggests a growing emphasis on enhancing governance by this pool of managers.
Percentage of directors who are black South African:
80%
4
0
0%-20%
20%-40%
60%-80%
80%-100%
achieve higher levels of gender-equity at a rate faster than is currently the case across the industry. Overall, it still appears that parity and greater levels of gender equity are far from expected targets.
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g. Ownership Black economic interest (ownership) with equivalent voting rights: 100%
80%
% of firms
50%-60% 60%
60%-70% 70%-80% 80%-90%
40%
90%-100% 20%
0% 2011
2012
2013
2014
2015
2016
Black economic interest has been steadily declining since 2011 when roughly two thirds of firms had 90% to 100% black economic interest; this figure has since halved. The steady increase in the number of firms that
2017
2018
2019
2020
have 50% to 60% black economic interest signals dilution of black ownership within the sector, indicating a rise in B-BBEE corporate transactions over the period.
Black women economic interest (ownership) with equivalent voting rights: 100% 0%-10%
90%
10%-20%
80%
20%-30%
% of firms
70%
30%-40%
60%
40%-50%
50%
50%-60%
40%
60%-70%
30%
70%-80%
20%
80%-90%
10%
90%-100%
0% 2014
2015
2016
2017
Since 2014, there have been some gains in black women ownership in the lower ownership bands. However, if we look closer at ownership levels beyond 30% we witness a declining trend. For example, in 2015, 24% of firms indicated black women ownership of more than 30% which in 2020 dropped to 22%. What is interesting and shocking at the same time is that in the financial
2018
2019
2020
sector black women ownership is the second lowest at 8.77% relative to all other sectors in the economy (BBBEE Commission, 2020). The 90-100% range remains unchanged, suggesting that there could be a glass ceiling, and this needs to be examined and shattered if any major breakthrough is to be made to achieve parity visa-vis gender equity.
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% of firms
Economic interest (ownership) of black designated groups and broad-based schemes: 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
Over 40% 30%-40% 20%-30% 10%-20% 0%-10%
2018
2019
Whilst ownership of the sector remains tightly held, 2020 data suggests that some firms have widened ownership participation to include broad-based schemes.
2020
h. Submit annual verified rating to the Financial Sector Transformation Council 100%
% of firms
21.88%
31,43%
80% 64,58%
60%
No
40% 20%
Yes
78.12%
68,57% 35,42%
0% 2018
2020
2019
The FSC requires each entity conducting a business in the South African financial sector to report annually to the FSTC on their progress in implementing the provisions of the FSC. It was pleasing to see an increase of 10% in the number of respondents who submitted their annual rating to the FSTC since the last reporting
period. The submission of data to the FSTC is important as it allows the council to collate and report transformation statistics across the entire financial sector and monitor and measure advancements made in achieving the objectives of the B-BBEE Act.
i. Transformation policy in place 43.75%
Yes No
56.25%
Just over half of this universe of asset managers have mapped out and put transformation policies in place. The benefits of having done this is that management have articulated in writing the steps they will take in achieving transformation objectives which allows them to assess gains and shortfalls and put measures in place to remedy any weaknesses identified.
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j. In respect of the Amended Financial Sector Code of 2017 100% 90%
15.63%
80%
15.63%
15.62% 31.25%
9.38%
15.62% 3.13% 53.12%
% of firms
70% 12.50%
60% 50% 40% 30%
75.00%
68.74%
81.25%
21.88%
56.25%
20% 25.00%
10% 0% Do you think that the targets are fair?
Yes
Do you think that compliance with the code should be a condition of licencing?
Do you think that specific Would you like to see the targets should be set for B-BBEE Scorecard for asset consultants? Retirement Funds become compulsory?
No Donâ&#x20AC;&#x2122;t have a view
Here we provide managers the opportunity to express their views on the FSC. Across most firms, views are positive with respect to fairness of targets and the establishment of compliance mechanisms for licencing. Setting targets for asset consultants and making the BBBEE Scorecard for Retirement Funds compulsory will
Do you think that the Financial Sector Transformation Council has been effective in monitoring and reporting on B-BBEE compliance within the sector?
progress the penetration of black-owned asset managers in the pensions industry and therefore receives a resounding vote in favour of such targets. The jury is still out with regards to the effectiveness of the FSC in monitoring B-BBEE compliance of the sector.
% of firms
k. In respect of financial sector regulation 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
Yes
12.50% 18.75%
68.75%
No 53.12%
15.63% 31.25%
Do you think that some Do you think that the new regulations have the Conduct of Financial unintended effect of Institutions (COFI) Bill will increasing the barriers to improve inclusion and entry and impede the transformation of the growth of emerging black financial sector? enterprises within the sector?
Donâ&#x20AC;&#x2122;t have a view
The key finding here is that the visible hand of the state has the potential to act as an impediment to market participation, and this has the potential to hinder attainment of B-BBEE goals and the concomitant growth of the asset management market. This will be exacerbated due to the impact of COVID-19 with possible greater barriers to participation on the horizon should there be more regulations and state involvement in the sector such as for example, the introduction of prescribed assets legislation. With regards COFI - given that it has not yet come into play and the impact is yet to be seen - the jury is out with only less than a third of asset management firms feeling positive that it will improve financial sector inclusion and transformation.
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The shift to umbrella funds does consolidation support transformation? Two important strategic objectives of the FSCA are consolidation and transformation. Specifically, the consolidation objective envisages a reduction in the number of registered retirement funds to 2001 from more than 1 4002 active funds at present. The transformation effort aims to create a retirement industry that is financially inclusive and supportive of broadening the participation of black-owned companies in the financial sector.
But can these two objectives co-exist in the current retirement fund environment? Does consolidation support or hinder transformation? We will look firstly at the consolidation of funds across the industry. Based on the latest active data listing from the FSCA, there are now just over 5 000 (from over 16 000 in 1999) funds actively registered.
Number of retirement funds
Active Registered Retirement Funds 18 000 16 000 14 000 12 000 10 000 8 000 6 000 4 000 2 000 1990
1995
2000
2005
2010
2015
2020
Source: FSCA Annual Reports
These are classified into various statuses in the table below: Fund status
Standalone
Preservation
Umbrella
Total
Curatorship
5
1
3
9
Due for cancellation
5
0
1
6
Liquidation exempted fund
58
0
0
58
Normal active fund
839
174
428
1,441
Orphaned query fund
365
0
28
393
Pending cancellation
1,570
40
137
1,747
Preliminary registered
4
9
15
28
Process of liquidation
379
2
39
420
Process of transfer (mem)
349
2
2
353
Query
504
28
121
653
1
0
0
1
4,079
256
774
5,109
Unclaimed benefit members Total Source: FSCA Active Fund list
1. FSB Bulletin 4th Quarter 2017-2018 - cover article by Olano Makhubela 2. FSCA Active Fund list
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Distilling the information and focussing on the funds in the ‘Normal active fund’ status (these are the funds that are running in a business-as-usual mode), the shift from standalone to umbrella fund is quite evident. This change has been happening at an accelerated pace over the
past decade resulting in a handful of “super” umbrella funds dominating the market. This becomes clearer when the ‘Normal active fund’ line item is broken down in terms of members and assets, as per the table below.
Fund type
Number of funds
Number of members
Total assets
Standalone
839
5,624,491
R 1,347,538,106,326
Preservation
174
1,376,365
R 237,646,627,706
Umbrella
428
8,740,277
R 1,034,290,512,317
5
1,775,215
R 315,656,461,140
423
6,965,062
R 718,634,051,177
1,441
15,741,133
R 2,619,475,246,349
- Super Umbrella* - Umbrella Total *Top 5 commercial umbrella funds by membership
Currently there are 5 commercial entities that have created “super” umbrella funds, which collectively account for approximately 1.8 million members and have in excess of R315 Billion in AUM. In the beginning, the move to umbrella fund arrangements was motivated by the following positive arguments: • economies of scale, • administration cost reduction, and • removal of the fiduciary burden on employers running a standalone fund. Open any umbrella fund brochure and these will be among the first reasons to join their fund, but these arguments are slowly being challenged. Over the period 2010 to 2019, the differential in average costs of administration between standalone and umbrella funds has been eroded. The table below shows this erosion of differential in the average cost of administration as a percentage of salary between 2010 and 2019:
Fund type
20103
20194
Standalone funds
0.90%
0.58%
Umbrella funds
0.70%
0.59%
In view of the ever changing and more complex regulatory environment facing the retirement industry, this shift to commercial funds is understandable and plausibly to the benefit of members and employers. Keeping abreast with these changes can distract employers from core business activities and so an umbrella fund provides the governance structure and the support of the sponsor to help the employer navigate the regulatory changes, relieving them of that burden. The downside, however, becomes starkly clear when one observes that the five ‘super’ funds have a total of just 35 5 trustees who are responsible for making decisions on more than R315 Billion of assets on behalf of 1.8 million employees! The transformation objective of the FSCA aims to promote financial inclusion, improve access to financial markets and broaden the participation of black-owned financial services providers across the sector. The latter is stipulated in Section 2c(iii) of Regulation 28 of the Pension Funds Act which states: “A fund and its board must at all times apply the following principles... in contracting services to the fund or its board, consider the need to promote broad-based black economic empowerment of those providing services”.
3. Sanlam Benchmark Survey 2010 4. Sanlam Benchmark survey 2019 - Megatrends presentation by Viresh Maharaj 5. Websites of top 5 commercial umbrella funds
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Retirement funds are a primary source of assets for black-owned asset managers as the retail industry is highly intermediated with high barriers to entry. Public sector and union retirement funds have been supportive of transformation imperatives and were the earliest movers to support black-owned asset managers. However, gaining access to some of the private sector retirement funds has been near impossible due to the intermediation of the “super” umbrella funds where the majority of assets are concentrated directly in the asset portfolios managed by the sponsors themselves. Umbrella funds are a form of asset gathering for such ”super” funds and diversifying to independent asset managers would dilute their AUM and by proxy their income. Hence there is no incentive for them to do so.
Couple this with 60% of consultants4 indicating that they do not consider B-BBEE when recommending service providers to boards of trustees, increasing the proportion of assets managed by black-owned asset managers is going to be an uphill battle. Over the past 5 years, the assets of 3 of the 5 super funds increased by 132%6.
2014 Fund
2019
Members
Total assets
Members
Total assets
Sanlam Umbrella Fund
117,500
15,000,000,000
230,000
35,000,000,000
133%
Old Mutual SuperFund
262,853
34,000,000,000
456,715
112,000,000,000
229%
Liberty Corporate Selection Umbrella Funds
277,697
30,067,557,153
311,655
36,600,000,000
22%
Total
658,050
79,067,557,153
998,370
183,600,000,000
132%
Over the period from 2017 to 2019, the total assets managed by black-owned asset managers across the entire savings and investments industry increased by only 39%7 and off a low base. The proportion of assets managed by black-owned asset managers within umbrella funds is insignificant (refer to section titled “Product distribution”).
% change in assets
growing compared to the growth in the proportion of these assets managed by black asset managers, would suggest that consolidation is contrary to transformation. The FSCA needs to ensure that its consolidation policy is implemented in a way that is consistent with its transformation policy.
So, does consolidation support transformation? The cost argument for moving to umbrella funds has been eroded, the responsibility for a significant portion of the economy’s savings is in the hands of only 35 people, and the rate at which the assets in commercial funds is
6. Data from annual trustee reports of 3 of the top five commercial Umbrella funds from 2014 to 2019 7. Comparison of data from 2017 and 2019 BEE.conomics Survey by 27four Investment Managers
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Public markets
Business sustainability and societal impact Section highlights
11
78%
22%
Of firms are profitable, up 10%
Of firms breakeven AUM is < R1 Billion
66% Sustainable cities & communities
Of firms procure less than 40% of services from black-owned suppliers
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Delivered three consecutive years of positive NPAT over last three financial years:
a. Business sustainability Company profitability:
100%
100% 31,43%
21.88% 80%
60% 40%
68,57%
78.12%
% of firms
% of firms
80%
42.86%
46.88%
2019
2020
40% 20%
0%
0%
Yes
53.12%
60%
20%
2019
57.14%
2020 Yes
No
No
Made an income tax payment to SARS in the last financial year: 100%
% of firms
31.43%
25.00%
No
50% 68.57%
Yes
75.00%
There was an overall improvement in all three profitability indicators for the period ending June 2020. The impact of COVID-19 on these indicators will become clearer in the next print as the effects of the pandemic sweep through the economy and the sector.
0% 2019
2020
b. Mechanism used to finance company at start-up 80% 68.75%
70% % of firms
60% 50% 40% 30% 20% 10%
9.38%
12.50% 6.25%
8,82% 3.13%
0% Traditional bank financing
Private equity and external financing
More than two-thirds of companies were financed through personal finance - either that of the founders or that of their friends and families. The data suggests
Friends and family
Development Finance Institutions (eg. NEF, IDC etc.)
Personal finance
that other avenues of raising finance appears not to have been fully explored or that asset management is not a sector which funders typically support. 79
c. Business breakeven assets under management 100% 90% 80% % of firms
70% 60%
Over R15 Billion 17.14% 2.86% 2.86% 22.86%
50%
18.75%
R10 Billion-R15 Billion
6.25% 9.38%
R7 Billion-R10 Billion
12.50% 12.50%
40%
20.00%
30%
11.43%
18.75%
22.86%
21.88%
2019
2020
R5 Billion-R7 Billion R3 Billion-R5 Billion R1 Billion-R3 Billion Less than R1 Billion
20% 10% 0%
The most stand-out movements recorded was the decline in the R3-R5 and R5-R7 Billion bands and an equipoised increase in the R1-R3 and R7-R10 Billion bands. Breakeven AUM is largely dependent on the product offering of the asset manager as some offerings
are less resource intensive than others. Seventy five percent of firms breakeven AUM is below R10 Billion of which 22% are able to reach profitability managing less than R1 Billion in AUM.
d. Number of new permanent jobs created over the last 12 months
Number of permanent jobs created
120
2020
100
100
2019
80 60 40
40 20 0 -20
-4
-6 Loss
There was a net recorded gain in new jobs over the period. However, this gain was offset by the net loss of five firms exiting the survey, therefore showing a decline in jobs for the overall sector. The negative impact of COVID-19 on the sector may lead to job losses as firms implement cost containment measures to navigate the uncertainty of earnings.
Gained
Offer learnership programmes for black people: 100%
Yes
90% 80% % of firms
70%
No 51.43%
59.38%
60% 50% 40% 30% 20%
48.57%
40.62%
10% 0% 2019
2020 80
Number of black people absorbed at end of learnership programme: 4
Number of firms
4 3
3
3 2
2
1
1 0
0 0
1
2
These figures disappoint somewhat, with the number of firms offering learnerships down in 2020. This should not come as a surprise given the small size of most survey participants. Only a handful of asset managers generate turnover of more than R50 Million which is when skills development requirements become more stringent under the FSC. Also evident is that not all the
0
3
4
5
6
firms that ran learnership programmes absorbed such learners into full time employment. The financial strain thrust upon firms by COVID-19 may discourage companies from running such learnership programmes at a time when the country so desperately needs more of them.
e. Percentage of total procurement spend from more than 51% black-owned and/or 30% black women-owned businesses 100%
% of firms
80%
8.57%
9.38%
14.29%
60%-80% 25.00%
17.14% 60%
80%-100%
12.50%
40%-60% 20%-40% 0%-20%
40% 60.00%
53.12%
20% 0% 2019
2020
Fifty three percent of respondents sourced less than one-fifth of their procurement from black-owned businesses, evidencing a small improvement from 2019. Asset managersâ&#x20AC;&#x2122; largest procurement spend include international data vendors, fund administrators, auditors, technology, and compliance service providers. It is unfortunate that many of the providers of these services
are untransformed with international companies such as Bloomberg and Reuters not having a local equivalent. Firms can do a lot more to shift their procurement away from untransformed suppliers and can start by issuing notices to their current suppliers to improve their BBBEE status.
81
f. Percentage of total stock brokerage spend with more than 51% black-owned stockbrokers
% of firms
100%
80%-100% 11.42%
80%
14.29%
60%
28.57%
15.63% 15.63% 25.00%
60%-80% 40%-60% 20%-40% 0%-20%
40%
18.74%
22.86%
20% 22.86%
25.00%
2019
2020
0%
Fifty six percent of firms procured more than 40% of their brokerage spend from stockbrokers that are more than 51% black-owned. It is disappointing that 25% of firms allocate between 0% and 20% of their brokerage spend to black-owned stockbrokers of which there is no shortage and who face similar challenges in securing market share as those surveyed.
g. Enterprise and supplier development Company is a recipient of ESD contributions made by another measured entity: 12.50%
Yes No
There are currently four managers (EMEs and QSFIs) in this dataset who are recipients of enterprise and/or supplier development contributions from other measured entities (generic) within the sector.
87.50%
Company contributes to ESD:
How the company contributed to ESD:
34.38%
36.36%
Contributed to third party managed ESD fund
Yes No
Managed the ESD programme internally 65.62%
63.64%
82
Eleven asset managers currently contribute to enterprise and/or supplier development initiatives to meet their respective FSC targets. Of these eleven firms, four outsourced the contribution to externally managed ESD funds and seven managed the contributions internally.
Training and mentoring to ensure sustainable business capacity to qualifying entities
Development of manufacturing capacity and expertise to locally produce goods to qualifying entities
Contributions made towards cost of services to qualifying entities
Preferential terms granted to qualifying entities
Extended credit facilities to qualifying entities
Invested in qualifying entities
Provided grant funding to qualifying entities
Number of firms
Bulungula Incubator
IDF Capital ESD
Enterprise Room
Anela
Spartan
Inyosi ESD Funds
Sefa
Awethu Project
Raizcorp
ASISA ESD Fund
SAICA Enterprise Development
Black Umbrellas
Number of firms
ESD funds used: 3
2
1
0
Allocation of internally managed contributions:
4
3
2
1
0
The decision on whether to manage the contributions internally or outsource this function is dependent on capacity and resources, wanting control over the process and fees.
83
h. Socio-economic development Support SED initiatives: 100%
Yes
90% 80%
No
43.75%
48.57%
% of firms
70% 60% 50% 40% 30%
51.43%
56.25%
2019
2020
20% 10% 0%
Social sectors supported: 100% 90% 80% % of firms
70% 60% 50% 40% 30% 20% 10%
Food security
Disaster relief
Non-sector specific donations and grants
Social and community development
Sports
Health
Arts and culture
Fifty six percent of firms contribute to SED, marginally increasing in 2020. This spend is, not surprisingly, dominated by education followed by community development, small business support, sport, disaster relief and arts and culture. The other sectors do not
Entrepreneur and small business support
2020
Environment
2019
Education
0%
receive much support. The emergence of COVID-19 may see a shift in expenditure towards healthcare, whilst at the same time the overall spend on SED may likely be affected by cost containment measures particularly in the short to medium-term.
84
i. Consumer financial education Mediums utilised:
100%
100%
80%
80%
60%
71.88% 82,86%
40% 20%
28.12%
% of firms
% of firms
Offer consumer financial education:
33.33%
22.22%
60% 40% 66.67%
77.78%
20%
17,14% 0%
0% 2019
2019
2020
Yes
2020
Interactive face-to-face training through courses and workshops
No
Awareness through the provision of information through print and other mediums There was a small improvement in the number of companies providing consumer financial education, however the overall statistic remains low (72%). This is disappointing given the abysmal state of South African consumersâ&#x20AC;&#x2122; financial, especially investing, literacy. What is also worrying is that the current allocation towards consumer financial education may be slashed in the wake of cost containment measures applied to withstand the financial shock of COVID-19 on businesses.
courses and workshops. There are many practical ways in which asset managers can provide financial education while building their brands and bringing their products and services to the attention of potential customers. Such methods would have to be further explored - moreso in the context of a COVID-19 social-distancing environment.
Of the 28% who do offer consumer financial education, this is largely executed through face-to-face training
j. Offer products that target the LSM 4, 5, 6 market 100%
Yes No
80% % of firms
62.86%
65.63%
60% 40% 20%
37.14%
34.37%
2019
2020
0%
Thirty-four percent of companies offer products which target the LSM 4, 5 and 6 economic groups. Targeting these economic groups will prove to be an even greater challenge given the yet unfolding financial, economic and social impact of COVID-19 across all sections of the population, and more so to these economic groups which could see a decline in household income as well as employment levels.
85
Produce marketing literature in any of the other official languages outside of English: 100% 90% 80% % of firms
70% 60% 50%
100.00%
100.00%
2019
2020
40% 30%
Curiously, none of the firms translate any of their marketing material and product information in other languages. This could be produced, and used, very inexpensively, on social media, for instance. Such efforts may widen the appeal of asset managersâ&#x20AC;&#x2122; products and improve distribution and profitability.
20% 10% 0% No Yes
k. Wholly acquire or invest in another company 100%
No Yes
% of firms
80% 60%
83,33% 88,57%
88,89%
93.75%
40% 20% 11,11%
16,67%
11,43%
0% 2017
2018
2019
6.25%
2020
Historically, this segment of managers has not engaged in M&A activity. This may however change as the impact of COVID-19 is felt across the sector. Investor behaviour is also changing, with an increased focus on unlisted investments, rules-based investing, global, impact and ESG investing. This may potentially result in corporate activity focused around products, skills, the objective of achieving scale and being better positioned to meet such changing investor demand.
86
Public markets
Team 5
Section highlights 503
21%
Total number of people employed, down 14% since 2017
Of portfolio managers are women
PRIORITY Improving gender representation is a top talent management priority for firms
Gender equality
87
a. Total number of people employed
Total number of employees
700 586
600 500
534
503
466
400 300 216 200
563
299
273
239
332
346
2014
2015
152
100 0 2009
2010
2011
2012
2013
Employment in the public markets space peaked in 2017 and has been in decline since despite the increase in the number of participating firms and AUM. The asset management industry is one that is built for scale and so an increase in AUM does not necessarily translate into job creation as growth in existing products often is less expensive to maintain.
2016
2017
2018
2019
2020
For start-up asset managers there is a fine line to balance between over-extending the business too soon and retaining skilled capacity to deliver. In the current COVID19 environment businesses are primarily focussed on maintaining financial stability through cost containment measures without being overleveraged.
b. Demographics of all employees 140
127
90
80
70 60
60 41
40
45 35 20
20
10
5 Non-SA Female
100
Non-SA Male
Number of employees
120
Encouragingly, women are well represented in the industry, certainly at black asset managers, making this one of the most progressive sectors. The industry employs a total of 247 women and 256 men, with women representing almost half of the workforce. Promising as this is, women participation at ownership level and
SA Female White
SA Female Coloured
SA Female Indian
SA Female African
SA Male White
SA Male Coloured
SA Male Indian
SA Male African
0
on the boards of black-owned asset managers remain low. It may help if companies put gender diversity targets in place aligned to the FSC. Gender representation has become an expectation across all industries and failing to make progress in this area could cost asset managers potential clients. 88
Portfolio managers with five or more yearsâ&#x20AC;&#x2122; experience in managing money:
160 138
140
132
Total number of portfolio managers
Total number of portfolio managers
c. Total number of portfolio managers
120 100 80 60 40 20 0 2019
2020
140 115
120
112
100 80 60 40 20 0 2019
The decline in the number of portfolio managers is correlated to the overall decline in the number of people employed within the sub-sector. There were five exits and two new entrants to the survey which also explains the decline.
2020
Eighty five percent of portfolio managers have been managing money for at least five years.
