Transformation in South African asset management

BEE.conomics™

17 sustainable development goals (SDGs) to transform our world

2020

2

3

Contents

Abbreviations 4

Criteria and methodology 5

Foreword by Polo Leteka Radebe, President of ABSIP 6

Executive summary 7

A: Overall participation statisticsA1 Sector overview 12

A2 Colonialism, apartheid and democracy - the evolution of South Africanasset management 27

B: Public marketsB1 Impact of COVID-19 36

B2 Fund facts 47

B3 Using machine learning to select the best asset managers 59

B4 B-BBEE scorecard 65

B5 The shift to umbrella funds - does consolidation supporttransformation? 74

B6 Business sustainability and societal impact 78

B7 Team 87

B8 Regulations all asset managers need to be aware of 96

B9 Compliance and operations 97

B10 Product distribution 110

B11 Brand building and industry influence 119

B12 Environmental, social and governance 128

B13 Investment performance 137

B14 List of participants 145

C: Private marketsC1 Introduction 153

C2 Fund facts 154

C3 An investment consultant’s take on Regulation 28 and unlistedinvestments 186

C4 List of participants 188

Disclaimer / Terms and conditions of use 193

ABSIP Association of Black Securities and Investment Professionals

ASISA Association for Savings and Investment South Africa

AUM Assets Under Management

B-BBEE Broad-Based Black Economic Empowerment

CFA Chartered Financial Analyst

CIS Collective Investment Scheme

COFI Bill Conduct of Financial Institutions Bill

CRISA Code for Responsible Investing in South Africa

DFI Development Finance Institution

DTI Department of Trade and Industry

EAC Effective Annual Cost

EME Exempted Micro Enterprise

ESD Enterprise and Supplier Development

ESG Environmental, Social and Governance

FSC Amended Financial Services Sector Code of 2017

FSCA Financial Sector Conduct Authority

FSTC Financial Sector Transformation Council

GEPF Government Employees Pension Fund

GIPS Global Investment Performance Standards

GP General Partner

JSE Johannesburg Stock Exchange

LDI Liability Driven Investment

LISPs Linked Investment Services Providers

LP Limited Partner

LSM Living Standards Measure

NPAT Net Profit After Tax

PA Prudential Authority

PIC Public Investment Corporation

QSFI Qualifying Small Financial Institution

SARB South African Reserve Bank

SARS South African Revenue Services

SAVCA Southern Africa Venture Capital and Private Equity Association

SDGs Sustainable Development Goals

SED Socio-Economic Development

SOE State Owned Enterprise

TER Total Expense Ratio

TIC Total Investment Charge

UCITS Undertakings for Collective Investment in Transferable Securities

UN PRI United Nations Principles for Responsible Investment

4

Abbreviations

5

The survey has been designed with comparability toprevious years in mind. The report is also published

1 Questionnaire design Changing industry dynamics require an annual reassessment of therelevance of the questions asked.

2 Research content A key feature of the survey is the inclusion of research articles ofinterest and interviews with stakeholders.

3 Asset manager universe We cast our net wide to ensure that our universe is all-encompassing.

4 Invitation to participate Asset managers were invited to complete the online questionnaire on 2 June 2020.

5 Submission deadline The cut-off-date for participation was 14 July 2020.

6 Information collation Information submitted was cleaned, verified, collated and presentedin a visual format.

7 Commentary Statistics, facts and figures were interpreted, observations made andcommentary provided.

8 Publish The completed product is assembled for artwork, final editing and publication.

Criteria and methodologyPurpose of the survey

The purpose of this survey is to map the progress oftransformation in the South African asset managementsector and to showcase the universe of majority black-

Who would participate?

Asset managers which met the following criteria wereapproved for participation in the survey:

1. The company is at least 51% black-owned whereblack people hold at least 51% of the economicinterest and where black people hold at least 51%of exercisable voting rights.

2. At least 51% of the company’s board of directors areblack.

3. At least 51% of the company’s senior portfolio managers are black.

Research methodology

All data is presented as at 30 June 2020. The graphic below articulates the research process followed.

and made freely available for the benefit of all stake-holders across the savings and investments ecosystem.

4. The company is registered with the Financial SectorConduct Authority for the business that the companycarries out.

Random checks were conducted by 27four to verify thateach participant met the criteria. However, this was notindependently vetted. All information was voluntarilyprovided as is by participating firms.

owned, managed and controlled asset managers acrossboth public and private markets.

Forewordby Polo Leteka Radebe, President of ABSIP

6

The year 2020 is turning out to be a watershed momentfor the world at large and for South Africa in particular.As a country with a unique history premised on yearsof historical injustices and a unique transitional projectinto democratic rule, the South African story alwaysneeds to be narrated and articulated in a manner thatacknowledges the uniqueness of our society at large.

The rise and the spread of the coronavirus pandemichas forced a reset of what the world thought were therules of engagement and the ways of working and living.Similarly, in South Africa, it has forced us to confront somany of the fundamental fracture points inherent inour society that have become accepted rather thanchallenged. As a country that had a unique mission toproactively seek to heal and bridge the injustices of thepast and map a future of shared prosperity andsolidarity, South Africa by default had to come up withcreative and innovative ways of bridging its great socialdivides.

This is the basis of the various transformation initiativesand instruments that have been put in place over thepast 25 years. Key to these instruments is the regulatoryregime that seeks to provide guidance for various marketparticipants in various sectors on what needs to bedone in order to achieve meaningful transformation inthe various areas that they are in. The role of transfor-mation legislation in its various forms can therefore notbe over-emphasised in the South African context. Whatalso becomes very critical in relation to any form ofregulation and social leadership is the ability to monitorthe effectiveness of intervention instruments that havebeen proposed and implemented. To this end, the ideaof a policy barometer is an important concept for acountry like South Africa.

This is simply because whatever instruments of inter-vention are proposed and applied must be evaluatedagainst objective benchmarks that provide insights intothe effectiveness of such instruments in converging oursociety closer to shared characteristics rather thanamplifying our historic divides. In the financial servicessector, given its transversal and pervasive role acrossall sectors of our society and economy, it is even moreimportant to not only put transformation measures inplace but also to objectively assess and evaluate them.It is with this in mind that ABSIP is fully supportive ofthe 2020 Transformation in South African Asset Manage-ment Survey.

In our view, this survey serves as an important barometerthat enables us to track the performance and progressof transformation within the sector over a particularperiod of time. The reason why tracking and monitoringtransformation is quite important is that we all acknow-ledge that this sector is still dominated by a few marketparticipants who possess significant market power. Suchmarket power is amplified by the significant barriers ofaccess for incomers. The new and emerging players inthe asset management industry therefore need to beassisted in firstly understanding the market and alsoidentifying points of entry.

It is in a survey of this nature that we are able to identifywhether such initiatives exist and if so what theireffectiveness has been in ensuring that we open up thesector and create an ecosystem that is receptive to newentrants, and for black asset managers in particular, tobe able to succeed within the sector. As 27four Invest-ment Managers has conducted this BEE.conomicsTransformation in South African Asset ManagementSurvey for the past 12 years, it has become an importantreference point for deliberations around the table withinABSIP structures in analysing and understanding theasset management industry and what its ongoingchallenges are. It is with this in mind that we welcomethe 2020 survey which indicates to us that not only dowe still have a lot of work to do but also identifiesparticular areas of focus that must become the focusarea for ABSIP and the various role players in the assetmanagement sector going forward.

7

Executive summary1. Black-owned market share• As at 30 June 2020, total assets managed by black-

owned firms advanced to R668 Billion, an increase of15% from last year.

• There are 51 black-owned asset managers acrossboth the public and private markets (2019: 50).

• The universe of participants includes a small numberof very large firms and a long tail of medium andsmall-sized firms. Median asset manager AUM is R1.6Billion and mean AUM is R13.1 Billion.

• Black market share of the total estimated SouthAfrican savings and investment pool is 9%.

2. Impact of COVID-19• Around half of all participants expect COVID-19 to

have a negative impact on their bottom-line. Suchfirms have implemented a number of cost contain-ment measures which include reducing marketingbudgets, deferring or cancelling planned investments,placing freezes on new hires and taking bonus andsalary sacrifices.

• Only a handful of firms took advantage of governmentrelief measures such as tax deferral holidays.

• An overwhelming majority of firms envision a newworld of work with less air travel and an increase inremote working and use of technology-based commu-nication platforms.

• The pandemic has also brought impact investmentto the forefront as many debt and equity recoveryfunds have emerged to support businesses mitigatethe negative financial consequences inflicted by theeconomic slowdown.

3. Asset allocation trends andchanges in the demand side

• Within public markets, just over 60% of industry assetsare currently invested in low risk money market andfixed income products. These are also low marginproducts and require significant scale to drive profit-ability. Domestic equities have progressively beenlosing market share over the past decade and nowmake up just 22% of AUM having made up 50% oftotal AUM in 2010. Exposure to domestic equities hasfallen sharply, a reflection of lacklustre performance,

low investor confidence and an economy on its knees.Outflows from domestic equities were equipoised byflows into domestic money market and fixed income,where the safety of real yields and low volatility wasfavoured by investors. The lion’s share of managersoperating in the public markets space are focused onthe management of specialist domestic equitymandates and have been the hardest hit by this shift.Managers with established fixed income and moneymarket offerings gained the most.

• Less than 2.5% of public markets AUM is managed inglobal mandates even though eleven firms have globalofferings. It is unfortunate that managers with globalofferings have not been able to build adequate scaleeven though institutions and individuals have takenfull advantage of the global exchange control allow-ance.

• The demand side in South Africa is changing, andinvestors have become much more discerning andless tolerant of lacklustre performance and high feesparticularly in the case of active fund management.Institutional investors are also searching for diversifiedsources of return that can match long-term liabilities,cushion portfolios from the shocks of market selloffs,meet developmental goals and deliver inflationbeating returns. Given these multiple objectives, wecan expect the industry to gradually adapt to suchpressures with more offerings emerging at oppositeends of the spectrum - costly high alpha alternativeswhere managers are paid for the delivery of long-term performance, and low-cost passive betasolutions.

4. Private markets, prescribedassets & change in regulations

• An already weak economy exacerbated by COVID-19has left government seeking a new narrative toaccelerate an economic recovery. As such, the ideaof using prescribed assets to help foster economicgrowth has resurfaced, packaged in the form of aninfrastructure fund to finance strategic projects bycombining capital from the public and private sectors,retirement funds, development finance institutionsand multilateral development banks. With expecta-tions of capital flows into real assets, the assetmanagement industry appears to be readying itself- new and existing firms are building capacity andskills to be able to manage such flows.

8

• Twenty private markets firms completed our surveythis year, which have raised a total of R19.3 Billionacross 30 funds, representing both an increase inparticipation and AUM from last year. While the overallasset size is encouraging, it is important to note thatthe universe of participating firms’ AUM is highlyskewed, with many managers currently at subscaleand continuing to experience challenges of longfundraising cycles.

• The resulting growth in appetite for impact investmentthrough unlisted assets may precipitate a change toRegulation 28 of the Pension Funds Act, whichcurrently caps private equity and hedge funds at 15%.Calls have been made by SAVCA to separate hedgefunds from private equity and gradually increase theprivate equity limit. The Minister of Finance haspublicly flirted with the idea of increasing the limitindicating that this is under review by the NationalTreasury. Similar calls have been made to amendCISCA to allow unit trusts to hold unlisted exposure.

5. Scale and distribution• There are now two firms who each manage more

than R100 Billion and collectively represent almosthalf (48%) of total assets. Breaking beyond the R15Billion mark appears to be the largest challenge formanagers. Most private market participants fall inthe <R1 Billion category.

• Ninety percent of public market asset managers’ assetbase is sourced from institutional investors such asretirement funds and are therefore concerned aboutthe consolidation of retirement funds under umbrellaarrangements. This apprehension is not without meritas argued in “The Shift to Umbrella Funds – DoesConsolidation Support Transformation?”.

• Retail penetration appears to be lethargically prog-ressing with black-owned asset managers’ marketshare of the unit trust industry now at 9% representedby 25 firms managing 106 unit trust portfolios.

• Firms also envision a greater increase in mergers andacquisitions as companies harness skills, expertiseand resources together in a shift towards greatermarket consolidation.

6. ESG• Twelve firms are signatories to the UN PRI.

• Ninety percent of all firms integrate ESG into theirinvestment processes and over two-thirds of publicmarkets managers acknowledge that ESG factorshave impacted the risk and return characteristics ofthe portfolios they manage.

• The overwhelming majority of firms agree that thepandemic has once again exposed the fragility of thefinancial markets and current economic systems andthat a shift of alignment to achieving the UN SDGs isbecoming urgent.

7. Socio-economic statistics• The revenue model of asset management is built for

scale, and so the increase in industry AUM did nottranslate into an increase in job creation. The industrycurrently employs a total of 638 people, marginallydown from last year.

• There was little movement in the demographiccomposition of asset manager teams since 2019.None of the managers’ teams are homogenous andpositively reflect both race and gender diversity.

• There was a marked improvement in the number offirms achieving profitability as 76% of all firms indica-ted that they are profitable up from 68% recorded inthe previous year.

• There was overall improvement in the size of publicmarkets firms based on revenue as 44% (2019: 48%)are classified as EMEs, 34% (2019: 34%) as QSFIs and22% (2019: 17%) as large enterprises.

• Women representation at both ownership and direc-torship levels continue to disappoint relative to allother sectors within the economy (B-BBEE Commis-sion, 2020).

• Over half the universe of public markets managersprocure less than 20% of services from more than51% black-owned and / or 30% black women-ownedbusinesses suggesting that the industries from whichasset managers procure services from are largelyuntransformed.

• Going into 2021, transformation of the financial sectorwill be in the spotlight with new legislation focusedon achieving parity within the sector coming into play.Such legislation includes the Employment EquityAmendment Bill, currently in draft form, which willallow for the Minister of Employment and Labour toidentify sectoral numerical targets to ensure repre-sentation reflective of our demographics. We can alsoexpect to see the Conduct of Financial InstitutionsBill come into effect, and an updated iteration of theFinancial Sector Code gazetted.

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10

17 sustainable developmentgoals (SDGs) to transform

our world

1. No poverty 2. Zero hunger 3. Good health& well-being

4. Quality education

7. Affordable& clean energy

8. Decent work &economic growth

9. Industry, innovation& infrastructure

10. Reducedinequalities

11. Sustainable cities& communities

12. Responsibleconsumption& production

13. Climate action 14. Life below water

5. Gender equality 6. Clean water& sanitation

15. Life on land 16. Peace, justice &strong institutions

17. Partnershipsfor the goals

Overallparticipationstatistics

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12

SectoroverviewSection highlights

DECLINEDomestic equities have experiencedthe worst decline over the decade

51The number of black-owned assetmanagers across both public andprivate markets

R668 BillionTotal industry AUM

R1.6 BillionMedian asset manager AUM

R13.1 BillionMean asset manager AUM

8.8%Black market share of the total estimated South African savings and investment pool

8.7%Black market share of the unit trustindustry

10.5%Black market share of the privatemarkets industry

638The number of people employed in theindustry, down 4.5% from last year

76%The percentage of profitable firms

Decent work &economic growth

8

13

The proportion of private market respondents has beenincreasing in recent years and now make up 39% of thedataset (20 out of 51), up by five new entrants since lastyear’s publication. Private markets have in recent yearsexperienced favourable momentum and this trend isexpected to continue as investors seek sources of returnthat can achieve the dual objectives of inflation beatingreturns and contribute to the revitalisation of oureconomy. Investors have become increasingly frustratedwith returns from the domestic listed markets which,represented by the All Share Index, has returned a paltry4,16% annualised over the five years to 30 June 2020.There is also a lot more openness to the unlisted assetclass than before.

The disruption brought on by COVID-19 on the globalfinancial system has forever changed the structure ofasset management. Market volatility and capitaldepletion has been much more severe than thatwitnessed during the Global Financial Crisis of 2007-2008. Given how closely asset management revenuesare tied to the capital markets, these are extremelyuncertain times for the industry. Regardless of thesedifficult conditions the overall assets managed by black-owned firms advanced to R668 Billion (up 15% year onyear). The number of firms who met our criteria forparticipation has now reached 51, comprising 31managers focused on public markets, 19 on private

markets and one manager with an offering across bothmarkets.

