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MEDIA RELEASE
14 AUGUST 2023
SA asset managers to shrink by 3% in next 5 years as consolidation trend continues; new focus on infrastructure to emerge
The number of South African asset managers is expected to shrink in number by 3% over the next 5 years, continuing the trend of consolidation in an industry faced with rising challenges. This is the view of Isabella Mnisi, RMB’s Sector Head: Asset Management and Funds and an industry specialist enabling mergers and acquisitions.
And their assets under management (AUM), which represent about 5% of the total assets in the South African asset management industry, is expected to move to other asset managers or acquiring firms.
Said Mnisi: ”South Africa has over 500 asset management firms which are either insurance-owned, bank-owned, or independent.
“The traditional South African asset management industry continues to face severe challenges, not least the stalling economic growth, policy uncertainty and growing negative sentiment towards SA Inc. We expect that much of the future consolidation is likely to come from asset managers with less the R10bn of listed AUM as they are simply too small to be economically viable.”
She said there has already been a spate of consolations in the last 5 years which has seen the number of asset managers already shrink by 3% because of the cost benefits scale brings, and adds that consolidation was not the only change: the fabric of the industry is expected to shift towards the greater return potential of local infrastructure and private equity investment as well as a greater demand for offshore investing.
“In South Africa, 65% of money has historically been invested in locally listed equity.
“With dimmer equity prospects, investors are now looking to an area of the economy where there is growth and prospects for returns are good such as alternative assets - and particularly infrastructure related assets. Infrastructure funds will be a long running investment theme for South Africa as they attract more money as the country focuses on the urgent economic and social infrastructure needs.”
She added that infrastructure investing skills in the investment management sector are mostly situated within larger asset management houses like Sanlam and Old Mutual which will need to draw in further skills.
“Many smaller, non-traditional fund managers will find it uneconomic to try and compete with larger players in infrastructure offerings. They will likely join or be acquired by larger asset managers.”
Mnisi said unfortunately, the JSE now offers fewer opportunities for diversification than it once did with a spate of delistings.
“The SA Inc stocks have also been particularly poor performers over the past few years, driving many investors to up their global equity allocations at the expense of local listings.
“A weaker rand also does not help. It has also proven a major drag on returns when converted to hard currency equivalents.
“This will also be a factor behind industry shrinkage - the larger asset managers have the structures and expertise to help South Africans wanting to invest offshore. They are likely to benefit from drawing funds away from smaller asset managers with less international clout,” Mnisi concluded.
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