Demographics of portfolio managers:
Number of portfolio managers
40 35
35 30
28
25 21 20 15
15
13
10
7
5 5
3
4 1
Women represent just 21% of all portfolio managers. In recent years there have been several published studies demonstrating the benefits of gender diversity in the context of the delivery of superior investment returns. Women representation within asset management has historically been reserved for the back office as opposed
Non-SA Female
Non-SA Male
SA Female White
SA Female Coloured
SA Female Indian
SA Female African
SA Male White
SA Male Coloured
SA Male Indian
SA Male African
0
to the front office. However, allocators of capital are utilising diversity metrics in their selection of asset managers and therefore challenging the industry to become more representative. We therefore hope to see future improvement in these statistics.
89
d. Total number of investment analysts
Total number of investment analysts
160
The impact of the fall in overall jobs was hardest felt by analysts (down 12%) as opposed to portfolio managers. The ratio of analysts to portfolio managers has dropped since last year and will have to be monitored closely to ensure that the talent pipeline and succession planning remains firmly on track and is not in fact a sign of decline.
138
140
122
120 100 80 60 40 20 0 2019
2020
Demographics of investment analysts: 40 35 33
30 25 19
20 15
8
7
3
5
6 1
1 Non-SA Female
9
10
Non-SA Male
Number of investment analysts
35
Women currently represent 42% of the analyst pool which is double the composition of women in portfolio management. The data intimates a bottleneck for women transitioning from analyst to portfolio manager
SA Female White
SA Female Coloured
SA Female Indian
SA Female African
SA Male White
SA Male Coloured
SA Male Indian
SA Male African
0
and requires the industry to take a closer look at their talent management efforts and seek mechanisms which promote the advancement of gender diversity in professional roles.
90
e. Founders of the firm
% of firms
Number of founders: 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
14.29%
19.35%
20.00%
9.67%
5 and more 4
25.71%
3 2
29.03%
1 40.00%
41.95%
2019
2020
Total economic interest (ownership) of founders: 14 12
Number of firms
12 10
10
12
2019 2020
10
9
8
7
6 4
4 3
2 0 0% to 25%
25% to 50%
50% to 75%
75% to 100%
91
Total economic interest (ownership) of employees outside of founders: 30
28
2020
23
25 Number of firms
2019
20 15 10
8 6
5 1
1
0
0 0% to 25%
25% to 50%
Equity remains tightly held by the founders of the firms which in 80% of firms represent no more than four individuals. There has been some dilution in favour of employees over the reporting period. At 72% of firms, employees hold less than 25% of shares. There is one company in the dataset where employees now hold more than half of the equity in the business. With an
50% to 75%
0
75% to 100%
expectation of an increase in M&A activity spurred by COVID-19 we could potentially see a different trend emerge. However, it is unlikely for the founders of these businesses to step away entirely given that many of them play the role of key decision maker in the management of portfolios.
% of firms
f. Employees invested in the firmâ&#x20AC;&#x2122;s own products 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
37.50%
22.50%
26.67%
25.00%
22.86%
15.62%
77.50%
73.33%
75.00%
77.14%
84.38%
2016
2017
2018
2019
2020
No Yes
45.45%
62.50%
2014
54.55%
2015
This percentage continues to inch upwards with 84% of teams trusting their investment strategy with their own money, Skin in the game is important as it demonstrates confidence to investors that asset manager interests are aligned to theirs.
92
% of firms
g. Members of team who are CFA charterholders 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
5 and more 4 3 2 1 0
2019
2020
In more than half of firms there are one or no CFA charterholders. Whilst these statistics continue to disappoint, they also insinuate that the industry and the demand side is changing and that the type of skills required for the future is different to the past. The rising
dependence of the asset management industry on data science may suggest that the future represents a medium where traditional financial analysis intersects with data science.
h. Top 3 talent management priorities 30 Number of firms
25 20 15
11,43%
10 5 0 Improving employee retention
Hiring more technologically savvy employees
Creating a more inclusive culture
Increasing gender representation
Increasing headcount
Increasing black representation
Nr 3 Priority Nr 2 Priority Top Priority At a glance the key priorities emerging is meeting diversity and inclusivity objectives, improving employee retention followed by the hiring of tech savvy skills to harness the influence and advancements in technology. Talent management is the most important priority in any asset management business and so attracting and retaining the best and brightest minds helps firms stay
ahead of the competition. The industry is also rapidly changing and becoming dependent on a range of competencies which include both traditional and technology-based skills and so achieving the right mix of talent will successfully position firms for the future.
93
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94
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Life below water
95
Regulations all asset managers need to be aware of All asset managers, big and small, adhere to the same set of regulations - regulations which have materially evolved over the last decade. South Africa, like many other countries globally, have gone through a process of financial sector reform following the global financial crisis of 2007 and in 2017, passed the Financial Sector Regulation Act adopting the Twin Peaks framework of financial sector regulation. This gave birth to the establishment of two new regulatory bodies for the financial services sector: the Prudential Authority (PA) and the Financial Sector Conduct Authority (FSCA). The
PA, as ‘Peak One’ is responsible for creating and enforcing regulations, aimed at ensuring the soundness of our financial institutions. The FSCA, as ‘Peak Two’ is responsible for preventing financial misconduct and protecting consumers of financial products and services. The reformed regulatory oversight of licensed financial services providers in South Africa is rapidly taking shape. Here, we summarise the most significant elements of the regulatory framework asset managers need to be aware of.
Regulation
Description
Status
Regulation
Description
Status
Conduct of Financial Institutions (COFI) Bill
The COFI Bill outlines what customers and industry players can expect of financial institutions and aims to streamline the legal framework for the regulation of the conduct of financial institutions and to give legislative effect to improving market conduct and customer protection.
The revised Bill has been submitted to Cabinet. The next iteration of the COFI Bill is expected to be published for public comment during the third or fourth quarter of 2020.
ASISA Retirement Fund Standard, Effective Annual Cost (EAC) for Individual Fund Members
Standardised retirement savings cost disclosure methodology.
Standard was approved in May 2019 and comes into effect 1 October 2020.
Protection of Personal Information Act (POPIA)
The Protection of Personal Information Act 4 of 2013 gives effect to section 14 of the Constitution which provides that everyone has the right to privacy. The Act promotes the protection of personal information processed by public and private bodies and seeks to balance the right to privacy against other rights, such as access to information.
All institutions that process personal information are required to be POPIA compliant by 1 July 2021.
Financial Consumer Education Initiatives
The FSR Act extended the jurisdiction of the FSCA to protect financial customers by providing them with financial education programmes, and to promote financial literacy and sound financial decision making.
Discussion document published in June 2020.
Environmental, Social and Governance (ESG)
The FSCA has affirmed its commitment to refining the regulatory framework relating to issues of sustainability in consultation with industry players.
The expectation is that the final set of requirements, in relation to ESG, will be incorporated into prudential and/or conduct standards in future.
COFI will also require financial institutions to have policies in place to comply with the Financial Sector Code. The supervision of institutions’ implementation of policies will be undertaken by the FSCA. The expectation is that the FSCA will be empowered by COFI to issue penalties, with financial and/or license impact, to institutions that breach transformation principles and requirements. Prudential Authority’s transformation mandate
The PA has a clear mandate to advance financial inclusion, competition and transformation under the provisions of the Insurance Act.
Insurance Act has been signed into law. Prudential supervision of the asset management sector will be further expanded in the near to medium term.
Third party risk management
The FSCA and the PA are in the process of developing a Joint Standard relating to outsourcing. The Standard is largely based on the current prudential outsourcing standard with respect to the outsourcing of material, management and control functions, but has been amended to incorporate various conduct specific requirements.
Joint standard effective date unknown. The PA has considered the draft standard and discussions are on-going between the FSCA and PA on the way forward.
Retail Distribution Review (RDR)
In December 2019, the FSCA published an update and it is clear from this paper that there has been a lot of progress made even though there are still a number of proposals that have not been finalised.
Update is expected in 2020 regarding the proposals for ‘Advisor Categorisation’ and ‘Investment-related matters’.
96
Public markets
Compliance and operations 4
Section highlights 81%
PREFERRED
Of firms outsource compliance
Maitland Fund Services is the most preferred fund administrator
19%
50%
Of firms have an internal audit function
Of firms hold < R20 Million Crime and Civil Liability cover
16% Of firms are covered for cyber risk
Quality education
97
a. Licenced by the FSCA 0,00%
For the second year running all of those surveyed hold FSCA licences. In the past we have seen companies using otherâ&#x20AC;&#x2122;s licences, which is not considered best practice. Specifically, start-ups had gone out to raise capital, before obtaining their licences. It is encouraging to see that the 100% record has remained consistent.
Yes No
100,00%
Number of firms
b. Number of key individuals on FSCA licence 20 18 16 14 12 10 8 6 4 2 0
18
12 10 8 4
4
3
1
1 2019
7
2
3
4
5
Over 5
Number of key individuals
2020 While the majority of firms have one or two key individuals on their FSCA licence, it is encouraging to see that the number per firm has increased compared to the previous survey. Key individuals have a number of responsibilities including exercising executive control for the activities of the business as well as the fiduciary responsibility of treating customers fairly. These responsibilities must be executed with the necessary
care, skill and diligence. With several key individuals, it is more likely that the asset manager will follow best practice in terms of governance and accountability, since more people are responsible for executive decisions. Given the size of the businesses, it is understandable that the numbers are low, but it is encouraging to see a shift in the right direction.
98
c. Hold licences with regulators outside of South Africa 100% 90%
No
80%
Yes
% of firms
70% 60%
82.86%
84.38%
17.14%
15.62%
2019
2020
50% 40% 30% 20% 10% 0%
Number of firms
Regulators outside South Africa Central Bank of Ireland
1
Central Bank of Lesotho
1
Financial Services Regulatory Authority (eSwatini)
2
Namibia Financial Institutions Supervisory Authority
2
Non-Bank Financial Institutions Regulatory Authority (Botswana)
1
Qualified Foreign Investor (QFII, China)
1
The percentage of companies that operate internationally remains low and has seen a marginal decline to approximately 16% from 17% on the previous year. This reflects a continued, and perhaps increased focus on the domestic market. The low numbers are
not surprising, as global expansion requires mature strong balance sheets. There is clearly much work to be done by black-owned asset managers when it comes to playing in the international market.
% of firms
d. Compliance officer 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
12.50%
15.62%
17.07%
11.11%
8.33%
14.29%
91.67%
85.71%
81.25%
2018
2019
2020
18.75%
Internal 87.50%
84.38%
82.93%
88.89%
2014
2015
2016
2017
External
99
External compliance officers
Number of firms
Compli-Serve SA
4
The Corporate Counsel
1
eComply
5
Independent Compliance Services
10
Moonstone Compliance
4
Outsourced Compliance Services
1
Simply Comply
1
Our 2020 survey shows an increase to 19% of companies with internal compliance officers, a 4% improvement since 2019. The low percentage of black-owned asset managers that have internal compliance officers is consistent with the make-up of this universe of managers where the large managers with scale and multiple licences have appointed full-time compliance officers whereas the smaller managers have outsourced this function.
Managers seeking to transform their supply chains do not have many options as there are a limited number of black-owned external compliance officers, reflecting a potential black skills deficit in the compliance officer profession. Managers who do outsource their compliance function to such untransformed firms should push for greater diversity in the teams that service them.
e. External auditor
External auditors
Number of firms
BDO
4
Certified Master Auditors
1
Deloitte
4
Exceed Johannesburg
1
EY
1
Integritas Auditors & Chartered Accountants
1
KPMG
2
Mazars
3
Moore
1
Nexia SAB&T
1
PKF
1
PwC
2
Reliable Accountants
2
RSM
1
RWFC
1
SNG Grant Thornton
6
SNG Grant Thornton remains the single largest appointed auditor in the black-owned asset management segment. New entrants to this list include EY and Integritas Auditors & Chartered Accountants. Smaller firms are fee sensitive and seek to achieve an optimal balance between costs, auditor reputation and capability as well as meeting their preferential procurement objectives. There has been a steady decline in the use of the big 4 following a number of high-profile corporate scandals. The asset management sector should lead by example and apply the same ESG principles to which they hold investee companies accountable when it comes to audit tenure and the independence of audit partners.
100
f. Internal audit function Companies who have an internal audit function:
Responsibility of internal audit function: 33.33%
18.75%
Company employee/s
Yes No
External firm
81.25%
66.67%
At present only six firms have a dedicated internal audit function and two of these firms outsource this function to an independent external third-party auditor. The role of internal audit is to provide independent assurance that an organisation's risk management, governance and internal control processes are operating effectively.
This is an important function for businesses that are rapidly growing as it helps to provide the board and senior management with insight to improve and enhance operational processes.
g. Fund administration 100%
5,71%
90%
12.50%
80% % of firms
70% 60% 50%
94,29%
40%
87,50%
30% 20% 10%
External fund administrators
Number of firms
Curo Fund Services
2
Global Administrators
1
Maitland Fund Services
13
Prescient Fund Services
10
Sanne Group
2
0% Internal
2019
2020
External 2020 has seen a marked increase in the internal administration of funds by asset managers. In general, the outsourcing of this responsibility is considered international best practice. Independent administration mitigates the likelihood of potential conflicts of interest arising between fund management and portfolio valuation providing clients with confidence in the integrity of such valuations. Small asset managers in particular would be better served by focusing on their core competencies and avoid the distraction of the resource intensive task of fund administration.
The concentration of the fund administration sector has unfortunately not improved since our last report. It is to be expected that greater competition in this area would lead to better pricing and quality of service. Globally, fund administration services have extended beyond the provision of portfolio valuations to include investment risk analytics, back-and-middle office support and regulatory reporting. The South African market is ripe for disruption from new entrants in this space.
101
h. Crime and civil liability and directors and officers liability insurance
% of firms
Firms holding cover: 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
31.25%
10.00%
6.67%
2.08%
90.00%
93.33%
97.92%
2016
2017
2018
25.81%
68.75%
74.19%
2014
2015
100.00%
100.00%
Yes
2019
2020
Crime and Civil Liability
Directors and Officers Liability
AIG
7
5
Camargue
6
6
Hollard
3
3
Lombard Insurance
2
0
Marsh
1
1
Mutual and Federal
1
1
Santam
5
6
Southern Cross
0
0
Stalker Hutchison Admiral
5
5
Zurich
2
2
Insurance providers
The two consecutive years of 100% compliance in terms of insurance cover is good news. In previous years we have noted that several start-ups only bought insurance after they had raised AUM. On the downside, there are still no black-owned insurers that asset managers can
No
turn to. Insurance pricing remains stubbornly high. We believe this is an area that the authorities should pay attention to, with the aim of promoting greater competition and diversity in the industry.
102
Rand value of annual cover: 100% 90%
3.13% 6.25% 3.13% 6.25%
80% 12.50%
3.45%
>500m
R50m - 100m
6.90% 3.45% 3.45%
R400m - 500m
R20m - 50m
R300m - 400m
R10m - 20m
10.34%
R200m - 300m
R1m - 10m
R100m - 200m
70%
% of firms
13.79% 60%
18.75%
50% 9.38%
20.69%
40% 30% 20%
40.63%
37.93%
Crime and Civil Liability
Directors and Officers Liability
10% 0%
In previous editions we focused on the level of insurance coverage as a percentage of firm AUM and grouped firms, based on their cover, within bands of 0%-2%, 2%4% and >4%. However, the bands were too wide and did not provide sufficient insight into the level of cover held by the dataset. Many firms grapple with determining what insurance coverage they should have given the limited guidance provided by insurance companies and the regulator. We hope that by publishing the Rand value of cover held by this group of managers it will serve as an industry benchmark against which firms can measure themselves. A key observation from the data is that managers hold different levels of cover for the two types of insurance. Around 40% of firms hold the minimum cover as is required by the FSCA. A little under 20% of firms hold more than R100m cover across both insurance categories.
i. Cyber risk insurance Firms holding cover: 100%
No
90%
Yes
80% % of firms
70% 60%
80.00%
84.38%
Insurance providers
50%
Number of firms
40%
ITOO
2
30%
Camargue
2
Allianz Global Corporate and Specialty SA
1
20% 10%
20.00%
15.62%
2019
2020
0%
Our previous report identified the emergence of cyberattacks as a major threat facing financial institutions. Unfortunately, the companies surveyed this year indicate a decrease in the number of firms who have cyber-risk insurance - down by almost 5% from the already low base of 20%. Having adequate measures in place to
prevent and respond to cybersecurity breaches should be a priority especially as the use of data and technology solutions expand. Hence the decline is disappointing. Possible reasons for the trend may include a lack of awareness of the risk, and possibly the expense of this type of insurance cover.
103
Rand value of annual cover: 100%
R50m
90%
R10m
80% % of firms
70%
R1m
60.00%
60% 50% 40% 30%
20.00%
20%
Of the five managers who have cyber cover, three hold cover of R50 Million, one has cover of R10 Million and the other has R1 Million cover. Such insurance should be correlated to the size of business, data use and technology infrastructure. In the event of a cyber incident the severity of a data breach could be disastrous for the reputation of a firm and could potentially lead to client losses and therefore should be taken much more seriously.
20.00%
10% 0%
Cyber Risk
Where in your organisation’s ecosystem do you see the greatest cyber security threat? 27.27%
Internal infrastructure Third parties (administrators, custodians etc.)
This result seems to indicate that most asset managers consider the risk to be “somebody else’s problem”. This could explain the low levels of cover taken out by the companies surveyed. It is our view that everyone is vulnerable to cyber-attacks, and that this segment of managers is overlooking an important aspect of their risk management policy.
72.73%
% of firms
j. Regulation 28 compliance 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
Internal 37.50%
62.50%
2014
40.63%
59.38%
2015
42.11%
57.89%
2016
37.84%
40.00%
34.38%
62.16%
60.00%
65.63%
2018
2019
2020
External
53.33%
46.67%
2017
104
External Regulation 28 verifiers
Retirement funds are required to demonstrate compliance with prudential limits under Regulation 28 of the Pension Funds Act. Asset managers managing compulsory savings are therefore responsible for collating data, monitoring, and identifying breaches. This function is either conducted in-house by the asset manager or outsourced.
Number of firms
Moonfire Technology
1
H4 Collective Investments (RF)
1
Proprietary Limited Independent Compliance Services
1
Maitland Fund Services
6
Prescient Fund Services
10
Sanne Group
2
As most fund administrators offer Regulation 28 compliance reporting as an add-on service to asset managers, most companies outsource this function, where it is cost-effective to do so. Outsourcing this responsibility appears to make business sense for over 65% of respondents, and this figure has increased since last year.
% of firms
k. In-house versus outsourced functions 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
28.12% 56.25%
62.50%
56.25% 96.88%
90.60% 71.88% 43.75%
37.50%
43.75% 3.12%
9.40% Human resources
Payroll
IT
Accounting
Company secretary
Legal
Outsource Internal Resource
Many emerging enterprises comprise small teams and therefore turn to outsourced providers to help streamline their operations so that they can focus on managing money. It is also not uncommon within these businesses for executives to perform multiple functions until profitability is reached. Specialised functions such as legal and company secretarial are in general outsourced.
functions can be performed in-house and what benefits can be gained from outsourcing certain functions. The growing role of technology in financial services, makes this a key differentiator, and so it is of concern that most respondents (more than 90%) outsource this function. A similar argument can be made for keeping the accounting function in-house - over half the dataset outsource this function.
Managing an asset management business is becoming increasingly costly and complex. Fee compression, regulatory complexity, cost of skill and technology are just some of the pressures faced. And in a tough economic environment, managers need to weigh which
105
l. Board sub-committees in place 70% 59.38%
% of firms
60% 50%
43.75%
40%
34.38%
31.25%
30% 18.75%
20% 10% 0%
0.00% Nomination Committee
Remuneration Committee
Risk Committee
The results correlate with the composition of the pool of survey respondents which comprises a few very large managers followed by a string of mid-sized and small firms. The larger firms have instituted board subcommittees as their businesses are much more complex and therefore allow boards to divide the work of the board into manageable sections. Such committees
Audit Committee
Social and Ethics Committee
None
constitute an important element of the governance and oversight process. Whilst small companies do not in general establish separate committees to perform such oversight functions, they should still ensure that these functions are appropriately addressed by the board.
m. Largest future technology spend Enchancing the client experience (distribution, access to information) etc. Improving the efficiency of back office systems Data vendors Portfolio management - using big data to manage investments 0%
20%
40%
60%
80%
100%
% of firms 1
2
3
4
5
(Where 5 is the most important and 1 the lowest investment made)
We see a clear shift compared to 2019 with respect to future technology spend (BEE.conomics 2019). In 2020 respondents are generally much less optimistic about future technology spend. Compare the >50% positive response to enhancing the client experience through technology in 2019, to just under 20% in 2020. This shift away from a bullish view on technology spend is seen all through the value chain. It appears that respondents are taking a more cautious view on investment in technology, which may be part of a general conservative approach to investment in response to a battered economy and potentially long road to recovery.
The top two areas of future investment are focused on operational aspects of the business - back office efficiencies and protfolio management. Data vendors (the likes of Bloomberg and Reuters) are a low priority. The low importance placed on enhancing customer experience, especially in the context of a world where technology is becoming the main channel for communicating and servicing customers, is a cause for concern. We feel that it is important to keep abreast of technologies which make life easier for the customer and allow the firm to remain relevant.
106
n. Compliance policies Policies in place: 100%
6.25%
90%
21.88%
18.75%
12.50%
80% 60% 93.75%
100.00%
100.00%
40%
100.00% 78.12%
81.25%
Privacy and security statement
100.00%
General conditions and disclosures
50%
100.00%
100.00%
100.00%
87.50%
No Yes
30% 20% 10% Risk management and compliance programme
AML policy
Risk management plan/framework
Business continuity and disaster recovery
General legal disclaimer
Personal account trading
FAIS disclosure
Complaints policy
0% Conflicts of interest
% of firms
70%
Required policies available on website: 21.88%
Yes No
The improvement in the implementation of good practice policies, which are regulatory requirements, has continued into 2020. It is also encouraging to see that almost 80% of respondents make their policies available on their websites. This is a marked improvement compared to the 40% response reported in 2019. Accessibility and transparency promotes good governance and ethical behaviour.
78.12%
107
NonCompliant 8
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
7 6 5 4 3
External service providers make up a large portion of an asset management firmâ&#x20AC;&#x2122;s expenses, outside of human capital and technology. Licenced financial services entities are measured under the Financial Sector Code where preferential procurement targets need to be met to achieve a competitive B-BBEE rating.
Average
Regulation 28
Cyber Risk
Directors and Officers Liability
Crime and Civil Liability
Fund Administrator
Compliance Officer
2 External Auditor
% of firms
o. B-BBEE rating of external service providers
1
Compliance officers and insurers remain the least transformed. It is disappointing to see black-owned firms procure services from companies with poor ratings of which some are in fact non-compliant for services in industries where black participation is high, like for example audit.
