Akona Mlamleli, Head of Transformation at 27four
Just under 10% of the R5 trillion managed by private sector asset managers is managed by majority black-owned asset managers according to the 10th annual ‘BEE.conomics – Transformation in South Africa Asset Management’ survey published by 27four Investment Managers today.
Furthermore, only 10 firms out of a total of 48 black-owned firms manage 84% of the R490.3 billion managed by the black asset management sub-sector, and a single firm, Taquanta Asset Managers, is responsible for 30% of the total value.
“We see an upward trajectory in the number of players, as well as growth in market share,” says Akona Mlamleli, Head of Transformation at 27four Investment Managers. “However, we also notice a high rate of attrition given the tough environment within which to raise capital, which is exacerbated by the perceived black discount associated with black firms in the sector.”
A total of 48 black asset management firms are currently active in South Africa, 243% higher than in 2009. Still, only 15 of these are older than ten years, indicating a high turnover rate and a sustainability challenge in the face of dominant incumbents.
The survey presents a comprehensive analysis of the state of transformation in the asset management industry, as well as various views and recommendations for the accelerated participation of previously disadvantaged groups.
It details a complete overview of black participants in the asset management sector, including the Top 10 majority black-owned companies by assets under management, in both the institutional and retail environments.
“We looked at the mandates managed by black firms across asset classes, domestically and globally, and identified the products that receive the most support and the products where skills need to be developed,” Mlamleli says. “We found a strong correlation between the size of a business and the number of products offered.
“Older and stronger businesses with bigger teams tend to have larger product offerings, catering to a wider customer base. Interestingly, there remains very little product diversification outside of mainstream product offerings. Asset classes such as global assets and alternatives remain unexplored or in their infancy among black firms,” she says.
Retirement funds dominate the asset base and concentration risk to a few clients remains high. Retail penetration remains stubbornly low and close to non-existent when evaluated against the recently released statistics on the unit trust industry. Black participation, both in terms of the number of unit trusts managed and the size of assets managed within unit trusts is extremely low, at less than one percent of the total industry.
The structure of the sector including access to capital and distribution remains the dominant barriers preventing access to markets for black asset managers.
Recent media reports have highlighted the cultural alienation faced by black professionals in the Western Cape. Findings in the survey supported this view, as the growth in new black entrants within the sector has largely been in Gauteng, even though Cape Town has historically been the home of asset management in South Africa.
In 2017, the Standing Committee on Finance and the Portfolio Committee on Trade and Industry held public hearings on the transformation of the financial sector. The committees subsequently released the first report on the transformation of the financial sector in November 2017 which will inform the agenda for the upcoming Nedlac Financial Sector Summit. Given the focus on market concentration, monopolisation, ownership and licensing respondents were requested to provide their views on these issues. In excess of 85% of respondents felt that appropriate targets should be set in the Financial Sector Code for asset managers and asset consultants.
“The majority of black firms within the sector are Exempted Micro-Enterprises whose annual turnover falls below R10 million per annum and very few companies qualify as large enterprises (revenue greater than R50 million p/a). A small portion of businesses have delivered consecutive years of profit with many not being in a position to contribute towards the fiscus,” she says.
The survey also details findings that ownership is concentrated in the hands of a few people, mostly males, with very little broad employee participation within the firms, which presents a challenge in retaining talent.
“Despite these challenges, what is evident is the ability of the sector to create jobs,” she adds. “The three-year trend on permanent jobs created confirms the sector is able to generate work opportunities. More importantly, the sector creates high earning jobs which further contribute to economic growth through higher levels of consumption, a better tax base and larger savings.”
