Edition: Jun - Aug 2014


From sips to gulps

ABSIP wants many more blacks in senior investment positions at asset-management firms. It suggests ways to accelerate the process.

The term "transformation" has different connotations for different people. To some it's promising; to others, threatening. Between these poles is the acceptance that it's necessary. The tensions are on its limits and pace.

The Association of Black Securities & Investment Professionals (ABSIP) has no qualms. An organisation which has grown in influence – to judge from its voice in high places and the attendance at its recent 'summit' – it's become catalytic in shaping the progress of black empowerment in the asset-management industry.

Although the April conference struggled to secure attendance from trustees of large retirement funds in the corporate sector – whose ideas on the composition of asset-management firms that they prefer to use would have been valued – there was certainly no lack of direction from the range of predominantly black delegates empathically heard by government representatives. Not unexpectedly, and supported by a survey by 27four Investment Managers that measured "the impact of transformational initiatives in the SA fund-management sector, there was frustration at the perceived slowness of BEE implementation.

This had to be remedied, as the "key deliverables" defined after the conference contend (see ABSIP advertisement further below). TT asked ABSIP officials Delphine Govender and Asief Mohamed to elaborate.

TT: Shouldn't the 27four survey findings be modified in terms of the factual context that ASISA's Leon Campher had presented in a panel discussion?

Delphine Govender
Govender . . . scorecard flaws

DG&AM: No. The BEE criteria used for inclusion in 27four's annual survey were firms that had a minimum 50% black ownership, 50% black representation at board level, and 50% black individuals in senior fund-management positions ("black" being defined in terms of the Department of Trade & Industry codes). To the extent that any SA fund manager meets these criteria, they may be included in the survey.

The current DTI ratings allow for a balanced scorecard approach where large majority non-black owned firms, which have few blacks in senior investment management positions but have blacks in directorships, and are able to spend large amounts on enterprise development and the training of black employees, can actually be rated higher than those that meet the current survey criteria.

However, we agree that it would be useful for the survey in future to include the level of assets under management in the industry classified according to the accredited BEE levels of all investment firms in SA.

Asief Mohamed
Mohamed . . . push incubators

You want retirement-fund trustees, as representative of asset owners, to facilitate engagement with ABSIP and others in the industry to "define the rules of the game".

How is this to be done when there is no representative body for "the retirement fund industry"?

An association that represents the broader industry is long overdue. It should include intermediaries and aggregators such as asset consultants and multi-managers. We feel strongly that citizenship is also the responsibility of corporate retirement funds, life assurers' umbrella funds, multi-managers and gatekeepers such as asset consultants.

The former Principal Officers Association is now part of the Batseta Council of Retirement Funds, an industry association for principal officers and trustees. This is probably a good step. But it isn't yet clear on who is funding Batseta and whether this will impact of its decision-making or stated stances.

For now the lack of a body representing the broader industry might mean that ABSIP will need to engage separately with stakeholder groupings and, in some parts, their representatives. This process will be cumbersome but it's the only way to ensure that the right people are being engaged on the right issues where they can have an impact.

What sort of rules should be clarified for the incubator funds that you want to encourage? And who'll pay for them?

Incubator funds for start-up and small investment manager firms are an international good practice. They're also a good value-adding opportunity for all funds in general. In our view, there are no added costs for establishment unless the incubators are seeded indiscriminately and fail to survive.

Models for incubator funds need such rules as:

  • Due diligence and requirements as to which funds or firms qualify e.g. age of firm, size of assets, number of employees, levels of revenue and profits;
  • Length of time to remain under incubation;
  • Criteria to graduate from incubation and basis for opportunity then to pitch for business alongside mainstream managers;
  • Benefits, if any, offered during incubation e.g. review of business plans and access to finance. So far as we're aware, incubator programmes are being run at the GEPF, the Eskom funds, Sentinel, Metal Industries Benefit Funds Administrators and the Telkom retirement fund. Their incubators hold a proportion of fund assets that's generally low at around 5%-10%. We aren't aware of proper incubator-fund programmes (distinct from boutique-manager programmes) at any multi-managers, life licence-based umbrella funds or corporate retirement funds.

When you talk about learnerships and internships, aren't these programmes already in place? Doesn't the Financial Sector Charter provide for them? Or aren't the programmes working as well as they should?

ABSIP supports the transformation strategies of the large established firms. However, fewer than 15% of the key investment decision makers at the top 10 firms are black. Transformation is not just about getting the 'BEE Level 2' rating per se but also about training and developing real black talent and women.

Many established fund managers explain that they're impeded by the lack of appropriate and available black talent at the recruitment level to transform their investment teams from the bottom up. ABSIP can assist these firms by providing access to our large university-student chapters and by identifying greater talent opportunities.

The current 'swim or sink' nature of many programmes often works against individuals from backgrounds different to the majority of incumbents in the firm. We don't believe that meritocracy need ever be compromised in pursuit of transformation, but are mindful that the culture of many large firms is often not conducive to unlocking the potential of black hires. This applies especially in the investment teams where it matters most.

Many asset-management firms are based in Cape Town where the regional demographics differ from the national demographics. Does the proposal of the Labour Minister, that the regulations under the Employment Equity Act apply the national demographics everywhere, concern you?

In terms of the latest regulations, the top three functional levels of firms must comply with national demographics and the bottom three functional levels may comply with regional demographics. ABSIP sees no reason that senior operational and investment roles in Cape Town or elsewhere should not have transformation plans that cannot be achieved over the long term. n

  • A summary of the 27four survey can be found in the presentation to the conference by Fatima Vawda on www.absip.co.za.

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