108
109
Public markets
1
Product distribution Section highlights LARGEST SOURCE 106 Asset consultants are the largest source of assets
The number of registered unit trusts, up from 84
IRELAND
40%
The preferred domicile for global funds
Of firmsâ&#x20AC;&#x2122; funds are accessible through LISPS, up from 38%
19% Of firmsâ&#x20AC;&#x2122; funds are accessible through Umbrella Funds
No poverty
110
a. How are assets sourced? Top Source
Nr 2 Source
Nr 3 Source
Number of firms
30 25 20 15 10 5 0 Asset consultants
Multimanagers
Direct institutional relationships
Umbrella funds
Black-owned firms, in the primary, depend on the institutional market for flows as is evidenced from the three bars to the left side of the graph. Retail market share has always been low for this segment. Hence the largest threat to the sector is the consolidation of private sector retirement funds under â&#x20AC;&#x153;superâ&#x20AC;? commercial umbrella funds, currently a negligible source of flows for this pool of managers. This move towards consolida-
Financial advisors
LISPs
Individuals
Discretionary Fund Managers
Family offices
tion is being given additional momentum by the regulator. The retail industry is highly intermediated through financial advisors who are increasingly making use of Discretionary Fund Managers who in turn are implementing on Linked Investment Service Providers. The data affirms our long-held view that there are excessively high barriers to entry to this value chain.
b. Global institutional investors Have global clients: 100%
No Yes
% of firms
80% 60%
78.12%
71,43%
40% 20%
28,57%
21.88%
2019
2020
0%
Domicile of global clients: 80%
This pool of managers has always held a home client bias with around 20% of managers having expanded outside of South Africa. The majority are focused on African institutional investors from Lesotho, eSwatini, Botswana and Namibia. Close to home countries are attractive sources of flows for South African asset managers given the dearth of managers that exist in those regions. There are currently two managers who have European clients.
71.43%
70% % of firms
60% 50% 40% 28.57%
30% 20% 10% 0% Africa ex SA
0,00%
0,00%
Asia
Australia
0,00% Europe
North America
0,00%
0,00%
Central and Middle East South America 111
c. Collective investment schemes Number of firms managing unit trusts: 30
Number of firms that have unit trusts
25
2019
2020
18
15 10
25
22
21 20
24
10
14
13
13
13
2012
2013
2014
11
8
5 0 2009
2010
2011
2015
2016
2017
2018
Total number of unit trusts
Total number of unit trusts managed: 120
106
100 84 80
72 55
60 40
40
43
2014
2015
49
20 0 2016
There was a small uptick (one manager) in the number of firms offering unit trust portfolios and a 26% rise in the number of registered unit trust portfolios. According to statistics released by ASISA for the period ending 30 June 2020 there were a total of 1629 Rand denominated unit trusts with a total value of R2.54 Trillion and 509 foreign currency denominated funds with a total asset value of R533 Billion.
2017
2018
2019
2020
the total number of registered unit trusts in South Africa. Our data indicates that the total value of assets managed in unit trust portfolios by black-owned managers stands at R221.2 Billion as at 30 June 2020, which represents just under 9% of the total value of Rand denominated funds.
So, despite the impressive increase in the number of registered funds, this dataset only represents 6.5% of
112
Number of CIS in securities: 9
Number of firms
8 7
8 7
2017
8
7
2018
7 6
6
6
5
5
5
2019 2020
4
4
3
3
3
4
3 2
2
2
2 1
1
1
0
0 1
2
3
4
5 or more
Number of CIS in hedge funds: 6
2017 5
Number of firms
5
2018 4
4 3
3
2019
3 2
2
2020
3 2 1
1
1
0
0 1
2
Of the 25 managers who have registered unit trusts, more than half manage two or less funds. This is expected as many of the firms who make up this dataset are specialist managers focused on the management of assets in no more than two asset classes. Over the years hedge funds have given up market share to other competitive products. Much of this lacklustre appetite has to do with muted performance, high costs and slow reporting. The largest threat to this industry
0
0 3
0
0
0 4
0 0
1 0 0
0
5 or more
is that hedge funds are bucketed together with private equity and collectively limited to 15% of a total retirement fundâ&#x20AC;&#x2122;s exposure to alternatives. The rise in private equity does not bode well for hedge funds as institutional investors could potentially allocate their full Regulation 28 allocation to such unlisted investments.
113
CIS management companies: 25 20
Number of firms
20
21 19
17
2014
15
15
2015
13 11
2016
10
2017
7 5
4
5
6
2018 2
1
1
2
2
1
2019
2
2020
0 Co-naming in Securities
Co-naming in Hedge Funds
Have unit trust Manco
Of the firms with unit trust offerings, only two such firms have their own unit trust management companies with the remainder opting for co-naming arrangements. This has not changed from last year. Given that Prescient Investment Management forms part of a larger group which operates one of the largest third-party unit trust management companies and Kagiso Asset Management is one of the top 5 managers by retail AUM, it is understandable for these firms not to utilise co-naming arrangements. Anecdotally, for smaller firms the co-naming option could be more beneficial and cost effective.
Firms that own a CIS management company: Kagiso Asset Management Prescient Investment Management
Co-naming partners of choice: 8 7
6 5
5 4 3 2
0 0
0 Momentum Collective Investments
Co-naming in Securities
There are a number of co-naming partners available to select from. The decision of which partner to choose is largely dependent on cost, reputation, the quality of administration services and B-BBEE. Africa Collective
1
1 0
0
1 0 Sanlam Collective Investments
0
IP Management Company
Boutique Collective Investments
0
1
IDS Management Company
0
H4 Collective Investments
0 Africa Collective Investments
0
1
RealFin Collective Investment Schemes
1
1
2
Sanne Management Company
2 2
Prime Alternative Investments
3
Prescient Management Company
Number of firms
7
Co-naming in Hedge Funds
Investments (RF) (Pty) Ltd, following corporate activity over the reporting period, has been renamed 27four Collective Investments (RF) (Pty) Ltd. 114
Reasons for not owning a CIS management company: 100%
Other reasons
17.39% 33.33%
% of firms
80% 60%
Cannot meet licencing requirements
42.86%
Easier to and cost effective to rent a CIS licence
19.05% 82.61%
40% 47.62%
20%
An overwhelming majority of participants hold the view that owning a unit trust management company is a noncore activity and that outsourcing this function leads to efficiency and productivity gains. It is also encouraging to observe that licencing is no longer considered a barrier to entry.
57.14%
0% 2018
2019
2020
d. LISPs Unit trust products available on LISPs: 100%
LISP platforms remain the largest distribution channel for retail investors in South Africa. Independent Financial Advisors are placing more business on such platforms on behalf of their clients as they allow them to switch between funds, deduct fees and manage and report on client portfolios. There has been little improvement in the percentage of firms whose products are available on LISPs. This is an ongoing frustration for black-owned firms as the barriers to accessibility remain excessively high thereby limiting participation in the retail market.
% of firms
80% 60%
71.43%
68.18%
62.50%
60.00%
28.57%
31.82%
37.50%
40.00%
2017
2018
2019
2020
40% 20% 0%
No
Yes
Number of LISPs on which unit trusts are available:
Number of firms
4
2017 3
3
2
1
0
2018
3
2019 2
2 2
2
1
1
2 2
1 1
2
3
1
1
0
0 1
1
0 4
The majority of managers have only accomplished getting their products loaded onto one and two LISPs with two managers succeeding on eight LISPs. Not all
1
1
0 5
1 1
1 1 1
0
0
2020
0 0 0 0 6
7
8
LISPs are the same and some are more popular with financial advisors than others.
115
LISPs utilised: 11 10
10
9 8
6
4
3
2
2
2
22
2 1
1
1
1
22 2
Glacier
Momentum
ABSA
Stanlib
2017
Currently the Glacier platform houses the largest number of black-owned firmsâ&#x20AC;&#x2122; products. Often LISPs will only add a product onto the platform if they receive demand from financial advisors to do so. One also has to be
33 22
2
11
1
00
0 Allan Gray
3
3
11
2
2
1 11
11
0
2018
1
1
0
2019
Ninety One
3
PSG
3
3
3
5 4
PPS
4
44
Sygnia
44
Liberty
5
6 5
Hollard
5
Old Mutual
6
Ashburton
7
AIMS
8
Discovery
Number of firms
9
2020
aware of the changing patterns of retail distribution, which is increasingly becoming muddled in view of the linkages between asset manager, advisor, DFM and LISP.
e. UCITS compliant products 100%
No
90%
Yes
80% % of firms
70% 60% 50%
100.00%
94.59%
82.86%
81.25%
40%
Jurisdiction used:
30%
Dublin
20% 10% 5.41%
0% 2017
2018
17.14%
18.75%
2019
2020
There was no real change since last year in the number of managers offering UCITS compliant global funds. Global portfolios have consistently attracted strong retail flows as evidenced from the data released by ASISA on foreign denominated funds. Such funds have offered domestic investors diversification, Rand hedge exposure and better investment returns. Considering
how these funds may support retail market penetration, it is disappointing that so few managers have opted to establish global portfolios. Ireland is the preferred domicile for South African asset managers.
116
f. Umbrella funds Firms who have portfolios on umbrella funds: Less than 20% of firms’ products are accessible on umbrella funds. The consolidation of private sector standalone funds into umbrella arrangements was motivated by the regulator based on anticipated reduction of costs and enhanced governance. As argued in the piece titled “The shift to umbrella funds - does consolidation support transformation?” this has only led to the establishment of commercial “super” funds whose primary focus is to expand the distribution of their own asset management products. The result of such consolidation has led to an exclusionary outcome which is not supportive of transformation objectives.
18.75%
Yes No
81.25%
Umbrella funds which have included firm portfolios:
Total number of firms
5 4 3 2 1 0 Old Mutual
Alexander Forbes
MMI
Liberty
Only a handful of manager funds are available on any of the commercial “super” umbrellas. Also, many umbrella funds have different entry points meaning that they may have a core list and a demand list, where the core list is what is marketed to clients, while the
Sanlam
Grant Thornton
Fairheads
Multilect
demand list is driven by the asset managers who bring clients to the umbrella fund. There are many barriers managers face to get onto the core list, which can result in despondency and so managers eventually give up trying as they lose confidence in the system.
g. Fund accessibility through firm website
37.50%
Yes No
Online, direct-to-consumer distribution is a powerful medium to attract AUM. Consumers have become digitised and more so following the lockdowns instituted due to COVID-19, making it the norm to purchase goods and services online. Less than forty percent of managers’ funds are available for investment through the companies’ websites. Online distribution should be part of any asset manager’s strategic blueprint for market penetration.
62.50%
117
h. Disclosure of total investment charges
Number of firms
35
We don’t manage this type of product
30
Annual Management Fee only
25
Total Investment Charge
20 15 10 5 0 Unit trusts
Life licence mandates
Segregated mandates (on owner’s balance sheet)
Total Investment Charge (”TIC”) is the Total Expense Ratio (fund management fees + administrative costs) plus transaction costs. TIC is important in that it allows investors to evaluate the all-in cost of funds so they can make an informed decision when purchasing a fund. High fees can erode investment returns and so asset managers are required to provide full transparency and disclosure on all fees charged. It is worrying that some managers only disclose the annual management fee charged and not the TIC.
i. Retail offering
Total number of firms
25 20 15 10 5 0 Tax-free savings
Retirement annuity
Preservation fund
These numbers are discouraging. Mainstream asset managers should have the ability to play a role in both the accumulation and decumulation phases of investor lives, and cater for varying needs including promoting tax efficiencies. To grow a retail footprint requires
Living annuity
Endowment
None
products that can appeal to such a market. Only a few firms have established such products, which limits the level of retail participation by this segment.
118
Public markets
Brand building and industry influence Section highlights 9
ABSIP
5
Industry body most firms affiliate themselves with
Number of firms who have won a Morningstar Award
44% Industry, innovation & infrastructure
Of firms have ambitions to be recognised as a household brand
119
a. South African industry body memberships 100% 90% 80% % of firms
70% 60% 50% 40% 30% 20% 10%
There are several industry bodies representing business in South Africa that are relevant to the interests of blackowned asset managers. These range from industry wide initiatives, to those focused on the specific challenges faced by black-owned business. Given the centrality of networks of trust and reciprocity essential to growth and development - key components of social capital it is somewhat disappointing that membership remains low. What is encouraging is that membership of both ASISA and ABSIP increased by approximately 10% during the current period. While ASISA membership is considered by many to be expensive and representative of the largest firms in the industry, it is the overarching representative body and plays many vital roles in setting
Institute of Retirement Funds (IRF)
Business Leadership South Africa (BLSA)
Business Unity South Africa (BUSA)
Black Business Council (BBC)
Black Management Forum (BMF)
Association of South African Black Actuarial Professionals (ASABA)
Black Investment Management Business Forum (BIMBF)
Transformation Action Forum (TAF)
Southern Africa Venture Capital and Private Equity Association (SAVCA)
Yes
The Association of Black Securities and Investment Professionals (ABSIP)
No
The Association for Savings and Investment South Africa (ASISA)
0%
industry standards, ensuring best practice and making the sectorâ&#x20AC;&#x2122;s voice heard by government and regulators. As black-owned investment managers it is important that companies join ABSIP, to advance the cause of meaningful transformation and to have our particular concerns and needs addressed. A third of firms are members of TAF, and nearly 10% of public markets firms are members of SAVCA, up from 6% compared to 2019.
120
Leadership contribution to industry bodies: 100% 90% 80% % of firms
70% 60% 50% 40% 30% 20% 10%
The low levels of leadership participation in the activities of industry bodies is disappointing. A probable factor in the representation of leadership by black-owned asset managers is that they are small, with the owners
Institute of Retirement Funds (IRF)
Business Leadership South Africa (BLSA)
Business Unity South Africa (BUSA)
Black Business Council (BBC)
Black Management Forum (BMF)
Association of South African Black Actuarial Professionals (ASABA)
Black Investment Management Business Forum (BIMBF)
Transformation Action Forum (TAF)
Southern Africa Venture Capital and Private Equity Association (SAVCA)
Yes
The Association of Black Securities and Investment Professionals (ABSIP)
No
The Association for Savings and Investment South Africa (ASISA)
0%
and directors immersed in the day-to-day operations of their businesses. That aside, the low representation is inadequate and needs to be addressed urgently if the industry is to transform at an acceptable rate.
b. Regularly engage on financial sector policy 100%
% of firms
80%
42,86%
46.88%
57,14%
53.12%
2019
2020
60% 40% 20% 0%
No Yes
In an environment of changing policy and gazetting of new legislation, it is very important that black asset managers have a seat at the table. While more than half of respondents report regular engagement with financial sector policy makers, it is disappointing to see a slight trend in the wrong direction this year. With South Africa having established the Twin Peaks framework there is much legislation currently under review (refer to â&#x20AC;&#x153;Regulations all asset managers need to be aware ofâ&#x20AC;?). In particular the draft Conduct of Financial Institutions Bill (COFI), aimed at reforming the financial sector, is expected to be gazetted soon. This is an opportunity to effect real change in the industry, one that we hope will be seized by black-owned financial firms.
121
c. Thought leadership Senior investment personnel speak regularly at industry events:
Firms regularly publish research articles of interest:
100%
100% 80%
37,50%
48,57%
% of firms
% of firms
80% 60% 40%
62,50%
51,43%
20%
42,86%
43,75%
57,14%
56,25%
2019
2020
60% 40% 20% 0%
0% 2019
2020
No
No
Yes
Yes
It is pleasing to see an increase in the prevalence of regular presentations by senior staff at industry events. This is a cost effective means to increase visibility, influence thought, and extend networks. It is good to see that more than half of the survey pool publish
articles regularly. While this is onerous on already busy senior staff, it is important that firms express their views and unique insights publicly. We hope to see positive trends with respect to thought leadership from this part of the financial sector, going forward.
d. Industry awards won for investment performance Raging Bull Awards won (since inception of firm):
Number of firms
4
2017 3
3
2
2018
3
2019 2
2
2
1 1
1
1
1
1
0
00
0 1
2
1
3
000 4
1
1
0
00 5
2020
00 Over 5
Number of Raging Bull Awards
122
Morningstar Awards won (since inception of firm):
Number of firms
3
2
2 2
2
2017 2018
1
1
0
1
1
1 1
1
2019 2020
0
0 0 1
2
0 0
0 3
0 0 0 0
0 0 0
4
5
00 Over 5
Number of Morningstar Awards
The prestigious Raging Bull and Morningstar Awards recognise top performing funds in the unit trust sector. While it is only a handful of managers who have been recognised, we note a pleasing positive trend in the Raging Bull Awards, with one firm boasting four bulls
in the trophy cabinet, and two firms with more than five. We see a similar positive trend in the internationally administered Morningstar Awards. It is important for black-owned managers to compete in this space, due to the prestige and visibility associated with these awards.
e. Advertising, branding and marketing Percentage of revenue spent on advertising, branding and marketing: 100% 90%
6,67%
10,42%
33,33%
37,50%
2,86%
12,50%
80% % of firms
70%
34,29%
Over 15% 37.50%
60% 50%
5%-10%
40% 30%
10%-15%
1%-5% 53,33%
50,00%
54,29%
2017
2018
2019
20%
46.88%
Under 1%
10% 0% 2020
% of revenue
Advertising and marketing are key to market penetration, by making potential clients aware of your products, and what you stand for as a company. There is no doubt that effective spending in this area increases a firm’s client base. While this would depend on the development stage of a business, research indicates that for an established enterprise, spending approximately 10% of gross revenue on advertising and marketing is optimal. It is telling that almost half of surveyed companies spend less than 1% of revenue on marketing, although this is
a slight improvement compared to last year. Small firms find themselves in a “Catch 22” situation - having an insufficient client base to improve revenues, yet risk averse to allocating revenue to increase the client base. Any increased spend is likely to be affected by COVID19. As we have seen, asset management firms have indicated that one of the key cost containment measures targeted is marketing expenditure (see section titled “Impact of COVID-19”). Measures taken in 2020 are likely to be reversed in the short-term.
123
Advertising and marketing mediums used: 60%
56,25%
53,13%
40% 28,13%
30% 21,88% 20%
Print media and conference/exhibitions are the preferred means of marketing in 2020. The latter may be understood in terms of the targeting of institutional investors via direct contact. This is not surprising since most firms have a strong institutional bias in their
None
0,00% Conference sponsorship (exhibition stand, brand positioning, speaking)
0,00% Television
Radio
0
Billboard
3,13%
On-line (eg Moneyweb)
10%
18,75%
Social media
% of firms
50%
investor base (see â&#x20AC;&#x153;Fund Factsâ&#x20AC;?). It is concerning to see a continued decline in the use of social media and online marketing, where the eyes of a large, young retail market are focused. This trend does not augur well in terms of expansion in a limited market.
f. Communication with investors Hold investor roadshows:
Frequency of communication with clients:
100%
100%
90%
90%
80% 46,67%
47,92% 57,14%
50% 40% 53,33%
56,25%
52,08%
20%
44,00%
10%
50%
2019
2020
60,00%
11,11%
40% 44,00%
30% 33,33%
27,78% 12,00%
0% 2018
61,11%
37,50%
10%
0%
13,33%
60%
20%
42,86%
2017
26,67%
70%
60%
30%
29,17%
80% % of firms
% of firms
70%
43,75%
2017
2018
No
at least once a year
Yes
every 6 months
2019
2020
every 3 months
124
Medium used to communicate with investors: 100% 90% 80% % of firms
70% 60%
2018
50%
2019
40%
2020
30% 20% 10%
The use of roadshows, a familiar tool in the industry, has returned to just over 55% in 2020, although one would expect that social distancing in response to COVID19 would adversely affect this measure in the next survey cycle. What is worrying to see is the sharp decrease in frequency of communication with clients, eroding the gain of 2019. For the first time there was
Mobile (eg. SMS, viral marketing)
Website
YouTube
Webinars
Blogging
Email campaign
0%
an uptick in the use of webinars which is reflective of the COVID-19 communication environment. The preferred means of communication however are still dominated by email campaigns and company websites, reflecting an institutional rather than retail bias. The professional network LinkedIn is used increasingly, but the use of social media in general remains unpopular.
Have a mobile app:
Have a fully functional website:
100%
100%
90%
90%
80%
80%
70%
70%
60% 50%
100.00%
97.30%
97.14%
100.00%
40%
% of firms
% of firms
g. Access through technology
34.29%
67.57%
65.71%
2018
2019
28.12%
48.89%
60% 50% 40%
30%
30%
20%
20%
10%
32.43%
71.88%
51.11%
10%
0% 2017
2.70%
2.86%
2018
2019
0% 2020
2017
No
No
Yes
Yes
A fully functional website should be considered a minimum requirement for any business, and so, while improving, there is no excuse for the large proportion (nearly 30%) who do not maintain a website. The website is the first stop when seeking information about a
2020
company, whether by institutional or retail investors. No companies are providing a mobile app in 2020, reflecting the immaturity of the industry in the retail space, where this has become one of the most popular means for interacting with customers. 125
h. Brand recognition drivers 100%
2018 2019
% of firms
80%
2020 60% 40% 20%
The distribution of brand recognition drivers, from the viewpoint of our survey pool, has seen little movement over the past three years. The delivery of consistent investment performance remains top, while having a differentiated product offering, a good team, and being client focused are all considered important. Values are also rated high, reflecting a recognition of ESG as a
Values
Client focused
Your people
Differentiated product
Advertising and marketing
Low fees
Consistent investment performance
0%
differentiating factor. Marketing is not rated as important, in line with an emerging theme that most firms do not see this as an effective means to grow their brand. Low fees, interestingly, continue to not feature as a brand driver, despite the competitiveness of the market and the rise of low-cost passive investments.
i. Ambition to become South Africaâ&#x20AC;&#x2122;s next Coronation/Allan Gray or positioned as a boutique/niche asset manager 100%
Household brand 22,22% 35,42%
80%
40,00%
43,75%
Boutique
% of firms
47.32%
60% 40%
77,78% 64,58%
60,00%
56,25%
2018
2019
2020
20% 0% 2017
The upward trend in the ambitions of black-owned managers to become high profile brands in the public markets space has continued, despite more than half seeing themselves as niche players. The ambitious should find comfort in the fact that the tailwinds of BBBEE will continue to support their efforts. By keeping their eye on the ball in terms of investment performance, strong leadership, and high visibility, one would expect that these aspirations will eventually materialise for those with the will to battle on.
126
127
Public markets
Environmental, social and governance 13
Section highlights 12
38%
Number of firms who are UN PRI signatories
Of firms have a dedicated ESG internal resource
69% Climate action
Of firms acknowledge that ESG impacted the risk and return characteristics of their portfolios
128
a. United Nations Principles for Responsible Investment (UN PRI) The Principles for Responsible Investment (”PRI”) were launched by the United Nations (”UN”) in 2006, in support of their Sustainable Development Goals (”SDGs”). These principles apply worldwide and seek to make financial organisations accountable to the imperatives of environmental, social development, and governance. This forward-looking initiative aims to accomplish its objectives through six guiding principles: Principle 1: We will incorporate ESG issues into investment analysis and decision-making processes. Principle 2: We will be active owners and incorporate ESG issues into our ownership policies and practices. Principle 3: We will seek appropriate disclosure in ESG issues by the entities in which we invest.
Principle 4: We will promote acceptance and implementation of the Principles within the investment industry. Principle 5: We will work together to enhance our effectiveness in implementing the Principles. Principle 6: We will each report on our activities and progress towards implementing the Principles. Being a signatory to the PRI requires a high level of commitment. One way in which the PRI monitors the efforts of its signatories is through its reporting tools. Reporting is a key mechanism to establish a framework of accountability, transparency, and assessment of the PRI signatories.
Signatories to the UN PRI: 14 12
Number of firms
12
11
10
10
10
10
10
2014
2015
2016
2017
2018
8
8 6 4
10
6
6
2011
2012
4
2 0 2010
2013
This year 12 of the 32 respondents in the public markets space are PRI signatories. While the trend since 2010 has been positive, the result has plateaued since 2014. Factors that limit the adoption of the PRI by South African
2019
2020
asset managers could be related to the cost associated with, and an under estimation of the benefits of, being a signatory.
