Mark Davids, Managing Director – MOTSWEDI
During the late 1990’s one of my favourite bumper stickers found on many minibus taxis’ was: “When days are dark, friends are few”. Reflecting on this saying, I considered the discussion around consolidation by the 40 or so organically grown black asset managers in South Africa. Will it be a positive or a negative for these managers in the industry to ramp up any consolidation talk and what does it mean for the future of the asset management industry?
The reality we face is that in a shrinking economy and shrinking pool of long-term savings, the prospects of fast short-term growth for any new asset manager coming into the asset management industry are not that great. At the same time we are seeing an increasing number of established level 1 and 2 BEE rated asset managers doing BEE deals to improve their transformation credentials. In fact, based on these developments, there are many asset owners out there who say that the transformation job is done, move on – me thinks not. These transactions only tell part of the transformation story. Perhaps an attempt is being made at the large corporates, but the Financial Sector Transformation Council (FSTC) report on management control in financial services paints a grim picture – 30 years on.
In my observation, the future of transformation lies in diversity, equality, inclusivity and bringing into the mainstream more organically grown black asset managers, which I have in the past argued do demonstrate these characteristics in more innovative and authentic ways. www.motswedi.co.za/library . Mainly because they grow without the legislated requirement for transformation.
The kinds of consolidation transactions we have seen involving black asset managers have been small to small and small to big, both transaction types have had mixed levels of success, and have been unpacked in one of my previous articles. www.motswedi.co.za/library.
We are living in an industry, where the loudest voices on consolidation seem to be coming from the asset allocators. In my view the main reason for the rhetoric is that there are over 40 of these managers and its hard to spread your resources to research and analyse so many more asset managers in addition to the asset managers already managing assets. We know that a desktop analysis is not going to do justice to the analysis.
What we have seen more recently, is a development where traditionally white owned businesses – with poor BEE credentials – are starting to have a look at black owned business with a view to acquisition but for varying reasons:
- to get black professionals
- to improve black ownership
- to access black owned capital (eg. PIC),
however, the reason I find most appealing for a transaction of this nature, is to create a synergistic and diverse entity of equals which has the makings of the illusive authenticity in transformation.
Look at the partnership between First Avenue Investment Management and NorthStar Asset Management. A meeting of the minds of the heads of the businesses seeing the benefit of diversity, equality and inclusivity and a vision for a better-together approach to growth; which has the potential to become a template for some other discussions in the industry – one I am watching enthusiastically.
In my observation, having spoken to black asset managers about what consolidation means to them, some are open to a conversation, some are comfortable with the level of growth they are achieving, some are ready to throw in the towel and others are gritting their teeth holding onto the gains made and looking to grow. For many of these managers days are mainly dark and friends are indeed few.
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ENDS