This growth, however, has not been widespread as riskoff sentiment has favoured those asset managers withstrong fixed income offerings. The outlook for the overallsector remains bleak as is evidenced by the share pricesof publicly traded asset managers. Given the headwindscaused by the slowdown in our economy we expect tosee consolidation across the industry, as well as growthin impact investment offerings that can advance socialand economic sustainability objectives.

a. Total number of participating firms and AUM

Num

ber

of fi

rms

ZAR

Billi

ons

2018

48

490,3

60

50

40

30

20

10

0

700

600

500

400

300

200

100

0

2009

14

91,4

2010

20

134,1

2011

22

164,8

2012

25

184,6

2013

26

253,1

2014

32

283,1

2015

33

309,2

2016

41

408,3

2017

45

415,5

2019

50

579,1

2020

51

667.8

48

14

20 2225 26

32 33

4145

50 51

Numberof firmsTotalAUM

ZAR

Billi

ons

b. AUM breakdown by public and private markets participants

800

700

600

500

400

300

200

100

0Private

marketsPublic

marketsTotal

563,9

15,2

579,1648.5

19.3

667.8

2019 2020

14

Ascension Capital Partners

Eklavya Asset Managers

Idwala Capital

Makalani Management Company

Medu Capital

Tamela Capital Partners

Volantis Capital

Vuna Partners

2020 saw seven new participants join the survey withfive firms operating in private markets and two in publicmarkets. Makalani Management Company is not a newentrant to the survey. They previously only participatedunder public markets and now also participate underprivate markets. Idwala Capital and Tamela CapitalPartners are both re-entries to the survey havingpreviously participated in the 2018 edition. Buddingnew entrants Volantis Capital has come to market witha fixed income offering and Vuna Partners is a private

c. Exits and entrants to the survey

Entrants Public PrivateMarkets Markets

Acanthin

Black Mountain Investment Management

Convergence Partners Management

Differential Capital

Legacy Africa Fund Managers

Pan-African Asset Management

Exits Public PrivateMarkets Markets

equity manager focused on the mid-market sector.There were a total of six exits this year, five in publicmarkets and one in private markets. One of the six isno longer in operation. Reasons for non-participationinclude: missing the deadline to submit data, beingfocused on retail clients only, have experienced acontraction in AUM or not been successful in assetgathering, no longer meet the criteria for participationor find no value in participating.

15

d. Public markets participants

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

29

30

31

32

Prescient Investment Management

Vunani Fund Managers

Taquanta Asset Managers

Kagiso Asset Management

Makalani Management Company

Mergence Investment Managers

Argon Asset Management

Aeon Investment Management

Afena Capital

Meago Asset Managers

Sentio Capital Management

All Weather Capital

Prowess Investment Managers

Balondolozi Investment Services

Mianzo Asset Management

First Avenue Investment Management

Cachalia Capital

Perpetua Investment Managers

Benguela Global Fund Managers

Terebinth Capital

Fortitudine Vincimus Capital Advisors

Lodestar Fund Managers

Lunar Capital

MSM Property Fund

Independent Alternatives Investment Managers

Aluwani Capital Partners

Excelsia Capital

Value Capital Partners

Idwala Capital

Lima Mbeu Investment Managers

Ngwedi Investment Managers

Volantis Capital

21.84

20.95

20.77

18.59

15.89

15.76

15.26

15.16

14.67

14.30

13.01

12.17

11.59

10.22

9.92

9.42

8.14

7.75

7.36

7.25

5.92

5.50

5.46

4.91

4.91

4.58

4.17

4.00

2.92

2.81

1.92

1.03

R100 694.68

R42 158.65

R217 635.00

R30 291.88

R150.00

R32 592.97

R25 270.03

R12 377.62

R4 152.32

R7 935.00

R15 894.00

R8 029.00

R7 310.96

R5 454.00

R7 700.00

R5 646.76

R822.00

R9 678.57

R4 547.00

R7 163.20

R263.20

R904.00

R69.20

R268.68

R125.00

R87 421.26

R1 221.10

R5 480.02

R647.93

R532.85

R6 042.00

R0.00

38

33

39

47

8

48

30

8

12

12

20

13

14

16

14

6

3

26

16

6

3

2

2

2

3

34

10

16

2

6

10

4

Fund manager Years inoperation

AUM(ZAR Millions)

Total staffheadcount

Total R648 468.88 503

The graph confirms that the black-owned asset manageruniverse is made up of a small number of very largefirms and a long tail of medium and small-sized firms.

e. Private markets participants

123456789

1011121314151617181920

Medu CapitalMakalani Management CompanySenatla CapitalBopa Moruo Private Equity Fund ManagersAta CapitalRH ManagersSanari CapitalMoshe CapitalKleoss CapitalPAPE Fund ManagersCrede Capital PartnersThird Way Investment PartnersEthos Mid Market Fund IKhumovestEklavya Asset ManagersSummit AfricaTamela Capital PartnersFyreFem Fund ManagersAscension Capital PartnersVuna Partners

18.4815.8910.098.508.427.136.656.556.345.335.085.004.724.714.413.923.792.812.381.05

R2 700.00R2 500.00R635.00R1 050.00R1 614.00R1 532.03R135.25R50.00R850.00R1 580.00R190.00R2 490.00R2 500.00R0.00R0.00R496.00R500.00R0.00R200.00R300.00

98858

12795184882

1112242

Total R19 322.27 143

Fund manager Years inoperation

AUM(ZAR Millions)

Total staffheadcount

f. All firms ranked by AUM

ZAR

Mill

ions

R225 000

R200 000

R175 000

R150 000

R125 000

R100 000

R75 000

R50 000

R25 000

R0

Taqu

anta

Ass

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anag

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Pres

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Man

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Cap

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Lim

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Tam

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Sum

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MSM

Pro

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Cred

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sSa

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Cap

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Inde

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Mos

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Fyre

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Khum

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l

Median: R1 614 Million Mean: R13 093.94 Million

This is evidenced by the difference between the meanvalue of AUM and the median.

16

17

This year, Prescient Investment Management joinsTaquanta Asset Managers in the plus R100 Billion club.Collectively the two managers represent almost half(48%) of total assets managed by all firms thatparticipated in the survey. Breaking beyond the R15

Billion mark appears to be the largest challenge formanagers. The majority of private market participantsfall in the <R1 Billion category. Little has changed fromprevious years as the data re-affirms the lopsidedtopography of this group of managers.

Concentration in the pool increased between 2019 and2020 with the top five and ten firms now representing72% and 86% of overall industry assets, respectively.The COVID-19 shock to the capital markets in Februarythis year resulted in members of retirement fundsswitching out of growth portfolios into low risk portfolios

heavily weighted to fixed income securities. Assetmanagers with established track records in fixed income,of which there are several in the top 10, were recipientsof this flow. In this light, the increase in concentrationlevels is not surprising.

g. Assets managed by firm size

>100bn

50 to 100bn

30 to 50bn

15 to 30bn

5 to 15bn

1 to 5bn

<1bn

Total AUM of firmin ZAR Billions

Number of firms

Total

1

1

2

4

5

10

18

1

1

2

3

6

11

21

1

1

2

4

6

11

23

1

2

2

3

9

13

20

2016201720182019

41454850

2

1

3

2

11

11

21

2020

51

h. Combined market share of top firms by AUM

% o

f ind

ustr

y as

sets

100%90%80%70%60%50%40%30%20%10%

0%

Top 5 Top 10

2014 2015 2016 2017 2018 2020

69,89%

88,01% 86,47%

68,59%76,83%

94,01%

74,21%

91,26%83,59%

64,96%

83,40%

67,04%

85.96%

71.95%

2019

18

Aeon Investment Management appears in the table forthe first time, having increased firm AUM by 8.49%,positioning the asset manager as the ninth largest publicmarkets asset manager. Listed property manager MeagoAsset Managers dropped out of the top 10 due to thedecline in the performance of the sector, which saw theSA Listed Property Index drop by 40% over the period

1 July 2019 to 30 June 2020. Over the one year to 30June 2020 the Capped SWIX Index delivered -10.78%. Inline with this decline and outflows from the sector,domestic equity focused managers experienced thelargest drop in AUM. Managers with fixed incomeofferings benefitted from better performance, and newinflows to the asset class.

i. Public markets - top ten firms by AUM

R217 635

R100 695

R87 421

R42 159

R32 583

R30 292

R25 270

R15 894

R12 378

R9 679

AUM(ZAR Millions)

20.77

21.84

4.58

20.95

15.76

18.59

15.26

13.01

15.16

7.75

Taquanta Asset Managers

Prescient Investment Management

Aluwani Capital Partners

Vunani Fund Managers

Mergence Investment Managers

Kagiso Asset Management

Argon Asset Management

Sentio Capital Management

Aeon Investment Management

Perpetua Investment Managers

1 (1) (1)

2 (2) (*)

3 (3) (2)

4 (5) (7)

5 (4) (5)

6 (6) (4)

7 (7) (6)

8 (8) (8)

9 (**) (**)

10 (9) (10)

Years inoperationFund managerRank 2020

(2019) (2018)

R574 005Total

*indicates new entrant to the survey**indicates new entrant to top 10

Ann

ual i

ncre

ase/

decr

ease

in A

UM 40%

30%

20%

10%

0%

-10%

-20%

-30%

35.57%

8.14%

24.93%

34.77%

-2.31%

6.13%1.08%

-5.74%

8.49%

Annual increase/decrease in top 10 AUM:

Argo

n As

set

Man

agem

ent

Pres

cien

t Inv

estm

ent

Man

agem

ent

Kagi

so A

sset

Man

agem

ent

Mer

genc

e In

vest

men

tM

anag

ers

Sent

io C

apita

lM

anag

emen

t

Taqu

anta

Ass

etM

anag

ers

Aluw

ani C

apita

lPa

rtne

rs

Vuna

ni F

und

Man

ager

s

Aeon

Inve

stm

ent

Man

agem

ent

Perp

etua

Inve

stm

ent

Man

ager

s

-21.05%

19

j. Private markets - top ten firms by AUM

R2 700

R2 500

R2 500

R2 490

R1 614

R1 580

R1 532

R1 050

R850

R635

18.48

4.72

15.89

5.00

8.42

5.33

7.13

8.50

6.34

10.09

Medu Capital

Ethos Mid Market Fund I

Makalani Management Company

Third Way Investment Partners

Ata Capital

PAPE Fund Managers

RH Managers

Bopa Moruo Private Equity Fund Managers

Kleoss Capital

Senatla Capital

1(*)

2(2)

3(**)

4(3)

5(4)

6(5)

7(7)

8(6)

9(8)

10(9)

R17 451Total

AUM(ZAR Millions)

Years inoperationFund managerRank 2020 (2019)

Both Medu Capital and Makalani Management Companymake the top 10 this year with Summit Africa exitingthe top 10. Many of the firms are still raising capital forfund closure, whereas some have closed and begundeployment. Overall private market assets haveincreased from R15.2 Billion recorded last year to R19.3Billion this year - the top 10 account for 90% of thisfigure. This universe of managers include managersfocused on private equity, debt, and infrastructure.

As South Africa responds to its developmental needsthrough infrastructure investment, inviting blendedfinance and public private partnership opportunities,we expect this pool of managers to benefit from suchactivity. The biggest tailwind for the industry is theexpected increase in the retirement fund investmentlimit of 10% to private equity which we understand iscurrently under review by the National Treasury.

k. Black asset management market share of the overall savings pool in South Africa

To calculate the total black market share of the regulatedsavings pool in South Africa we need to first calculatethe total size of regulated savings stocks. This calculationis provided next and excludes short-term insurance,medical schemes and banking stocks. It is important to

note that there is no official source for this statistic anddifferent figures have been quoted in the industry,varying from R6.5 Trillion to R8.5 Trillion. The valuesprovided are from a range of sources which report atdifferent times.

*indicates new entrant to the survey**indicates new entrant to top 10

20

The total value of savings and investments managed byblack-owned firms is R667.8 Billion which represents amarket share of 9% of the overall regulated savingspool. It must be pointed out that not all regulated stocksare available for management by private sector assetmanagers, for example, the Public Investment Corpora-tion in its 2019 Annual Report indicates that only 12%of all domestic listed equities are managed by externalasset managers.

According to ASISA the total value of ZAR denominatedCIS portfolios as at 30 June 2020 was R2.54 Trillion up5% from R2.41 Trillion recorded last year. Black assetmanagers’ market share of this total currently standsat 8.7%.

ZAR

Billi

ons

R8 000

R7 000

R6 000

R5 000

R4 000

R3 000

R2 000

R1 000

R0

Total size of SouthAfrican savings pool

R7 631

R668

Total AUM managed byblack-owned

asset managers

l. Black asset manager market share of the unit trust industry in South Africa

Total AUM of ZAR CIS funds managed byblack-owned asset managers

Total AUM of ZAR CIS fundsas at 30 June

ZAR

Billi

ons

R3 000

R2 500

R2 000

R1 500

R1 000

R500

R02019 2020

R2 409 R2 535

R185

Total size of regulated savings stocks excluding banks, short-term insurance and medical schemes

Minus all of this:InstitutionalInvestments inCIS PortfoliosR1 615 Billion(30 June 2020,ASISA)

UnderwrittenRetirement FundsR533 Billion(2018, FSCA AnnualReport)

Add up all of this:CollectiveInvestmentSchemes (“CIS”)R2 535 Billion(30 June 2020,ASISA)

Retirement FundsR2 652 Billion(31 May 2020,FSCA ActiveFunds List)

Public InvestmentCorporationR2 131 Billion(31 March 2019,PIC AnnualReport)

Long-TermInsuranceR2 461 Billion(2020, ASISA)+ + +

Give us a total of: R 7 631 Billion

R221

21

n. Participation and AUM by province

Cape Town:16 firmsR505.47 Billion AUM

Johannesburg:35 firmsR162.34 Billion AUM

According to SAVCA the Southern Africa private equityindustry recorded R184.4 Billion in AUM at the end of2019, of which 82.4% (R151.9 Billion) of AUM wereunrealised investments, with the remaining R32.5 Billionclassified as undrawn commitments. The number ofblack private markets participants increased from 15 to20 with a total AUM of R19.3 Billion representing 10.5%of total industry AUM.

The top ten management companies account for onaverage 76% of total CIS AUM and have held onto theirrankings with Allan Gray and Coronation dominating

2020

2019

2018

2017

2016

2015

Allan Gray

10.7%

Allan Gray

12.2%

Allan Gray

12.3%

Allan Gray

12.1%

Allan Gray

11.8%

Allan Gray

12.0%

Stanlib

10.0%

Stanlib

9.7%

Stanlib

9.7%

Stanlib

9.3%

Stanlib

10.1%

Stanlib

11.7%

Coronation

9.6%

Coronation

10.2%

Coronation

10.7%

Coronation

11.0%

Coronation

12.0%

Coronation

13.2%

Ninety One

9.3%

Ninety One

8.3%

Ninety One

8.0%

Ninety One

8.7%

Ninety One

8.5%

Ninety One

8.4%

Nedgroup

8.3%

Nedgroup

7.6%

Nedgroup

7.8%

Nedgroup

7.8%

Nedgroup

7.0%

Nedgroup

6.7%

Old Mutual

6.4%

Old Mutual

7.0%

Old Mutual

7.2%

Old Mutual

7.3%

Old Mutual

7.9%

Old Mutual

8.0%

Sanlam

6.1%

Sanlam

6.5%

Sanlam

6.7%

Sanlam

5.9%

Sanlam

5.5%

Sanlam

5.4%

Absa

5.7%

Absa

5.4%

Absa

5.6%

Absa

4.8%

Absa

4.7%

Absa

4.8%

Prescient

4.1%

Prescient

3.7%

Prescient

3.5%

Prudential

3.7%

Prudential

4.5%

Prudential

4.9%

Prudential

4.6%

Prudential

4.6%

Prudential

4.8%

Foord

3.5%

Foord

4.0%

Foord

3.8%

CIS management company market share - top 10:

m. Black asset manager market share of the private markets industry in South Africa

ZAR

Billi

ons

R 250

R200

R150

R100

R50

R0

Total AUM of private equity funds managed byblack-owned asset managers

Total SAVCA industry AUM

2019 2020

R171 R184

R15R19

the top 2 positions. The only black-owned firm appearingon this quilt is Prescient who entered the top 10 in 2018and have subsequently moved to ninth position in 2020.

22

The criteria for participation in the survey is at least 51%black ownership. The majority of respondents areclassified as EMEs and QSFIs and therefore automaticallyqualify under the FSC for either a level 1 or 2 rating,

depending on their level of black ownership. There area number of large enterprises in the survey pool, oneof which holds a level 3 rating.