Aeon Investment Management
Makalani Management Company
Afena Capital
Meago Asset Managers
All Weather Capital
Mergence Investment Managers
Argon Asset Management
Mianzo Asset Management
Differential Capital
Perpetua Investment Managers
Lima Mbeu Investment Managers
Prescient Investment Management Source: https://www.unpri.org/signatories 129
% of firms
Signatory PRI Transparency Report scores: 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
80%-100% 60%-80% 40%-60% 20%-40% 0%-20% Strategy and Governance
Listed Equity Active Ownership
Listed Incorporation
A signatory is able to calculate their performance in regards to the principles set out by the UN PRI. There are modules which assess the various individual indicators, and the modules are rated from E to A+. For the purposes of illustrating the data numerically we have converted the scores to percentages. The graph shows that the module “Strategy and Governance” has the majority of positive scores. Overall the managers have scores higher than 50% on the majority of the modules. Of the companies that are signatories it does appear
Fixed Income SSA
Property
that there is firm commitment to the goals of principled investment, reflecting a conscientious long-term approach which is encouraging. There is variation in terms of the investment categories, but even if limited it is a clear indication of a move in the right direction. The trends can be explored going forward with a buildup of longitudinal data to assess the trajectory and alignment of strategy over time with respect to the 6 PRI objectives. The 12 signatories will hopefully pave the way for a more enabling environment for the implementation and practice of the PRI.
b. The Code for Responsible Investing in South Africa (CRISA) CRISA is a local set of principles focused on the South African market. The effectiveness of the Code is dependent on collaboration by all participants in the industry.
% of firms
Endorse CRISA: 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
14.29% 46.88%
53,13%
2014
39.39%
60,61%
2015
31.71%
68,29%
2016
The period 2014 to 2020 has seen significant growth in the number of firms endorsing CRISA to a current value greater than 80%. While this bodes well, the result contrasts with the adoption rate of the PRI. Since CRISA is more “symbolic” and therefore less onerous on firms than the PRI, the results could reflect that, while firms see the importance of ESG for long term sustainability,
42.22%
57,78%
2017
18.75%
No Yes
35.42%
85,71%
81.25%
2019
2020
64,58%
2018
the cost and effort involved in implementation are still a barrier to progress on this front. In the absence of asset owner pressure and a champion to co-ordinate PRI objectives, there is no driver to effect movement towards a paradigm that prioritises the six overarching principles. 130
% of firms
c. ESG policy is publicly made available 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
It is encouraging to see the continued increase in the number of black-owned asset managers who disclose their ESG policy to all stakeholders, with this measure breaching 80% this year. A transparent ESG policy provides investors with confidence that a firm is implementing procedures which are in line with global best practice. It is also an indication that firms are taking ESG seriously, and recognise the benefit of operating, and directing investments in a manner conducive to sustainability. The policies developed and reported will need to be evaluated relative to the practical steps taken in implementation.
18.75% 31.43%
41.67%
68.57%
58.33%
2018 No
2019
81.25%
2020
Yes
d. ESG integration
% of firms
Integrate ESG factors into the investment process: 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
2018 2019 2020
ESG integration in valuation process
Corporate engagement
Negative screening
Positive screening
None
Negative screening factors applied: 100%
% of firms
80% 60% 40% 20% 0% Product
Activity
Sector
Geographic region
Environmental and social practices and performance
Corporate governance
131
Have a dedicated ESG team/individual:
Investment team holds at least one monthly ESG meeting:
100% 28.12% % of firms
80% 60%
60.00%
68.75%
62.50% Yes
40%
No 20%
31.25%
40.00%
37.50%
2019
2020
0%
71.88% 2018 No
Yes
Sources of ESG data: 100%
2018 2019
80% % of firms
2020 60% 40% 20% 0% Internal ESG analyst/team research
External third party ESG data/research provider
The prevalence of ESG integration into the investment process has remained high (>80%), firms have stepped up corporate engagement efforts, while the use of positive and negative screening processes have seen a sharp decrease. It is pleasing to see that very few firms report no integration. The upward trend in corporate engagement suggests firms have been sensitised to this area, given the number of high-profile corporate scandals which have occurred in South Africa. The predominance of ESG factors in the negative screening processes can also be understood in this light. The number of firms with dedicated ESG staff has remained steady at a reasonable 40%, which is pleasing
Company reports
Other
given that the firms represented in the survey are typically constrained in terms of personnel. It is also notable that investment teams are engaged with respect to ESG on at least a monthly basis by over 70% of respondents. With regards to sources of ESG data, there has been a slight increase in the use of external data vendors, at the expense of internal analysts and the use of company reports. It is, however, clear that most companies use more than one of these sources. A good balance is important, to mitigate internal biases by referencing independent sources. A steady increase of firms report using other sources of data.
132
e. Proxy voting Proxy voting frequency:
Proxy voting policy is publicly available:
15.63%
3.13%
More than 90% 6.25%
Between 50%-90%
Yes
31.25%
Less than 50%
No
21.88%
Not applicable
Not applicable 56.25% 65.62%
Proxy votes published on website: 15.63%
Proxy votes cast directly or through a dedicated voting service provider:
18.75% 21.88%
31.24%
Yes
Directly
No
Through dedicated voting provider
Not applicable
Not applicable 65.62% 46.88%
Number of companies voted on in the past year:
Number of firms
10 8 6 4 2 0 0-20
20-40
40-60
60-80
80-100
Over 100
133
Held meetings with boards or senior management of the companies/ entities held: 21.88%
Yes No
One would expect consensus in proxy voting. Most managers have voted on 40 to 60 companies. This is a balanced effort and reflects the desire of managers to engage and justify their positions. Proxy voting frequency has increased, with the majority (56%) voting more than 90% of the time. While proxy voting may be viewed as a form of engagement, we have also gathered data measuring to what extent the managers surveyed have engaged with boards or senior management of companies held in their portfolios. It is pleasing that around 80% of managers report having done so in the last year. Regarding transparency, it is encouraging to see that most (66%) managers make their proxy voting policies publicly available. Managers surveyed, however, remain reluctant to make their votes public, and most do not cast votes directly, but through a service provider.
78.12%
% of firms
f. ESG reporting to clients 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
12.50%
17.14%
We donâ&#x20AC;&#x2122;t report on ESG activities as part of our client reporting Ad hoc
43.75%
45.71%
Quarterly Annually
31.43%
37.50%
5.71%
6.25%
2019
2020
Communicating with clients on ESG matters enhances investor awareness and is an important aspect of client engagement. The data illustrates that there has been a move to more structured reporting, with more than 40% of the survey pool reporting on at least an annual basis. Going forward, we hope to see this trend continue, as a large proportion of companies report on an ad hoc basis, and a few are still not reporting at all.
g. Collaborated with other organisations in seeking to address an E, S or G issue in the previous 12 months 100%
% of firms
80%
52.08%
42.86%
50.00%
57.14%
50.00%
2019
2020
60% 40% 20%
47.92%
0% 2018 No
There exists significant leverage in the South African public and private sector, where the bulk of the savings of the ordinary South African is invested, to address the governance challenges faced in the country, and to improve investor outcomes. The moderate improvement in the collaborative efforts of asset managers in 2019 has unfortunately eroded in 2020, with 50% of managers reporting taking part in such activity. It remains to be seen how this trends in a post COVID-19 environment. Collaborative efforts by this population of asset managers has the potential to boost ESG awareness in the aftermath of what has been an unprecedented disruption to our economy.
Yes 134
h. Firm practice Remuneration policy for the investment team requires the integration of ESG issues across the investment portfolios:
Company incorporates ESG in corporate culture:
100%
100%
52.08%
54.29%
60% 40% 20%
47.92%
45.71%
53.12%
2018
2019
2020
18.75%
80%
46.88% % of firms
% of firms
80%
11.43%
60% 88.57%
40%
81.25%
20% 0%
0%
2019
No
No
Yes
Yes
ESG is not separate to the investment process; it is fundamental to business operations to promote transparency and integrity. The data suggests that there has been a marginal increase in companies incorporating ESG into their remuneration policies and practice for the investment teams, although the survey group remains largely split on the issue. As ESG issues are
2020
incorporated into business functions, one would expect that they should naturally filter into the corporate culture of the company. While 2020 has seen a decline in managers reporting the incorporation of ESG into their culture, the percentage of positive responses remains high.
i. Investment portfolios Investment does not meet an ESG rating is still considered investable:
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
17.14% 31.25%
82.86%
2019
68.75%
% of firms
% of firms
ESG affected portfoliosâ&#x20AC;&#x2122; risk and return characteristics:
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
45.71%
43.75%
54.29%
56.25%
2019
2020
2020
No
No
Yes
Yes
135
% of firms
ESG team makes the final call on whether an ESG issue leads to a buy or sell decision: 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% No
77.14%
81.25%
22.86%
18.75%
2019
2020
Two thirds of managers surveyed agree that ESG does impact the risk and return characteristics of the portfolios they manage. This is in contrast to the fact that managers remain divided on whether an asset that does not meet ESG criteria is still considered to be investable. This means that many firms consider ESG as one of many factors, rather than a hard filter, when making investment calls. Most managers do not rely on ESG teams to make the final investment call. This is not surprising, as it is the portfolio manager, in most cases, who bares the final responsibility for investment decisions.
Yes
% of firms
j. Risky to discuss ESG issues with large corporations because of the influence they have 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
No Yes 84.38%
91.43%
15.62%
8.57% 2019
2020
It is encouraging that most firms feel comfortable discussing ESG concerns with large portfolio companies. This shows a widespread view that corporations, regardless of size, should be held accountable with respect to the way they are run, and the impact they have on all stakeholders. Despite the high numbers holding this view, it is noteworthy that there has been a decline by 7% in those who feel this way.
k. Invest in any ESG related bonds 90%
84.38%
80% 70% 60% 50% 40% 30% 12.50%
9.38%
Green bonds linked to environmental goals
Not applicable
0.00%
0%
Sustainability bonds (combination of green and social linked to multiple SDG categories)
10%
Social bonds linked to social goals
20%
Sustainability bonds are bonds where the proceeds are used to finance or refinance a combination of green and social projects and is the most preferred by those surveyed. The second most popular bond is the green bond, which is different in that the proceeds from the bond is used for environmental benefits which can be quantified and assessed.
136
Public markets
16
Investment performance Section details
Peace, justice & strong institutions
30 JUNE 2020
ZAR
Portfolio and benchmark returns are as at this date
Currency in which all data is quoted
FEES
ANNUALISED
Gross of fees performance is used except for South Africa Hedge Funds which are net of fees
Returns longer than 12 months are annualised
INFORMATION RATIO
RISK
Demonstrates how successful the asset manager has been in outperforming the benchmark considering the degree of active risk the asset manager assumed in achieving this return and is measured over a 3-year period
Where available, 3-year annualised volatility and tracking error are provided
137
Performance and risk analysis is provided on the following product categories: a. Multi-Asset Class (Absolute Return and Balanced) b. South Africa Hedge Funds c. Offshore d. South Africa Equity e. South Africa Fixed Income f. South Africa Money Market g. South Africa Income h. South Africa Listed Property a. Multi-Asset Class SA ABSOLUTE RETURN FUNDS Risk statistics (3 years) Fund name
Benchmark
30-Jun
#
Quarter
#
1 year
#
3 years
#
5 years
#
7 years
#
10 years
#
Volatility
#
Tracking error
#
Information ratio
#
Balondolozi Absolute Return Fund
CPI+3%
2,50%
2
11,70%
1
3,16%
5
8,30%
4
7,53%
4
8,17%
3
-
-
7,79%
5
8,18%
5
0,20
4
Mianzo CPI+3% Fund
CPI+3%
3,05%
1
10,52%
2
2,87%
6
5,81%
6
6,05%
6
-
-
-
-
8,34%
6
8,74%
6
-0,09
6
Taquanta True Absolute Fund
CPI+3%
0,68%
6
0,74%
6
8,83%
1
11,11%
1
11,40%
1
-
-
-
-
1,01%
1
1,46%
1
3,06
1
Taquanta Absolute Fund
CPI+3%
1,41%
3
4,73%
4
5,03%
4
9,29%
3
9,07%
3
7,86%
4
7,35%
3
3,62%
3
4,07%
3
0,65
3
Taquanta Pooled Reg 28 Absolute Fund
CPI+3%
0,77%
5
2,65%
5
5,23%
3
10,43%
2
10,08%
2
8,44%
1
7,81%
2
2,78%
2
3,25%
2
1,17
2
Vunani Global Absolute Return Composite CPI+3%
CPI+3%
1,16%
4
8,57%
3
5,76%
2
7,85%
5
7,01%
5
8,19%
2
9,18%
1
6,49%
4
6,78%
4
0,18
5 5
CPI+3%
-0,36%
-0,03%
5,05%
6,63%
7,50%
7,80%
7,94%
1,22%
Argon Absolute Return Fund
CPI+4%
1,43%
5
6,76%
5
0,20%
4
4,85%
3
5,33%
1
7,66%
1
8,62%
1
6,02%
2
6,56%
2
-0,42
Mergence CPI + 4% Fund
CPI+4%
2,95%
1
10,29%
3
0,63%
2
4,76%
4
5,04%
3
6,47%
4
7,79%
2
7,09%
3
7,57%
3
-0,38
3
Prescient Positive Return Fund
CPI+4%
0,76%
6
5,04%
6
-2,59%
5
5,30%
2
5,17%
2
6,49%
3
6,49%
3
5,91%
1
6,36%
1
-0,37
2
Sentio Absolute Return Fund
CPI+4%
2,91%
2
11,22%
1
-5,52%
6
1,90%
6
0,87%
5
4,83%
5
-
-
9,79%
6
10,24%
6
-0,56
6
Vunani Domestic Absolute Return Composite CPI+4%
CPI+4%
1,44%
4
10,30%
2
0,30%
3
4,25%
5
4,52%
4
6,53%
2
-
-
7,90%
5
8,27%
5
-0,41
4
Vunani Global Absolute Return Composite CPI+4%
CPI+4%
1,59%
3
9,58%
4
4,93%
1
7,43%
1
-
-
-
-
-
-
7,75%
4
7,98%
4
-0,03
1
CPI+4%
-0,28%
0,22%
6,05%
7,63%
8,50%
8,80%
8,94%
1,22%
Mergence CPI + 5 % (Local) Fund
CPI+5%
3,51%
1
12,18%
1
-1,20%
2
4,78%
2
4,92%
2
6,66%
2
8,11%
2
8,83%
1
9,26%
2
-0,42
2
Vunani Global Absolute Return Composite CPI+5%
CPI+5%
1,66%
2
10,23%
2
3,64%
1
6,44%
1
5,94%
1
8,14%
1
9,90%
1
8,99%
2
9,19%
1
-0,24
1
1
11,61%
1
3,37%
1
6,04%
1
8,43%
1
9,99%
1
10,27%
1
-0,58
1
1
9,20%
1
-0,39
1
CPI+5% Vunani Domestic Absolute Return Composite CPI+6%
-0,19% CPI+6%
CPI+6% Vunani Global Absolute Return Composite CPI+7%
CPI+7%
2,25%
0,47%
-0,11% CPI+7%
1,17% -0,03%
7,05% 1
0,72% 1
9,51% 0,97%
-0,65%
8,63% 1
8,05% 1
2,86% 9,05%
3,63%
9,50%
9,63% 1
7,07% 10,63%
9,80%
10,50% 1
5,51% 11,50%
9,94%
10,80% 1
8,17% 11,80%
1,22%
10,94% 1
10,96% 11,94%
1,22% 1
9,03% 1,22%
138
SA BALANCED FUNDS Risk statistics (3 years) Tracking error
Information ratio
Fund name
Benchmark
30-Jun
Quarter
1 year
3 years
5 years
7 years
10 years
Volatility
Kagiso Stable Fund
CPI+2%
0,49%
0,51%
2,99%
5,21%
5,61%
5,94%
-
1,02%
1,62%
-0,26
Prescient Absolute Defensive Fund
CPI+3%
2,30%
9,25%
0,07%
-
-
-
-
-
-
-
Aeon Global Balanced Fund
CPI+5%
3,43%
16,41%
7,11%
7,12%
6,92%
8,75%
-
11,18%
11,36%
-0,13
Aeon Local Balanced Fund
CPI+5%
4,35%
18,21%
-5,35%
-
-
-
-
-
-
-
Balondolozi Active Balanced Fund
CPI+5%
3,07%
15,68%
-0,43%
6,24%
6,01%
-
-
11,59%
11,82%
-0,20
Kagiso Protector Fund
CPI+5%
4,68%
11,46%
-2,12%
4,56%
6,10%
7,52%
7,81%
10,99%
11,37%
-0,36
Lunar BCI Worldwide Flexible Fund
CPI+5%
3,10%
11,63%
18,16%
11,19%
-
-
-
11,90%
11,82%
0,22
Mergence Global Balanced Fund
CPI+5%
3,21%
11,89%
3,57%
-
-
-
-
-
-
-
Prescient Balanced Fund
CPI+5%
3,92%
15,38%
1,93%
6,32%
5,73%
-
-
11,68%
11,96%
-0,19
Excelsia Balanced Fund
Median Return: Alexander Forbes Survey
6,63%
23,93%
-5,99%
-
-
-
-
-
-
-
Kagiso Domestic Balanced Fund
Median Return: Alexander Forbes Survey
9,07%
14,43%
-6,29%
3,22%
3,99%
5,54%
7,66%
14,64%
6,74%
0,20
Taquanta Global Balanced Fund
Multi Asset1
4,83%
16,60%
1,37%
5,07%
4,87%
8,34%
10,91%
12,31%
0,48%
0,55
Lima Mbeu Multi Asset Fund
Multi Asset2
3,50%
13,91%
-2,08%
-
-
-
-
-
-
-
Kagiso Balanced Fund
South African - Multi Asset - High Equity
5,79%
13,46%
-1,87%
4,80%
6,05%
7,91%
-
13,63%
5,74%
0,21
Kagiso Islamic Balanced Fund
South African - Multi Asset - High Equity
4,10%
13,46%
1,11%
5,63%
6,08%
7,58%
-
10,22%
2,67%
0,75
Perpetua Global Balanced Fund
South African - Multi Asset - High Equity
5,94%
14,16%
-1,45%
2,01%
2,32%
-
-
12,44%
4,26%
-0,38
CPI+2%
-0,44%
-0,28%
4,05%
5,63%
6,50%
6,80%
6,94%
1,22%
CPI+3%
-0,36%
-0,03%
5,05%
6,63%
7,50%
7,80%
7,94%
1,22%
CPI+5%
-0,19%
0,47%
7,05%
8,63%
9,50%
9,80%
9,94%
1,22%
Median Return: Alexander Forbes Survey
3,06%
14,18%
-5,20%
1,86%
3,02%
5,96%
8,92%
12,00%
Multi Asset1
4,83%
16,48%
0,58%
4,81%
4,79%
8,32%
10,78%
12,42%
Multi Asset2
3,83%
14,68%
-1,96%
-
-
-
-
-
South African - Multi Asset - High Equity
3,06%
13,44%
0,51%
3,62%
3,53%
6,22%
-
10,98%
b. South Africa Hedge Funds SA HEDGE FUNDS Risk statistics (3 years) 30-Jun
Quarter
1 year
3 years
5 years
7 years
10 years
Tracking error
Information ratio
-
-
-
10,29%
10,23%
-0,78
9,38%
0,51
Fund name
Benchmark
Volatility
Value Capital Partners H4 QIHF
Mid Cap
12,69%
-4,71%
-47,30%
-
-
-
-
AWC Long Short Fund
STeFI
-5,18%
3,99%
5,55%
-0,79%
4,05%
-
-
AWC Market Neutral Fund
STeFI
-1,52%
6,74%
16,57%
11,94%
11,87%
-
-
9,42%
IA Muhu MS Hedge Fund
STeFI
-1,10%
-0,37%
4,46%
3,59%
-
-
-
2,97%
2,92%
-1,23
Terebinth SNN Fixed Income Retail Hedge Fund
STeFI
2,22%
10,63%
13,20%
17,54%
13,75%
12,56%
-
13,72%
13,65%
0,76
IA Muhu Short Biased Equity Hedge Fund
STeFI +5%
-3,25%
1,22%
43,47%
26,21%
-
-
-
11,88%
11,76%
1,19
FVC Endurance Global Equity Long/Short
US Cash Hurdle (ZAR)
2,05%
8,91%
14,13%
4,22%
4,78%
-
-
16,85%
10,10%
-0,71
Mid Cap
6,06%
15,37%
-17,60%
-3,50%
-0,62%
3,75%
8,00%
20,32%
STeFI
0,44%
1,46%
6,86%
7,17%
7,20%
6,81%
6,48%
0,12%
STeFI +5%
0,86%
2,71%
11,86%
12,17%
12,20%
11,81%
11,48%
0,12%
US Cash Hurdle (ZAR)
-1,05%
-2,78%
24,77%
11,40%
8,33%
-
-
17,92% 139
C. Offshore OFFSHORE LISTED EQUITY FUNDS Risk statistics (3 years) Fund name
Benchmark
30-Jun
AWC Norges Portfolio
FTSE South Africa All Cap Weighted Index 5,09% Norges Constituent Service
Quarter
1 year
3 years
5 years
7 years
10 years
Volatility
Tracking error
Information ratio
14,91%
-19,53%
-8,86%
-
-
-
19,54%
6,85%
-0,94
-
-
-
4,13%
0,45
7,80%
0,09
6,05%
0,08
-
-
4,94%
-0,06
-
-
7,06%
0,62
FTSE South Africa All Cap Weighted Index Norges Constituent Service
7,31%
21,85%
-13,82%
-2,43%
Benguela Offshore Equity Fund
-0,51%
12,31%
25,46%
18,67%
2,14%
16,05%
26,14%
16,82%
MSCI ACWLD (ZAR)
MSCI ACWLD (ZAR) First Avenue Global Equity Composite MSCI World Price Index (ZAR)
0,83%
16,07%
34,08%
15,87%
MSCI World Price Index (ZAR)
1,42%
15,51%
24,40%
15,13%
6,01%
14,00%
-1,63%
5,19%
Kagiso Global Balanced Fund
Median Return: Alexander Forbes Global Large Manager Watch
19,67%
-
-
6,22%
7,89%
Median Return: Alexander Forbes Global Large Manager Watch
3,06%
13,89%
1,42%
4,73%
5,02%
7,86%
1,56%
14,60%
16,58%
-
-
-
-1,65%
13,80%
13,74%
Global - Equity - General Lodestar Global Core Portfolio
MSCI World Net ZAR
MSCI World Net ZAR Prescient Global Core Equity
MSCI World Net Daily Total Return (ZAR)
MSCI World Net Daily Total Return (ZAR)
0,69%
13,05%
28,39%
17,01%
16,01%
26,58%
17,29% -
1,48%
14,08%
26,91%
16,12%
26,70%
16,31%
-
14,05%
-
-
11,34% -
1,55% 1,00%
-
17,55%
Kagiso Islamic Global Equity Feeder Fund
Global - Equity - General
15,82% 17,05%
-
-
-
17,16% 17,55%
-
-
-
-
Vunani Global Active Equity Composite 80% MSCI,15% US$,5% STeFI
2,65%
10,27%
31,51%
21,32%
17,87%
20,21%
80% MSCI,15% US$,5% STeFI
1,14%
13,30%
27,08%
16,98%
14,31%
15,85%
-
17,53% 16,12%
OFFSHORE LISTED PROPERTY FUNDS Risk statistics (3 years) Fund name
Benchmark
Meago Enhanced Global Property Fund
GPR 250 REIT Index (ZAR)
GPR 250 REIT Index (ZAR)
30-Jun
Quarter
1 year
3 years
5 years
7 years
10 years
-
-
-
0,90%
7,94%
5,63%
9,57%
1,32%
8,54%
3,42%
9,08%
Volatility
