• Mark Davids, MOTSWEDI Emerging Manager Strategists

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 the