The Alexander Forbes Manager Watch™ Survey of Retirement Fund Investment Managers showcases the performance of institutional fund managers in South Africa, revealing the country’s largest and best asset managers and their BBBEE ratings.
The survey encourages accountability, competition and improved transparency through good governance by ensuring that data integrity is maintained, while allowing the industry to retrospectively monitor the quality and consistency of the investment data received. It has analysed key statistics and findings each year since inception, providing the industry with access to performance and risk information.
Now in its 25th year, this edition includes 14 surveys with 60 managers and 412 funds, covering three balanced surveys, 10 specialist surveys, and a multimanager survey.
Janina Slawski, principal investment consultant at Alexander Forbes Investments, identified the survey’s key findings:
1. The largest asset managers:
As at 30 June 2018, the total assets under management (AUM) increased by 9.5% over the past months, with Old Mutual Investment Group in the top spot. Alexander Forbes Investments has remained steady on the list, retaining their position from the previous year at number seven, with R311 bn in AUM turnover, which represents an increase of 7.2% over last year’s AUM.
2. SA Equity Manager Watch™:
According to the survey, the Equity Manager Watch revealed a tough investment environment for active managers over the one-year period ended December 2018. This is mainly attributed to the weak performance of large single stock exposure. The best-performing equity manager over the one-year period, with a return of -1.06%, was Rezco.
3. Global Balanced Manager Watch™ – Best Investment View:
This segment also reflected a tough investment environment with participating managers unable to achieve inflation-beating returns over the past year. Of the 27 managers participating in this category, only three recorded positive returns for the period.
4. Asset allocation of the Global Balanced Manager Watch™ – Best Investment View:
Most managers remain close to the limits of 30% for investment in international assets allowed by Regulation 28 of the Pension Funds Act. Of the 27 participating managers, only nine were lower than the limit of 30% by more than 4%. Kagiso was the lowest at 14.5%, followed by Cadiz and Ashburton at 14.4% and 7.5% respectively.
5. BEE ratings according to manager distribution:
Twelve of the 60 investment managers in the AUM survey are rated level one. Half of the top 10 managers, according to total AUM, are rated level two. There are no level one contributors in the top 20 managers ranked by size and there are five managers in the universe who remain unrated. Taquanta, a BEE manager, was the best-performing Money Market manager over the one-year period ending 31 December 2018.
6. Comparing the performance of SA Shari'ah Equity and SA Equity funds in the AF surveys:
With additional rules and limitations placed on Shari’ah compliant funds, there is a misperception that Shari’ah investing results in lower returns compared to conventional investing. It is clear from the table below that, over the past few years, SA Shari’ah Equity funds have done particularly well compared to their conventional SA equity counterparts.
Comparing the performance of some surveys:
Ranking the average return over the one-year period of some surveys or categories and comparing them to inflation.
7. Fund of Hedge Funds survey:
2018 was a year in which capital preservation proved difficult even for the most conservative of funds. Of the Fund of Hedge Funds (FOHF) included in the survey, a significant 12 out of 14 funds achieved positive one-year returns in a difficult environment. Additionally, the average three-year standard deviation observed among the FOHF is 3.93%, while the same measure for bond funds is 6.77%. These two factors indicate that active hedge fund management can be a contributor to reducing risk even in the worst of investing period.
8. Fee survey highlights:
Twenty-two managers participated in the 2018 survey, with four new participants. Two managers from 2017 chose not to participate.
Fees across most surveys have stabilised compared to 2014. Domestic Balanced BIV (Best Investment View) had the highest fee increase of 12% across all mandate types, while the biggest fee reduction belonged to the Global Balanced BIV segregated mandates by about 13%.
Despite the large increase of fees for Domestic Balanced BIV mandates, Global Absolute mandates remain the most expensive category, averaging at a peak of 85 basis points (bps). Domestic Money Market mandates are the cheapest ranging between 16 and 24 bps across all AUM categories. Global Absolute mandates had the widest sliding scale, ranging on average between 77 and 109 bps.
In 2017, Global Balanced BIV segregated mandates were the most expensive category. Money Market mandates were the most affordable mandate with fees averaging 19 bps across AUM categories. Global Absolute mandates had the widest sliding scale, ranging on average between 77 and 110 bps.
Participation across all mandates varied. Domestic Equity Mandate offered the highest participation of 15 managers out of 22, covering 30 domestic equity funds from the performance surveys. Global Balanced BIV segregated and Global Balanced BIV pooled mandates had the lowest participants, with only four in their respective categories.
“Alexander Forbes will introduce the Africa survey in the third quarter of 2019 as its performance surveys continue to evolve and create platforms which cater for diversity and inclusion within the investment industry,” said Slawski.
John Anderson, head of strategic development at Alexander Forbes, said that over the last three to five years, typical retirement fund strategies had struggled to produce returns above inflation given market conditions. “However, over 10 years, the average retirement fund strategy has achieved returns above inflation of 6% per annum. It is during tough times when investors struggle to stick to good principles, and change investment strategies for the wrong reasons. Our research shows that this destroys significant value in the long term. This reminds us of the importance of sticking to good principles in structuring retirement fund strategies – their purpose is to provide members with growth above inflation in the long term in order to achieve a reasonable income in retirement.”
Anderson said the Alexander Forbes Manager Watch™ Survey aimed “to provide trustees with tools to be able to evaluate the performance of their funds and to be able to structure appropriate strategies that are sustainable for the long term”.