Tracking error
Information ratio
20,18%
3,07%
0,16
21,16%
140
d. South Africa Equity SA EQUITY FUNDS Risk statistics (3 years) Fund name
Benchmark
30-Jun
#
Quarter
#
1 year
#
3 years
#
5 years
#
7 years
#
10 years
#
Volatility
#
Tracking error
#
Information ratio
#
Aeon Active Equity Composite
SWIX All Share
6,68%
11
23,51%
6
-3,70%
2
3,80%
2
3,59%
1
8,57%
1
11,78%
1
16,37%
2
3,96%
11
0,45
4
Aeon Smart Multi-Factor Equity Fund
SWIX All Share
6,78%
10
22,99%
7
-5,59%
6
2,74%
4
2,28%
7
7,09%
3
-
-
17,87%
9
2,66%
4
0,28
5
All Weather NCIS General Equity Fund
SWIX All Share
7,42%
8
24,22%
4
-7,93%
9
1,54%
8
3,06%
2
-
-
-
-
18,99%
12
3,95%
10
-0,12
8
ALUWANI SWIX Equity Fund
SWIX All Share
7,25%
9
20,34%
12
-6,37%
7
4,10%
1
2,83%
3
-
-
-
-
17,03%
5
2,46%
3
0,85
3
Argon Specialist Domestic Equity
SWIX All Share
7,52%
7
24,01%
5
-4,29%
3
2,78%
3
2,55%
5
8,49%
2
10,68%
4
18,46%
10
3,38%
6
1,06
1
Excelsia Aggressive Equity SWIX
SWIX All Share
8,91%
2
32,27%
1
-10,26%
13
-1,94%
13
-
-
-
-
-
-
22,18%
14
7,60%
14
-0,52
12
Excelsia Core Equity SWIX
SWIX All Share
9,59%
1
29,08%
2
-6,63%
8
0,17%
12
-
-
-
-
-
-
20,44%
13
4,39%
12
-0,42
10
First Avenue General Equity SWIX Composite
SWIX All Share
5,20%
14
14,69%
14
-12,00%
14
-4,21%
14
-2,32%
12
2,96%
8
-
-
14,83%
1
4,89%
13
-1,27
14
Mergence SWIX Fund
SWIX All Share
8,80%
3
22,26%
8
-8,67%
11
0,44%
11
1,39%
10
6,92%
5
10,71%
3
17,18%
6
1,79%
2
-0,87
13 11
Mianzo Active Equity Fund
SWIX All Share
8,54%
4
24,43%
3
-10,01%
12
0,50%
10
0,90%
11
6,02%
7
-
-
18,76%
11
3,40%
7
-0,44
Perpetua Relative Value Equity Fund
SWIX All Share
8,40%
5
21,35%
10
-1,93%
1
0,89%
9
1,62%
8
-
-
-
-
16,95%
3
3,01%
5
-0,37
9
Prescient Core Equity SWIX Fund
SWIX All Share
7,69%
6
22,13%
9
-5,26%
5
2,45%
5
2,60%
4
-
-
-
-
17,67%
7
0,49%
1
0,91
2
Sentio General Equity Fund
SWIX All Share
6,44%
12
20,08%
13
-8,67%
10
2,13%
7
1,51%
9
6,97%
4
10,93%
2
16,97%
4
3,63%
8
0,04
7
Vunani Core Equity Composite
SWIX All Share
6,14%
13
20,67%
11
-4,48%
4
2,40%
6
2,47%
6
6,73%
6
-
-
17,84%
8
3,92%
9
0,10
6
Afena Capital Moderate Equity Capped SWIX
Capped SWIX All Share
4,39%
17
15,17%
17
-21,82%
19
-4,66%
8
-
-
-
-
-
-
16,99%
4
4,30%
7
-0,89
10
Afena Capital Unconstrained Equity Capped SWIX
Capped SWIX All Share
3,78%
19
13,42%
19
-20,91%
18
-4,92%
10
-2,12%
2
1,43%
3
-
-
16,14%
2
5,15%
8
-0,80
8
All Weather Capped SWIX Fund
Capped SWIX All Share
6,62%
10
21,60%
7
-11,27%
11
-
-
-
-
-
-
-
-
-
-
-
-
-
-
ALUWANI CAPPED SWIX Equity Fund
Capped SWIX All Share
6,22%
13
20,16%
11
-9,79%
4
1,24%
2
-
-
-
-
-
-
16,89%
3
2,83%
3
0,73
1
Balondolozi Active Equity Fund
Capped SWIX All Share
6,13%
14
22,42%
3
-10,42%
7
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Benguela Capped SWIX Composite
Capped SWIX All Share
6,50%
11
18,22%
15
-9,31%
3
-1,23%
5
-
-
-
-
-
-
15,71%
1
3,92%
5
-0,11
5
Excelsia Core Equity
Capped SWIX All Share
8,39%
4
28,23%
1
-10,75%
10
-
-
-
-
-
-
-
-
-
-
-
-
-
-
First Avenue Equity Capped SWIX Composite
Capped SWIX All Share
4,31%
18
14,52%
18
-17,13%
17
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Kagiso Core Equity Fund
Capped SWIX All Share
9,17%
2
22,95%
2
-13,45%
14
-2,21%
6
-
-
-
-
-
-
19,15%
9
4,11%
6
-0,34
6
Kagiso Managed Equity Fund
Capped SWIX All Share
13,02%
1
20,77%
9
-8,95%
1
1,28%
1
-
-
-
-
-
-
19,67%
10
8,27%
10
0,25
2
Lima Mbeu SA Equity Fund
Capped SWIX All Share
6,41%
12
20,26%
10
-9,81%
5
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Mergence Capped SWIX Fund
Capped SWIX All Share
7,66%
5
21,66%
6
-13,43%
13
-2,37%
7
-
-
-
-
-
-
17,21%
5
1,92%
1
-0,81
9
Mianzo Tracker Equity Fund
Capped SWIX All Share
6,92%
8
21,70%
4
-10,62%
8
-0,86%
4
-0,36%
1
5,38%
1
-
-
18,15%
7
2,37%
2
-0,02
4
Ngwedi Core Equity Fund
Capped SWIX All Share
7,13%
6
18,56%
14
-12,57%
12
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Perpetua True Value Equity Fund
Capped SWIX All Share
8,53%
3
17,92%
16
-13,58%
15
-4,92%
9
-2,13%
3
1,58%
2
-
-
18,18%
8
5,33%
9
-0,77
7
Prescient Core Equity Capped SWIX Fund
Capped SWIX All Share
6,64%
9
21,69%
5
-10,23%
6
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Sentio Capped SWIX Fund
Capped SWIX All Share
5,40%
16
19,73%
12
-13,73%
16
0,01%
3
-
-
-
-
-
-
17,45%
6
3,73%
4
0,22
3
Vunani Domestic Active Equity Capped SWIX
Capped SWIX All Share
5,41%
15
19,39%
13
-9,13%
2
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Vunani Domestic Passive Equity Composite Capped SWIX
Capped SWIX All Share
6,96%
7
21,51%
8
-10,67%
9
-
-
-
-
-
-
-
-
-
-
-
-
-
-
SWIX All Share
8,07%
Capped SWIX All Share
22,09%
6,98%
-6,09%
21,64%
2,00%
-10,78%
2,08%
-0,81%
7,05%
0,07%
10,61%
5,51%
17,68%
-
17,45%
Afena Capital Moderate Equity CAPI
CAPI ALSI
4,90%
3
17,14%
4
-16,23%
4
-0,16%
4
0,85%
3
4,65%
2
6,85%
2
16,22%
2
3,94%
3
-0,99
4
Afena Capital Core Equity CAPI
CAPI ALSI
4,72%
4
18,99%
3
-12,65%
3
1,23%
3
-
-
-
-
-
-
16,21%
1
3,04%
2
-0,83
3
Cachalia Capital C Value Fund
CAPI ALSI
6,74%
2
24,94%
1
0,70%
1
7,09%
1
4,56%
1
-
-
-
-
18,31%
4
4,37%
4
0,76
1
Mergence CAPI Fund
CAPI ALSI
7,67%
1
22,88%
2
-7,55%
2
2,62%
2
2,89%
2
7,21%
1
10,48%
1
16,38%
3
1,77%
1
-0,64
2 1
CAPI ALSI
7,03%
22,94%
-5,64%
3,76%
3,41%
7,37%
10,55%
16,92%
Kagiso Top 40 Tracker Fund
Top 40
7,86%
2
24,97%
1
2,30%
1
7,44%
1
5,03%
1
8,51%
2
11,17%
2
16,86%
3
1,48%
1
0,51
Prescient Core Equity ALSI Top 40 Fund
Top 40
8,04%
1
23,80%
3
-0,33%
2
6,89%
2
4,89%
2
8,74%
1
11,41%
1
17,06%
2
0,66%
2
0,32
2
Vunani Domestic Passive Equity Composite Top 40 Top 40
7,82%
3
24,01%
2
-0,76%
3
6,50%
3
4,70%
3
8,34%
3
11,14%
3
17,28%
1
0,17%
3
-1,04
3
Top 40
7,85%
24,18%
-0,55%
6,68%
4,82%
8,49%
11,23%
17,36%
141
e. South Africa Fixed Income SA NOMINAL & FLEXIBLE BOND FUNDS Risk statistics (3 years) Fund name
Benchmark
30-Jun
Argon Core Bond
ALBI
ALUWANI Active Bond
ALBI
#
Tracking error
#
Information ratio
#
Quarter
#
1 year
#
3 years
#
5 years
#
7 years
#
10 years
#
Volatility
#
-0,84%
3
10,11%
4
1,79%
10
8,87%
5
8,40%
3
8,33%
1
9,08%
2
10,14%
12
1,21%
6
0,63
5
-1,41%
11
8,92%
8
2,00%
7
8,12%
9
7,76%
8
7,63%
6
8,80%
3
9,43%
10
0,62%
2
0,01
8 6
Balondolozi Bond Fund
ALBI
-1,29%
9
8,39%
10
1,86%
9
8,36%
6
8,73%
1
8,07%
3
-
-
9,01%
6
1,16%
5
0,21
Balondolozi ALBI Tacker Fund
ALBI
-1,21%
7
9,88%
5
2,71%
4
-
-
-
-
-
-
-
-
-
-
-
-
-
-
IA Muhu Active Bond Fund
ALBI
-0,77%
2
10,92%
1
6,37%
1
10,37%
2
-
-
-
-
-
-
9,03%
7
1,03%
4
2,19
1
Kagiso Bond Fund
ALBI
-1,24%
8
6,79%
13
1,40%
11
8,25%
7
7,95%
5
7,33%
8,23%
7
8,54%
1
1,75%
10
0,08
7
Makalani Core Fixed Income Startegy
ALBI
-1,13%
6
10,44%
3
4,87%
3
11,92%
1
-
-
-
-
-
-
8,73%
4
2,73%
11
1,39
2
Prescient Bond Quantplus Plus
ALBI
-1,86%
13
8,19%
12
-0,49%
12
7,00%
11
7,59%
9
7,52%
9
8,38%
6
9,17%
8
1,39%
7
-0,80
12
10
Prescient Bond Quant Fund
ALBI
-1,49%
12
9,37%
6
1,88%
8
7,95%
10
7,78%
7
7,61%
7
8,59%
4
9,72%
11
0,58%
1
-0,27
10
Prescient Flexible Bond Fund
ALBI
-1,31%
10
8,39%
9
-2,33%
13
6,03%
12
7,57%
10
7,89%
5
8,20%
8
8,78%
5
3,19%
12
-0,65
11
Prowess Corporate Bond Fund
ALBI
-1,03%
5
9,16%
7
2,51%
6
8,12%
8
7,82%
6
7,53%
8
8,43%
5
8,64%
2
1,42%
8
0,00
9
Taquanta Core Bond Fund
ALBI
-0,57%
1
10,64%
2
6,26%
2
9,33%
3
8,58%
2
8,18%
2
-
-
8,72%
3
1,58%
9
0,77
4
Vunani Domestic Active Bond Composite
ALBI
-0,99%
4
8,29%
11
2,55%
5
8,93%
4
8,40%
4
8,03%
4
9,22%
1
9,25%
9
1,02%
3
0,80
3
ALBI
-1,18%
9,94%
2,85%
8,11%
7,49%
7,30%
8,30%
9,57%
SA INFLATION-LINKED BOND FUNDS Risk statistics (3 years) Fund name
Benchmark
30-Jun
#
Quarter
#
1 year
#
3 years
#
5 years
#
7 years
#
10 years
#
Volatility
#
Tracking error
#
Information ratio
# 2
ALUWANI Active Inflation Linked Bond
IGOV
-1,08%
4
4,01%
5
-3,61%
5
1,09%
4
2,46%
4
-
-
-
-
7,39%
3
0,57%
2
0,60
Balondolozi Inflation Linked Bond
CILI
-0,95%
3
4,92%
2
-3,21%
4
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Prescient ILB Fund
SAGLIB
-1,17%
5
5,03%
1
-3,14%
3
1,82%
2
3,03%
2
4,40%
1
6,03%
2
7,33%
2
9,02%
3
0,11
3
Taquanta Enhanced Inflation-Linked Bond
SAGLIB
-0,61%
1
4,34%
4
-2,02%
2
1,36%
3
2,57%
3
4,21%
3
6,15%
1
7,00%
1
10,10%
4
0,05
4
Vunani Inflation Linked Bond Composite
CILI
-0,87%
2
4,82%
3
-1,95%
1
2,31%
1
3,32%
1
4,28%
2
-
-
7,56%
4
0,43%
1
3,03
1
CILI
-0,91%
4,68%
-2,95%
1,01%
2,25%
3,92%
6,07%
7,45%
IGOV
-0,94%
4,75%
-3,27%
0,75%
2,08%
3,85%
6,04%
7,66%
SAGLIB
-0,40%
17,73%
-2,98%
0,81%
2,12%
3,90%
6,08%
15,39%
142
f. South Africa Money Market SA MONEY MARKET FUNDS Risk statistics (3 years) Fund name
Benchmark
30-Jun
#
Quarter
#
1 year
#
3 years
#
5 years
#
7 years
#
10 years
#
Volatility
#
Tracking error
#
Information ratio
#
Argon Enhanced Cash
STeFI
0,45%
10
1,86%
3
8,27%
4
8,40%
7
8,34%
7
7,79%
5
7,37%
5
0,27%
7
0,23%
8
5,33
9
ALUWANI Active Money Market
STeFI
0,44%
12
1,62%
8
7,90%
9
8,57%
6
8,62%
4
8,08%
4
7,75%
4
0,24%
6
0,15%
6
9,05
7
Afena Money Market Fund
STeFI
0,44%
13
1,54%
11
7,22%
13
7,58%
10
7,57%
9
-
-
-
-
0,14%
1
0,02%
1
17,71
1
Balondolozi Cash Fund
STeFI
0,53%
2
2,02%
2
8,54%
2
8,59%
5
8,49%
5
-
-
-
-
0,30%
9
0,28%
10
5,09
10
Kagiso Money Market Fund
STeFI
0,50%
5
1,84%
4
8,03%
8
8,39%
8
8,37%
6
7,78%
6
7,20%
6
0,18%
3
0,12%
4
10,04
5
Ngwedi Enhanced Yield Fund
STeFI
0,47%
7
1,35%
14
7,68%
10
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Prescient Money Market Fund
STeFI
0,47%
9
1,62%
9
7,64%
11
8,06%
9
8,04%
8
7,57%
7
7,18%
7
0,17%
2
0,08%
2
11,65
3 2
Prescient Yield QuantPlus Fund
STeFI
0,52%
4
1,79%
5
8,31%
3
8,67%
4
8,67%
3
8,20%
2
7,76%
3
0,18%
4
0,10%
3
15,09
Prowess Money Market Fund
STeFI
0,41%
14
1,62%
7
7,47%
12
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Taquanta Core Cash Fund
STeFI
0,47%
8
1,60%
10
8,23%
5
8,96%
2
8,97%
1
8,32%
1
7,97%
1
0,28%
8
0,19%
7
9,47
6
Taquanta Pooled Cash Fund
STeFI
0,48%
6
1,67%
6
8,06%
7
8,67%
3
8,69%
2
8,09%
3
7,77%
2
0,23%
5
0,14%
5
10,67
4
Taquanta Enhanced Core Fund
STeFI
0,52%
3
1,48%
12
8,16%
6
9,13%
1
-
-
-
-
-
-
0,34%
10
0,26%
9
7,45
8
SNN Money Market Fund (Terebinth)
STeFI
0,45%
11
1,41%
13
6,85%
14
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Vunani Money Market Composite
STeFI
0,60%
1
2,04%
1
8,82%
1
-
-
-
-
-
-
-
-
-
-
-
-
-
-
STeFI
0,44%
1,46%
6,86%
7,17%
7,20%
6,81%
6,48%
0,12%
g. South Africa Income SA INCOME FUNDS Risk statistics (3 years) Fund name
Benchmark
30-Jun
Quarter
1 year
3 years
5 years
7 years
10 years
Volatility
Tracking error
Information ratio
ALUWANI Flexible Income Fund
STeFI +2%
0,38%
3,00%
6,99%
8,85%
8,73%
8,37%
8,53%
1,45%
1,45%
-0,22
ALUWANI High Yield Credit Fund
STeFI +3%
0,64%
1,49%
7,83%
9,72%
10,06%
9,36%
9,73%
1,00%
0,97%
-0,47
Amplify SCI Strategic Income Fund (Terebinth)
STeFI +1%
0,98%
5,60%
9,25%
9,15%
8,79%
-
-
2,89%
2,88%
0,34
Argon Flexible Income Fund
STeFI 110%
1,30%
7,75%
4,36%
10,27%
9,78%
-
-
6,62%
6,60%
0,36
Balondolozi Income Fund
STeFI 110%
0,16%
3,58%
7,36%
8,77%
-
-
-
2,16%
2,14%
0,40
Ngwedi Active Income Fund
STeFI 110%
0,69%
1,27%
7,81%
-
-
-
-
-
-
-
Prescient Income Provider Fund
STeFI 110%
0,86%
4,04%
6,33%
8,29%
8,86%
9,13%
9,19%
2,30%
2,29%
0,16
Terebinth SCI Enhanced Income Fund
STeFI
0,36%
1,87%
7,37%
-
-
-
-
-
-
-
Vunani Enhanced Income Composite
STeFI 110%
0,76%
3,18%
8,62%
10,59%
10,15%
9,01%
-
2,16%
2,14%
1,25
STeFI
0,44%
1,46%
6,86%
7,17%
7,20%
6,81%
6,48%
0,12%
STeFI 110%
0,48%
1,61%
7,57%
7,92%
7,95%
7,52%
7,15%
0,14%
STeFI +1%
0,52%
1,71%
7,86%
8,17%
8,20%
7,81%
7,48%
0,12%
STeFI +2%
0,61%
1,96%
8,86%
9,17%
9,20%
8,81%
8,48%
0,12%
STeFI +3%
0,69%
2,21%
9,86%
10,17%
10,20%
9,81%
9,48%
0,12%
30-Jun
Quarter
1 year
3 years
5 years
7 years
10 years
Volatility
Tracking error
Information ratio 0,83
h. South Africa Listed Property SA LISTED PROPERTY FUNDS Risk statistics (3 years) Fund name
Benchmark
AWC Specialist Listed Property
SAPY
3,32%
21,52%
-21,35%
-8,30%
-
-
-
21,52%
12,09%
Meago Property SAPY Composite
SAPY
12,93%
20,67%
-39,61%
-17,87%
-7,98%
-1,17%
5,87%
27,92%
0,82%
0,56
Prescient Property Fund
SAPY
13,07%
19,62%
-40,01%
-
-
-
-
-
-
-
Meago Property ALPI Composite
ALPI
12,24%
19,32%
-38,61%
-
-
-
-
-
-
-
MSM Property Fund
ALPI
13,63%
31,32%
-34,68%
-17,80%
-
-
-
28,71%
7,27%
-3,42
SAPY
13,41%
20,43%
-39,98%
-18,33%
-9,06%
-2,51%
4,68%
27,96%
ALPI
12,94%
18,73%
-40,24%
-19,75%
-11,04%
-3,51%
3,78%
27,37%
143
144
Asset manager profiles | Public markets Name of company: Date of inception: Website: Address: Telephone: Email: Contact person: Title of contact person: Twitter: Facebook: Instagram: LinkedIn:
Name of company: Date of inception: Website: Address: Telephone: Email: Contact person: Title of contact person: LinkedIn:
Name of company: Date of inception: Website: Address: Telephone: Email: Contact person: Title of contact person:
Name of company: Date of inception: Website: Address: Telephone: Email: Contact person: Title of contact person: Twitter: Facebook: LinkedIn:
Aeon Investment Management (Pty) Ltd May-05 www.aeonim.co.za 4th Floor, The Citadel, 15 Cavendish Street, Claremont, 7708 +27 21 204 6061 funds@aeonim.co.za Tshego Modise Business Development Manager @AsiefMohamed Aeon Investment Management aeon_im_growth Aeon Investment Management (Pty) Ltd
Afena Capital (Pty) Ltd Nov-05 www.afenacapital.com 6th Floor, Sunclare Building, 21 Dreyer Street, Claremont, 7708 +27 21 657 6240 info@afenacapital.com Thabang Sengoara Business Development Manager Afena Capital Proprietary Limited
All Weather Capital (Pty) Ltd May-08 www.allweather.co.za 9th Floor, Katherine Towers, 1 Park Lane, Wierda Valley, Sandton, 2196 +27 11 722 7382 info@allweather.co.za Mark Scholefield Administrator
ALUWANI Capital Partners (Pty) Ltd Dec-15 www.aluwanicapital.com EPPF Office Park, 24 Georgian Crescent East, Bryanston East, 2152 +27 21 204 3800 aluwani@aluwanicapital.co.za Lonwabo Dambuza Business Development Manager @aluwani_capital ALUWANI Capital Partners ALUWANI Capital Partners
145
Name of company: Date of inception: Website: Address: Telephone: Email: Contact person: Title of contact person: Name of company: Date of inception: Website: Address:
Telephone: Email: Contact person: Title of contact person: Name of company: Date of inception: Website: Address:
Telephone: Email: Contact person: Title of contact person: Twitter: LinkedIn: Name of company: Date of inception: Website: Address: Telephone: Email: Contact person: Title of contact person: Name of company: Date of inception: Website: Address: Telephone: Email: Contact person: Title of contact person: LinkedIn:
Argon Asset Management (Pty) Ltd Apr-05 www.argonassetmanagement.co.za 1st Floor, Colinton House, The Oval, 1 Oakdale Road, Newlands, 7700 +27 21 670 6570 info@argonasset.co.za Luyanda Joxo Executive Balondolozi Investment Services (Pty) Ltd Apr-10 www.balondolozi.co.za 1st Floor, Building 1, Glenhove Square, 71 4th Street, Houghton Estate, 2198 +27 11Â 484 9023 admin@balondolozi.co.za Yolande Mokhantso Business Development Manager Benguela Global Fund Managers (Pty) Ltd Feb-13 www.benguelaglobal.com 3rd Floor, Rivonia Village, Cnr. Rivonia Boulevard and Mutual Road, Rivonia, 2191 +27 10 596 8500 info@benguelaglobal.com Thandi Zwambila Business Development Manager @benguela_global Benguela Global Fund Managers Cachalia Capital (Pty) Ltd May-12 www.cachaliacapital.co.za 12th Floor, Sinosteel Plaza, 159 Rivonia Road, Sandton, 2196 +27 11Â 883 0146 mashuda@cachaliacapital.co.za Mashuda Cassim Executive Excelsia Capital (Pty) Ltd May-16 www.excelsia.co.za 3rd Floor, Sunclare Building, 21 Dreyer Street, Claremont, 7708 +27 21 276 1740 info@excelsia.co.za Rajay Ambekar Executive Excelsia Capital
146
Name of company: Date of inception: Website: Address: Telephone: Email: Contact person: Title of contact person: LinkedIn: Name of company: Date of inception: Website: Address: Telephone: Email: Contact person: Title of contact person: Name of company: Date of inception: Website: Address: Telephone: Email: Contact person: Title of contact person: Name of company: Date of inception: Website: Address: Telephone: Email: Contact person: Title of contact person: LinkedIn:
Name of company: Date of inception: Website: Address:
Telephone: Email: Contact person: Title of contact person: LinkedIn: YouTube:
First Avenue Investment Management (Pty) Ltd Sep-10 www.firstavenue.co.za Ground Floor, 21 Fricker Road, Illovo, 2196 +27 11 772 2480 opsteam@firstavenue.co.za Neetin Govan Administrator First Avenue Investment Management Fortitudine Vincimus Capital Advisors (Pty) Ltd Aug-14 www.fvcadvisors.com 12 Lover's Walk, Rondebosch, 7700 +27 82 854 0808 info@fvcadvisors.com Mike Kane Executive Idwala Capital (Pty) Ltd Aug-17 www.idwalacapital.co.za 1st Floor, 63 St. Andrew Street, Birdhaven, 2196 +27 11 447 1099 nandi@idwala.capital Nandi Rodolo Executive Independent Alternatives Investment Managers (Pty) Ltd Aug-15 www.independentalternatives.co.za Jupiter House, River Park, 42 Homestead Road, Rivonia, 2191 +27 11 234 0187 info@independentalternatives.co.za Tatenda Chapinduka Executive Independent Alternatives Investment Managers Kagiso Asset Management (Pty) Ltd Dec-01 www.kagisoam.com 5th Floor, MontClare Place, Cnr. Main & Campground Roads, Claremont, 7708 +27 21 673 6300 info@kagisoam.com Tisha Powell Administrator Kagiso Asset Management Kagiso Asset Management
147
Name of company: Date of inception: Website: Address: Telephone: Email: Contact person: Title of contact person: LinkedIn:
Name of company: Date of inception: Website: Address: Telephone: Email: Contact person: Title of contact person: Twitter: LinkedIn: Name of company: Date of inception: Website: Address: Telephone: Email: Contact person: Title of contact person: Twitter: Facebook: LinkedIn: Name of company:
Lima Mbeu Investment Managers (Pty) Ltd Sep-17 www.limambeu.co.za 2nd Floor, Fredman Towers, 13 Fredman Drive, Sandton, 2196 +27 10 023 0113 invest@limambeu.co.za Teboho Tsotetsi Executive Lima Mbeu Investment Managers (Pty) Ltd Lodestar Fund Managers (Pty) Ltd Jan-15 www.lodestarfunds.com 2nd Floor, The Terraces, 25 Protea Road, Claremont, 7735 +27 267 7812 info@lodestarfunds.com Reza Khan Executive @lodestarfunds Lodestar Fund Managers Lunar Capital (Pty) Ltd Jan-15 www.lunarcapital.co.za 29 Seventh Street, Houghton Estate, 2198 +27 83 305 7860 sabir@lunarcapital.co.za Sabir Mahomed Munshi Executive @sabirmunshi Lunar Capital Sabir Munshi
Telephone: Email: Contact person: Title of contact person: Twitter: LinkedIn:
Makalani Management Company (Pty) Ltd Aug-04 www.makalani.co.za Ground Floor, 261 Oxford Road, llovo, 2196 +27 11 428 0680 enquiries@makalani.co.za Munier Badat Executive @MakalaniMC Makalani Management Company
Name of company: Date of inception: Website: Address: Telephone: Email: Contact person: Title of contact person:
Meago Asset Managers (Pty) Ltd Mar-06 www.meago.co.za 73 Oxford Road, Saxonwold, 2196 +27 11 646 2944 sanehm@meago.co.za Saneh Memela Administrator
Date of inception: Website: Address:
148
Name of company: Date of inception: Website: Address:
Telephone: Email: Contact person: Title of contact person: Twitter: Facebook: LinkedIn: YouTube: Name of company: Date of inception: Website: Address: Telephone: Email: Contact person: Title of contact person: Name of company: Date of inception: Website: Address:
Telephone: Email: Contact person: Title of contact person: Twitter: Instagram: LinkedIn: YouTube: Name of company: Date of inception: Website: Address: Telephone: Email: Contact person: Title of contact person: LinkedIn:
Mergence Investment Managers (Pty) Ltd Oct-04 www.mergence.co.za 2nd Floor, Cape Town Cruise Terminal, V&A Waterfront, Duncan Road, 8001 +27 21 433 2960 info@mergence.co.za Ronel Bantjes Executive @MergenceIM Mergence Investment Managers Mergence Investment Managers Mergence Investment Managers Mianzo Asset Management (Pty) Ltd Aug-10 www.mianzo.co.za Unit EG01 Vesta House, The Forum, Northbank Lane, Century City, 8000 +27 21 552 3555 zukile@mianzo.co.za Zukile Nchukana Business Development Manager MSM Property Fund (Pty) Ltd Aug-15 www.msmpropertyfund.com 1st Floor, 3 Exchange Square, 87 Maude Street, Johannesburg, 2196 +27 64Â 097 6456 musi.skosana@msmproperty.co.za Musi Skosana Executive @MSMProperty @MSMProperty MSM Property Fund MSM Property Fund Ngwedi Investment Managers (Pty) Ltd Aug-18 www.ngwedi.com Suite 4b, 1st Floor, Madison Place, Constantia, 7848 +27 21Â 000 1900 monei@ngwedi.com Monei Pudumo-Roos Executive Ngwedi Investment Managers
149
Name of company: Date of inception: Website: Address: Telephone: Email: Contact person: Title of contact person: Twitter: LinkedIn:
Name of company: Date of inception: Website: Address: Telephone: Email: Contact person: Title of contact person: LinkedIn: Name of company: Date of inception: Website: Address: Telephone: Email: Contact person: Title of contact person: Twitter: Facebook: LinkedIn: Name of company: Date of inception: Website: Address: Telephone: Email: Contact person: Title of contact person: Twitter: Instagram: LinkedIn:
Perpetua Investment Managers (Pty) Ltd Oct-12 www.perpetua.co.za 5th Floor, The Citadel, 15 Cavendish Street, Claremont, 7708 +27 21 674 4274 info@perpetua.co.za Kevin Dantu Business Development Manager @Perpetua_Invest Perpetua Investment Managers (Pty) Ltd Prescient Investment Management (Pty) Ltd Sep-98 www.prescient.co.za Block B, Silverwood Lane, Steenberg Office Park, Tokai, 7945 +27 21 700 3629 kelly.castle@prescient.co.za Kelly Castle Business Development Manager Prescient Investment Management Prowess Investment Managers (Pty) Ltd Dec-08 www.prowessinvestments.com 20th Floor, Thibault Square, 1 Long Street, Cape Town, 8000 +27 21 565 0400 precious@prowessinvestments.com Precious Buthelezi Business Development Manager @ProwessManagers ProwessInvestments ProwessInvestments Sentio Capital Management (Pty) Ltd Jul-07 www.sentio-capital.com 1st Floor, Illovo Edge, Building 3, 5 Harries Road, Illovo, 2196 +27 11 880 1994 info@sentio-capital.com TC von Czettritz und Neuhaus Executive @SentioCapital sentio_capital Sentio Capital Management
150
Name of company: Date of inception: Website: Address: Telephone: Email: Contact person: Title of contact person: Twitter: Facebook: LinkedIn: Name of company: Date of inception: Website: Address: Telephone: Email: Contact person: Title of contact person: LinkedIn: Name of company: Date of inception: Website: Address: Telephone: Email: Contact person: Title of contact person: Facebook: LinkedIn: Name of company: Date of inception: Website: Address: Telephone: Email: Contact person: Title of contact person: Twitter: Facebook: LinkedIn: Name of company: Date of inception: Website: Address: Telephone: Email: Contact person: Title of contact person:
Taquanta Asset Managers (Pty) Ltd Sep-99 www.taquanta.com 7th Floor, Newlands Terraces, Boundary Road, Newlands, 7700 +27 21 659 5100 crm@taquanta.com Ray Wallace Executive @AssetTaquanta Taquanta Asset Managers Taquanta Asset Managers Terebinth Capital (Pty) Ltd Apr-13 www.terebinthcapital.com 2nd Floor, Combined HQ Building, 4 Bridal Close, Tyger Valley, 7530 +27 21 943 4825 team@terebinthcapital.com Nomathibana Matshoba Executive Terebinth Capital Value Capital Partners (Pty) Ltd Jul-16 www.valuecapital.co.za 8th Floor, Rosebank Link, 173 Oxford Road, Rosebank, 2196 +27 10 060 0800 info@valuecapital.co.za Samuel Sithole Executive Value Capital Partners Value Capital Partners Volantis Capital (Pty) Ltd Jun-19 www.volantis.co.za The MARC, 129 Rivonia Road, Johannesburg, 2196 +27 10 006 0035 sisa.mayekiso@volantis.co.za Sisa Mayekiso Executive @Sisa_Mayekiso Sisa Mayekiso Sisa Mayekiso Vunani Fund Managers (Pty) Ltd Jul-99 www.vunanifm.co.za 6th Floor Letterstedt House, Newlands-on-Main, Newlands, 7700 +27 21 670 4900 marketing@vunanifm.co.za Snowy Masakale Executive
151
Private markets 152
Introduction Private markets investing in South Africa has enjoyed a higher profile over the past year as listed markets have continued to deliver muted returns, and investors have begun to look for diversification. In addition, the increased focus on infrastructure investments from government, and the emphasis on public-private partnerships to achieve both investment returns and social impact targets has created an important role for private markets fund managers. That said, increased allocations to unlisted investments are yet to come from South African institutional investors, and offshore investors in recent years have only been active in some niche areas of our unlisted markets. From the perspective of black fund managers active in the private markets space, they have continued to experience the challenges of long fundraising cycles. There have been new allocations to black funds over the past year, mainly driven through specific programmes of retirement funds designed to increase the share of capital managed by black fund managers. However, the notable absence of the PIC in making new fund allocations, the continued absence of local DFIs from fund investing, and the increasing reluctance of offshore DFIs to invest in South Africa focused funds have contributed to such long fundraising cycles.
The COVID-19 environment has also affected private markets, both from the perspective of impact on deal making and portfolio companies, as well as prolonging fundraising. Managers are being asked by investors to focus on existing portfolios and delay new fundraising until portfolio companies are better positioned to ride out the economic impact of the pandemic. Practical difficulties in creating new contacts and performing due diligences have also lengthened investment cycles, in addition to the valuation uncertainty that the pandemic has created. On the positive side, many managers were quick to adapt processes, and go back to the negotiating table to structure more downside protection and revised deal pricing into their agreements. SAVCA now counts 49 full members as black fund managers, with a total of R53 Billion of reported commitments. This continues the positive trend of transformation within the private markets investment industry, which has made great strides in recent years.
We view the post-COVID-19 environment as a favourable one for private markets investing as a result of the scarcity of capital in the market. Companies with strong financial backing and access to good strategic thinking will be well positioned to gain market share and prosper in this environment. In our engagement with appointed and prospective black managers, we continue to be excited by the opportunities identified and deals executed. In general, we are pleased with the way that managers are adapting to incorporate the current risk environment, and to include more earnings protection into their deal structuring. While there are certainly challenges for black private markets managers, as a cohort they continue to do deals, build track record and find opportunities to invest. We are proud to partner with many of them to achieve good outcomes for our clients and the economy.
Twenty firms completed our survey this year, which have raised a total of R19.3 Billion across 30 funds, representing both an increase in participation and AUM from last year. While the overall asset size is encouraging, it is important to note that the universe of participating firmsâ&#x20AC;&#x2122; AUM is highly skewed, with a long tail of managers currently subscale.
153
Private markets
17
Fund facts Section highlights
Partnerships for the goals
R19.3 Billion 67%
65%
Total capital raised by 20 firms across 30 funds
Of total capital is in first generation funds
Of managers were on their first fund, 15% on Fund II and 20% on Fund III or later
75%
52%
R850 Million
Of firms operate in the mid-market, and none operate in the large buyout space
Median size of largest investor in current fund
Median AUM of those managers who have raised capital
75%
60%
5%
Of managers are currently raising a fund
Of capital raised is from local retirement funds
Capital raised from DFIs
85%
4
Of managers said there is a need for formal incubation of new managers
The median size of investment teams
154
Private markets
Section highlights
COVID-19 impact
91%
15%
60%
FINANCIAL IMPACT
Of capital raised is from local sources, with the balance split between North America and Europe
Of managers see the current regulations as supportive to new black entrants
Of firms implemented cost containment measures such as cancelling bonuses or reducing salaries
Biggest concern raised by 75% of firms
90%
81%
PAYE DEFERRAL
90%
Of firms integrate and contract ESG and transformation approaches with investors and portfolio companies
Of black staff are at partner/principal level, 74% at associate level and 90% at analyst level
Top relief measure used by firms
Of firms believe that investors will be more focused on the SDGs in a post COVID-19 environment
82% Of all staff employed are black South Africans
155
a. Participants
#
Manager
1
Ascension Capital Partners
2
Ata Capital
3
Bopa Moruo Private Equity Fund Managers
4
Crede Capital Partners
5
Eklavya Asset Managers
6
Ethos Mid-Market Fund I
7
FyreFem Fund Managers
8
Khumovest
9
Kleoss Capital
10
Makalani Management Company
X
11
Medu Capital
X
12
Moshe Capital
13
PAPE Fund Managers
14
RH Managers
15
Sanari Capital
16
Senatla Capital
17
Summit Africa
18
Tamela Capital Partners
19
Third Way Investment Partners
20
Vuna Partners
There were twenty participants in this yearâ&#x20AC;&#x2122;s private markets segment of the survey, a good increase on the fifteen participants in the previous yearâ&#x20AC;&#x2122;s. The proportion of private markets respondents has been increasing in recent years and now makes up 39% of all respondents (20 out of 51), up from 30% in 2019. The greater participation has also reflected an increase in the size of capital under management, up to R19.3 Billion from R15.2 Billion previously reported in 2019.
New participants X
X
X
X
Those surveyed manage funds that invest across a wide range of unlisted investments, including private equity, infrastructure and private debt. They also invest across all sectors and are mainly focused on South African investments with a strong focus on the mid-market, as well as facilitating black ownership of existing companies.
156
% of firms
Private markets share of total participating firms There is a trend towards more participants coming into private markets, particularly black managed funds. This has meant that such funds are starting to make up a greater proportion of the market but still represent a small fraction of total industry assets. The latest SAVCA industry report reflects the size of AUM in South African private markets as R184 Billion, meaning black-owned managers manage approximately 10% of AUM based on the respondents to the survey,
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2017
2018
2019
2020
Private Markets Public Markets
Based on an analysis of the SAVCA membership directory, SAVCA considers 49 of its members to be black fund managers, with total reported AUM of R53 Billion, or 28.8% of industry AUM. There are four large fund managers on SAVCAâ&#x20AC;&#x2122;s list which did not participate in this survey, accounting for R26.8 Billion. The rest of the difference is largely explained through the exclusion of funds of funds, while the remainder of smaller managers make up the rest. The results set out in this report have been presented on the basis of the managers that completed the survey.
b. Distribution
Generation of funds currently under management or capital raising
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
73%
No
75%
27%
25%
2019
2020
Yes
Fundraising is a perpetual issue in private markets in South Africa, and particularly for black fund managers who tend to have shorter track records than other managers. With institutional allocations to private markets at such low levels compared to international norms, there are certainly more managers than can sustainably be funded. This is beginning to change with the prominence of private markets investments increasing, if only as a result of the poor performance of listed markets. While we have not measured this, fundraising cycles for black fund managers tend to be measured in several years, and many managers cannot sustain themselves over this period. Even the most experienced black
% of firms
% of firms
% of firms currently raising capital
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
5% 15%
27%
15% 20%
65%
53%
2019 Fund I
Fund II
2020 Fund III
Later than Fund III
managers may be subject to these long cycles, and some even more so as they fall between the allocations for â&#x20AC;&#x153;incubationâ&#x20AC;? as new managers and the more regular allocations to well established managers. Three-quarters of respondents are currently fundraising, most of these for their first fund. Thirty funds are currently or have been historically managed by the twenty respondents. In total, across these funds, R19.3 Billion had been raised, with R13 Billion of this across seventeen first-generation funds. While thirteen of the twenty respondents are currently raising or managing their first funds, six firms have already managed to raise capital for subsequent funds, in all cases raising more capital in each subsequent fund than the previous one. 157
Level of engagement of potential investors SA pension funds Fund of funds Asset consultants Local DFIs Other local investors International DFIs Life companies Other offshore investors Wealth managers Overall Currently
0
0.5
1.0
1.5
2 years ago
Participants were asked to rank the level of engagement from different categories of potential investors currently compared to two years ago. The ranking was on a scale of 1 to 5, where 5 was most engaged and 1 least engaged. The participants did notice a small positive change in overall engagement from potential investors over the past two years. This was largely driven by more positive engagement with local pension funds, funds of funds and asset consultants, all of which showed notable positive shifts. There was a relatively low level of interest
2.0
2.5
3.0
3.5
4.0
4.5
Level of engagement
from life companies, wealth managers and offshore investors, although respondents did reflect positive changes in most categories. It was interesting to note the relatively high level of engagement reflected from local DFIs, despite the lack of any meaningful capital coming from this channel.
158
Capital raised by geography 5%
4%
South Africa Europe US
91%
Capital raised by LP type 70%
% of firms
60% 50% 40% 30% 20% 10% 0% SA Retirement Funds
Wealth Managers
Multi-Managers
Eighty percent of respondents have raised their capital exclusively from South African investors, with only 9% of total capital raised from non South African investors. It is also interesting to note that of this 9%, almost all of this was raised more than 5 years ago, indicating that almost no capital has been raised offshore in recent times. In a similar vein, the role of development finance institutions, which were so instrumental in developing the industry in the past, has diminished considerably. Only three respondents of the twenty had been recipients of funding from local DFIs and only two from offshore DFIs (only one in the past 5 years). Local DFIs allocations have also been very small in comparison to total funds raised.
DFIs
Offshore Investors
further 19% and 11% from wealth managers and multimanagers respectively. Only 6% of actual capital raised was raised from DFIs with the remaining 4% from other offshore investors. This clearly indicates that retirement savings pools are by far the largest source of capital for black private markets funds. The relatively large portion from wealth managers is not widely spread, with 80% of this allocation going to two fund managers. As noted above, DFIs and offshore investors have not been significant sources of capital for black private markets fund managers.
Sixty percent (2019:54%) of capital raised for black private equity funds came from pension funds and a
159
Managers receiving at least some funding from each LP type SA pension funds (incl. through consultants Fund of funds Other local investors Life companies Other offshore investors Local DFIs Wealth Managers International DFIs 0%
10%
Sixty-five percent of managers surveyed has previously raised capital from local retirement funds. Managers largely target local institutional capital by approaching asset consultants, multi-managers and pension funds. This is where capital has historically mostly come from
20%
30%
40%
50%
60%
70%
for these funds. To a lesser extent, managers are also looking to DFIs and offshore investors, despite the much lower historical number of commitments from these parties.
14 000
18
12 000
16 14
10 000
12
8 000
10
6 000
8 6
4 000
4
2 000
Number of funds
ZAR Millions
Actual funds raised by fund generation
2 0
0 Fund I
Fund II
Fund III+
Number of funds Total capital
Seventeen of the thirty funds that have been raised are first generation funds of the managers, while six second funds and five third or further funds have been raised. A further two fund vehicles have also been raised that do not fall into these categories, in that they were raised to invest alongside other fund vehicles rather than full funds in their own right.
160
Total capital by size quartiles of funds raised 14 000
ZAR Millions
12 000 10 000 8 000 6 000 4 000 2 000 0 Largest quartile
Upper quartile
It must be noted that there is a large dispersion in fund sizes, with the smallest 50% of managers having a total of R1.8 Billion (9%) of capital, with 3 having no capital raised to date. The largest 20% have R10.2 Billion (53%) of total capital. This does call into question the viability of some managers in the market. For independent fund managers without a tie to a single large investor, median commitments are between R100-
Lower quartile
Smallest quartile
200 Million per LP, while some managers choose to tie up with a single large investor to supply the majority of their capital. The median fund manager had R850 Million (2019: R635 Million) under management from three LPs, and 25% of firms had just one LP making up more than 80% of their capital.
c. Bottlenecks and barriers A big question in the transformation efforts of the industry is the exact nature of the challenges to achieving a more transformed private markets industry, and whether the market interventions being made are the right ones to help black managers to overcome these challenges. The view historically has been that difficulties related to creating the confidence in investors and the trust required for large allocations of capital to be
Current regulations encourage new black private markets fund entrants and build skills 100%
7% 30%
% of firms
80%
33%
60%
committed to black managers has been the single largest challenge. Several questions were asked of fund managers relating to bottlenecks and barriers to their creation of successful fund management businesses. Their answers reflected some positive developments and policy assistance but also highlighted some key challenges.
The regulatory environment around black private markets fund managers do provide significant advantages, such as the ability to confer black ownership onto investee companies if certain criteria are met. In theory, this should assist portfolio companies to prosper through better B-BBEE ratings and an increased ability to do business with customers sensitive to B-BBEE ratings such as corporates and government entities.
55%
40% 60% 20%
15% 0% 2019 Yes
2020 No
Not sure
In a significant change since the previous survey, only 15% of managers felt that private equity fund regulations were appropriate to encourage new entrants and build skills. This was in contrast to the previous survey where a majority thought that these regulations were appropriate. It is unclear why there has been such a reversal of opinion in the current year, but we can postulate that the crowded fundraising environment is a significant contributing factor. 161
% of firms
% of firms who believe they are able to compete fairly against the dominant incumbent GPs 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
6%
47%
65%
47%
35%
2019
2020
Donâ&#x20AC;&#x2122;t have a view No Yes
The South African private markets industry is fairly well established, with R184 Billion in AUM according to the most recent SAVCA industry report. Within this established industry there are several larger players which have built up capacity, networks, track record and investor relationships over long periods of time. Newer entrants (which most black firms are) are naturally going to be at an earlier stage in their life cycle, and may not have advanced all of these components of their businesses to the same extent. Opinion was divided on whether black private equity funds were able to compete effectively with more established firms, and was more negative than the previous year. In analysing the responses, those black managers with more extensive investor relationships felt more able to compete with the wider universe of fund managers.
Is there a need for formal incubation of new GPs? 100%
7%
15%
% of firms
80% 60% 93%
85%
40% 20% 0% 2019 No
2020 Yes
There was continued overwhelming support for further interventions to assist black private equity managers, including making the B-BBEE Scorecard for Retirement Funds compulsory; for the SAVCA Fund Manager Development Programme which aims to build skills in new management teams, and for incubating new fund managers. Most respondents, but not all, felt that there was a need for formal incubation of new private markets managers. It is interesting to note that even of those managers which had successfully raised capital, most said there was a need for incubation of new GPs. From our understanding of the market and the origins of the various black managers, many have benefitted from elements of incubation even if they have not formally been incubated.
