Alexander Forbes Investments aims to play a catalyst role in supporting the further growth of emerging asset managers. According to our research and surveys, emerging asset managers are managing only about 10% of the estimated R6 trillion of institutional retirement assets in South Africa.
Head of Manager Research at Alexander Forbes Investments, Lebo Thubisi says the percentage of assets under emerging asset management is still stubbornly low based on recent research. This shows that BEE levels of asset managers – particularly on ownership – have been declining since the amended Financial Sector Charter BB-BEE codes were gazetted in December 2017.
Thubisi says deeper conversations are needed by asset allocators such as Alexander Forbes on how to accelerate transformation in the asset management industry so that more emerging asset managers get an increased slice of the retirement assets business.
These conversations should be multi-faceted if the aim is to transform an industry inclusively. The focus of asset manager interactions historically was on investment philosophy, process and performance. This needs to evolve to include:
how asset managers seek to address bottom-up transformation of talent within the business
creating avenues for growth to middle and senior executive within the business
considering equity for employees and key investment professionals
gender and racial diversity
Asset allocators, fiduciaries and boards of trustees should equally be held to account on the same set of principles so that the industry evolves together. “We want to be the catalyst for change and, in keeping with our forward-looking approach to research, we think that a proportionate increase in assets managed by emerging managers fosters diversity,” Thubisi says.
As asset allocators, we also need to reflect on our engagements to consider the business management aspects of investments. Are we spending sufficient time during due diligences to better understand the management and incentive culture, alignment between our clients and their investment managers, and incorporation of sustainability, racial transformation and gender diversity?
Thubisi acknowledges there are signs of change, albeit slow, in the asset management industry. Some companies have begun to show greater appreciation of the need for transformation, and a stronger acknowledgement to have ‘evidenced-based’ discussions on transformation in the industry.
He believes the industry should do more to train previously disadvantaged investment professionals, as there is still a small pool of talent. The attrition of these individuals can be high, as they seek to align their skill, remuneration and demand. This has a negative effect on the best intentions of asset managers who genuinely seek to contribute on this front.
Thubisi says despite the tough economic environment, there has been a steady growth in the number of black-owned asset managers, even though more progress can be made. Currently, he estimates there are more than 50 black-owned asset managers in South Africa.
“At the moment we still have a concentrated industry dominated by few large asset managers who are managing the large pool of pension funds. However, we see that people are looking for fresh ideas –: exploring entrepreneurship within the industry from venture capital, artificial intelligence, private equity and mezzanine finance to mention a few. This has contributed positively to asset class diversification. In considering the implementation of the best investment ideas, our research suggests that smaller companies can be nimbler and can easily access certain parts of the markets that larger companies may not be able to take advantage of,” he says.
Another avenue to explore in increasing the number of emerging managers is a framework that allows the manager to outsource non-investment aspects of business. This allows the manager to focus on managing money, which is their core competency. Asset allocators should assist by creating these opportunities.
“This is one of the biggest drivers to have smaller asset managers joining the industry. Remember the amendments to the Financial Sector Charter BB-BEE codes also drive this, because there is much stronger focus on right black talent – ownership which provides new incentives to support the growth of emerging asset managers,” Thubisi says.
For emerging asset managers to succeed, they should have:
a sound investment philosophy that can be clearly articulated and consistently applied
a credible compliance and investment administration company to assist with regulatory and administration matters
aspiration towards strong corporate governance
a good distribution platform on the retail and institutional side
access to patient asset allocators
a shareholder of reference that enables rather than interferes with the investment process
“If all these are in place, the probability of success is raised,” he concludes.