Why is the asset management industry struggling to transform?

Patrick Cairns  |  19 September 2016 01:00

CAPE TOWN Since the first BEE.conomics survey on transformation in the South African asset management industry was conducted in 2009, the number of black asset managers in the country has grown by 193%. There are now 41 firms considered black-owned.

Yet the 2016 survey released on Thursday shows that of the R8.9 trillion in assets within the South African savings and investment industry, these companies manage just R408.3 billion. That is a market share of only 4.6%.

While this is a slight improvement from 4.4% last year, it remains a fairly insignificant number. To put it into context, Coronation on its own has assets under management in the region of R600 billion, or a market share of around 6.7%.

“We’re not saying all of the remaining 95.4% is managed by big business, as there are some big funds such as the Public Investment Corporation and others that manage assets internally,” says Fatima Vawda, the MD of 27Four Investment Managers, the company behind the survey. “But regardless of that, we’re talking about R408 billion of assets managed by 41 different companies, and that’s way too little given the level of talent and skill in the industry.”

Transforming the value chain

Vawda isn’t arguing that these managers should be given money to manage just because they are black. She says that they should be given more opportunities because they are good.

“There really are phenomenal players in this space, so it’s really about asset owners making informed decisions,” she argues. “There are some that are doing great work in supporting transformation and making opportunities available, but there are many who are unaware and not questioning what is happening in the value chain.”

This, she believes, is the biggest challenge to transformation in the industry.

“Control of the value chain has not changed,” Vawda says. “There are a few large players that own and control the retirement fund value chain, and it’s not in their interests to allocate assets to other players.”

This kind of problem is not necessarily limited to the asset management industry in South Africa, and doesn’t only affect black firms. To a large extent big business has not warmed to the concepts of enterprise development and collaborating with smaller businesses.

“Keeping small businesses out of the value chain is anti-competitive behaviour,” Vawda argues. “As a small firm, to get your funds onto a linked investment service provider (lisp) platform or an umbrella fund platform, or to even get time with the big asset allocators is very, very difficult. This anti-competitive behaviour of big business is a serious problem and until we break it, transformation is not going to happen.”

She believes that the key to changing the way that the industry is structured is the asset owners. It is only once they demand transformation that it will start to take place.

“The only way we are going to change is if the entity right at the top of the value chain – the asset owner – begins to say that I want change to happen,” Vawda says. “Because ultimately they will dictate the direction of the market.

“There are already some asset owners leading the way in terms of implementing policies to achieve and demonstrate the need for transformation, but most asset owners are largely indifferent to this situation,” she adds.

Why it matters

Ultimately, asset owners will be more vocal about the need for change as they grow to understand it’s importance. Transforming the asset management industry is much more than a numbers game. It is not merely about increasing the market share of black asset managers for the sake of political correctness.

“The South African asset management industry has an important role to play in mobilising the finite capital in our system to better catalyse growth and thereby making South Africa attractive to much needed foreign capital,” the CEO of the Black Business Council, Mohale Ralebitso explains in his endorsement of the survey. “This important transformative role can only be played fully once the sector itself is fully transformed with some urgency, for we dare not waste the opportunity to put paid to the broken promise of prosperity for all – and not for some – at the expense of the majority.”

In simple terms, South Africa will not prosper as long as the majority of its population is excluded from meaningful participation in the economy.

As Vawda says: “The large asset owners in South Africa that have clearly demonstrated their support of transformation understand that if they don’t invest in long-term sustainability, the members of their funds will retire into a world that is socially and economically unequal, and that doesn’t make sense. You can’t build wealth for members if the world around you is falling apart.”