Published Date: 2020-07-31 | Source: INCE|Community | Author: Allan Greenblo | Editorial Director of Today's Trustee
You might be astonished by what you thought you knew, but didn't. Or by what you thought you didn't need to know, but did. In a country as appallingly short of corporate memory as SA, the delightfully readable Building Capital* satisfies both strains touched by asset management.
This history of the industry is a labour of love by Muitheri Wahome, a meticulous researcher of Alexander Forbes pedigree. Dozens of interviews and mountains of analysis have resulted in a volume of stories from the past with lessons for the future.
For old timers, memories (mainly affectionate and respectful) are revived by the mere mention of personalities who played legendary roles in the evolution of a speciality within the financial sector. For more recent participants, and usefully for those still to come, there's piece-by-piece explanation to help them understand why they're sitting where they are; prettily or otherwise, as they too will be assessed in time.
And for those who use the services of asset managers - just about everyone in a pension fund or unit trust - there's the comfort of institutional adaptation and longevity. They bend to clients as much as clients to them, differently evidenced by erstwhile greats who've disappeared (such as mutual funds pioneer Union Acceptances) and cheeky start-ups now establishment pillars (NinetyOne and Coronation amongst them).
From the infancy of money management in large life offices, through the extremes in political weather to the big bang of deregulation and the rapid onset of game-changing technology, there's modern-day relevance in how opportunities were identified and grasped.
Even during the years of upheaval and isolation, and perhaps because of them, risk-taking and entrepreneurship were honed for the SA industry to hold its head high in international rankings of growth and performance. It was remarkable for a marketplace so small and concentrated.
Within a context of decades, Covid-19 is another turn along the road of constant change. Go back a little, to the days when stockbrokers (remember them?) plied institutions with free research in order to gain slugs of their trading business.
"The investment banks were more aggressive than the life offices, focused on short-term annualised returns which were now recorded in a growing number of readily available investment performance surveys in the market," Wahome notes. "The merchant banks took on more risk to generate extra returns for clients, resulting in realised returns in the 1980s and 1990s that occasionally outdid those of the conservative life insurers.
"As a result, pension fund investments started to shift from life offices to merchant banks that invested for maximum growth. The shift by self-administered pension funds to appoint professional asset managers to manage their assets, rather than give them to an insurer in exchange for a guaranteed return, was an important stage in the evolution of asset management."
Several life offices fell by the wayside. Remember Commercial Union, Norwich Union, Southern Life and Fedsure? But then there were those - notably Old Mutual for its nursery and Liberty for its chutzpah - where size and innovation weren't incompatible. Now enter Allan Gray, shortly before the 1976 Soweto riots, to introduce the owner-managed independent and a distinctive long-term contrarian philosophy. By stint of discipline, it eventually overtook life offices for assets under management.
The independents began to proliferate: Foord & Meintjies at the start of the terrible 80s, seeing an opening for unbiased advice; Investec Asset Management (now NinetyOne), as democracy dawned, to draw on the banking distribution network of its youthful parent; followed by Coronation, off to a solid start in breaking from Syfrets. Clients followed the professional reputations of its founders, Leon Campher amongst them.
Each of these firms has its own story, briefly but insightfully sketched for unique attributes leading to such long-term success marked by allocations from pension funds (often following battles with consultants). But they also had outstanding common denominators in the forms of patience, perseverance and confidence in their capacity to deliver on promises. Talent was a given.
Gems sparkle through the narrative. For example, with so much debate these days around prescribed assets, Wahome sets out how they once applied. Similarly, with attention increasingly focused on socially responsible investment, she recalls the ground-breaking efforts of a determined Michael Leeman in setting the gospel for Futuregrowth.
There was also black economic empowerment before the imposition of BEE, so to speak. For instance, Coronation assisted the launches of African Harvest and Kagiso Asset Management. (In turn, KAM derived from the Kagiso holding company whose financial bedrock in the bad old apartheid days was Liberty Life.)
Another example was the Community Growth Fund, initiated by Gordon Young from Labour Research Services. He wanted a socially-responsible union fund and eventually got it. This was abetted by support from Campher, then at Syfrets which managed the assets.
Critically important to systemic change, from defined-benefit to defined-contribution retirement funds, was the trade-union movement. Although the switch was happening around the world, in SA it was accelerated by the socio-political turmoil of the 1970s and 1980s.
Workers wanted to control their own funds, particularly to push for improved withdrawal benefits and to participate in investment decisions, while employers were happy to be let off the hook for investment risk. This saga has yet to play itself out, if ever it will.
Wahome records the rise to prominence of black people amongst the established asset managers, and notes how various black-owned firms have contributed to transformation by the training of young black professionals: "While these successes have gone some way to making the asset-management sector, it remains true that startup firms are vulnerable businesses and struggle to survive."
As pointed out by Brian Molefe, when he was chief executive of the Public Investment Corporation, these younger black-owned firms should not rely on PIC allocations for survival. Moreover, as Wahome has found, most of them target institutional public sector and union clients with low-risk mandates:
"Few of these firms play in the retail space where low brand awareness, lack of capital to invest and grow the brand, and access to distribution services on linked investment service platforms, remain a challenge.
"Lack of a strong multi-asset class and global capabilities are a huge limitation...There is also the existential challenge that a lack of economic growth and poor retirement-fund preservation crimp savings growth in the retirement-fund industry, the mainstay of most firms."
A striking feature of the narrative is the constant shifts in the personalities and deals that have shaped and reshaped this hotly-contested corner of the financial sector. Another striking feature is implicit in gauging a most profound of shifts. It's that, relegated in a flash to distant memory, the masters of the universe are no longer the throngs of white gentlemen who once adorned the bar at the Rand Club.
*Building Capital: The Development of Asset Management in SA by Muitheri Wahome will be privately published and available for sale later this year.
Allan Greenblo is editorial director of Today's Trustee
), a quarterly magazine mainly for principal officers and trustees of retirement funds.