The revenue model of asset management is built forscale, as is demonstrated here. The increase in AUMdid not translate into an increase in job creation. Theincrease in AUM was concentrated across three assetmanagers: Taquanta Asset Managers, Aluwani CapitalPartners and Vunani Fund Managers, who saw theirAUM rise by 36%, 25% and 35% respectively. However,over the period, Taquanta Asset Managers added onejob, Aluwani Capital Partners lost one job and VunaniFund Managers added three jobs.

Firms have also responded prudently to COVID-19 byimplementing cost containment measures such asdeferring planned investments and not replacing stafflosses with new hires. We also anticipate the demandside to change. The type of skills needed to respond tothis shift will be different, which should see thecomposition of workforces within asset managementbegin to transform.

0. B-BBEE contribution level

% o

f fir

ms

Non-Compliant

8

7

6

5

4

3

2

12014 2015 2016 2017 2018 2019

100%90%80%70%60%50%40%30%20%10%

0%2020

Total staffheadcount

Total AUM

p. Total headcount vs AUM

Tota

l sta

ff h

eadc

ount

700

600

500

400

300

200

100

0

ZAR

Billi

ons

700

600

500

400

300

200

100

0

2009

152

91,4

2010

216

134,1

2011

239

164,8

2012

273

184,6

2013

299

253,1

2014

332

283,1

2015

346

309,2

2016

466

408,3

2017

586

415,5

2018

563

490,3

2019

668

579,1

2020

638

667,8

152216 239

273299

332 346

466

586 563

668 638

23

There was little movement in the demographiccomposition of black-owned asset manager teams since2019. None of the managers’ teams are homogenousand reflect both race and gender diversity. There wasa marginal reduction in White Males and a slightimprovement in Coloured Males. The seismic shift inthe world of work brought on by the COVID-19 pandemicis placing greater emphasis on talent management. Itis without doubt that diversity and inclusivity are a

necessary requirement to promote strongerorganisations and failing to achieve such targets will becostly for any asset management business. The influenceof big data and fintech on the sector will also see theindustry recruiting more data science and tech savvyskills whilst at the same time adjust to deal with ayounger generation of talent who do not share the sameexpectations as previous generations.

There has been a marked improvement in the numberof firms achieving profitability. This is a pleasing statisticbut must be considered with caution as the full impactof COVID-19 has not filtered through the economy, andis expected to result in widescale business closures andretrenchments, forcing retirement fund exits and savingswithdrawals. There are also a lot more asset managersin the market targeting this declining savings pool, andso investors will be much more discerning and lesstolerant of lacklustre performance and high fees. Thisis particularly relevant in the case of active fundmanagement. We therefore expect the industry togradually adapt to such pressures with more offeringsemerging at opposite ends of the spectrum - costly highalpha alternatives where managers are paid for thedelivery of long-term performance, and low-cost passivebeta solutions. Asset management is also built for scale,and so managers unable to achieve scale advantageswill be crowded out in a tough economic environment.

SA Male Indian

q. Demographics of all employees

% o

f fir

ms

Non-SA Male

SA Female White

SA Female Coloured

SA Female Indian

SA Female African

SA Male White

SA Male Coloured

Non-SA Female

SA Male African

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

r. Company profitability

% o

f fir

ms

100%90%80%70%60%50%40%30%20%10%

0%

YesNo

20182017 2019

62,50%

37,50%

57,78%

42,22%

68,00%

32,00%

76,47%

23,53%

2020

24

This graph displays the trend in asset allocation, of thetop six investment strategies, collectively employed bypublic market participants over the last decade. Exposureto domestic equities has fallen sharply over the period,a reflection of a lost decade of lacklustre performance,low investor confidence and an economy on its knees.This situation has been exacerbated by the shockwavesof COVID-19. Outflows from domestic equities wereequipoised by flows into domestic money market andfixed income, where the safety of real yields and lowvolatility was favoured by investors. The lion’s share ofmanagers operating in the public markets space arefocused on the management of specialist domesticequity mandates and have been the hardest hit by thisshift. Those managers who have consistentlyunderperformed have been the biggest losers. Domesticlisted property managers have shared a similar, if notworse fate given the selloff in the sector. Managers withestablished fixed income and money market offeringshave gained the most. There are only a handful ofmanagers with global offerings which explains the lowallocation to this asset class.

s. Trends in asset allocation

% o

f ind

ustr

y as

sets Offshore

Multi-Asset Class (AbsoluteReturn and Balanced)

South Africa Listed Property

South Africa Money Market

South Africa Fixed Income

South Africa Equity

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

There is no doubt that the demand side is changing,and institutional investors are searching for diversifiedsources of return that can match long-term liabilities,cushion portfolios from the shocks of market selloffs,meet developmental goals and deliver inflation beatingreturns. Whilst much of this is cyclical in the context ofinterest rates, we cannot ignore the influence ofstructural challenges facing our capital markets and theeconomy on investor behaviour. Managers focused onlyon the management of a single asset class will need toguarantee exceptional performance, whilst others maychoose to diversify across product offerings to protecttheir businesses from downturns in any specific assetclass at any given time.

25

26

Zero hunger

2

27

1. PwC, Africa Asset Management 20202. Alexander Forbes Manager Watch Annual Survey 2019

1845 - 1947: Era of colonisation

The institutionalisation of the savings and investmentssector began with the establishment of insurers andbanks in the 19th century, which saw the emergence ofthe bancassurance model. This model of crossshareholding between insurers and banks remainsprevalent today. For example, Sanlam and Absa sharea relationship, as do Old Mutual and Nedbank, Libertyand Standard Bank, and Momentum and FirstRand. Thebancassurance model also gave birth to the assetmanagement industry as these financial institutionsestablished investment management arms, to manage

Asset management plays a critical role in the functioningof the South African economy through the efficientmobilisation and allocation of savings. The sectorsupports financial market infrastructure and ensuresthe smooth functioning of the capital markets, abarometer of the health of an economy. The sector isalso a significant contributor to GDP. In fact, financialservices as a whole is the largest contributor to GDP, at22%1. The asset management industry is also well-regulated, thereby providing trust, confidence, andstability to the financial system.

South Africa’s status as the most mature financial marketin Africa is a culmination of its evolution from colonialism,through apartheid, and its eventual entry into the globalmarketplace following democracy in 1994. The structureand institutionalisation of the sector has largely beeninfluenced by the politics of the day. This review exploresthe periods before and after democracy and is sub-divided into distinct periods of political reign, control,and leadership.

life and other assets. According to Alexander Forbes2,as at the end of 2019, insurer owned asset managementfirms Old Mutual Investment Group, Sanlam InvestmentManagement, Stanlib Asset Management and MomentumAsset Managers are ranked one, five, six and thirteenby total assets under management respectively. On thisbasis, one could argue that South Africa has never reallyconceptualised a new economy and that the colonial orapartheid structure remains intact with a few companies,their subsidiaries, and associated companies dominatingthe sector.

We look at how each of these periods shaped SouthAfrican asset management and explore what lies ahead.

1845-1947 1948-1993 1994-2008 2009-todayANC rule

Golden period ofdemocracy

ANC rule

Period of politicaland economic crisis

Colonial rule

Period of Anglo BoerWars, British rule,

Union of SA

National Party rule

Period of apartheidbased on racial

segregation

Period before democracy Period after democracy

Colonialism, apartheid anddemocracy - the evolutionof South African assetmanagement

28

Nu

mb

er o

f m

emb

ers

18 000 000

16 000 000

14 000 000

12 000 000

10 000 000

8 000 000

6 000 000

4 000 000

2 000 000

0

Private sector members

Private sector assets

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

AU

M M

illi

on

s

R5 000 000

R4 500 000

R4 000 000

R3 500 000

R3 000 000

R2 500 000

R2 000 000

R1 500 000

R1 000 000

R500 000

0

GEPF and other SOEs members

GEPF and other SOEs assets

Total retirement fund AUM and member size

apartheid based on racial segregation eventually leadingto large-scale unrest and bannings. In response, theUnited Nations introduced world-wide economic andfinancial sanctions against South Africa in 1986.Exchange controls are a remnant of such a past, wherethey were used to limit the outflow of capital to supportmacro-economic stability. This, however limited thegrowth of our capital markets.

An important milestone for retirement funds was thepassing of the Pension Funds Act in 1956 which put inplace the regulatory framework for the sector andremains the primary legislation governing retirementfunds today. The Act made provision for theappointment of a Pension Fund Registrar and for theregistration, incorporation, regulation, and dissolutionof pension funds. Apartheid savings laws, however,were discriminatory and prejudiced black workers. Thescene was set for a hard-won battle by trade unionsto set up retirement funds designed to improve theirmembers benefits, leading to the establishment ofDefined Contribution Provident Funds in the 1980s.The graph below presents the growth in formalretirement savings in South Africa since the periodbefore democracy.

Source: FSCA Annual Reports

It was also during this period, in 1882, that the firstrecorded pension fund was introduced in the TransvaalRepublic3 which set the foundation for formalisedretirement savings. The next big step in the develop-ment of the financial sector was the launch of theJohannesburg Stock Exchange (“JSE”) in 1887, todayranked the nineteenth4 largest stock exchange in theworld with a market capitalisation of R15.7 Trillion5. TheJSE have successfully held this monopoly until recentlywhen in 2016, the regulator began approving thelicensing of four new exchanges: ZAR X, A2X, 4AX, andEquity Express Securities Exchange. The JSE, however,remains the primary exchange catering for trade instocks, bonds, commodity and interest rate derivatives.

A defining moment for the development of publicpensions was the passing of the Public DebtCommissioners Act in 1911, which laid the foundationfor the present-day Public Investment Corporation. ThisAct created a single government entity which was ableto manage and control government funds, borrowagainst pension fund assets, and finance governmentbudget deficits.

1948 - 1993: Emergence of apartheid

This period can be described as the darkest period inour history, a period marred by social policies of

3. Van der Berg, S., 2002, Issues in South African Social Security4. jse.co.za5. As at 20 July 2020

29

The move to Defined Contribution Funds triggered theentry of independent asset managers to the market.Ninety One (previously Investec Asset Management)and Coronation Fund Managers are examples of suchindependent firms which today are global brands andrank second and third by total assets under managementin South Africa, respectively. The rapid rise of independentasset manager participation was not inclusive. At theend of this period there were no black owned, managed,and controlled asset management companies in SouthAfrica.

Another watershed juncture in the development ofSouth African asset management was the passing ofunit trust legislation in 1965, which saw the launch ofSouth Africa’s first unit trust. The legal framework topool savings was a first step towards providing consumeraccess to the capital markets and an alternative tobanking products, thereby enhancing the role of assetmanagement. The growth in AUM and number ofregistered unit trusts is presented below.

The next iteration of the Public Debt CommissionersAct of 1911, before the corporatisation of the PublicInvestment Corporation in 2005, was the passing of thePublic Investment Commissioners Act of 1984. TheCommission began to play an investment managementrole over public funds and fulfil its mandate as a debtprovider to the apartheid government. This was essentiallya policy of prescribed assets, effectively forcing pensionfunds and insurers to invest in government-backedsecurities. Prescribed assets were later abolished in1989 but subsequently resurfaced in 2017 at the launchof the election manifesto of the African NationalCongress.

Nu

mb

er o

f u

nit

tru

sts

ZAR

Bil

lio

ns

Total AUM and number of registered unit trusts

2 500

2 000

1 500

1 000

500

0

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Mar

-11

Mar

-12

Mar

-13

Mar

-14

Mar

-15

Mar

-16

Mar

-17

Mar

-18

Mar

-19

Mar

-20

R3 500

R3 000

R2 500

R2 000

R1 500

R1 000

R500

0

Number of ZAR unit trusts

ZAR unit trusts total asset size

Number of foreign currency unit trusts

Foreign currency unit trusts total asset size

Source: ASISA

30

In 1999 South Africa became a founding member of theG20. This has significance since subsequent regulatoryreforms introduced in the financial sector have beenpremised on G20 principles. Policymakers and regulatorshave often been criticised for being too focused onmeeting international standards without consideringimportant parochial features of the domestic economy.Putting it bluntly, the policies failed to transform thefinancial services industry to broaden the participationof black people in the sector. An example of South Africafulfilling its G20 commitments was when in 2015 hedgefunds which were previously unregulated, becameregulated under the Collective Investment SchemesControl Act (“CISCA”). Under the new legislation hedgefunds were required to be registered under CISCAapproved Hedge Fund Management Companies.However, the licensing approach was not supportive ofnew black entrants, inadvertently entrenching thedominant positioning of incumbents. This has beencorrected in subsequent legislation such as the InsuranceAct and the Draft Conduct of Financial Institutions Bill,where the regulator has adopted a more developmentalapproach and is explicitly supportive of transformationimperatives.

USD

ZAR

R 20

R18

R 16

R 14

R 12

R 10

R 8

R 6

R 4

R 2

R 0

ZAR

Mil

lio

ns

R60 000

R40 000

R20 000

R0

-R20 000

-R40 000

-R60 000

-R80 000

-100 000

Foreign participation in South African capital markets since democracy

Mar

94

Jan

95

Nov

95

Sep

96Ju

l 97

May

98

Mar

99

Jan

00

Nov

00

Sep

01

Jul 0

2

May

03

Mar

04

Jan

05

Nov

05

Sep

06

Jul 0

7

May

08

Mar

09

Jan

10

Nov

10

Sep

11Ju

l 12

May

13

Mar

14

Jan

15

Nov

15

Sep

16

Jul 1

7

May

18

Mar

19

Jan

20

Net foreign purchases of shares Net foreign purchases of bonds USDZAR

The historic Financial Sector Summit was held in 2002,where Nedlac social partners committed to thedevelopment of a Black Economic Empowerment (“BEE”)Charter for the financial services sector. The Charterwas signed in 2003 and came into effect in 2004. Thenext iteration of the Charter was the Financial SectorCode of 2012 followed by the Amended Financial SectorCode of 2017. The last iteration included a voluntary B-BBEE Scorecard for the Top 100 retirement funds, whichobliged them to report to the Financial Sector Transfor-mation Council (”FSTC”) on their preferential procurementactivities, on an annual basis. This was a significant winfor black owned asset management firms, furtheringrepresentation and ownership reflective of our demo-graphics across the industry. The current Code is underreview and it is expected that this dispensation willmove from voluntary to compulsory in the next iterationof the legislation. The illustration which follows showsa historic timeline of the evolution of the Financial SectorCode.

1994 – 2008: Democracy!

This was a period of exuberance when apartheid lawswere finally abolished. The first democratic election washeld in 1994, a new constitution was founded, andsanctions were lifted. It was the golden period for growthin our capital markets as we entered the globalmarketplace, and exchange controls were relaxed.According to a report published by Business for SA6,“during this period GDP doubled in USD terms to $287bn,debt to GDP almost halved to 27.8%, we secured aninvestment grade rating in 1999, foreign directinvestment grew 30 fold to $12bn and tax revenuesgrew by 550%”.

The unlocking of the economy and our participationon the global stage catalysed the strengthening of ourfinancial market infrastructure, stimulating widespreadinnovation and development. Trading volumes in ourbond and equity markets rose sharply, our derivativesmarket flourished, electronic trading was introduced,and we saw improvements in the clearing andsettlement of securities. Many foreign financialinstitutions set up offices in South Africa - the resultantcompetition and improvement of liquidity contributedto job creation and innovation. The increase in foreignparticipation in our capital markets is demonstratedin the graph delow.

6. A New Inclusive Economic Future for South Africa 2020

31

Another profound milestone for asset managementworldwide was the launch of the United NationsPrinciples for Responsible Investment (“PRI”) in April2006, an organisation dedicated to promote theincorporation of environmental, social, and corporategovernance factors (“ESG”) into investment decision-making. The Government Employees Pension Fund ofSouth Africa was a founding signatory to the PRI. Sincethen the PRI has grown to 3 2477signatories worldwiderepresenting over US$100 Trillion in assets undermanagement. Currently 61 South African institutions(asset managers and asset owners) are signatories tothe PRI.

2009 – today: Lost years

Following the global financial crisis of 2007-2008,regulators responded by revising regulations to streng-then the financial system and to protect consumers andeconomies. South Africa responded through the passingof the Financial Sector Regulation Act in 2017 givingeffect to what is referred to as the Twin Peaks systemof financial regulation. This regulation is aimed at makingthe sector safer and closing any regulatory gaps withinthe system. Under Twin Peaks, two new regulators cameinto operation: the Prudential Authority which is theregulator of financial institutions, and the FinancialSector Conduct Authority which regulates marketconduct with respect to ethics and transparency. Thereform process is ongoing with the next phase beingthe harmonisation of the legal landscape within whichfinancial institutions operate. The draft Conduct ofFinancial Institutions Bill published in December 2018represents this new legal framework. This Bill is alsobest placed to give legal effect to transformationrequirements in support of targets agreed through theFinancial Sector Transformation Council and specifiedin the Financial Sector Code.

