Reshaping the South African Asset Management Industry!
“Motswedi Emerging Manager Strategists aspire to be at the vanguard of a key discussion of our time – how to achieve inclusive gender and racial transformation in the asset management industry.” – Muitheri Wahome – Asset Manager Industry Specialist.
Motswedi Emerging Manager Strategists dazzled their audience at the #RiseOfEmergingAssetManagers Conference 2019 held at the JSE auditorium in Sandton on the morning of the 16 October 2019. Motswedi is an independent asset manager research house who focuses on researching emerging and transformed asset managers.
Their higher purpose is premised on reshaping the South African asset management industry by promoting transformation, gender equality, skills development and stimulating economic growth through supporting and investing with transformed asset management companies. As an asset manager research business, they have a core competence in the understanding of and in-depth research of emerging and transformed asset managers. Motswedi offers a full suite of investment manager research, implemented consulting solutions and off-the-shelf empowered multi-managed investment solutions. They engage with their clients in one or a combination of the following ways:
Through the solutions they provide, they aim to see more asset owner’s being comfortable to invest with transformed asset managers and thus drive transformative change in the asset management industry.
The audience at the #RiseOfEmergingAssetManagers Conference 2019 were treated to a smorgasbord of emerging asset management talent as well as a powerful panel discussion which included representation from the Public Investment Corporation (PIC) and the Financial Sector Conduct Authority (FSCA). Setting the tone of the conference was asset management industry specialist, Muitheri Wahome, who gave a brief history of the asset management industry and how it evolved to what it is today. Muitheri took us back to 1994 when asset managers could not invest outside of South Africa and there were no majority Black-owned asset management firms. A time when emerging asset managers like Investec Asset Management, Coronation Fund Managers and Prudential Portfolio Managers had less than a three-year track record and no unit trusts. Allan Gray had been going for about two decades already and there were no multi-managers in the country.
Muitheri spoke about the birth of Fifth Quadrant (Willis Towers Watson) in 1998 and RisCura in 1999 and how they grew to be of the biggest consulting firms in the country. At the time, independent asset consulting was a relatively new concept and these consultants showed much interest in the new investment talent on the block. She touched on the profile of the investment professional in the early 1990’s and identified some of the first Black investment professionals at some of the asset management houses. She discussed the introduction in 2003 of the Broad-Based Black Economic Empowerment Act and that today there are approximately fifty majority black owned asset managers in South Africa, but they manage only 8% of the total pool of long-term savings and investment.
Muitheri was followed by the asset managers themselves, who all stepped up and delivered exceptional presentations. Each manager was given twenty-two minutes to succinctly articulate an investment idea which they believe differentiates them. First to present was Benguela Global Fund Managers, in their presentation they demonstrated how important Environmental, Social and Governance (ESG) is becoming globally and how investors who prioritise ESG are being rewarded with superior returns.
Benguela showed how they have integrated ESG into their investment process and the positive outcomes that it has had on their portfolio construction. They showed evidence of the positive relationship between ESG and investment returns and specifically focused on the “G” in ESG. They argued that lack of independence at board of directors’ level is a major detractor to company returns. They went on to provided evidence of this from listed companies they research and engaged with on these issues.
Second up was fixed interest asset manager Ngwedi Investment Managers, who unpacked how they achieve higher income through screening for quality debt investments. The theme of diversification came through in their presentation as they showed how income funds over the past 5 years have managed to outperform other asset classes with lower volatility. In addition, they showed the importance of proprietary credit screening as distortions can occur in the market due to price discovery. Ngwedi described their credit screening process in layman’s terms sighting numerous examples of how they compare yield relative to credit score of different bonds and thus were able to avoid many of the major credit events in South Africa. They concluded that in an environment of low global growth and low return expectations on traditional asset classes, income funds with good risk management are a good diversifier in portfolios.
Our third manager to present was Mianzo Asset Management, with their focus on the use of hedging techniques in building risk managed balanced portfolios. A key theme in their presentation was around risk management and downside protection. They demonstrated how their focus on capital preservation as part of their investment process allows them to deliver a return profile to clients which is biased towards positive returns. Mianzo argued that their focus on downside protection, using well-structured hedging techniques, and the selection of “quality-value” shares, allows them to manage market uncertainty and risk and still have the potential for upside participation. They went on to provide evidence of their hedging strategies and the benefits to their portfolio construction.
Lima Mbeu Investment Managers was the fourth manager to present and gave the audience a taste of something different in the form of positioning a case for “Growth” investing and which stocks are a must for a portfolio. They started with the statement that Growth investing is not the opposite of Value investing and proceeded to unpack what Growth investing is and how few Growth managers there are in South Africa relative to the Value style of investing. Lima Mbeu showed evidence of the make-up and characteristics of stocks that they consider to be Growth stocks, which are in their portfolios and some which they did not consider to be Growth and hence were not included in their portfolios. They argued that Growth investing has a clear place in a well-diversified portfolio.
Our last manager to present was Differential Capital who talked about the use of Artificial Intelligence (AI) in portfolios management and how it enables ESG. In their introduction they sighted an example of a global car manufacturer which has actually increased the number of employees as a result of automation, explaining that humans are now able to spend more time focusing on enhancing the experience their customers have when using their products. They argued that as the amount of information on companies increases exponentially over time, the requirement to use machines to scrape data efficiently becomes more important. They contended that the future of asset management is one where a combination of different human skill sets, from accounting to physics to data engineers, come together to achieve a richer interpretation of data outputs from machines. They went onto provide evidence of how ESG requires human engagement and how AI enhances this engagement with companies.
As Muitheri Wahome indicated at the opening of the conference, it is undoubtedly much harder today to start an asset management business, than it was in 1994 – when the markets were buoyed by an improving economic landscape and a flurry of new investors relative to today’s environment with slower growth, higher allocation to offshore assets, fee compression and higher regulatory costs. Motswedi believes that for the emerging asset managers who have started-up and are operating in this challenging environment it is certainly a feat all in itself to find small pockets of success. The role Motswedi Emerging Manager Strategists play in this new era of the rise of emerging asset managers will be to provide a layer of certainty to asset allocators around the decision to allocate assets to emerging asset managers. Motswedi solves the true challenge these managers face, that of gaining mainstream recognition from the larger asset allocators in the Institutional and Retail markets.