Asset Manager Survey Listed Investments – August 2022
12 Oct, 2022

Asset Manager Survey Listed Investments – August 2022

Mark Davids, Investment Strategist – MOTSWEDI

Gearing up for growth in a challenging environment

Barriers to entry are high in the asset management industry from applying for a license to operate, to the systems and infrastructure which are required on set up to position yourself as a provider clients would like to invest with. Even with a 3 or 5 year track record, emerging asset managers (EAM) looking to build capacity in their businesses have a very difficult road to travel. In the pursuit of gathering assets, few EAM have the far-reaching established networks which speeds up the process of gathering assets in the formative years of their businesses. Unfortunately, as many EAM have found out, good performance is not the only thing that matters.

Much of the early years in the life of the EAM is spent finding clients which are willing to support start-up asset managers to assist them to build a track record. At the same time the EAM must also spend time building capacity within the business. Unfortunately, a big problem EAM face is the “chicken-and-egg” scenario. Investors are only comfortable to allocate new business to them if they have good performance and a capacitated business; but the EAM is only able to deliver good performance and a capacitated business if Investors are comfortable to allocate new business. Many emerging asset managers facing this dilemma turn to the Top 100 retirement funds in the country in search of new business – and the reality is, most of the Top 100 are hesitant to be the first mover.

Funding for business growth

Most start up business are self-funded in the initial phases of growth; as we know getting finance from traditional institutional methods is very hard and generally comes at high costs. I guess it’s the old approach of proving to the bank that you don’t need a loan when applying for a loan. EAM tend to have to front load their costs to build capacity, while at the same time producing competitive performance. In this environment finding the right kind of partner to achieve this delicate balancing act and understanding the intricacies of asset management can make all the difference to the EAM.

Enterprise and Supplier Development (ESD) as a business funding source

More emerging asset managers are seeing the benefit of sourcing funding from ESD programmes. Many of the programmes have a selection of Grant and Loan funding (especially interest free funding) targeted at growing and capacitating emerging businesses. The biggest hurdle for emerging asset managers is articulating to the ESD funders the intricacies of the asset management industry, the long sales cycle and entrenched relationships which are hard to penetrate, etc. Emerging asset managers must become innovative in getting their businesses off the ground and be selective in the growth route they take.

Conclusion

What then becomes important is how the emerging asset manager reinvests into itself as it grows and at the same time, very thoughtfully manages the message of growth and the perception of scale.

ENDS

Download the Motswedi Asset Manager Survey Listed Investments – August 2022

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