History of the Financial Sector Code

2002 2003 2004 2007 2012 2013 2017 2019

Financial SectorSummit –

Nedlac – makecommitment to

the developmentof a BEE Charterfor the financialservices sector

Financial SectorCharter signed

B-BBEE Actgazetted

Financial SectorCharter– comes

into effect on 1 Jan2004

dti GenericCodes of Good

Practicegazetted –

superior legalstatus toCharters

Financial SectorCode gazetted– 26 Nov 2012

Revised dtiGeneric Codes of

Good Practicegazetted –

11 Oct 2013

Amended FinancialSector Code gazettedon 1 December 2017

Parliament holdspublic hearings on

transformation of thefinancial sector.

Standing Committeeon Finance (”SCOF”)

and the PortfolioCommittee on Tradeand Industry (”PCTI”)

release reporton financial sector

transformation whichis adopted byParliament

FSTC commencesreview of the

Amended FinancialSector Code. As

part of this reviewprocess all

recommendationsmade by SCOF andthe PCTI are being

taken intoconsideration

Ironically, just one year after the launch of the PRI, theglobal financial crisis laid bare the vulnerabilities of theglobal financial system.

Whilst much has been achieved since 1994, the extentto which economic growth has been shared equitablyamongst all South Africans has not been adequate forthe requirements of a stable, integrated, and prosperoussociety. Over the last decade rising levels of unemploy-ment, highly unequal distribution of income, and lowlevels of growth and investment have become deeplyentrenched. Our economy was also subjected to thelethal triple cocktail of greed, weak governance andinadequate oversight, overshadowed by state captureand malfeasance. South Africa subsequently lost itsinvestment grade rating and our fiscal position hasdeteriorated sharply, with debt to GDP expected toexceed 100% by 2023.

An already weak economic position has been exacer-bated by COVID-19, leaving government desperatelyseeking a new narrative to accelerate an economicrecovery. As such, the idea of using prescribed assetsto help foster economic growth has resurfaced, packagedin the form of an infrastructure fund to finance strategicprojects by combining capital from the public and private

7. unpri.org

32

The two-century long trajectory described here shedssome light on the way forward for the asset managementsector. The pendulum swing from prescribed to unpre-scribed, and back, reflects the changing social andeconomic dynamic in our country. These are tidal forces,to which the asset management industry must adapt,with transformation being a vital component.

There are a number of developing trends facing thesector - we list our top three which we anticipate willhave the most significant influence:

1 ESG will take centre stage. Both asset owners andpolicymakers will be uncompromising in their effortsto promote a more sustainable financial sector andeconomy. There will be a rise in demand for impactinvestment aligned to meeting UN SustainableDevelopment Goals, a collection of 17 global goalsdesigned to be a “blueprint to achieve a better andmore sustainable future for all”8. We will also see anincrease in public private partnerships and blendedfinance investments.

Ave

rage

nu

mbe

r of

sh

ares

Average number of listed shares per year excluding cash shells, trusts and ETFs Private Equity AUM

Private equity vs the JSE

ZAR

Bill

ion

s

700

600

500

400

300

200

100

0

200180160140120100806040200

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

sectors, retirement funds, development financeinstitutions and multilateral development banks. Withexpectations of capital flows into real assets, the assetmanagement industry appears to be readying itself -new and existing firms are building capacity and skillsto be able to manage such flows. The COVID-19pandemic has also brought impact investment to theforefront with many new debt and equity funds poppingup to support businesses in their efforts to mitigate thenegative economic impact, whilst providing investorswith a competitive return.

The resulting growth in appetite for impact investmentthrough unlisted assets may precipitate a change to

Regulation 28 of the Pension Funds Act, which currentlycaps private equity and hedge funds at 15%. Calls havebeen made by the Southern African Venture Capitaland Private Equity Association to separate hedge fundsfrom private equity and gradually increase the privateequity limit. The Minister of Finance has publicly flirtedwith the idea of increasing the limit indicating that thisis under review by the National Treasury. Similarlycalls have been made to amend CISCA to allow unittrusts to hold unlisted exposure. The growth in privateequity and the decline in the listed markets is presentedin the graph below.

What then does the future hold for South African asset management?

2 The number of listings on the JSE will continue todecline as businesses seek alternative sources ofcapital through, for example, private equity. This willresult in concentrated listed markets offering limiteddiversification benefits, thus negatively impactingactive asset managers who are primarily focused onthe domestic equity markets. The rise in passiveinvesting is also expected to continue.

3 Transformation of the financial sector will be in thespotlight with new legislation focused on achievingreal parity within the sector coming into play. Suchlegislation includes the Employment EquityAmendment Bill, currently in draft form, which willallow for the Minister of Employment and Labour toidentify sectoral numerical targets to ensurerepresentation reflective of our demographics. Wecan also expect to see the Conduct of FinancialInstitutions Bill come into effect, and an updatediteration of the Financial Sector Code gazetted.

8. United Nations

33

34

Life on land

15

35

Publicmarkets

36

Impact ofCOVID-19

Section highlights

41%Of firms expect a drop in revenue/ profits for this financial year

CHANGEUnanimous agreement that theworld of work has forever changed

84%Of firms see a rise in appetite for impactinvestment aligned to the UN SDGs

94%Of firms believe that global allocations should be channelled through local firms

78%Of firms expect an increase in M&A activity

66%Of firms have implemented cost containment measures

Good health & well-being

Public markets

3

37

In the first week of January with South Africa continuingits sojourn into the New Dawn with a 20/20 vision ofgrowth and possibility, there was little anticipation ofwhat was to be in the coming months. COVID-19 hascome to the fore with dramatic economic and socialimplications - not only in South Africa, but across theglobe. The global pandemic has brought into questionpredicted trajectories for economic growth, employment,profitability, sustainable development and - vital within

Early into the pandemic a range of concerns have beenraised across asset management firms. The biggestconcern identified is the bottom-line: the financial impactvis-a-vis profitability, liquidity and capital resources. Thisspeaks to the direct short-term hard-hitting impact ofCOVID-19. Another major concern is the loss of clientconfidence in the capital markets and not having enoughinformation to make good decisions matched with areduction in staff morale and productivity. This speaks

the South African context - B-BBEE. Whatever gains havebeen made in the past decade are potentially set to beundermined and possibly reversed. On the other hand,this moment could be the tipping point to spearheadB-BBEE as the economy prepares itself for a period ofuncertainty. The asset management sector - like all othersectors - will be affected in the short, medium and long-term - and this section therefore considers the COVID-19 impact.

to a combination of external (client) and internal (human-resources) concerns - suggesting that a dual-strategyto mitigate the impact is foremost in mind. Otherconcerns include regulatory changes (with potentialenhanced state intervention in the economy), cyberthreats and supply chain issues with the domino-effectCOVID-19 is likely to have within established lines ofsupply.

a. Top 3 concerns with respect to COVID-19

Num

ber

of f

irm

s

30

25

20

15

10

5

0

2nd biggestconcern

3rd biggestconcern

Regu

lato

ry c

hang

es

Fina

ncia

l im

pact

:pr

ofita

bilit

y, li

quid

ity a

ndca

pita

l res

ourc

es

Loss

of c

lient

con

fiden

cein

cap

ital m

arke

ts

Cybe

r se

curi

ty r

isks

Redu

ctio

n in

sta

ff m

oral

ean

d pr

oduc

tivity

Not

hav

ing

enou

ghin

form

atio

n to

mak

e go

odde

cisi

ons

Key

supp

ly c

hain

dis

rupt

ion:

fund

adm

inis

trat

or/v

alua

tor

Biggestconcern

24

19

3

9

7 6

4

1

331 2

6

3

8

42 3

6

38

Forty percent of asset management firms are confidentand do not expect any impact on revenue and/or profits,suggesting confidence in a range of factors such asfinancial market performance and stable market share.This is in stark contrast with an equal number of firmson the other end of the spectrum expecting a decreasein profit and/or revenue this year because of thepandemic. The remaining firms making up close to 20%of the dataset are optimistic and see a more positiveimpact with an increase in revenue and/or profits byyear end, suggesting that the pandemic may provideopportunities for growth, greater market share andgains piggy-backed perhaps on the losses of otherplayers unable to absorb the unexpected shock of thepandemic.

Two-thirds of asset management firms haveimplemented cost-containment measures. This on itsown suggests a robust environment able to act inresponse to the anticipated impact in an imperfectmarket, affected in the main by lack of information andhigh uncertainty. One-third have not implemented cost-containment measures and this could be due to market-strength, dominance and/or confidence in the marketto absorb what may be perceived to be a short-termimpact on the economy. There may also be structuralconstraints in place such as size, duration in the market,sunk costs and other factors affecting the ability to actand/or react to COVID-19.

b. COVID-19 impact on firm revenue and profits

100%90%80%70%60%50%40%30%20%10%

0%

We do not expect any impact on revenue and/or profits

Decrease in revenue and/or profits

Increase in revenue and/or profits

40.63%

40.63%

18.74%

34.38%

65.62%

Yes

No

c. Implementation of cost containment measures

% o

f fi

rms

39

Although not an examination of the quantum of cost-containment within the sector, a range of short-termmeasures have been taken to steady the ship. Majorityof firms went straight for reducing the marketing budget,defer or cancel planned investments and place a freezeon new hires. Other key internal saving amongst firmsinclude bonus and salary sacrifices - suggesting thatsome of the immediate cost-containment measures

come from reducing increments and bonuses untilgreater certainty emerges. The major cost-containmentmeasures across firms are at this juncture low-hangingfruit based on established infrastructure and humanresources with zero to little expansion. The assumptionbehind the measures is that they will allow the impactto be absorbed without negatively impacting the mediumto long-term sustainability trajectory of the business.

Measures implemented:

Num

ber

of fi

rms

Froz

e ne

w h

ires

Sala

ry s

acri

fices

Bonu

s sa

crifi

ces

Def

er o

r ca

ncel

plan

ned

inve

stm

ents

Redu

ce IT

bud

get

Redu

ce m

arke

ting

budg

et

Re-in

sour

ce s

ome

prev

ious

ly o

utso

urce

dfu

nctio

ns

Oth

er

14

12

10

8

6

4

2

0

40

An overwhelming majority of firms sought no relief atall from government, suggesting that this segment issustainable and able to seek internal and/or privatemeans of ensuring sustainability, with the ability toabsorb the COVID-19 shock to the system. Thoserequiring defibrillation did so mainly through tax deferral

holidays and relief. UIF relief is negligible in the industry.At a glance, this snapshot suggests little confidence insupport from government or no reliance on the state’sability and capacity to intervene in the market to protectthe sector.

d. Government relief measures utilised

Num

ber

of fi

rms

25

20

15

10

5

0

The

expa

nsio

n of

the

Empl

oym

ent T

axIn

cent

ive

PAYE

tax

defe

rral

Prov

isio

nal t

ax d

efer

ral

Skill

s D

evel

opm

ent

Levy

pay

men

t hol

iday

Tax

relie

f for

don

atio

ns m

ade

to th

e So

lidar

ity F

und

Filin

g m

onth

ly V

ATre

fund

s

Smal

l bus

ines

s re

lief t

hrou

ghth

e D

epar

tmen

t of S

mal

lBu

sine

ss

UIF

rel

ief t

hrou

gh th

eD

epar

tmen

t of E

mpl

oym

ent

Loan

and

loan

guar

ante

es

Oth

er b

enef

its a

t the

stat

e or

loca

l lev

el

Gra

nts

Non

e

112 2

5

8

21

41

The major changes envisioned in the post-COVIDenvironment intuitively witness a decrease in air-traveland face-to-face engagement with clients and industrystakeholders. This is met by a concomitant increase inmore online/digital platforms, remote working by staffand firms seeing an increased focus on the health andwell-being of staff. This highlights the importance ofpeople and skills within the industry and ensuring thatproductivity and skills are retained. It is interesting tonote that one of the main cost-containment measures

COVID-19 has been a tipping point and a wake-up callwith regards to medium to long-term sustainability. Thefragility of markets and the current systems have beenhighlighted under COVID, with a shift in thinking morealigned with the UN SDGs increasingly coming to thefore. It is therefore no accident that close to 85% - anoverwhelming majority of asset management firms -are thinking more acutely with regards to the alignmentof investment with the SDGs.

identified earlier is a reduction in technologyexpenditure, yet in the post-COVID environment mostfirms see an increase in a technology dependentmodality of work. This suggest that firms may alreadyhave key technology systems and platforms in placeand that virtual work has already been implementedindustry-wide, albeit not at the level currently witnessedat the peak of the pandemic and in the post-COVIDworld going forward.

e. Expectations of a post - COVID-19 world of work

Decrease

Increase

Revert to pre-COVID-19

32

24

16

8

0

Num

ber

of fi

rms

4

28 32 32 30 29 32

2 3

1

27 24

4 8

Airl

ine

trav

el

Rem

ote

wor

king

by

staf

f

Use

of d

igita

lco

mm

unic

atio

n pl

atfo

rms

such

as

Zoom

Focu

s on

hea

lth a

ndw

ell-b

eing

of s

taff

Face

-to-fa

ce ro

adsh

ows

Inve

stm

ent i

n di

gita

lin

fras

truc

ture

Phys

ical

ly a

tten

d

c

onfe

renc

es s

uch

as B

atse

ta/IR

F/CF

A et

c.

Use

of w

ebin

ars

toho

st e

vent

s

84.38%

15.62%

Yes

No

f. Increase in institutional investors’ appetite for impact investmentwith a focus on the UN SDGs

42

One of the key implications of COVID-19 is thedevelopment of a more direct “act local-think global”approach with a view to harness investment to protectnational resources. Almost 94% of asset managementfirms are in favour of a South Africa centric approach.They would like to see global allocations of domesticinvestors being channelled through local firms. Thebenefit to local asset managers is clear - they see thisas a means to protect gains made to date and build onthe platform already in place.

Most firms - two-thirds in fact - feel there needs to begreater levels of deregulation in both the pensions andunit trust markets by opening avenues for a morediversified investment portfolio. This reflects theprevailing view that equity markets, which are vulnerableto shocks such as COVID-19, should be balanced byexpanding the return base.

Most asset investment firms envision a greater increasein mergers and acquisitions, because of the pandemic.This is aligned and congruent with the earlier views thatmore of the globally directed investment should beharnessed locally within firms that have capability toinvest globally. Such moves will be a major factorprompting growth and consolidation within the industryand will potentially be the driving force crowding outthe smaller firms, or alternatively crowding them inthrough greater levels of corporate activity. It could bea win-win for growth in this segment as fewer firmsharness skills, expertise and resources together in ashift towards greater market consolidation, thusprotecting overall black-market share of the sector.