Have LPs played an incubation role in your fund? 100%
% of firms
80% 60%
70%
73%
80%
30%
27%
20%
2018
2019
2020
40% 20% 0%
No
Yes
Only one in five respondents have had an LP who has played a significant incubation role to assist the manager to navigate some of the early challenges of fund management. From the responses received, there has been no single active LP providing this assistance across the market, but it has rather been individual LPs assisting particular managers. There does also seem to be a wide range of different interpretations of what constitutes incubation from manager to manager, depending on their needs. What is clearly required from any incubation approach, is a greater collaboration from potential LPs to accelerate time taken to get a new fund to first close. 162
3
10
12 17
Biggest challenge
2nd biggest challenge
As in prior years, fundraising was clearly flagged as the biggest challenge for black managers. Seventeen of the twenty respondents cited this as their top challenge, while the other three ranked this as the second biggest challenge. Hand in hand with fundraising goes the challenge of demonstrating a track record to prospective investors. This is not only a challenge for first time fund managers, but also in the raising of subsequent funds, if the manager has not yet exited a number of fund I deals to demonstrate full deal cycles and realised returns.
1
Access to high calibre IC members
3
Obtaining a licence to manage funds
4
Costs of fund setup such as legal, compliance etc.
1 1
Managing pipeline while raising funds
2
Working capital needs during fundraising
2 1
Building and maintaining a team
1
Back office such as payroll, compliance, tax and fund administration
2
Demonstrating a track record
20 18 16 14 12 10 8 6 4 2 0
Fundraising
Number of firms
Top 3 challenges for first time fund managers ranked by participants
3rd biggest challenge
Part of this is also the challenge of obtaining a licence, but in the current survey, only one respondent flagged this as a challenge in their top three. While it was lower rated than other challenges, maintaining a pipeline while going through a fundraise of indeterminate length is a point of significant stress for managers and their teams.
A consistent message in the surveys over the years has also been the struggle to meet working capital needs and maintain a team through a fundraising period. Managers complain of the â&#x20AC;&#x153;chicken and eggâ&#x20AC;? situation of needing capital to earn fees to pay for a team, but needing a team in order to raise capital.
163
d. Investment philosophy Investment strategies followed by respondents 80%
2019
70%
2020
% of firms
60% 50% 40% 30% 20% 10%
Survey respondents were asked to indicate which strategies formed part of their approach to investing, with similar results to last year. Almost three-quarters of firms indicated that their investment strategy was focused on the mid-market with 55% targeting B-BBEE transactions where the primary driver of the deal is to bring empowerment to the investee company. There
SME
Turnaround
Secondaries
B-BBEE transactions
Across the market
Real estate
Infrastructure
Early stage
Mid-market
Large buyout
0%
were smaller focuses on infrastructure and turnaround opportunities, with some focus on early-stage investing. Interestingly there is still a low focus on infrastructure, despite the attention this is getting from government through the infrastructure investment office set up in the presidency.
% of firms
Target fund size 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
7% 25%
20%
5% 5%
33% 45%
70% 75% 60% 45% 10%
2017
2018
Below R300 Million
2019
2020
The target fund size of respondents has fluctuated over time with the current target sizes split between funds over R1 Billion and those between R500 Million and R1 Billion. The managers targeting lower fund sizes (under R500 Million) are doing so under specialist strategies including SME funding and turnaround strategies, while those in the R500 Million - R1 Billion category are typically raising their first fund, or had small first funds with relatively few LPs. Those targeting over R1 Billion either have track record and strong investor bases behind them, or are putting significant resources into investor relations in order to make these targets a reality.
R300 Million - R500 Million R500 Million - R1 Billion Above 1 Billion
164
Funds raised to date
% of firms
100%
Over R500 Million
14%
80%
20%
60%
13%
R100 Million - R200 Million
40% 20%
R200 Million - R500 Million
35%
20%
R50 Million - R100 Million
10% 5%
Less than R50 Million
53%
30%
2019
2020
0%
their targeted capital, down from 53% in the prior year. A further 30% had raised totals within their target range. Overall the picture looks more positive than the previous year, with a better mix of progression towards fundraising targets.
Thirty percent of managers had not yet raised any significant capital in the current fundraising, while only 35% had raised over R500 Million. This threshold of R500 Million is seen in many cases as a minimum for a viable fund size to enable the manager to support a team based on the fees earned on this capital base at standard fee rates.
It must be noted that a number of managers who are at an early stage in their fundraising, or those who are struggling to raise capital have decided not to participate in the survey. It is likely that the apparent success of targeted fundraising has an element of survivorship bias to it and should be interpreted as such.
These findings take some interpretation, as R500 Million raised by one manager may mean that their target has been reached, but for another, it may not be enough for a first close. In their current fundraising, 30% of managers indicated that they had not yet raised any of
e. Establishment of track records Number of deals completed to date across all funds 7
2019
Number of firms
6
2020
5 4 3 2 1 0 0
1
2-5
5-10
Over 10
Number of deals
165
Deals exited to date across all funds 16
2019
Number of firms
14
2020
12 10 8 6 4 2 0 0
1
2-5
5-10
Over 10
Number of deals
The other side of this coin is that the median manager has not yet exited any of its investments, with 70% of the managers indicating this in their responses. However, at least three managers have now done more than ten exits, and a further three who have at least done some exits.
Each year, there is a steady progression of deals done across the managers responding. Eleven managers (2019:9) have now done at least five deals. This points to the growing maturity of the space, indicating that the median manager is now approaching the end of their first fund, looking to raise a subsequent fund, rather than the median manager being in the early stages of their first fund.
Number of firms
Funds currently active 12
2017
10
2018 2019
8
2020 6 4 2 0 0
1
2
3
Over 3
Number of funds
166
Funds sucessfully exited 18
Number of firms
16 14 12
2017
10
2018
8
2019
6
2020
4 2 0 0
1
2
3
Number of funds
year. While this looks encouraging, it is at least partly explained by a higher participation in the survey in the current year. It also counts smaller funding vehicles formed by some managers to build track record before launching fully formed institutional funds later on.
Four managers have fully exited at least one fund, while seven managers have more than one active fund currently operating. When it comes to active funds, ten of the respondents had one active fund, a significant increase from the prior
50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0%
2019
There has been a continuing shift towards local pension funds, including deals done through their asset consultants. Conversely, DFIs that at one stage played an anchor role in many private markets funds, have allocated very little to black private equity funds. This shift from DFIs has been most pronounced from the offshore DFIs, which now mostly regard South Africa as middle income, or have steered away from single country private markets funds, and Rand denominated funds in particular. On the local DFI front, the large DFIs have not been making commitments to funds for many years now,
Offshore investors
DFIs
Wealth managers
Umbrella funds
SA pension funds
Multi-managers
2020
Asset consultants
% of firms
Classification of Limited Partners
preferring to build teams within their own organisations to better fit their own mandates. The fundraising market has also noted the absence of the PIC, which has been busy with an extended due diligence process for new fund managers since 2018, without new commitments being made over this time. It has been clear, since the initiation of this survey, that black private markets funds are overwhelmingly funded by local investors, with more than 90% of the LP base in any given year coming from South Africa.
167
f. Brand building in industry bodies, market presence and advertising. Overall it must be said that these activities were at a low level, but an overall improvement was noted from the previous year.
Building a brand is an important part of the creation of any business, including fund management businesses. We asked the respondents several questions around their brand building activities including their participation
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
No
Eighty-five percent of respondents are members of SAVCA as required by the Conditions for Private Equity Investment under Regulation 28. Those that are not yet registered are expected to be registered before they can manage pension fund capital according to these regulations. The next biggest representation is with ABSIP, where 45% of respondents are members. There
Institute of Retirement Funds (IRF)
Business Leadership South Africa (BLSA)
Business Unity South Africa (BUSA)
Black Business Council (BBC)
Black Management Forum (BMF)
Association of South African Black Actuarial Professionals (ASABA)
Black Investment Management Business Forum (BIMBF)
Transformation Action Forum (TAF)
Southern Africa Venture Capital and Private Equity Association (SAVCA)
The Association of Black Securities and Investment Professionals (ABSIP)
Yes
The Association for Savings and Investment South Africa (ASISA)
% of firms
Industry membership and participation
is limited representation across the other business and pro-fessional bodies present in the market. Only three respondents are members of the IRF, despite retirement funds being easily the largest source of capital for black private markets funds.
Representation on SAVCA (or any other industry body) 100%
Black private markets funds are well represented on the boards of SAVCA and other industry bodies, with almost half of respondents confirming that they have representation at this level. This is an improvement from last year when 40% of respondents said that they had representation at this level.
% of firms
80% 60% 40% 20% 0% 2019
2020
This improvement in transformation is also reflected within the main industry body, SAVCA, which has continued to transform at both its board level as well as the makeup of its executive team.
No Yes 168
There has been an increase in the brand development activities of the respondents, with more saying that they exhibit at industry conferences, speak at industry events,
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
Regular speakers at industry events/webinars? 100% 80% % of firms
% of firms
Does the company exhibit at or sponsor industry conferences?
run their own webinars and publish research. While many are coming from a low base of activity, it is pleasing to see the positive momentum in progress.
60% 40% 20% 0%
2019
2020
2019
No
No
Yes
Yes
2020
Publishing research articles or case studies is perhaps an area where more could be done to gain valuable exposure, but doing so is time consuming, making it difficult for teams who are already stretched. We have seen this strategy used effectively to gain exposure and to demonstrate the principles behind the approach of particular managers.
Has the firm published research?
50%
50% Yes No
% of firms
Has the firm participated as a speaker in webinars in 2020?
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2019
2020
No Yes
169
Has the firm received an award for investment performance? 100%
No Yes
% of firms
80% 60%
There are not many awards programmes focused on South African private equity, with the notable exception of the relatively new SAVCA industry awards. The long investment cycles of private markets investing also make awards much more subjective, but we do expect to see more awards in place in future years. In the current survey we started to see some awards come through in the responses for the first time.
40% 20% 0% 2019
2020
Advertising fundraising, where there are relatively few parties being marketed to, and where this happens directly. This suits a relationship-building style of marketing much better than a broadcasting strategy of advertising and brand building.
As in prior years, it is evident that very little is spent on marketing activities - there are two likely reasons. Firstly, black managers tend to be newer and have tighter budgets than more established players. Secondly, the marketing spend that is incurred is directed towards
% of firms
% of revenue spent on advertising, branding and marketing 100% 95% 90% 85% 80% 75% 70% 65% 60% 55% 50% 2019
Over 15%
10% - 15%
1% - 5%
Under 1%
5% - 10%
Where advertising spend is incurred, the vast majority is spent on print and social media advertising, where costs are manageable. The high cost and wide reach of TV, radio and outdoor campaigns is not seen as effective spend given the very niche target audiences of private equity funds.
2020
Billboard
Television
Radio
Online
Social media
Sponsorships
50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% None
% of firms
Paid medium used for advertising
170
What is disappointing from a brand building point of view, is that managers do not fully use the opportunities available to them to build their brands. Press releases at key milestones are low cost and effort, but over time build the prominence of the brand in the market. What is also perhaps often overlooked by managers is the positive deal flow that can be created by having a more public profile.
Events for which the firm issues press releases 80% 70% % of firms
60% 50% 40% 30% 20% 10% None
Only when required by competition commission
On exit of deals
On successful conclusion of deals
Fund closes
0%
% of firms with fully functional websites 100%
While marketing budgets are tight, it is concerning to see that 70% of black fund managers do not have a fully functioning website. While some point to regulatory reasons for keeping a lower profile, we do consider this a limitation for those fund managers choosing not to manage their presence online effectively. As private markets funds get closer to being included in regulations and become more commoditised investment products, managers will need to do better on this front if they are to compete for capital effectively.
% of firms
80% 60% 40% 20% 0% 2019
2020
No Yes
171
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
2019
Managers consistently rank investment performance as the biggest driver of brand recognition, and 2020 continues this view. The impact created through investments is also seen as an important driver of brand, along with the name recognition of key investment professionals. Surprisingly, having a differentiated product was ranked as only the 6th most important driver of brand recog-
Low fees
Advertising and marketing
Differentiated product
Values
People
Impact of investments
Client focused
2020
Consistent investment performance
% of firms
Drivers of brand recognition as ranked by managers
nition, with low fees seen as least important. Creating lower fee products and creating specialisation for investors are two trends of global investment markets and it is interesting to note that the respondents did not see these areas as important. This is particularly true in an increasingly crowded market, and suggest that managers should spend the time to understand the needs of their LP universe.
Measures of success as ranked by managers 30%
% of firms
25% 20% 2019
15%
2020 10% 5%
Predictably, investment performance and growth in assets are the two biggest measures of success cited by managers, followed by client satisfaction. Employee
Client retention
Client growth
Competitive stance
Shareholder satisfaction
Innovation
Employee satisfaction
Profitability
Client satisfaction
Growth in AUM
Consistent investment performance
0%
and shareholder satisfaction ranked quite low, and may explain some of the regular staff movements that occur in the sector below the partner/principal level.
172
g. Team Total staff (aggregate of respondents)
Total number of staff
160 140
134
143
120 100 80 60 40 20 0 2019
2020
Managing a private equity fund typically requires at least five people but this number can vary according to a firmâ&#x20AC;&#x2122;s investment style. The more actively involved the manager is in the operations of the underlying companies, and the more deals it does, the more resources are required. Less active managers may be able to get away with fewer than five investment team members but most need more than five to enable them to properly build and work through a pipeline of opportunities. As teams grow, more support staff are often added.
Total number of staff
Staff by category (aggregate of respondents) 70
2019
60
2020
50 40 30 20 10 0 Principal
Associate
Analyst
Support
The median team Median team make-up
Total number of staff
3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Partner/Principal
Associate
The median team is made up of 3 principals, 1 associate and 3 support staff. Given the varying life stage of black managers, there is a large degree of variation around this, with teams as large as 12 or as small as 2. Each
Analyst
Support
manager has to balance the build-out of the team to enable it to prove its capacity to deploy capital, as well as managing its ability to pay salaries and maintain sufficient working capital for sustainability.
173
Experience of principals
Number of partners/principals
Partners/principals with 10+ years experience 50 45 40 35 30 25 20 15 10 5 0
47
All of the 47 partners and principals of the firms responding to the survey had at least 10 years of experience. This demonstrates one of the truths of private markets investing, in that it is learned over a long period of time, and only experienced individuals have a realistic chance of success at both capital raising and deal making. This statistic also points to the fact that the partners and principals get their experience elsewhere, mainly in investment banks and other private equity firms, before deciding to start their own firms.
2019 2020
36
Investment team demographics across all respondents 35
Number of staff
30 25 20 15 10 5 0 2019 2020
2019 2020
2019 2020
2019 2020
2019 2020
African
Irdian
Coloured
White
African
SA Male
Partner/principals
2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 Indian
Coloured
White
Male
SA Female
Investment associates
Of the 143 people employed, black staff made up 82%, with black women representing 45% of all staff employed. The racial makeup mirrors the demographics of the country much more closely than the broader private equity market. 44 of 54 partners/principals (81%) were black, and 10 (19%) white or non-South African. This demonstrates that the vast majority of senior staff at black private equity firms are, in fact, black. Partners/principals are 69% male.
Female Non-SA
Investment analysts
Only 19 associates were employed, less than half the number of partners/principals. On average, there was one associate per fund and some of the respondents had no associates. One reason for the low number of associates may be their cost relative to the development stage of most firms. People with sufficient experience to be at associate level are instead looking to be at partner/principal level while those that are not may be too expensive for the firms relative to what associatelevel staff can earn elsewhere.
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Alignment of interests
% of firms
GP commitment to most recent fund 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
Over 2% 1% to 2% 0% to 1% The median GP commitment to committed capital is 1%, with half of respondents reporting this level of commitment alongside LPs. More experienced managers tend to commit a bit more than this level, depending on their particular circumstances. 2019
2020
GP commitment by staff category 100%
Other
% of split
90%
Analysts
80%
Associates
70%
Principals
60%
Management Company
50% 40% 30% 2019
2020
% of split
Carry share by staff category 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
Other Analysts Associates Principals Management Company
2019
2020
The vast majority of the GP commitment normally comes from the house and the principals, with smaller amounts in certain circumstances coming from associates. Similarly, the carry split tends to go along similar lines, with a significant part going to the house and principals,
with smaller shares to next level staff. The house share may also be allocated through other share schemes in the manager or be retained for commitments to successor funds.
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% of split
Employees other than partners that have equity in the firm or share of carry 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
5 and more 4 3 2 1 0
2019
2020
It is interesting to note that the current year shows lower allocations to shares and carry outside of the principal/founder level compared to the prior year. This may be a result of the early stage of many of the managers responding to the survey, as many firms
allocate carry and equity over time. If this is the case we can expect to see greater allocations to broader staff going forward as the average age of the respondee firms increases and staff earn these incentives.
How firms are financed at start-up
% of firms
Source of start-up funding 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
Family office backing Shareholder loans Personal finance Friends and family Private equity Traditional bank financing
2019
2020
Founders mostly finance the start-up of their firms, these individuals having often earned and saved capital from their previous jobs. Several firms have taken working capital facilities from private equity investors or have been privately assisted with other forms of
finance. The long fundraising cycles have a clear impact on these financing arrangements, which become stretched if managers are not able to raise capital within their envisaged timeframes.
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h. ESG and transformation phase of deal making, with critical items included in 100 day plans post deal completion, and medium term items implemented over time. It is now common to see transformation plans put in place at the time the deal is concluded, in order to properly implement this over the investment period.
ESG and transformation are well entrenched concepts within private equity funds, and these are almost uniformly in place. Almost all managers responded that they contract for these processes with their investors, and that they formalise these processes with investee companies. These are typcially implemented through ESG+Transformation reviews during the due diligence
Number of respondents integrated ESG+Transformation Yes Transformation agreed with portfolio companies
No
ESG agreed with portfolio companies
Transformation agreed with investors
ESG agreed with investors
0
2
4
6
8
10
12
14
15
B-BBEE contribution level of respondents All participants are rated either level one or two as they are all majority black owned. They also all meet the definition of Black Private Equity funds set out in the Financial Sector Code. These criteria are that:
• At least 51% of the profits made by the private equity fund manager after realising any investment made by it, by written agreement, accrue to black people; and
• At least 51% of exercisable voting rights associated with the equity instruments through which the private equity fund holds rights of ownership are held by black people;
• Over the term of the fund, the private equity fund manager must invest at least 51% of the value of the South African funds under management in companies that have at least a 25% direct black shareholding, post investment of the investment by the private equity fund, using the modified flow-through principle.
• At least 51% of executive management and senior management are black people;
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i. Compliance % of firms that would allow others to act as juristic representatives under their licence
% of firms
Is your firm a juristic representative on another FSPâ&#x20AC;&#x2122;s licence? 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
35%
Yes No
2019 No
65%
2020
Yes
All respondents are operating under a FSCA licence, with 90% of firms taking part in the survey operating under their own licence, slightly down from the previous yearâ&#x20AC;&#x2122;s reported number, but on a larger base of respondents. This demonstrates that securing a licence is certainly possible if the applicants have the appropriate experience. This was also shown in the bottlenecks
section of the report, where only one respondent flagged this as a significant issue to overcome. Perhaps because of the relative success in securing their own licences, two thirds of respondents indicated that they would not allow other firms to act as a juristic representative on their own licences.
Number of Key Individuals registered with FSCA 9
Number of firms
8
8
8
2019
8
2020
7
6
6 5 4
3
3 2
1
1
1
0
0 1
2
0 3
4
0 5
0
0
Over 5
Number of key individuals
Most firms have one or two key individuals on their licences, but this yearâ&#x20AC;&#x2122;s survey has also shown three firms with three key individuals on their licences. This is consistent with the early stage of most of these firms,
and the relatively small quantity of assets. Firms typically start with one or two key individuals before expanding this as their firms grow.
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j. Socio-economic impact The sustainability of the managers as reported is broadly in line with the prior year, marginally more positive in terms of profitability. It is important for firms to be sustainable in order to retain staff and maintain focus on investment outcomes for their investors.
That said, there is typically little wiggle room for spending, and firms do not tend to spend more than 0.5% of revenue on CSI initiatives.
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
Income tax paid in the last financial year
% of firms
% of firms
% of firms with net profit after tax over the last three years
2019 No
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
2020
2019 No
Yes
The majority of respondents had not made a profit consistently for the past three years, but 75% had paid income tax in the past year, indicating that the most recent year was more likely to have been profitable.
2020
Yes
Given the mix of respondents at different stages in the fundraising and deployment cycle, it is not unexpected to see such a mix.
% of revenue
Corporate social investment as a % of revenue 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2019 Over 5%
2020
The sustainability section above shows that there is a mix of respondents that are profitable and sustainable and those that are not. It is therefore unsurprising to see a mix of CSI spend from the respondents. Eighty percent of respondents spend less than 0.5% of turnover on CSI, while one respondent spent over 5%. It is perhaps in light of the COVID-19 pandemic and the related economic hardship that we are seeing a higher level of contributions this year than last year.
2% - 5% 1% - 2% 0.5% - 1% 0% - 0.5% 0%
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k. Service providers External auditor
External auditors
Number of managers
Big 4 firms
6
Mid-tier firms
7
Small firms
7
% of firms
Fund administration
The only Big 4 firm that appears to have gained traction across a number of managers is Deloitte, which is only servicing firms which are fully operational. Mid-tier firms are being used extensively and normally offer more value for money while still being accepted by investors. The use of very small firms could be a cause for concern for investors, who may question their ability to provide assurance on private markets investment valuations.
External administrators
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
29%
29%
Prescient Fund Services Maitland Fund Services Sanne Group Augentius Realfin
14%
14% 2019
14%
2020
Internal External
Most firms have internal administration capability with 35% of firms opting for external administration. This seems to come down to personal preference and is similar to the broader market and internationally. When
it comes to choice of external administrator, there is no clear market leader, with each of the providers having one or two respondents as clients.
Insurance cover Crime and Civil Liability (”PI”)
Directors and Officers Liability (”D&O”)
AIG
5
5
Aon South Africa
2
2
Camargue
2
2
Picara
1
1
Santam
3
3
Southern Cross
2
1
Stalker Hutchison Admiral
3
2
Insurance providers
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100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
D&O cover as a % of target committed capital
% of firms
% of firms
PI cover as a % of target committed capital
2019 0% to 2%
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
2020 2% to 4%
2019
Over 4%
The only significant change this year has been the increase in respondents taking PI cover and D&O cover at a level between 2% and 4% of target commitments.
0% to 2%
2020 2% to 4%
Over 4%
This may simply result from a different respondent mix, or may be a result of different insurers.
Cyber cover It is interesting to note the significant increase in the take-up of cyber insurance, which went from being in place in only one manager last year, to seven in the current year. Firms primarily see this risk in external service providers.
% of firms with specific cyber cover in place
Where do you see the greatest cyber security threat?
100%
25%
% of firms
80% 60%
Internal infrastructure
40%
Third parties (administrators, custodians etc.)
