Evolutionary Awards – Motswedi Economic Transformation Specialists

Category: Evolution in investments

Describe your evolution:

We believe that economic transformation is crucial for the development of the South African economy as it is a key component in addressing the socio-economic challenges and achieving sustainable development. We believe that the Retirement Fund Industry and in particular the asset management industry have a significant role to play in addressing the country scourges of income inequality, poverty and unemployment. Economic transformation aims to create a more inclusive economy that benefits all South Africans, including historically marginalised groups such as black people, women, and youth.

We encourage economic transformation in a responsible way in both private and public markets. Our investment philosophy is to develop the SA economy though the asset management industry. In this way we will drive financial inclusion, the creation of employment and empowering new black owned entrepreneurial businesses to thrive. In that way we stimulate the economy and in particular the asset management industry to be more competitive, vibrant and innovative. It is clear to us that innovative thinking and new ideas are required to find solutions to these uniquely South African challenges.

Our belief is that the fulfilment of clients fiduciary duties cannot be separated from the achievement of sustainable development in our country. As part of our investment consulting approach, we use the traditional investment objectives and risk profile derivation as investment consulting pillars, we also incorporate a framework which articulates our clients views on economic transformation priorities as a parallel consulting pillar. Through this process Motswedi guides our clients in developing and articulating their unique investment strategy in investments and economic transformation.

In South Africa the slow rate of economic transformation could well be attributed to a relatively small group of mainstream asset allocators who have not shown the willingness to decisively drive transformation impactfully. What this has meant is that when new ideas come to the market, they are slowed down by the asset allocators according their view and possible interests. Meaning that sometimes new ideas have not made it to the agenda’s of retirement funds; ideas like investing with black asset managers.

The pool of savings in the South African retirement fund industry is approximately R 6 Trillion and of this pool 6 asset managers (out of over 150) manage approximately 60%. This level of concentration in the big asset managers is unsustainable in a country with our social challenges. Further, when looking at the representation of organically grown black-owned asset managers we see that these businesses currently manage less than 10% of this pool assets.

These statics paint a bleak picture of transformation in South Africa and show that new thinking is required to change the status quo. The Motswedi research methodology uses a clear and concise way of classifying managers according to their development, to assign characteristics that guide us in identifying or understanding the differentiated kinds of risk which lie with the asset manager at their specific growth phase.

Some of the key capabilities which Retirement Funds have show it the ability to identify the best asset managers and importantly the best black owned asset managers through ongoing research and assessment. Retirement Funds have to show the ability to deliver strong performance for their members in a style diversified way, taking account of costs. Importantly they have to demonstrate tangible impact which includes financial inclusion and job creation. All these have to be done in a risk managed way where Retirement Funds can show the use of sustainable businesses and pro-active risk management. If done methodically, Retirement Funds will exceed the requirements of the upcoming COFI (conduct of financial institutions) Act.

The Motswedi house view aims to allow an environment where new ideas are engaged with proactively by Retirement Funds. We encourage the use of a passive core which is able to deliver a low cost market linked base performance upon which we then create the opportunity for Retirement Funds to increase their risk budget and at the same time the opportunity to improve their fee budget. Retirement Funds can now allocate more meaningfully to private markets, organically grown black asset managers and impact investments.

The Motswedi research methodology identifies superior managers with the ability to provide consistency of outperformance. We focus on the areas of highest risk at the different stages of development of the asset managers life cycle. Our research methodology focuses on four key areas namely (1) organisation (2) investment beliefs (3) portfolio risk (4) investment professionals. Depending on the stage of the life cycle the manager is in, we would allocate a higher importance to the different factors. We use this methodology to classifying managers according to their development and to assign characteristics that guide us in identifying or understanding the differentiated kinds of risk which lie with the asset manager at their specific growth phase.

Another key differentiator which Motswedi have embedded into our philosophy is called our 4 layers of transformation which guides us in our engagement with transformed managers and managers which are still on their journey of transformation. The 4 layers can be described as follows: Minimum 51% Black ownership, Minimum 50% Black people representation on the board of directors, Minimum 50% Black people representation at management level, Minimum 50% Black people representation at investment decision making level – “Portfolio managers” or “Trigger pullers”.

Describe the impact your evolution has had in response to its identified challenge and targeted outcome.

Economic Transformation is a multi factor process which aims to create an environment where black people and black owned enterprises have an opportunity to grow and thrive within the South African economy; an environment which has historically locked them out. Through transformation of the Asset Management Industry we will see a higher level of competition in the asset management industry which will encourage the growth of more boutique asset managers to becoming thriving innovative businesses, which may be able to solve many of the problems haunting South Africa.
In driving the conversation around economic transformation with our clients, we have developed innovative programmes which have positively and meaningfully changed the growth trajectory of organically grown black asset managers.
We have developed a manager acceleration programme (manager incubation) which has seen significant success in the acceleration of the emerging asset managers we’ve incubated. Motswedi have developed a unique process and a set of tools which have revolutionised the way incubation is done in South Africa to the benefit of the emerging asset managers.
Our process incorporates manager identification, active engagement and reporting, holistic support and graduation. Each of the steps are carefully planned to give the participating emerging asset manager the highest chance of success.

Supporting Documentation >