93.75%

6.25%

Yes

No

g. Become South Africa centric by allocating global exposureto domestic asset managers

h. Change in regulations to cater for returns from widerthan just the quoted economy

% o

f fir

ms

100%90%80%70%60%50%40%30%20%10%

0%

Unit trustlegislation should

allow forinvestment intounlisted assets

Regulation 28unlisted assets

exposure shouldincrease

34.38% Yes

No

34.38%

65.62% 65.62%

78.12%

21.88%

Yes

No

i. COVID-19 will lead to an increase in mergers and acquisitionsamongst asset management firms

43

It is telling that black-owned asset management firmsrate survival as the top factor that would driveconsolidation of the sector. This is worrying, in thatexistential threats to smaller firms is top of mind in thecurrent environment. Building scale, as well asdistribution channels are also seen as important factorsdriving mergers and acquisitions, consistent with a view

that the sector has not achieved maturity, and scale.Building on the reflections in the previous question,consolidation and pooling of resources could have apositive impact by enhancing sustainability andcontribute to the strategic and visionary imperative toharness energies and expertise to protect B-BBEE sectorgains.

j. Top 3 factors driving corporate activity

Num

ber

of f

irm

s

100908070605040302010

0

Fee

com

pres

sion

To s

urvi

ve: d

istr

esse

dbe

caus

e of

dro

p in

AU

M a

ndre

quir

es c

apita

l par

tner

Impr

ove

B-BB

EE r

atin

g to

incr

ease

mar

ket s

hare

Gai

n ac

cess

to d

istr

ibut

ion

Regu

lato

ry c

ompl

exity

Build

AU

M s

cale

thro

ugh

mer

ging

pro

duct

s an

d ta

lent

Curr

ent p

rodu

ct o

ffer

ing

isou

t of f

avou

r

Number 3factorNumber 2factorTop factor

21

20

13

8

12

2

6

65

3 21

21

44

There is still a rainbow at both ends of the COVID-19storm. Most asset management firms do not see anymajor negative impact on their B-BBEE ratings. The mainones to keep an eye out on are skills development, andthe impact on the socio-economic environment. ESD

The thrust of the environmental snapshot analysis isthat most asset managers surveyed are frustrated byeconomic policy uncertainty, slow economic growth,high government debt, and financial marketperformance and volatility. Firms are divided on thethreat of competition a limited market brings andwhether they can withstand the de-risking of portfolios

by retirement funds. Also, the risks associated withchanging investor demand and behaviour is seen assignificant. The regulatory environment and politicalinterference also emerge as a concern for manycompanies. Encouragingly, most respondents feel thattheir investment performance signatures are resilient,or can be adapted, to the post COVID-19 environment.

and procurement scores are also a concern. The resultsindicate that black-owned managers are confident intheir ability to maintain control of their businesses butconcerned about how external factors will influencetheir B-BBEE rating.

k. Largest business risk factors in a post-COVID-19 environmentN

umbe

rof f

irm

s

32

24

16

8

0

Medium

High

Low

Cann

ibal

ism

bet

wee

n as

set

man

ager

s fo

r a

pool

of

capi

tal t

hat i

s no

t gro

win

g

Low

eco

nom

ic g

row

than

d go

vern

men

tin

debt

edne

ss

Subd

ued

perf

orm

ance

from

cap

ital m

arke

ts

Econ

omic

pol

icy

unce

rtai

nty

Ove

rly

com

plex

and

cos

tlyre

gula

tory

env

iron

men

t

Exce

ssiv

e m

arke

tvo

latil

ity

Polit

ical

inte

rfer

ence

Mem

bers

of r

etir

emen

tfu

nds

de-r

iski

ng

Inve

stm

ent s

tyle

is o

ut o

ffa

vour

with

the

curr

ent

mar

ket c

ycle

Chan

ging

inve

stor

dem

and

and

beha

viou

r

19

4

9

17

14

1

10

15

7

21

10

19

11

12

8

16

8 9

13

10

5

4

23

17

7

8

4

22

6

l. B-BBEE elements most likely to be negatively impacted because of COVID-19

Num

bero

f fi

rms

35

30

25

20

15

10

5

0

2

3

1 (leastnegatively)

Soci

o-Ec

onom

icD

evel

opm

ent a

ndCo

nsum

er E

duca

tion

Ow

ners

hip

Man

agem

ent

Cont

rol

Proc

urem

ent

and

ESD

Skill

s D

evel

opm

ent

4

5 (mostnegatively)

45

46

Affordable & clean energy

7

Responsible consumption& production

Section highlights

Fund facts

90%Of client base is institutional

-8%Decline in domestic equities AUM

34%Of managers classify their performancestyle signature as Value

THREATSManagers see Umbrella Funds anda shrinking JSE as the largest threatsto their businesses

+28%Growth in domestic money marketand bonds AUM

47

Public markets

12

48

Strong retail inflows have lifted retail market share tojust over 10% of overall assets. This growth has largelycome from Prescient Investment Management, VunaniFund Managers and Terebinth Capital, whose retail AUMhave grown considerably over this reporting period.The shift by retail consumers to low risk fixed incomeproducts has benefitted these managers, who all havecompetitive solutions in this space. In recent years, theindustry has witnessed a meaningful shift in theintermediary space towards the use of DiscretionaryFund Managers (”DFMs”). These are independentresearchers who assist financial advisors when makingportfolio recommendations to their clients. Assetmanagers looking to grow their retail market shareshould work on getting onto the buy lists of such DFMs.The impending Retail Distribution Review legislation isalso expected to further disrupt the industry.

There was a notable reduction in the 0-20 bracket duringthis period of reporting and a welcome increase to the20-40 and 40-60 buckets. The decrease in the >100bucket was offset by an equal increase in the 80-100bucket.

Asset managers compete for the same pool of assetsfrom the same group of investors, and so gaining marketshare requires firms to innovate and differentiate inorder to stay ahead of the competition. The COVID-19lockdown has also slowed decision making at someinvestor institutions.

Many are waiting to see how the pandemic unfolds,given the performance dislocation between the realeconomy and the capital markets. Defined Contributionfunds, particularly those offering member investmentchoice, witnessed large scale panic from members whenthe pandemic first hit equity markets in February 2020.This motivated members to switch from growthportfolios into low risk options, which resulted ininstitutions disinvesting from domestic equities. Thoseasset managers who only focus on the domestic equitymarket were most affected by these switches, whilstthose with diversified offerings coped better.

a. Investor base

Perc

enta

ge o

f ind

ustr

y as

sets

100%90%80%70%60%50%40%30%20%10%

0%

RetailInstitutional

20192018 2020

91,09%96,39%

3,61% 8,91%

89.59%

10.41%

b. Number of institutional clients

Num

ber

of fi

rms

25

20

15

10

5

0

Number of institutional clients

60-80No clients 0-20 40-60 80-10020-40

3

21

1 0 1

7

>100

22

16

9

20 12

20202019

49

This is a satisfying trend as the data evidences year onyear improvement in the diversity of client portfolios.An acceptable target for key client exposure is below20% of overall firm AUM and ten firms now fall into thisbracket. Every growing enterprise’s priority is to mitigatekey account risk through diversifying its revenue base.Building resilience to such vulnerabilities is not an easytask, especially in the current economic environment.It is therefore critical that businesses exposed to suchrisk focus on client retention by continually building

There was an overall improvement in the number offirms where the top 5 clients make up between 80%and 100% of total firm AUM. There are no businesseswhere the top 5 clients make up less than 20% of totalfirm AUM. There are a handful of managers with largeasset bases followed by a large segment of mid and

trust with existing clients and looking for new pathwaysto expansion. Asset management, like all other industriesimpacted by the pandemic, will have its own casualties,with businesses in financially weak positions mostimpacted, while those with scale coming out stronger.Black-owned asset managers face the added burden ofstructural challenges that underscore their participationand representation within the financial services sector.We hope the pandemic will serve as an impetus toaddress such structural impediments.

small sized firms. This is evidenced by the differencebetween the mean value of AUM and the median wherethe median is much lower than the mean because ofthe small number of managers with large AUM asdemonstrated in Section A, Sector Overview.

c. Largest client as a percentage of total AUMN

umbe

r of

firm

s

14

12

10

8

6

4

2

00%-20% 20%-40% 40%-60% 60%-80% 80%-100%

Largest client % of AUM

8

12

7 7

1

12

1

10

45

d. Top five clients as a percentage of total AUM

Num

ber

of fi

rms

60%-80%

16

14

12

10

8

6

4

2

0

No clients 0%-20% 40%-60% 80%-100%20%-40%

Top five clients % of AUM

11

20

7

14

110

1

910

11

20202019

20202019

50

There were no new entrants or exits to this table forthis reporting period. Unsurprisingly, with institutionalclients representing 90% of AUM, the assets of the topfive managers are predominantly institutional. Domesticretirement funds represent the majority of institutionalassets. Aluwani Capital Partners achieved another strongyear of institutional growth leaping 25% from R69.5Billion to R87 Billion. The demand by institutions forfixed income strategies has been strong and those with

There has been some movement in the fourth and fifthposition this year with Terebinth Capital and SentioCapital Management entering the top 5, and ValueCapital Partners and First Avenue InvestmentManagement exiting the top 5. The retail market remainshighly intermediated and in anticipation of the RetailDistribution Review legislation independent financialadvisors are gradually outsourcing asset allocation andfund picking responsibilities to DFMs.

Over the last three years, according to statistics made

scale have been rewarded.

What is disappointing to note is that no incumbentasset managers, over this reporting period, have madesufficient progress on their B-BBEE status to beconsidered for inclusion in this publication, signallinga slowdown in efforts by large established corporationsto transform meaningfully.

available by ASISA, more than 50% of annual unit trustflows were allocated to defensive interest-bearing funds.For the year ending March 2020, such funds saw inflowsin excess of R150 Billion, while domestic equities(including listed property) and Regulation 28 multi-assetclass unit trusts, saw net outflows of R23 Billion andR35 Billion respectively. Global funds also experiencednet positive flows. As such those asset managers withrespectable income and global offerings and access todistribution prospered from such shifts.

e. Top five asset managers by institutional assets

Taquanta Asset Managers

Aluwani Capital Partners

Prescient Investment Management

Vunani Fund Managers

Mergence Investment Managers

Top five asset managersby institutional assets

Years inoperation ZAR Millions

20.77

4.58

21.84

20.95

15.76

R217 635

R87 017

R59 295

R33 269

R32 413

Total R429 629

f. Top five asset managers by retail assets

Prescient Investment Management

Vunani Fund Managers

Kagiso Asset Management

Terebinth Capital

Sentio Capital Management

Top five asset managersby retail assets

Years inoperation ZAR Millions

21.84

20.95

18.59

7.25

13.01

R41 400

R8 890

R5 764

R4 544

R 1 155

Total R61 752

51

SouthAfricaActiveEquity

20

SouthAfrica

Passive/IndexEquity

7

SouthAfricaActiveFixed

Income

14

SouthAfrica

Passive/Index Fixed

Income

3

SouthAfrica

LDI

3

SouthAfricaListed

Property

4

Shari’ah(Equity

andBalanced)

2

SouthAfrica

SRI

1

SouthAfricaHedgeFunds

6

Multi-AssetClass

(AbsoluteReturn andBalanced)

16

Infra-structure

1

AfricaListedEquity

1

Other

5

Totalnumber ofproductsmanaged

3

2

4

7

4

6

2

1

4

2

1

2

2

8

2

1

1

1

3

4

4

2

3

3

8

4

5

5

3

1

0

8

106

Fund manager

Aeon Investment Management

Afena Capital

All Weather Capital

Aluwani Capital Partners

Argon Asset Management

Balondolozi Investment Services

Benguela Global Fund Managers

Cachalia Capital

Excelsia Capital

First Avenue Investment Management

Fortitudine Vincimus Capital Advisors

Idwala Capital

Independent Alternatives Investment Managers

Kagiso Asset Management

Lima Mbeu Investment Managers

Lodestar Fund Managers

Lunar Capital

Makalani Management Company

Meago Asset Managers

Mergence Investment Managers

Mianzo Asset Management

MSM Property Fund

Ngwedi Investment Managers

Perpetua Investment Managers

Prescient Investment Management

Prowess Investment Managers

Sentio Capital Management

Taquanta Asset Managers

Terebinth Capital

Value Capital Partners

Volantis Capital

Vunani Fund Managers

Total

g. Total number of products managed per firm

Offshore

11

SouthAfricaMoneyMarket

12

52

Six firms currently manage 76% of the total public marketasset pool. The maximum number of products managedby a single asset manager is eight. More than half ofthe dataset manages three or less products. Firmsfocused on single strategies or asset classes face therisk of saturation during periods of declining demand,as has been the case with domestic hedge funds andlisted property for example. On the other hand, thebenefits of specialisation are the ability to build scale,promote efficiencies and develop a brand that isrecognised for the company’s core skill.

Start-up and emerging asset manager investment teamsare generally small and attention is focused on firstproving their worth through the delivery of solidperformance on a single product, which would allowthem to build a reputation, gather assets and growrevenue. Once the milestone of sustainability is reachednew talent and product is added and business modelsevolve to maintain market relevance.

h. Percentage of industry assets versus number of products managed

% o

f ind

ustr

y as

sets

40%

35%

30%

25%

20%

15%

10%

5%

0%

Num

ber

of fi

rms

8

7

6

5

4

3

2

1

0

Number of firmsPercentage of industry assets

0 1 2 3 4 5 6 7 8

Number of products managed

11

6

7

5

6

2

1 1

3

53

Over 60% of industry assets are currently invested inlow risk money market and fixed income products.These are also low margin products and requiresignificant scale to drive profitability. Domestic equitieshave progressively been losing market share over thepast decade and now make up just 22% of AUM. To putthis into perspective, this asset class made up 50% oftotal AUM in 2010. Internationally the adoption ofpassive investing has been remarkably successful, andis in fact on course to overtake actively managed marketshare. South Africa, whilst behind currently, is slowlybeginning to play catch-up, especially amongst non-black-owned asset managers.

The largest threat to the domestic equity market is thegrowth of the unlisted markets. More companies willchoose alternative routes to raise capital, and shouldprescribed assets be introduced in the form of infra-

structure investment, it is most likely that the budgetfor this exposure will come from the listed markets.Hedge funds and African listed equities have been onthe decline for several years; sub-par returns and highfees have lowered investor confidence in thestrategy/asset class with only a handful of managersoperating in this space. Less than 2.5% of AUM ismanaged in global mandates even though eleven firmshave global offerings. COVID-19 has incited an air ofprotectionism, with an increasing number of institutionsclamouring to utilise local skills for the management ofglobal assets. It is unfortunate that managers with globalofferings have not been able to build adequate scaledespite the fact that institutions have taken fulladvantage of the global allowed exchange control limit.

i. Mandates currently managed

% t

otal

AU

M b

y pr

oduc

t

40%

35%

30%

25%

20%

15%

10%

5%

0%

Num

ber

of fi

rms

40

35

30

25

20

15

10

5

0

Number of firms

% total AUM by productSout

h Af

rica

Act

ive

Equi

ty

Sout

h Af

rica

Pas

sive

/Inde

x Eq

uity

Sout

h Af

rica

Act

ive

Fixe

d In

com

e

Sout

h Af

rica

Pas

sive

/Inde

xFi

xed

Inco

me

Sout

h Af

rica

LD

I

Sout

h Af

rica

Mon

ey M

arke

t

Sout

h Af

rica

Lis

ted

Prop

erty

Shar

i’ah

(Equ

ity a

nd B

alan

ced)

Sout

h Af

rica

SRI

(all)

Sout

h Af

rica

Hed

ge F

unds

Mul

ti-As

set C

lass

(Abs

olut

eRe

turn

and

Bal

ance

d)

Off

shor

e

Infr

astr

uctu

re

Afri

ca L

iste

d Eq

uity

Oth

er

24

7

14

3 3

12

42 1

6

16

11

1 1

5

20

54

The asset class which has witnessed the mostconspicuous growth over the course of the last threeyears has been domestic fixed income, both nominalbonds and money market. Heightened economicuncertainty and exceptionally poor returns fromdomestic equities have pushed investors into such lowerrisk asset classes. COVID-19 monetary stimulus effectedthrough a series of interest rate cuts has now reducedthe real return opportunity of money market. However,given ongoing uncertainty we are unlikely to seeinvestors aggressively flock back into domestic equities.

Central banks globally have responded to the COVID-19 economic fallout by slashing interest rates to nearzero with some even going negative, leaving global fixed

income investors hungry for yield. In such an environ-ment, the yields on some emerging market debt remainattractive. We can expect South African bonds tocontinue to benefit under these conditions as developedmarket interest rates are likely to remain low for theforeseeable future. Downside risks remain on the qualityof our debt and policy reforms relative to other emergingmarket peers. It is therefore unlikely that we will see adramatic shift out of this asset class. Interestingly,investors have preferred investing actively in bondseven though managers’ ability to outperform the AllBond Index by any significant margin has been poor.