20% 75%
0% 2019
2020
No Yes
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1
Biggest concern 2
8
2nd biggest concern 3 1 Key supply chain disruption: fund administrator/valuator
4
Reduction in staff morale and productivity
2 1 3 1
Regulatory changes
3
Cyber security risks
15
Not having enough information to make good decisions
Loss of client confidence in capital markets
20 18 16 14 12 10 8 6 4 2 0 Financial impact: profitability, liquidity and capital resources
Number of firms
l. impact of Covid-19 Top 3 concerns with respect to COVID-19
1 3
1 4
5
2
3rd biggest concern
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Cost containment measures applied
40%
60%
Yes No
Type of cost containment measures applied 7 Nmber of firms
6 5 4 3
6
6
5
5
4
2
5 2
2
1
The impact of COVID-19 on black private markets managers have largely been in the form of delays to their various processes, including fundraising and completion of deals, be they entry or exit transactions. Managers did flag some risk of decrease in profitability
Other
Re-insource some previously outsourced functions
Reduce marketing budget
Reduce IT budget
Defer or cancel planned investments
Bonus sacrifices
Salary sacrifices
Frozen new hires
0
and liquidity in their operations, and most implemented some form of cost containment as a buffer against this. However, most did not consider it necessary to use any of the various relief schemes offered in the market, with a minority opting for the PAYE deferral relief option.
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Expectations in a post-COVID-19 world
20
1
1
15
12 15
10
19
19
17
19
15
18 1
1
7 1 Use of webinars to host events
1
5 Face-to-face roadshows
Airline travel
Use of digital communication platforms
Increase
Focus on health and wellbeing of staff
1
0
Decrease
3
Investment in digital infrastructure
4
Physically attend conferences
5
Remote working by staff
Number of firms
25
Revert to pre-COVID-19
Predictably, managers expect less air travel, more working from home, more focus on digital communications and employee well-being in the COVID-19 recovery period and beyond. However there was a minority of respondents who expected some aspects of previous business such as in person meetings and conferences
to resume. This speaks to the people side of private markets investing, which involves trust building, often in person over periods of time, with investors, investee company management and other partners and stakeholders.
Do you expect an increase in investor appetite for impact investment aligned to meeting SDGS in a post-COVID-19 world? 10%
Yes No
There was a high degree of consensus that investors would be more focused on SDGs going forward. This is the continuation of a long trend in private markets investing of full integration of ESG and transformation considerations into investment processes. Despite the very small share of DFI investment into black private markets funds, institutional investors have taken up the baton and are seen to be likely to place more emphasis on the impact of investments in future.
90%
184
6
6
9
9
7
9
12 9
5
12
6
9
9
5
4
High
It was very interesting to see that black private markets fund managers considered policy uncertainty and the macroeconomic situation of the country to be the biggest risks to their businesses. Outside of these factors, there was a wide spread of risks cited that were rated at least medium by the majority of managers.The only risk flagged as low by the majority of managers was the risk that the investment style of the manager is out of favour.
Overly complex and costly regulatory environment
Cannibalism between asset managers for a pool of capital that is not growing
Medium
5 Changing investor demand and behaviour
5
Members of retirement funds de-risking
6
1 Excessive market volatility
2
5
Political interferance
14 7
5
4
14
Economic policy uncertainty
3
2
4
Your investment style is out favour in current market cycle
6
Subdued performance from capital markets
20 18 16 14 12 10 8 6 4 2 0
Low economic growth and government indebtedness
Number of firms
Biggest risks managers face in a post-COVID-19 world
Low
This is very encouraging to see that the managers themselves see their own investment style as one which has relevance in the current economy.
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An investment consultant’s take on Regulation 28 and unlisted investments
An interview with Shainal Sukha, investment consultant to Consolidated Retirement Fund for Local Government (”CRF”)
CRF, a large defined contribution scheme, has allocated significant capital to unlisted investments when compared to industry average allocations. Why have they done so and how can we get more pension funds making larger capital allocations within Regulation 28 limits, to private markets and the real economy? The following are some of the factors that led to CRF’s large allocation to unlisted assets: • The preamble of Regulation 28 of the Pension Funds Act states that funds should follow a risk-based approach to their investment strategy by targeting “adequate risk adjusted” returns. It goes further to state that environmental, social and governance factors should be considered as part of a “responsible investment” approach. CRF therefore integrated ESG factors into their decision-making and adopted a holistic approach to risk management. The result was that CRF not only targeted good risk-adjusted commercial returns, but also sought to make a positive environmental and social impact with its assets, so that its members could retire in prosperous communities and sustainable environments. • In 2015, when the industry debated the concentration of Naspers in our equity benchmarks, we noticed that our clients’ capital kept going into a relatively expensive and concentrated local stock market that was becoming increasingly global in its exposure. Companies were raising money locally to invest offshore, often with poor outcomes. Our clients were not actually allocating a large portion of their capital locally and into the real economy. An abundance of capital within domestic listed equity seemed to be
generating complacency and poor capital allocation decisions by local companies. On the other hand, other areas of the economy, where capital was scarce offered attractive return potential and better diversification benefits. So basic risk-management practice and taking a prospective view resulted in CRF investing into the local real economy, largely through alternative asset classes. • With Government fiscally constrained and Corporates seeking certainty and confidence to invest, CRF felt frustrated with the lack of progress and constant “circle of blame”. It therefore sought to use its influence, as a large asset owner, to take action to reduce ESG risks for its members. • CRF seeded an unlisted credit fund in 2015, which not only targeted commercial returns, but being a blended finance fund, targeted job creation as well. The experience with this fund showed that it was possible to generate good risk-adjusted returns, while also have a positive social impact, and this event enabled further investment into unlisted assets. • Currently, CRF has allocated more than 18% to unlisted assets, all of which have performed in line with expectations after all fees and costs. Of this, 12% has a relatively high ESG impact. It is important for Trustees to understand the flexibility that Regulation 28 provides and the benefits and disadvantages of unlisted assets. Consider what will be appropriate for your fund. Do not be obsessed with daily liquidity if your member profile is relatively young and stable. Obtain a second opinion on complex issues and make sure that your asset consultant is being proactive and bringing suitable opportunities to the table. In your experience, what do you see as the key benefits and risks of your clients investing in private markets? Private markets allow one to exploit the illiquidity premium and gain exposure to other risk premia. This helps to diversify risks for asset owners and provide more consistent and stable returns, depending on the nature of the investment. It generally channels capital into the real economy and can help to reduce negative
186
externalities or create positive externalities. However, private markets are not without risk and require greater due diligence and scrutiny. Private market funds generally have lock-up periods, charge higher fees and have higher cost structures. Concentration, liquidity and credit risks can be quite high, and most funds are closely correlated to the economic and business cycle. In light of the current economic environment, SAVCA have proposed two amendments to Regulation 28: separating hedge funds and private equity into independent asset classes, each with their own caps and increasing the private equity cap from 10% to 15%. Do you think these proposed changes to Regulation 28 will unlock additional capital or, in your view, what will? We support SAVCA’s proposal to split out hedge funds and private equity into separate categories as well as increase the private equity limit to 15%. We do not see a need to make further changes to Regulation 28, as we have shown through a case study of CRF that Regulation 28 is not prescriptive and provides sufficient flexibility. While these changes may unlock additional capital from retirement funds, the biggest stumbling block is not Regulation 28. What is lacking is the implementation of Regulation 28 and application of its principles by asset consultants and Trustees. If the structural shortcomings in the industry (as per Rob Rusconi’s 2008 paper “Whose money is it anyway?”) are addressed, particularly in asset consulting, it will allow for better capital allocation into the real economy and application of Regulation 28. We should be thinking about making it easier for retirement funds to allocate to illiquid assets by offering some kind of liquidity facility or perhaps offering open-ended funds. To address high fees, the industry could play a role in coming up with better-aligned fee structures, which are often cited by asset consultants as a huge stumbling block. In light of the current economic environment and COVID19 crisis, what in your experience does private market investing deliver in terms of broader social benefit and impact goals in the real economy? And will larger allocations be supportive in confronting the current economic challenges being experienced in South Africa?
The next ten years will be a massive opportunity for the private markets industry. Given the lock-up periods, private market fund managers can take long-term views and invest in solutions that address long-term risks. The private markets industry were early adopters of ESG integration and generally invest in the real economy. The mainstreaming of impact investing will be the next evolution of Responsible Investing, and the private markets industry therefore has a critical role in supporting this move. CRF has invested in a number of blended finance solutions where government agencies provide some form of downside protection to catalyse investment from other sources. These blended finance solutions aim to provide commercial returns and social impact outcomes for investors. What has been your client’s experience of these partnerships in terms of returns and impact? CRF has invested in three blended finance funds, all of which have delivered a positive experience thus far, in terms of both risk and return. All three funds target job creation, which is an important part of CRF’s Responsible Investing Policy. The funds are run by professional asset managers who also measure and report on the number of jobs that are created. The Jobs Fund has been an excellent partner in the process through their technical input and being receptive to investor concerns. Their involvement has lowered risks for both investors and asset managers and we hope that Government will create a “second” Jobs Fund or equivalent. Concessional capital, often provided by the Government or an entity like the Jobs Fund, does serve to make it easier for retirement funds to invest in alternative asset classes. The concessional capital can either reduce downside risks by offering a first loss guarantee or it can act as a return enhancer, or both. We feel that blended finance could help mobilise the finance industry to invest more in the real economy, to crowd in longterm asset owners and to create positive environmental and social impact in our country. Blended finance funds could also help meet our National Development Plan targets and address the United Nations Sustainable Development Goals.
Climate change will amplify our social risks of high unemployment, poverty and inequality in South Africa. In my opinion, we have around ten years to urgently transition to a low carbon economy in a just manner. We also have ten years to achieve the United Nations Sustainable Development Goals. The COVID-19 pandemic has highlighted the weaknesses of our system but given us an opportunity to “build back better”. 187
Asset manager profiles | Private markets Name of company: Date of inception: Website: Address: Telephone: Email: Contact person: Title of contact person: Name of company: Date of inception: Website: Address: Telephone: Email: Contact person: Title of contact person: LinkedIn: YouTube: Name of company: Date of inception: Website: Address: Telephone: Email: Contact person: Title of contact person: LinkedIn: Name of company: Date of inception: Website: Address: Telephone: Email: Contact person: Title of contact person: Name of company: Date of inception: Website: Address: Telephone: Email: Contact person: Title of contact person:
Ascension Capital Partners (Pty) Ltd Feb-18 www.ascensioncapital.co.za Die Groenhuis, 38 Garsfontein Road, Pretoria, 0145 +27 87 357 9750 kabelo@ascensioncapital.co.za Kabelo Moja Executive/Principal Ata Capital (Pty) Ltd Feb-12 www.atacapital.co.za 9th Floor, 90 Grayston Drive, Sandton, 2196 +27 11 321 1629 info@atacapital.co.za Maredi Mampuru Executive/Principal Ata Capital Ata Capital Bopa Moruo Private Equity Fund Managers (Pty) Ltd Jan-12 www.bopamoruo.co.za 3 Exchange Square, 87 Maude Street, Sandton, 2196 +27 84 909 9999 info@bopamoruo.co.za Nthime Khoele Executive/Principal Bopa Moruo Private Equity Crede Capital Partners (Pty) Ltd Jun-15 www.credecapital.co.za Ground Floor, Vdara Office Park, 41 Rivonia Road, 2196 +27 11 268 6900 sandile.sokhela@credepartners.co.za Sandile Sokhela Executive/Principal Eklavya Asset Managers (Pty) Ltd Jan-16 www.eklavyaam.com 2nd Floor, Suite 2.3, Open Workspace, 138 West Street, Sandton, 2195 +27 10 592 1867 sbhala@eklavyaam.com Satish Bhala Executive/Principal
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Name of company: Date of inception: Website: Address: Telephone: Email: Contact person: Title of contact person: Twitter: LinkedIn:
Ethos Mid Market Fund I (Pty) Ltd Oct-15 www.ethos.co.za 35 Fricker Road, Johannesburg, 2196 +27 11 328 7400 tmatheolane@ethos.co.za Tabane Matheolane Executive/Principal @ethosmidmarket Ethos Private Equity
Name of company: Date of inception: Website: Address: Telephone: Email: Contact person: Title of contact person:
FyreFem Fund Managers (Pty) Ltd Sep-17 www.fyrefem.com 10 Harrier Crescent, Douglasdale, 2191 +27 83 266 8125 cathy@fyrefem.com Cathy Goddard Executive/Principal
Name of company: Date of inception: Website: Address:
Khumovest (Pty) Ltd Sep-15 www.khumovest.com 2nd Floor, Building A, Silverpoint Office Park, 22 Ealing Crescent, 2191 +27 11 883 2274 info@khumovest.com Priyan Padayichie Executive/Principal @Khmovest_SA Khumovest Khumovest South Africa
Telephone: Email: Contact person: Title of contact person: Twitter: Facebook: LinkedIn: Name of company: Date of inception: Website: Address: Telephone: Email: Contact person: Title of contact person: LinkedIn: Name of company: Date of inception: Website: Address: Telephone: Email: Contact person: Title of contact person: Twitter: LinkedIn:
Kleoss Capital (Pty) Ltd Jun-14 www.kleosscapital.com One Vdara, 41 Rivonia Road, Sandhurst, 2146 +27 11 666 1660 zain.laher@kleosscapital.com Zain Laher Executive/Principal Zain Laher Makalani Management Company (Pty) Ltd Aug-04 www.makalani.co.za 261 Oxford Road, Illovo, 2196 +27 11 428 0680 enquiries@makalani.co.za Keshan Pillay Executive/Principal @MakalaniMC Makalani Management Company
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Name of company: Date of inception: Website: Address: Telephone: Email: Contact person: Title of contact person: LinkedIn: Name of company: Date of inception: Website: Address: Telephone: Email: Contact person: Title of contact person: Name of company: Date of inception: Website: Address: Telephone: Email: Contact person: Title of contact person: Twitter: Name of company: Date of inception: Website: Address: Telephone: Email: Contact person: Title of contact person: Name of company: Date of inception: Website: Address: Telephone: Email: Contact person: Title of contact person: Twitter: Facebook: LinkedIn:
Medu Capital (Pty) Ltd Jan-02 www.meducapital.co.za 4th Floor, 35 Ferguson Road, Sandton, 2196 +27 11 268 9140 lboshoff@meducapital.co.za Leone Boshoff Administrator Medu Capital Moshe Capital (Pty) Ltd Dec-13 www.moshecapital.com 2nd Floor, The Place, 1 Sandton Drive, Sandton, 2196 +27 11 326 9733 info@moshecapital.com Pauli van Greunen Administrator PAPE Fund Managers (Pty) Ltd Mar-15 www.papefunds.co.za 222a Grosvenor Road, Sandton, 2191 +27 82 653 8669 guy@papefunds.co.za Guy Baxter Executive/Principal @papefunds RH Managers (Pty) Ltd May-13 www.rhmanagers.co.za 3rd Floor, 18 Melrose Boulevard, Melrose Arch, 2076 +27 10 007 2171 quinton@rhmanagers.co.za Quinton Zunga Executive/Principal Sanari Capital (Pty) Ltd Nov-13 www.sanari.co.za 7th Floor, 90 Grayston Drive, Sandton, 2196 +27 76 456 3339 spokroy@sanari.co.za Sipho Sibeko Business Development Manager/Investor Relations @SanariCapital SanariCapital SanariCapital
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Name of company: Date of inception: Website: Address: Telephone: Email: Contact person: Title of contact person: Name of company: Date of inception: Website: Address: Telephone: Email: Contact person: Title of contact person: Twitter: Instagram: LinkedIn: Name of company: Date of inception: Website: Address:
Telephone: Email: Contact person: Title of contact person: LinkedIn: Name of company: Date of inception: Website: Address:
Telephone: Email: Contact person: Title of contact person: Twitter: Name of company: Date of inception: Website: Address: Telephone: Email: Contact person: Title of contact person:
Senatla Capital (Pty) Ltd Jun-10 www.senatlacapital.com 9th Floor, The Forum, 2 Maude Street, Sandton, 2196 +27 11 784 5929 owen@senatlacapital.com Owen Maubane Executive/Principal Summit PE Investment Managers (Pty) Ltd Aug-16 www.summitafrica.com 3rd Floor, Vdara Building, 41 Rivonia Road, Sandhurst, 2196 +27 82 486 1928 langa@summitafrica.com Langa Madonko Business Development Manager/Investor Relations @SummitAfr @SummitAfrica Summit Africa Tamela Capital Partners (Pty) Ltd Sep-16 www.tamela.co.za Ground Floor, Golden Oak House Ballyoaks OfficePark, 35 Ballyclare Drive, Bryanston, 2021 +27 10 443 4615 info@tamela.co.za Beena Morar Administrator Tamela Group Third Way Investment Partners (Pty) Ltd Jul-15 www.thirdway.co.za 9th Floor, Katherine Towers, 39 Wierda Road West, Wierda Valley, Sandton, 2196 +27 11 684 1192 info@thirdway.co.za Fulu Makwetla Executive/Principal @ThirdWayZA Vuna Partners (Pty) Ltd Jun-19 www.vunapartners.co.za 3rd Floor, 28 Sturdee Avenue, Rosebank, 2196 +27 10 595 4990 siya@vunapartners.co.za Siya Nhlumayo Executive/Principal
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Advertorial
Disclaimer/Terms and conditions of use 1. General a. Please read the following sections carefully. b. This document contains the terms and conditions which govern the use of the 2020 BEE.conomics Transformation in South African asset management survey (the “Survey”). This document applies to all persons who use, read, process, collect, download, view, print, analyse, copy, update, modify, distribute, publish or make available in any other form, or access this Survey for any reason whatsoever. By using, reading, processing, collecting, downloading, viewing, printing, analysing, copying, updating, modifying, distributing, publishing or making available in any other form, or accessing this Survey or any of the information in the Survey, you accept that you have read, understand and agree to these terms and conditions in full. c. This Survey contains information pertaining to inter alia i. 27four Investment Managers Proprietary Limited (the “Company”); ii. the Companyís subsidiaries, holding companies, and/or any other company forming part of the 27four group of companies (the “Group”) (the Company and the Group are collectively referred to as “27four”); and/or iii. 27four’s appointed agents, representatives, associated entities, financial services providers, asset managers, administrators and/or suppliers (collectively referred to as the “Relevant Entities”) and/or iv. the services rendered or financial products supplied by 27four and/or the Relevant Entities and/or financial information pertaining to 27four and/or the Relevant Entities.
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2. Nature of the information and completeness a. This Survey contains information which is purely factual and is not an expression of an opinion or recommendation. It does not constitute financial product advice and should not be relied upon as such. The information contained in the Survey does not take into account your personal objectives, financial situation or needs and you must determine whether the information is appropriate in terms of your particular circumstances. b. This Survey contains summary information and the information is of general background and does not purport to be complete, comprehensive or exhaustive. c. The Survey has been prepared in good faith by 27four. To the extent available, the industry, market and competitive position data contained in this Survey has been obtained from official or third-party sources. Third-party industry publications, studies and surveys generally state that the data contained therein has been obtained from sources believed to be reliable, but there is no guarantee of the accuracy or completeness of such data. While 27four reasonably believes that each of these publications, studies and surveys has been prepared by a reputable source, neither 27four nor the Relevant Entities nor any of their respective directors, officers, employees, advisers, representatives or agents have independently verified the data contained therein. d. Past performance information given in this Survey is given for illustrative purposes only and should not be relied upon as (and is not) an indication of future performance. e. The Survey may contain “forward-looking” statements relating to inter alia future strategy, events, expectations, prospects, developments and financial performance. In some cases forward-looking statements may be identified by terminology such as “target”, “aim”, “can have”, “likely”, “should”, “would”, “may”, “will”, “could”, “expect”, “plan”, “intend”, “anticipate”, “believe”, “envisage”, “estimate”, “project”, “predict”, “potential” or “continue”, or the negative of such terms or other comparable terminology. Such statements reflect current views with respect to future events and are only predictions and are subject to assumptions. These assumptions and views may or may not prove to be correct and are subject to inherent risks and uncertainties. Those risks and uncertainties include factors and risks specific to 27four and/or the Relevant Entities, such as development of their businesses, future capital expenditures and acquisitions, as well as general economic conditions and conditions in the market, such as trends in the operating industry and market growth. Actual events or results may differ materially from the events or results expressed or implied in any forward-looking statement and such deviations are both normal and to be expected.
a. The information in this Survey is for the exclusive use of clients, contracting parties of 27four and their advisors, readers or users of this Survey and/or people that have legal access to this Survey and such persons shall not reproduce or distribute the information, or any part thereof, without the prior written consent of 27four. The information contained in the Survey shall remain the property of 27four. 27four reserves the right to require the return of the Survey (together with any copies or extracts thereof) to it at any time. 4. Not legally binding a. This Survey is intended for information purposes only and no part of this Survey or any of the information in it shall form the basis of any agreement with 27four. No proposal put forward in this Survey is intended to be binding upon 27four and/or any of the Relevant Entities whether by way of agreement, representation or otherwise. b. The information contained in this Survey should not be used as a definitive basis for any decision, contract, commitment or action with respect to any proposed transaction, investment or otherwise. c. Subscribing to any service or purchasing any product through 27four is subject to 27four’s contractual terms and conditions and applicable law. d. 27four and/or the Relevant Entities will not be obliged to carry out any proposals or fulfil any terms mentioned in this Survey and will not be responsible for any loss or damage caused as a result of any person relying upon statements in this Survey. All terms proposed are subject to, inter alia, obtaining the necessary internal approvals, the full legal review of the proposal and execution of all the required documentation. 5. Confidential information a. This Survey may contain confidential information pertaining to the business of 27four and/or the Relevant Entities. b. No part of this Survey may at any time be copied, reproduced or distributed, in whole or in part, at any time without the prior written consent of 27four and/or the Relevant Entities . 6. Breach of terms and conditions a. 27four reserves the right to i. refuse further access to the Survey or any information in it if -
f. Calculations contained in this Survey are intended for the convenience of clients or contracting parties, may be approximations, and are intended only as guidelines. Should you wish to rely on any calculation, you are advised to verify the calculations before using them as 27four will not be liable for any inaccuracy in the calculation.
1. a person breaches any of these terms and conditions from time to time or as may be applicable to the use of this Survey;
g. Whilst 27four is of the opinion that the views expressed in any such forwardlooking statements are based on reasonable assumptions, neither 27four nor any of the Relevant Entities makes any representation or warranty as to the accuracy or likelihood of fulfilment of any forward-looking statement, or any events or results expressed or implied in any forward-looking statement. Neither 27four nor any of the Relevant Entities guarantees future results, levels of activity, performance or achievements nor are they under a duty to update any forward-looking statements after the date of this Survey to confirm such statements to actual results or to changes in expectations. Any forwardlooking statements made in this Survey reflect views held as at the date of the Survey.
3. 27four believes that a person is conducting activities that are illegal, abusive, threaten the integrity of the Survey or may place 27four in disrepute;
h. The information disclosed in this Survey is only current as at 30 June 2020, the date of the Survey. 27four and/or the Relevant Entities shall have no obligation to review, update or correct the information in the Survey after the date of the Survey nor to notify recipients of any inaccuracy, incompleteness or change in the information contained in the Survey. 27four shall however be entitled to update, amend, supplement or otherwise alter the information contained in the Survey without notice.
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ii. refer any breach to the police if such breach constitutes a crime; and iii. claim damages for all losses and damages it may suffer and costs and expenses it may incur as a result of the breach. 7. Indemnity a. Any person who accesses, reads or uses this Survey or any information in it hereby indemnifies and holds 27four and/or the Relevant Entities and any of its respective directors, officers, employees, representatives, agents, licensors, and any third party information providers harmless from and against all claims, damages, losses, costs and expenses (whether direct, indirect, incidental, special, punitive or consequential) (including attorney and own client costs), resulting from any failure to adhere to these terms and conditions.
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