We use cookies to provide you with the best possible online experience. Read our cookie policy.
22 NOVEMBER 2023
This article first appeared on citywire.co.za on 21 November 2023
'Transformation snowball’ hitting SA asset managers as pension funds draw line
The South African asset management industry faces a ‘transformation snowball’ as retirement funds draw the line at the slow pace of change in the industry which is expected to have an immediate and compounding effect.
Says Isabella Mnisi, RMB’s Markets Client Executive: ”There has been a sudden step change in the pace of transformation by asset managers driven by the requirements from their clients, the retirement funds. Asset owners have made transformation a business imperative and we expect others to follow and see a rolling impact across the industry as transformation finally kicks into high gear.”
While the industry has had some targets previously, there is currently no legislated transformation requirement for the investment management sector. Each retirement fund has been following its own policies for transformation requirements for asset managers.
“RMB has seen a sharp increase in the number of investment managers who are looking for advice on implementing transformation policies, since the groundbreaking Alex Forbes transformation policy announcement in May last year,” Mnisi says.
Alex Forbes is South Africa's largest pension funds administrator and is responsible for allocating over R150 billion to investment managers.
Their new policy came into effect on 30 June 2022, but to accommodate asset managers who are still trying to get more black and female representation in their teams, the company will have a three-year phase-in process. From 1 July 2025 however the company won't do business with asset managers that don't meet transformation requirements laid out in its new policy.
From then, any asset manager and asset consultants who want to deal with Alex Forbes and manage money on behalf of its pension funds clients will need to at least be certified as a Level 3 BEE contributor. They must also have at least 40% black investment professionals and 40% women in its investment teams, and need senior management to be 40% black.
With R2.3 trillion assets under management, Africa’s largest pension fund, the Government Employee Pension Fund (GEPF) also officially launched its transformation Policy in October. One of the four key areas identified by the GEPF’s Transformation Policy is ”Industry-level transformation”.
This should encourage the growth of black-owned asset managers, private equity fund managers, fixed-income asset managers, audit firms, actuaries, and other relevant emerging financial service providers within the sector.
“It has been a long time since we have seen such a sense of urgency from asset managers to drive transformation of their businesses. The potential risk of losing assets under management (AUM) from Alex Forbes has been a trigger in progressing the transformation discussions,” Mnisi notes.
Unionised retirement funds in the mining and public sectors have also been at the forefront of setting up policies, which favour allocation to transformed investment managers. These retirement funds have over R300 billion AUM, which is less than 20% of the R1.6 trillion retirement market (excluding the government employee pension fund).
Regulation 28 now allows 45% of assets to be allocated offshore, up from 30%. So if fully allocated offshore, it only leaves 55% of the R300bn, the total size of the South African asset management industry, to be allocated to local managers.
The percentage of this R300bn that therefore gets allocated to transformed investment managers drops to below 10% because of a retirement fund’s investment policy of investing in different asset classes across the globe.
"The Alex Forbes policy is reverberating mainly in the ‘second tier’ of independent asset managers - not insurance or bank aligned asset managers, which have not as yet been intentional enough about transformation. They have also faced the challenges of a small pool of talent and have not traditionally attracted female, and particularly black female graduates,” Mnisi says.
Challenges for some of these asset managers is that they have small white-male dominated investment teams – so it means huge share allocations to few individuals, in order to comply with the transformation policy.
“This predicament has originated internally to a large degree, given that the concept of transformation is not new development in the SA market. So, these businesses were most probably set up without considering transformation policies, probably because their clients - asset owners and allocators - did not require them. The other challenge is the funding of the ownership structures. Most of the black and/or women investment team members do not have financial resources to pay for the shareholding in the company,” Mnisi adds.
Most of the big and established asset managers have staff ownership and other transformation policies in place already.
End