There was limited movement in the other strategiesand asset classes.

j. Rand size of mandate growth

Ass

et s

ize

ZAR

Mill

ions

700 000

600 000

500 000

400 000

300 000

200 000

100 000

02010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Shari’ah (Equity and Balanced)

South Africa Listed Property

South Africa Money Market

South Africa LDI

South Africa Passive/Index Fixed Income

South Africa Active Fixed Income

South Africa Passive/Index Equity

South Africa Active Equity South Africa SRI (all)

South Africa Hedge Funds

Africa Listed Equity

Offshore

Infrastructure

Other

2020

Multi-Asset Class (Absolute Return and Balanced)

55

The shift in allocation patterns over the last decade hasbenefited some and hurt others. Whilst some of theseshifts are cyclical others tend to gradually accelerateand eventually become a reality. Managers who takethe time to understand such evolving patterns are boundto find future success and take the lead. Some of thesetrends include ESG, embracing the use of big data,

understanding the role of asset management in theeconomy as a steward and allocator of capital andresponding to client needs more effectively so as toachieve better outcomes. Managers who do not respondto such underlying forces will ultimately fall out of favourand be displaced.

k. Mandate growth as a percentage of industry assets

% o

f ind

ustr

y as

sets

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

Shari’ah (Equity and Balanced)

South Africa Listed Property

South Africa Money Market

South Africa LDI

South Africa Passive/Index Fixed Income

South Africa Active Fixed Income

South Africa Passive/Index Equity

South Africa Active Equity South Africa SRI (all)

South Africa Hedge Funds

Africa Listed Equity

Offshore

Infrastructure

Other

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Multi-Asset Class (Absolute Return and Balanced)

56

The proportion of assets managed on a segregatedbasis increased to 60% of total AUM, followed by 4%invested on life balance sheets and 36% invested throughunit trusts and its global equivalent UCITS. Poolingarrangements have grown over the last four years given

Alignment of interests is best captured through feemodels. Performance-based fees remain a relativelysmall part of the industry’s revenue generation, withonly 16% of AUM subject to management and performance-based fees. Interestingly a small proportion of assetsare managed on a performance fee basis only. Feecompression on active mandates will continue, especiallyin an environment where the low-cost passive sectorhas delivered better returns than active management.

the expansion in retail AUM and a client base that is nolonger made up of only the very large retirement fundsin the country.

l. Implementation of mandates

% o

f ind

ustr

y as

sets

Unit trusts/Mutualfunds/UCITS

Life policy

Segregated

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

2014 2015 2016 2017 2018 2019 2020

82.12% 79.79% 80.34% 65.14% 71.69% 55.30% 60.25%

1.74% 4.16% 4.45%

13.98% 6.18%

11.38% 3.83%

16.14% 16.05% 15.21% 20.88% 22.13%33.32% 35.92%

m. Fee models

Management plus performance fee

Fixed management fee only

Performance fee only

% o

f ind

ustr

y as

sets

100%

80%

60%

40%

20%

0%1.53%

2019 2020

57

Black-owned asset managers are worried about theconsolidation of retirement funds under umbrellaarrangements. This apprehension is not without meritas argued in “The Shift to Umbrella Funds - Does Consoli-dation Support Transformation?” Interestingly, thenumber of managers who see prescribed assets as arisk has declined, and may mean that managers feelmore comfortable with the ‘revised’ prescribed assetsnarrative of public private partnerships in infrastructureinvestment. They potentially see a role for themselvesunder this scenario. Concomitantly there is growinginsecurity amongst managers of the growth in appetitefor private market investments indicating that managers

While style in South Africa is difficult to determinebecause of our smaller bourse, concentration to Randhedge counters and illiquidity, we can classify the stylesutilised by domestic active managers into the five stylesdescribed in the chart. Just over a third of managersclassify their style of investing as Value, followed byQuality, then Growth, Low Volatility and lastlyMomentum. Understanding a manager’s style isimportant to allocators who seek to diversify their equityexposure through optimal style blending. Nineteenpercent of equity managers do not classify theirinvestment approach under any specific style.

in the public markets space are conflicted as to howthese developments will play out.

Managers in general agree on and recognise theimportance of artificial intelligence in helping identifycomplex patterns to improve investment processes.This dataset appears undecided when it comes to passiveand rules-based investing and whether the strategy willgrow in South Africa. Managers unanimously agree onthe importance of responsible investment practices.Concerns around the depth and breadth of listedmarkets in South Africa has increased and is a primaryconcern amongst the firms.

n. Active manager styles

6.25%

34.36%

Growth

Low Volatility

3.13%18.75%

21.88%

15.63%

Momentum

Value

Quality

No Style Classified

o. Threats and opportunities

2020 Opportunity

2019 Opportunity

2020 Threat

2019 Threat

% of firms

The number of stand-alone retirementfunds will continue to decline in favour of

umbrella arrangements

Prescribed assets becomes a reality

Artificial intelligence and big data willinfluence the investment decision making

of asset managers

Demand for passive investmentstrategies will grow

There will be an increase in the adoption ofresponsible investment practices by asset

management firms

There will be an increase in appetite for privateequity and real assets by retirement funds

The number of companies listed on publicmarkets will continue to decline

0% 20% 60% 80%40% 100%

58

59

Using machine learningto select the best assetmanagersAs a selector of asset managers, 27four strives to provideits clients with the best risk-adjusted returns byidentifying managers who can consistently outperforminvestable benchmarks. We also remain committed tothe principles of diversity and inclusiveness through oursupport of black-owned, managed and controlled assetmanagers. One of the tools that can facilitate theintegration of our goals and our principles is theemerging science of machine learning. In this article weshed some light on this groundbreaking technology,and how 27four is actively developing machine learningtechniques for the selection of asset managers.

To most people, the notion of machines thinking andmaking decisions sounds like the theme of an 80’sscience fiction novel. What society doesn’t always fullygrasp is that we are already reliant on computerprograms (algorithms) for the completion of daily tasks,ranging from menial to complex. Applications rangefrom social media, kitchen appliances, to smart phonesand systems that govern credit card transactions. Asimple example is a spam filter on your email. Theprogrammed algorithm that determines whether anemail is spam learns from your actions in terms of whatmessages are 1) read, 2) read and deleted or 3) not readand deleted. The algorithm does this by determining aset of attributes that best predict whether the email isspam or not. These attributes include whether or notthe email contains ‘WARNING’ or ‘PROPOSAL’ in thesubject line or body (both have become common inspam and phishing emails). Importantly, the algorithmlearns to identify spam by analysing your actions, andtherefore organically adapts its rules to maximise itsaccuracy. This process is best known as machinelearning.

Arthur Samuel, a pioneer in the field of computer gamingand artificial intelligence, is credited with thepopularisation of the term ‘machine learning’ where hedefined it as ‘the field of study that gives computers theability to learn without being explicitly programmed’.Given that machine learning is all around us, why isn’tit applied to investments? We at 27four believe thequestion should be phrased differently. Instead of askingwhy, the real question is ‘how?’

Investment decisions and machinelearningThe use of machine learning can be synthesised intotwo discrete fields, namely classification and regression.The output of classification is generally binary i.e. ‘yes‚’or ‘no’ but can be extended to categorical classification,such is the case in alphanumeric character recognition.This is how automatic number plate recognition works.Regression would consider forecasting continuousnumbers (such as rainfall or temperatures) and generallycan be used with data that are indexed by time. Thebiggest difference is that classification is generally foundto be more accurate than regression-based time-seriesprediction. Obviously, it would be wonderful to be ableto predict the direction of the JSE or yields in governmentbonds, but the current set of tools available have limitedpredictive ability (if it weren’t the case, there would bea few more millionaires walking around). There ishowever benefit in converting time-based questionsinto classification problems.

Consider multi-managed multi-asset class funds. Thereare two sources of return or alpha for such a fund. Thefirst is strategic asset allocation, which involvesdetermining the optimal weights in different assetclasses that will translate into the highest risk-adjustedreturn. The second and equally important source ofalpha is manager selection, requiring the ability toidentify managers that are best placed to exceed theirrespective benchmarks. We have found that machinelearning can assist in finding the best managers. Butfirst, let’s frame the problem.

60

How do active managers perform?For the purposes of illustration, consider the figurebelow that describes South African general equitymanager aggregate performance from 2009 to 2019.The figure shows excess performance over theSWIX/Capped SWIX benchmark over a 1, 3 and 5 yearperiod. For example, the maroon bar for 2009 impliesonly 30% of managers outperformed the benchmark

Figure 1: Percentage of active equity managers that outperform the SWIX / Capped SWIX benchmark

Active Manager Performance - Percentage > Benchmark

70%

60%

50%

40%

30%

20%

10%

0%

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

1 Year 2 Year 3 Year

while in 2018 almost 70% successfully outperformedthe benchmark over a one-year period. Turning to thegreen bars for the same years, only 23% of managersoutperformed over a full five-year cycle from 2005-2009 while 31% outperformed the benchmark over the2014-2018 period. The respective averages of thediscrete periods considered are shown in table 1.

1 Year 35,59%

3 Year 25,33%

5 Year 19,87%

Period Percentage > Benchmark

Table 1: Average equity manager outperformance over the SWIX / Capped SWIX benchmark

The results provide evidence in favour of the commonlyquoted adage that the majority of active managers failto outperform their respective benchmarks over long-holding periods. The results show that over a typicalinvestment cycle of 5 years, only 20% of active managersactually outperform the benchmark on average.Therefore, the best option for any investor or multi-manager would be to just buy the benchmarks via apassive tracker fund. Such a conclusion is logical butheavily contingent on the assumption that the 20% ofmanagers that outperform their benchmarks areunidentifiable. But what if machine learning can beused to identify the minority of active managers thatwill deliver alpha?

61

A classification problemIdentification of managers that will outperform theirrespective benchmarks can be articulated as a‘classification’ machine learning problem. Simply put,by using a number of explanatory variables (or ‘features’as used in the machine learning lexicon), can wedetermine which managers have a higher probabilityof outperforming the benchmark? Let us consider anumber of attributes that we would focus on as investorswhen evaluating managers, such as:

• Historical cumulative performance• Risk-adjusted performance• Performance consistency• Style• Proportion of return explained by style vs. manager

skill• Tracking error• Active share (off-benchmark share bets)• Active sector (off-benchmark sector bets)• Concentration of small capitalisation and illiquid

holdings

Theoretically, we could rank managers using the aboveset of attributes by assigning an equal weight to each.This simple heuristic makes sense but fails to determinewhich attribute is most important and whether thecurrent combination of attributes has predictive power.Machine learning solves this by optimising the weightof each attribute based on which contribute most tofuture performance.

Mathematically, the problem can be expressed as

perft = w1F1,t-1 + w2F2,t-1 + ...+ wnFn,t-1

Where perft is future performance of a manager, Fn

represents each attribute and wn represents the weightor importance of each attribute. The objective of anymachine learning algorithm is to optimise wn in orderto determine perft with the highest level of accuracy.

Figure 2: Manager attributes

Manager Attributes

1,0

0,8

0,6

0,4

0,2

0,0

A1 A2 A3 A4 A5 A6 A7 A8 A9 A10 A11 A12 A13 A14 A15 A16 A17 A18 A19 A20 A21 A22 A23 A24 A25 A26 A27 A28 A29 A30 A31 A32 A33 A34 A35 A36

Figure 2 shows an excerpt from the 27four machinelearning model that considers ten managers, two ofwhom outperform the benchmark (blue and maroonstars), across 36 attributes. The purpose of a machinelearning algorithm is to detect a pattern across the

features that best predict which managers have thehighest probability of outperforming the benchmark.One can then use the model to determine a predictionfor each manager, in the form of a probability ofoutperforming the benchmark.

62

provides the ability to rank managers based on ascientifically based prediction of their futureperformance. Therefore, machine learning providestools for identification of the minority of active managersthat can truly add alpha. An additional, and veryimportant, advantage of machine learning is that thebiases that limit our decisions as humans can beidentified and avoided.

There is obviously no absolute certainty in the outcomeof any methodology. But accuracy rates in the regionof 70% are very promising, especially when consideringthe rate of progress in both machine learning algorithmsand technology. In the near future, we envision thataccuracy rates could increase by an additional 10% to20%, meaning that the science of selecting managers isindeed a science and not just an art. Watch this space!

Machine learning outputGoing into the details of each machine learning modelavailable is well beyond the scope of this article, however,we have found that on average, we can predict with anaccuracy of around 65% - 75% whether a manager willoutperform the benchmark over the next twelve toeighteen months. Generally, it is best practice to utilisemultiple machine learning models to define a compositemachine learning score. Typical output is described infigure 3 that follows.

Figure 3: Machine learning output

Machine Learning Output

Logistic RandFor SVM LightGBM Catboost

100%

80%

60%

40%

20%

0%Top

Man. 1Top

Man. 2Top

Man. 3Top

Man. 4Top

Man. 5Top

Man. 6Top

Man. 7Top

Man. 8Top

Man. 9Top

Man. 10

Prob

. % o

f out

perf

orm

ing

benc

hmar

k

The figure describes output of each machine learningmodel applied and depicts the top 10 managers basedon a composite score across the five models. Thismethod is not only beneficial for arriving at a short-listof managers but can be used to evaluate a currentportfolio by ascertaining the combined probability ofexceeding the benchmark. Therefore, we now have theability, with a high level of accuracy, to determine whichmanagers will add the most value to a portfolio bygenerating benchmark beating returns.

ConclusionIn summary, even though the adoption of machinelearning in the investment space has been relativelyslow, there are very clear benefits to its application. Wefind the biggest benefit to be the ability to bridge thegap between passive investing and active management.It is certainly true that the majority of active managersunderperform the benchmark, but machine learning

63

64

Clean water & sanitation

6

Reduced inequalities

65

44%Of firms are EMEs

Section highlights

B-BBEEscorecard

34%Of firms are QSFIs

22%Of firms are large

Public markets

10

66

Just over two thirds of asset managers submittedaffidavits indicating that the dataset is largely madeup of EMEs and QSFIs.

How participants are classified in terms of B-BBEE shedslight on the relative strength and size of black-ownedasset management firms. Under the FSC, an EME, QSFIand Generic enterprise is classified as follows:

There has been little movement between the threerevenue bands in the year that has passed. There arecurrently only seven firms in this segment who generateannual turnover greater than R50 Million, anotherconfirmation that the industry is made up of a handfulof large managers and a long tail of mid-sized and smallmanagers.

a. Affidavit or B-BBEE verification certificate submitted

31.25%

68.75%

Affidavit

Verification Certificate

EME Total annual revenue of up to R10 Million

QSFI Total annual revenue of more than R10 Million but less than R50 Million

Generic Total annual revenue of more than R50 Million

b. Classification by revenue

% o

f fir

ms

20202019

17,14%

34,29%

100%90%80%70%60%50%40%30%20%10%

0%

EME

QSFI

Generic (Large)

21.87%17.14%

34.38%34.29%

43.75%48.57%

67

Under the FSC an EME or QSFI which is 100% black-owned qualifies for elevation to a level one contributorand an EME or QSFI that is at least 51% black-ownedqualifies for elevation to a level two contributor. Giventhat 78% of this universe is classified as an EME or QSFIit is understandable that most managers hold level 1and 2 ratings. Hence the outlier with a level three ratingmust be a large enterprise.

According to the annual report published by the B-BBEECommission in 2020, black ownership in the financial

sector remains stubbornly low relative to other sectors(24,75% relative to national average of 29,66%). In fact,black ownership in the financial sector appears to bedecreasing annually in comparison to other sectors thathave witnessed an increase, indicating that a lot morework needs to be done to transform the sector.

c. B-BBEE contribution level

% o

f fi

rms

Non-Compliant

60%

50%

40%

30%

20%

10%

0%

37

2 31 4 5 6

50.00%

3.13% 0,00% 0,00% 0,00%

7

0,00%

8

0,00% 0,00%

46.88%

d. B-BBEE verification

There were ten firms who provided B-BBEE verificationcertificates and the verification agencies appointed isprovided in the graph below of which AQRate is thepreferred provider of this service.

Num

ber

of f

irm

s

5

4

3

2

1

0

AuthenticRating

Solutions

AQRate MooreStephens

RenaissanceSA Ratings

BEE OnlinePremierVerification

Empowerlogic

68

e. Generic (large) enterprise scores

B-BBEE contribution level:

B-B

BEE

con

trib

utio

n le

vel 4

3

2

1

0

PrescientInvestment

Management

AluwaniCapital

Partners

Argon AssetManagement

MergenceInvestmentManagers

TaquantaAsset

Managers

Kagiso AssetManagement

Vunani FundManagement

Sub-element scores:

Socio-Economic Developmentand Consumer Education

Procurement and ESD

Skills Development

Management Control

Ownership

Sub-element scores

Vunani Fund Managers

Taquanta Asset Managers

Prescient InvestmentManagement

Mergence InvestmentManagers

Kagiso Asset Management

Argon Asset Management

Aluwani Capital Partners

0 5 10 15 20 25 30 35 40

69

Seven out of 32 asset managers active in the publicmarkets space are currently classified as Genericenterprises and have B-BBEE ratings of between oneand three. Four of the seven managers meet theownership target. None of the managers meet the

Management Control and the Skills Development targets.Three managers meet the Procurement and ESD targetand six managers meet the Socio-Economic andConsumer Education target.

