The first edition of the BEE.conomics Annual Transformation in South African asset management survey was published in 2009 at which time there were just 14 black-owned asset managers who, combined, managed R91 billion. Fast forward 12 years later, and today there are 51 black-owned asset managers managing close to R700 billion, indicating that black market share has been increasing steadily. Certainly, in the past couple of years the number of black private equity fund managers has grown.
A recent Business Day Dialogues, in collaboration with 27four Investment Managers, unpacked some of the findings of the 2020 BEE.conomics Annual Transformation in South African Asset Management survey during a digitised conversation moderated by Nastassia Arendse. The panel consisted of specialists from 27four including MD Fatima Vawda; portfolio manager Akona Mlamleli; and the heads of unlisted investments, Rory Ord and Chad Potter.
Black market share of the total estimated SA savings and investment pool is 9%. Currently the industry consists of a few very large firms, and long list of small and mid-sized firms operating subscale.
The black asset management industry regards the biggest threats to growth as being the continual decline of the number of companies listed on public markets and the fact that the number of stand-alone retirement funds will continue to decline in favour of umbrella arrangements. Currently, 90% of public market asset manager’s base comes from institutional investors such as retirement funds. Large umbrella funds, however, are primarily focused only on their own products, making it hard for black asset managers to get a foot in the door.
The Covid-19 pandemic has done the industry no favours given that its profitability correlates directly to the performance of the economy. Around half of all survey participants expect the pandemic to have a negative impact on their bottom line. The survey found that most black firms agreed that the Covid-19 pandemic had once again exposed the fragility of financial markets and current economic systems with a more urgent shift towards achieving the UN’s Sustainable Development Goals.
In terms of asset allocation trends there has been a decline in domestic equities in favour of domestic fixed income which is a reflection of lacklustre performance, poor investor confidence and a struggling economy. Within public markets more than 60% of industry assets are invested in low-risk money market and fixed-income products. Domestic equities currently make up just 22% of assets under management.
Another trend noted by the panellists included how new financial sector and B-BBEE regulation will impact the industry. In a bid to accelerate the country’s economic recovery government has suggested using prescribed assets to kick-start growth. This may require a change to Regulation 28 of the Pension Funds Act which currently caps private equity and hedge funds at 15%. The Southern African Venture Capital and Private Equity Association has called for hedge funds and private equity to be separated.
The five largest black asset managers control 72% of the assets under management by black firms. Those firms that focus only on equities have struggled while there appears to be saturation in terms of new managers coming to market. More scale is required at the top level as opposed to the bottom level.
To find out more about the BEE.conomics Annual Transformation in South African asset management survey, please visit www.27four.com/bee-conomics-surveys/
To watch the online discussion, visit www.quicklink.co.za/27four