Edition: Dec 2014 - Feb 2015
Survey offers a showcase of investment managers claiming more place in the sun. They want to ensure that consultants don't neglect them in the selection process.
Reading between the lines, asset consultants are really the main target of the latest annual survey by investment manager 27four. The purpose of the survey seems less a special plea for more assets to be placed with younger blackowned and controlled firms, solely by virtue of their blackness, than to display them for the radar of asset consultants.
This is because asset consultants, often the impenetrable gatekeepers for retirement funds, assert a powerful influence over trustees’ decisions to choose asset managers. Consultants tend to favour the larger, established managers without the smaller and newer getting a look-in. Many of the latter are black, the survey indicates, and deserve consideration in the allocation of assets where they can justify it on business criteria.
Of course, blackness does play a role. In the politically-correct lingo, it's called "transformation". The more that black firms are used, the more the industry might be argued to be "transforming". But it's not a straightforward black and white issue, so to speak.
The larger, established firms have invested – and continue to invest – significantly in "transformation". Increasingly, over and above legislative compliance, their staff components and leadership cores are black. They're also involved heavily in training, mentorship and incubation projects. Black professionals who've split from these firms, to set up independently, owe workplace experience to them.
It speaks to the gathering success of "transformation", making it contradictory that there be discrimination against the big firms despite their progress. Not to be ignored, either, are the bright recruits who elect to stick with these firms and accept the challenge to rise through their ranks.
Thus the 2014 survey, entitled 'Transformation in SA asset management', should not be seen negatively as implicit criticism from the Association of Black Investment & Securities Professionals. Rather, it's to bring black and younger firms to the closer attention of consultants and trustees.
These firms claim a competitive shake in an environment where the tried and tested predominate, argues an always-outspoken Fatima Vawda of 27four: "A lot of the time, consultants don't even know the full list of who's available. By showcasing them, we're helping them in the identification process that precedes selection of investment managers. And we want black firms to be part of the tender procedure when there is one."
Vawda also sees disadvantage in the lack of black asset consultants outside the big groups. Even within the big groups, she believes, there are too few. What worries her is the dependence of asset owners on asset consultants.
Equally, she cautions that there are too many asset managers competing for too little business: "When markets are flat, asset management is no longer so lucrative." In fact, according to the survey, the number of black asset-management companies has increased by 23% since last year and by 129% since 2009.
For purposes of the survey, "black" was defined in accordance with the dti codes. Criteria for participation were a minimum 50% black ownership with accompanying voting rights and 50% black representation at board level and 50% black individuals in senior fund-management positions.
As at end-June, there were 32 firms participating in the survey. Taken as a universe, those with the largest shares of assets under management were Taquanta and Kagiso. The others trail some distance behind (see table).
A main finding of the survey is that these 32 firms collectively manage an estimated 4% of the total R6,5 trillion investment and savings industry pool, of which retirement funds account for about half. It urges that the firms diversify away from the competitive institutional market into the retail market, notably unit trusts, so that they capitalise on a growing black middle class with disposable income.
Despite strong performance amongst a subset of these firms, the survey notes that they still struggle to attract funds: "Black-owned firms also argue that they require an additional R1bn of assets to employ an investment professional with strong skills to support robust investment performance."
Perhaps some of them should consider consolidations to achieve the benefits of greater scale.