Under the FSC Generic entities are measured against the following scorecard:

Ownership

Management Control

Skills Development

Procurement and ESD

Socio-Economic Development and Consumer Education

Total

Element Points

25

20

20

35

5

105

f. Board of directors

Number of directors:2019

2020

Num

ber

of f

irm

s

12

10

8

6

4

2

081 2 3 4 5 6 7 9

23

6

1

78

54

8

10

43

1 1 1 12

70

The representation of women on boards continues todisappoint in 2020. There was a marginal uptick ofwomen participation in the 60%-80% band. It could alsospeak to a concerted effort amongst a few firms to

achieve higher levels of gender-equity at a rate fasterthan is currently the case across the industry. Overall,it still appears that parity and greater levels of genderequity are far from expected targets.

Percentage of directors who areblack South African:

% o

f fir

ms

100%

80%

60%

40%

20%

020202019

42.86% 43.75%

42.86% 43.75%

14,28% 12.50%

80%-100%60%-80%50%-60%

Percentage of directors who areblack female South African:

% o

f fir

ms

100%

80%

60%

40%

20%

020202019

8.56% 12.50%

22.86% 21.88%

34,29% 28.12%

34,29% 37.50%

20%-40%0%-20%

80%-100%60%-80%40%-60%

Number of independent non-executive directors:

Num

ber

of f

irm

s

15

12

9

6

3

0

8

10 2 3 4 5 6

2019

2020

5

14

9

13

8

44

10 00 0

1

Exactly half of the firms surveyed have four or lessdirectors serving on their boards. Most firms have oneor two independent non-executive directors. The

increase to two independents this year suggests agrowing emphasis on enhancing governance by thispool of managers.

71

Black economic interest has been steadily decliningsince 2011 when roughly two thirds of firms had 90%to 100% black economic interest; this figure has sincehalved. The steady increase in the number of firms that

Since 2014, there have been some gains in black womenownership in the lower ownership bands. However, ifwe look closer at ownership levels beyond 30% wewitness a declining trend. For example, in 2015, 24% offirms indicated black women ownership of more than30% which in 2020 dropped to 22%. What is interestingand shocking at the same time is that in the financial

have 50% to 60% black economic interest signals dilutionof black ownership within the sector, indicating a risein B-BBEE corporate transactions over the period.

sector black women ownership is the second lowest at8.77% relative to all other sectors in the economy (B-BBEE Commission, 2020). The 90-100% range remainsunchanged, suggesting that there could be a glass ceiling,and this needs to be examined and shattered if anymajor breakthrough is to be made to achieve parity vis-a-vis gender equity.

g. Ownership

Black economic interest (ownership) with equivalent voting rights:

% o

f fir

ms

80%-90%

70%-80%

60%-70%

50%-60%

90%-100%

100%

80%

60%

40%

20%

0%2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Black women economic interest (ownership) with equivalent voting rights:

% o

f fir

ms

80%-90%

70%-80%

60%-70%

50%-60%

40%-50%

30%-40%

20%-30%

10%-20%

90%-100%

0%-10%100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

2014 2015 2016 2017 2018 2019 2020

72

The FSC requires each entity conducting a business inthe South African financial sector to report annually tothe FSTC on their progress in implementing theprovisions of the FSC. It was pleasing to see an increaseof 10% in the number of respondents who submittedtheir annual rating to the FSTC since the last reporting

period. The submission of data to the FSTC is importantas it allows the council to collate and reporttransformation statistics across the entire financialsector and monitor and measure advancements madein achieving the objectives of the B-BBEE Act.

Economic interest (ownership) of black designated groupsand broad-based schemes:

% o

f fir

ms

100%90%80%70%60%50%40%30%20%10%

0%

30%-40%

20%-30%

10%-20%

0%-10%

Over 40%

2018 2019 2020

Whilst ownership of the sector remains tightly held,2020 data suggests that some firms have widenedownership participation to include broad-basedschemes.

h. Submit annual verified rating to the Financial Sector Transformation Council

% o

f fir

ms

100%

80%

60%

40%

20%

0%

Yes

No

2018 2019

35,42%

68,57%

64,58%

31,43%

2020

78.12%

21.88%

i. Transformation policy in place

43.75%

56.25%

Yes

No

Just over half of this universe of asset managers havemapped out and put transformation policies in place.The benefits of having done this is that managementhave articulated in writing the steps they will take inachieving transformation objectives which allows themto assess gains and shortfalls and put measures in placeto remedy any weaknesses identified.

73

The key finding here is that the visible hand of the statehas the potential to act as an impediment to marketparticipation, and this has the potential to hinderattainment of B-BBEE goals and the concomitant growthof the asset management market. This will beexacerbated due to the impact of COVID-19 with possiblegreater barriers to participation on the horizon shouldthere be more regulations and state involvement in thesector such as for example, the introduction ofprescribed assets legislation. With regards COFI - giventhat it has not yet come into play and the impact is yetto be seen - the jury is out with only less than a third ofasset management firms feeling positive that it willimprove financial sector inclusion and transformation.

j. In respect of the Amended Financial Sector Code of 2017

k. In respect of financial sector regulation

% o

f fir

ms

100%90%80%70%60%50%40%30%20%10%

0%Do you think that some

regulations have theunintended effect of

increasing the barriers toentry and impede the

growth of emerging blackenterprises within the

sector?

Do you think that the newConduct of Financial

Institutions (COFI) Bill willimprove inclusion andtransformation of the

financial sector?

18.75%

15.63%

12.50%

53.12%

Yes

No

Don’t have a view

68.75%

31.25%

Here we provide managers the opportunity to expresstheir views on the FSC. Across most firms, views arepositive with respect to fairness of targets and theestablishment of compliance mechanisms for licencing.Setting targets for asset consultants and making the B-BBEE Scorecard for Retirement Funds compulsory will

progress the penetration of black-owned asset managersin the pensions industry and therefore receives aresounding vote in favour of such targets. The jury isstill out with regards to the effectiveness of the FSC inmonitoring B-BBEE compliance of the sector.

100%90%80%70%60%50%40%30%20%10%

0%Do you think that

compliance with the codeshould be a condition of

licencing?

Do you think that specifictargets should be set for

asset consultants?

Do you think that thetargets are fair?

Would you like to see theB-BBEE Scorecard for

Retirement Fundsbecome compulsory?

Do you think that theFinancial Sector

Transformation Councilhas been effective in

monitoring and reportingon B-BBEE compliance

within the sector?

15.63%31.25%

15.62% 15.62%

53.12%15.63%

68.74%

12.50%

56.25%

9.38%

75.00%

3.13%

81.25%21.88%

25.00%

Yes

No

Don’t have a view

% o

f fir

ms

74

1. FSB Bulletin 4th Quarter 2017-2018 - cover article by Olano Makhubela

2. FSCA Active Fund list

Num

ber

of r

etir

emen

t fu

nds

Active Registered Retirement Funds

18 00016 00014 00012 00010 000

8 0006 0004 0002 000

-20201990 20152010200520001995

These are classified into various statuses in the table below:

Fund status Standalone Preservation Umbrella Total

Curatorship 5 1 3 9

Due for cancellation 5 0 1 6

Liquidation exempted fund 58 0 0 58

Normal active fund 839 174 428 1,441

Orphaned query fund 365 0 28 393

Pending cancellation 1,570 40 137 1,747

Preliminary registered 4 9 15 28

Process of liquidation 379 2 39 420

Process of transfer (mem) 349 2 2 353

Query 504 28 121 653

Unclaimed benefit members 1 0 0 1

Total 4,079 256 774 5,109

Source: FSCA Active Fund list

Source: FSCA Annual Reports

Two important strategic objectives of the FSCA areconsolidation and transformation. Specifically, theconsolidation objective envisages a reduction in thenumber of registered retirement funds to 2001 frommore than 1 4002 active funds at present. The trans-formation effort aims to create a retirement industrythat is financially inclusive and supportive of broadeningthe participation of black-owned companies in thefinancial sector.

But can these two objectives co-exist in the currentretirement fund environment? Does consolidationsupport or hinder transformation?

We will look firstly at the consolidation of funds acrossthe industry. Based on the latest active data listing fromthe FSCA, there are now just over 5 000 (from over16 000 in 1999) funds actively registered.

The shift to umbrella funds -does consolidation supporttransformation?

75

3. Sanlam Benchmark Survey 2010

4. Sanlam Benchmark survey 2019 - Megatrends presentation by Viresh Maharaj

5. Websites of top 5 commercial umbrella funds

Distilling the information and focussing on the funds inthe ‘Normal active fund’ status (these are the funds thatare running in a business-as-usual mode), the shift fromstandalone to umbrella fund is quite evident. This changehas been happening at an accelerated pace over the

In view of the ever changing and more complexregulatory environment facing the retirement industry,this shift to commercial funds is understandable andplausibly to the benefit of members and employers.Keeping abreast with these changes can distractemployers from core business activities and so anumbrella fund provides the governance structure andthe support of the sponsor to help the employer navigatethe regulatory changes, relieving them of that burden.The downside, however, becomes starkly clear whenone observes that the five ‘super’ funds have a total ofjust 355 trustees who are responsible for makingdecisions on more than R315 Billion of assets on behalfof 1.8 million employees!

The transformation objective of the FSCA aims topromote financial inclusion, improve access to financialmarkets and broaden the participation of black-ownedfinancial services providers across the sector. The latteris stipulated in Section 2c(iii) of Regulation 28 of thePension Funds Act which states:

“A fund and its board must at all times apply the followingprinciples... in contracting services to the fund or itsboard, consider the need to promote broad-based blackeconomic empowerment of those providing services”.

Currently there are 5 commercial entities that havecreated “super” umbrella funds, which collectivelyaccount for approximately 1.8 million members andhave in excess of R315 Billion in AUM.

In the beginning, the move to umbrella fund arrange-ments was motivated by the following positive argu-ments:

• economies of scale,• administration cost reduction, and• removal of the fiduciary burden on employers running

a standalone fund.

Open any umbrella fund brochure and these will beamong the first reasons to join their fund, but thesearguments are slowly being challenged.

Over the period 2010 to 2019, the differential in averagecosts of administration between standalone andumbrella funds has been eroded. The table below showsthis erosion of differential in the average cost ofadministration as a percentage of salary between 2010and 2019:

past decade resulting in a handful of “super” umbrellafunds dominating the market. This becomes clearerwhen the ‘Normal active fund’ line item is broken downin terms of members and assets, as per the table below.

Fund type Number of funds Number of members Total assets

Standalone 839 5,624,491 R 1,347,538,106,326

Preservation 174 1,376,365 R 237,646,627,706

Umbrella 428 8,740,277 R 1,034,290,512,317

- Super Umbrella* 5 1,775,215 R 315,656,461,140

- Umbrella 423 6,965,062 R 718,634,051,177

Total 1,441 15,741,133 R 2,619,475,246,349

*Top 5 commercial umbrella funds by membership

Fund type 20103 20194

Standalone funds 0.90% 0.58%

Umbrella funds 0.70% 0.59%

76

6. Data from annual trustee reports of 3 of the top five commercial Umbrella funds from 2014 to 2019

7. Comparison of data from 2017 and 2019 BEE.conomics Survey by 27four Investment Managers

Over the period from 2017 to 2019, the total assetsmanaged by black-owned asset managers across theentire savings and investments industry increased byonly 39%7 and off a low base. The proportion of assetsmanaged by black-owned asset managers withinumbrella funds is insignificant (refer to section titled“Product distribution”).

So, does consolidation support transformation? Thecost argument for moving to umbrella funds has beeneroded, the responsibility for a significant portion ofthe economy’s savings is in the hands of only 35 people,and the rate at which the assets in commercial funds is

growing compared to the growth in the proportion ofthese assets managed by black asset managers, wouldsuggest that consolidation is contrary to transformation.The FSCA needs to ensure that its consolidation policyis implemented in a way that is consistent with itstransformation policy.

2014 2019

Fund Members Total assets Members Total assets % change in assets

Sanlam Umbrella Fund 117,500 15,000,000,000 230,000 35,000,000,000 133%

Old Mutual SuperFund 262,853 34,000,000,000 456,715 112,000,000,000 229%

Liberty Corporate SelectionUmbrella Funds

277,697 30,067,557,153 311,655 36,600,000,000 22%

Total 658,050 79,067,557,153 998,370 183,600,000,000 132%

Retirement funds are a primary source of assets forblack-owned asset managers as the retail industry ishighly intermediated with high barriers to entry. Publicsector and union retirement funds have been supportiveof transformation imperatives and were the earliestmovers to support black-owned asset managers.However, gaining access to some of the private sectorretirement funds has been near impossible due to theintermediation of the “super” umbrella funds where themajority of assets are concentrated directly in the assetportfolios managed by the sponsors themselves.Umbrella funds are a form of asset gathering for such”super” funds and diversifying to independent assetmanagers would dilute their AUM and by proxy theirincome. Hence there is no incentive for them to do so.

Couple this with 60% of consultants4 indicating that theydo not consider B-BBEE when recommending serviceproviders to boards of trustees, increasing the proportionof assets managed by black-owned asset managers isgoing to be an uphill battle.

Over the past 5 years, the assets of 3 of the 5 superfunds increased by 132%6.

77

78

78%Of firms are profitable, up 10%

Section highlights

22%Of firms breakeven AUM is < R1 Billion

66%Of firms procure less than 40% of services from black-owned suppliers

Businesssustainabilityand societalimpact

Sustainable cities& communities

Public markets

11

79

There was an overall improvement in all threeprofitability indicators for the period ending June 2020.The impact of COVID-19 on these indicators will becomeclearer in the next print as the effects of the pandemicsweep through the economy and the sector.

More than two-thirds of companies were financedthrough personal finance - either that of the foundersor that of their friends and families. The data suggests

that other avenues of raising finance appears not tohave been fully explored or that asset management isnot a sector which funders typically support.

a. Business sustainability

Company profitability:

20202019

% o

f fir

ms

100%

80%

60%

40%

20%

0%

21.88%

78.12%

31,43%

68,57%

Yes No

Made an income tax payment to SARS in the last financial year:

Yes

No

20202019

% o

f fir

ms

100%

50%

0%

25.00%31.43%

75.00%68.57%

b. Mechanism used to finance company at start-up

Delivered three consecutive yearsof positive NPAT over last threefinancial years:

% o

f fir

ms

Traditional bankfinancing

80%

70%

60%

50%

40%

30%

20%

10%

0%Development

Finance Institutions(eg. NEF, IDC etc.)

Friends andfamily

Personal financePrivate equityand external

financing

9.38% 12.50%6.25% 3.13%

8,82%

68.75%

20202019

% o

f fir

ms

100%

80%

60%

40%

20%

0%

53.12%57.14%

46.88%42.86%

Yes No

80

The most stand-out movements recorded was thedecline in the R3-R5 and R5-R7 Billion bands and anequipoised increase in the R1-R3 and R7-R10 Billionbands. Breakeven AUM is largely dependent on theproduct offering of the asset manager as some offerings

There was a net recorded gain in new jobs over theperiod. However, this gain was offset by the net loss offive firms exiting the survey, therefore showing a declinein jobs for the overall sector. The negative impact ofCOVID-19 on the sector may lead to job losses as firmsimplement cost containment measures to navigate theuncertainty of earnings.

are less resource intensive than others. Seventy fivepercent of firms breakeven AUM is below R10 Billion ofwhich 22% are able to reach profitability managing lessthan R1 Billion in AUM.

c. Business breakeven assets under management

Over R15 Billion

R10 Billion-R15 Billion

R7 Billion-R10 Billion

R5 Billion-R7 Billion

R3 Billion-R5 Billion

R1 Billion-R3 Billion

Less than R1 Billion

% o

f fi

rms

100%90%80%70%60%50%40%30%20%10%

0%

20202019

18.75%17.14%

6.25%2.86%2.86%

22.86%

20.00%

11.43%

9.38%

12.50%

12.50%

18.75%

d. Number of new permanent jobs created over the last 12 months

Num

ber

of p

erm

anen

t jo

bs c

reat

ed

120

100

80

60

40

20

0

-20Gained

2020

2019

Loss

-6 -4

100

40

Offer learnership programmes for black people:

% o

f fir

ms

100%90%80%70%60%50%40%30%20%10%

0%

20202019

48.57%

59.38%

40.62%

Yes

No

51.43%

22.86% 21.88%

81

These figures disappoint somewhat, with the numberof firms offering learnerships down in 2020. This shouldnot come as a surprise given the small size of mostsurvey participants. Only a handful of asset managersgenerate turnover of more than R50 Million which iswhen skills development requirements become morestringent under the FSC. Also evident is that not all the

Fifty three percent of respondents sourced less thanone-fifth of their procurement from black-ownedbusinesses, evidencing a small improvement from 2019.Asset managers’ largest procurement spend includeinternational data vendors, fund administrators, auditors,technology, and compliance service providers. It isunfortunate that many of the providers of these services

firms that ran learnership programmes absorbed suchlearners into full time employment. The financial strainthrust upon firms by COVID-19 may discouragecompanies from running such learnership programmesat a time when the country so desperately needs moreof them.

are untransformed with international companies suchas Bloomberg and Reuters not having a local equivalent.Firms can do a lot more to shift their procurement awayfrom untransformed suppliers and can start by issuingnotices to their current suppliers to improve their B-BBEE status.

Number of black people absorbed at end of learnership programme:

Num

ber

of fi

rms

4

3

2

1

0

e. Percentage of total procurement spend from more than 51% black-ownedand/or 30% black women-owned businesses

% o

f fir

ms

60%-80%

40%-60%

20%-40%

0%-20%

80%-100%100%

80%

60%

40%

20%

0%

8.57%

14.29%

17.14%

9.38%

25.00%

12.50%

60.00%53.12%

20202019

0 2 3 4

3

4

2

0

1 5 6

3

1

0

82

Fifty six percent of firms procured more than 40% oftheir brokerage spend from stockbrokers that are morethan 51% black-owned. It is disappointing that 25% offirms allocate between 0% and 20% of their brokeragespend to black-owned stockbrokers of which there isno shortage and who face similar challenges in securingmarket share as those surveyed.

There are currently four managers (EMEs and QSFIs) inthis dataset who are recipients of enterprise and/orsupplier development contributions from othermeasured entities (generic) within the sector.

f. Percentage of total stock brokerage spend with more than51% black-owned stockbrokers

% o

f fir

ms

60%-80%

40%-60%

20%-40%

0%-20%

80%-100%100%

80%

60%

40%

20%

0%

11.42% 15.63%

15.63%14.29%

25.00%

20202019

28.57%

22.86%

22.86%

18.74%

25.00%

g. Enterprise and supplier development

Company is a recipient of ESD contributions madeby another measured entity:

87.50%

12.50%

Yes

No

Company contributes to ESD:

65.62%

34.38%

Yes

No

How the company contributed to ESD:

63.64%

36.36%

Contributed tothird partymanaged ESDfund

Managed the ESDprogrammeinternally

83

Num

ber

of fi

rms

Eleven asset managers currently contribute to enterpriseand/or supplier development initiatives to meet theirrespective FSC targets. Of these eleven firms, fouroutsourced the contribution to externally managed ESDfunds and seven managed the contributions internally.

The decision on whether to manage the contributionsinternally or outsource this function is dependent oncapacity and resources, wanting control over the processand fees.

ESD funds used:

Num

ber

of fi

rms

3

2

1

0Aw

ethu

Pro

ject

Blac

k U

mbr

ella

s

SAIC

A En

terp

rise

Dev

elop

men

t

Raiz

corp

Sefa

ASIS

A ES

D F

und

IDF

Capi

tal E

SD

Inyo

si E

SD F

unds

Spar

tan

Ente

rpri

se R

oom

Bulu

ngul

a In

cuba

tor

Anel

aAllocation of internally managed contributions:

Cont

ribu

tions

mad

eto

war

ds c

ost o

fse

rvic

es to

qua

lifyi

ngen

titie

s

Prov

ided

gra

ntfu

ndin

g to

qual

ifyin

g en

titie

s

Inve

sted

inqu

alify

ing

entit

ies

Pref

eren

tial t

erm

sgr

ante

d to

qua

lifyi

ngen

titie

s

Dev

elop

men

t of

man

ufac

turi

ngca

paci

ty a

nd e

xper

tise

to lo

cally

pro

duce

good

s to

qua

lifyi

ngen

titie

s

Exte

nded

cre

dit

faci

litie

s to

qual

ifyin

g en

titie

s

Trai

ning

and

men

tori

ng to

ens

ure

sust

aina

ble

busi

ness

capa

city

to q

ualif

ying

entit

ies

4

3

2

1

0

84

Fifty six percent of firms contribute to SED, marginallyincreasing in 2020. This spend is, not surprisingly,dominated by education followed by communitydevelopment, small business support, sport, disasterrelief and arts and culture. The other sectors do not

receive much support. The emergence of COVID-19may see a shift in expenditure towards healthcare,whilst at the same time the overall spend on SED maylikely be affected by cost containment measuresparticularly in the short to medium-term.

h. Socio-economic development

Support SED initiatives:

Yes

No

20202019

% o

f fir

ms

100%90%80%70%60%50%40%30%20%10%

0%

43.75%48.57%

51.43% 56.25%

Social sectors supported:

% o

f fir

ms

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

Educ

atio

n

Envi

ronm

ent

Arts

and

cultu

re

Hea

lth

Spor

ts

Entr

epre

neur

and

smal

lbu

sine

sssu

ppor

t

Soci

al a

ndco

mm

unity

deve

lopm

ent

Non

-sec

tor

spec

ific

dona

tions

and

gran

ts

Dis

aste

r re

lief

Food

sec

urity

2019

2020

85

There was a small improvement in the number ofcompanies providing consumer financial education,however the overall statistic remains low (72%). This isdisappointing given the abysmal state of South Africanconsumers’ financial, especially investing, literacy. Whatis also worrying is that the current allocation towardsconsumer financial education may be slashed in thewake of cost containment measures applied to withstandthe financial shock of COVID-19 on businesses.

Of the 28% who do offer consumer financial education,this is largely executed through face-to-face training

courses and workshops. There are many practical waysin which asset managers can provide financial educationwhile building their brands and bringing their productsand services to the attention of potential customers.Such methods would have to be further explored - more-so in the context of a COVID-19 social-distancing environ-ment.

i. Consumer financial education

Offer consumer financial education:

% o

f fir

ms

100%

80%

60%

40%

20%

0%

20202019

71.88%

17,14%

82,86%

28.12%

Yes

No

j. Offer products that target the LSM 4, 5, 6 market

% o

f fir

ms

100%

80%

60%

40%

20%

0%

20202019

65.63%

37.14%

62.86%

34.37%

Yes

No

Mediums utilised:

% o

f fir

ms

Interactive face-to-face training through coursesand workshops

Awareness through the provision of informationthrough print and other mediums

100%

80%

60%

40%

20%

0%

20202019

22.22%

66.67%

33.33%

77.78%

Thirty-four percent of companies offer products whichtarget the LSM 4, 5 and 6 economic groups. Targetingthese economic groups will prove to be an even greaterchallenge given the yet unfolding financial, economicand social impact of COVID-19 across all sections of thepopulation, and more so to these economic groupswhich could see a decline in household income as wellas employment levels.

86

Historically, this segment of managers has not engagedin M&A activity. This may however change as the impactof COVID-19 is felt across the sector. Investor behaviouris also changing, with an increased focus on unlistedinvestments, rules-based investing, global, impact andESG investing. This may potentially result in corporateactivity focused around products, skills, the objective ofachieving scale and being better positioned to meetsuch changing investor demand.

Curiously, none of the firms translate any of theirmarketing material and product information in otherlanguages. This could be produced, and used, veryinexpensively, on social media, for instance. Such effortsmay widen the appeal of asset managers’ products andimprove distribution and profitability.

Produce marketing literature in any of the otherofficial languages outside of English:

% o

f fir

ms

Yes

No

100%90%80%70%60%50%40%30%20%10%

0%

20202019

100.00%100.00%

k. Wholly acquire or invest in another company

% o

f fir

ms

Yes

No100%

80%

60%

40%

20%

0%20182017 2019 2020

16,67%11,11% 11,43%

83,33%88,89% 88,57%

6.25%

93.75%

Section highlights

Team

503Total number of people employed, down 14% since 2017

PRIORITYImproving gender representationis a top talent management priorityfor firms

21%Of portfolio managers are women

87

Gender equality

Public markets

5

88

Employment in the public markets space peaked in 2017and has been in decline since despite the increase inthe number of participating firms and AUM. The assetmanagement industry is one that is built for scale andso an increase in AUM does not necessarily translateinto job creation as growth in existing products often isless expensive to maintain.

Encouragingly, women are well represented in theindustry, certainly at black asset managers, making thisone of the most progressive sectors. The industryemploys a total of 247 women and 256 men, with womenrepresenting almost half of the workforce. Promisingas this is, women participation at ownership level and

For start-up asset managers there is a fine line to balancebetween over-extending the business too soon andretaining skilled capacity to deliver. In the current COVID-19 environment businesses are primarily focussed onmaintaining financial stability through cost containmentmeasures without being overleveraged.

on the boards of black-owned asset managers remainlow. It may help if companies put gender diversity targetsin place aligned to the FSC. Gender representation hasbecome an expectation across all industries and failingto make progress in this area could cost asset managerspotential clients.

a. Total number of people employedTo

tal n

umbe

r of

em

ploy

ees

2009

700

600

500

400

300

200

100

02010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

216239

273 299

466

586563

332

534503

152

346

b. Demographics of all employees

Num

ber

of e

mpl

oyee

s

SA M

ale

Afri

can

SA M

ale

Indi

an

SA M

ale

Colo

ured

SA M

ale

Whi

te

SA F

emal

e Af

rica

n

SA F

emal

e In

dian

SA F

emal

e Co

lour

ed

SA F

emal

e W

hite

Non

-SA

Mal

e

Non

-SA

Fem

ale

140

120

100

80

60

40

20

0

90

41 45

70

127

35

10 5

60

20

89

Eighty five percent of portfolio managers have beenmanaging money for at least five years.

Women represent just 21% of all portfolio managers.In recent years there have been several published studiesdemonstrating the benefits of gender diversity in thecontext of the delivery of superior investment returns.Women representation within asset management hashistorically been reserved for the back office as opposed

The decline in the number of portfolio managers iscorrelated to the overall decline in the number of peopleemployed within the sub-sector. There were five exitsand two new entrants to the survey which also explainsthe decline.

to the front office. However, allocators of capital areutilising diversity metrics in their selection of assetmanagers and therefore challenging the industry tobecome more representative. We therefore hope tosee future improvement in these statistics.

c. Total number of portfolio managers

Tota

l num

ber

of p

ortf

olio

man

ager

s

160

140

120

100

80

60

40

20

0

138 132

2019 2020

Portfolio managers with five or moreyears’ experience in managing money:

Tota

l num

ber

of p

ortf

olio

man

ager

s

140

120

100

80

60

40

20

0

115 112

2019 2020

Num

ber

of p

ortf

olio

man

ager

s

40

35

30

25

20

15

10

5

0

SA M

ale

Afri

can

SA M

ale

Indi

an

SA M

ale

Whi

te

SA F

emal

e W

hite

Non

-SA

Mal

e

Non

-SA

Fem

ale

SA M

ale

Colo

ured

SA F

emal

e Af

rica

n

SA F

emal

e In

dian

SA F

emal

e Co

lour

ed

28

21

13

35

15

54

7

13

Demographics of portfolio managers:

90

Women currently represent 42% of the analyst poolwhich is double the composition of women in portfoliomanagement. The data intimates a bottleneck forwomen transitioning from analyst to portfolio manager

and requires the industry to take a closer look at theirtalent management efforts and seek mechanisms whichpromote the advancement of gender diversity in profes-sional roles.

d. Total number of investment analysts

Tota

l num

ber

ofin

vest

men

t an

alys

ts

160

140

120

100

80

60

40

20

0

138122

2019 2020

The impact of the fall in overall jobs was hardest felt byanalysts (down 12%) as opposed to portfolio managers.The ratio of analysts to portfolio managers has droppedsince last year and will have to be monitored closely toensure that the talent pipeline and succession planningremains firmly on track and is not in fact a sign of decline.

Demographics of investment analysts:

40

35

30

25

20

15

10

5

0

Num

ber

ofin

vest

men

t an

alys

ts

SA M

ale

Afri

can

SA M

ale

Indi

an

SA M

ale

Colo

ured

SA M

ale

Whi

te

SA F

emal

e Af

rica

n

SA F

emal

e In

dian

SA F

emal

e Co

lour

ed

SA F

emal

e W

hite

Non

-SA

Mal

e

Non

-SA

Fem

ale

35

9

19

33

86

1 13

7

91

e. Founders of the firm

Number of founders:

% o

f fi

rms

Total economic interest (ownership) of founders:

Num

ber

of fi

rms

14

12

10

8

6

4

2

0

0% to 25% 25% to 50% 50% to 75% 75% to 100%

2020

2019

4

910

12

3

7

10

12

100%90%80%70%60%50%40%30%20%10%

0%2019 2020

40.00% 41.95%

25.71% 29.03%

20.00% 9.67%

14.29% 19.35%

2

3

4

5 and more

1

92

This percentage continues to inch upwards with 84% ofteams trusting their investment strategy with their ownmoney, Skin in the game is important as it demonstratesconfidence to investors that asset manager interestsare aligned to theirs.

Equity remains tightly held by the founders of the firmswhich in 80% of firms represent no more than fourindividuals. There has been some dilution in favour ofemployees over the reporting period. At 72% of firms,employees hold less than 25% of shares. There is onecompany in the dataset where employees now holdmore than half of the equity in the business. With an

expectation of an increase in M&A activity spurred byCOVID-19 we could potentially see a different trendemerge. However, it is unlikely for the founders of thesebusinesses to step away entirely given that many ofthem play the role of key decision maker in the manage-ment of portfolios.

Total economic interest (ownership) of employees outside of founders:

Num

ber

of fi

rms

30

25

20

15

10

5

00% to 25% 25% to 50% 50% to 75% 75% to 100%

2020

201928

6

0

23

8

1 0

f. Employees invested in the firm’s own products

% o

f fir

ms

100%90%80%70%60%50%40%30%20%10%

0%

Yes

No

20182014 2015 2017 20192016 2020

75.00%62.50% 54.55%

73.33% 77.14%77.50% 84.38%

25.00%37.50%45.45%

26.67% 22.86%22.50% 15.62%

1

93

At a glance the key priorities emerging is meetingdiversity and inclusivity objectives, improving employeeretention followed by the hiring of tech savvy skills toharness the influence and advancements in technology.Talent management is the most important priority inany asset management business and so attracting andretaining the best and brightest minds helps firms stay

In more than half of firms there are one or no CFAcharterholders. Whilst these statistics continue todisappoint, they also insinuate that the industry andthe demand side is changing and that the type of skillsrequired for the future is different to the past. The rising

dependence of the asset management industry on datascience may suggest that the future represents amedium where traditional financial analysis intersectswith data science.

ahead of the competition. The industry is also rapidlychanging and becoming dependent on a range ofcompetencies which include both traditional andtechnology-based skills and so achieving the right mixof talent will successfully position firms for the future.

g. Members of team who are CFA charterholders

% o

f fi

rms

100%90%80%70%60%50%40%30%20%10%

0%2019 2020

1

2

3

4

0

5 and more

h. Top 3 talent management priorities

30

25

20

15

10

5

0

Num

ber

of fi

rms

Top Priority

Nr 2 Priority

Nr 3 Priority

Increasingheadcount

Improvingemployeeretention

Hiring moretechnologically

savvyemployees

Increasinggender

representation

Increasing blackrepresentation

Creating amore inclusive

culture

11,43%

White labeling | Compliance | Administration | Reporting

www.27four.com life@27four.com @27four +27 21 671 2173

94

Don’t let yourbusiness get leftbehind.

95

Life below water

14

All asset managers, big and small, adhere to the sameset of regulations - regulations which have materiallyevolved over the last decade. South Africa, like manyother countries globally, have gone through a processof financial sector reform following the global financialcrisis of 2007 and in 2017, passed the Financial SectorRegulation Act adopting the Twin Peaks framework offinancial sector regulation. This gave birth to theestablishment of two new regulatory bodies for thefinancial services sector: the Prudential Authority (PA)and the Financial Sector Conduct Authority (FSCA). The

Regulations all asset managersneed to be aware of

PA, as ‘Peak One’ is responsible for creating and enforcingregulations, aimed at ensuring the soundness of ourfinancial institutions. The FSCA, as ‘Peak Two’ isresponsible for preventing financial misconduct andprotecting consumers of financial products and services.

The reformed regulatory oversight of licensed financialservices providers in South Africa is rapidly taking shape.Here, we summarise the most significant elements ofthe regulatory framework asset managers need to beaware of.

Regulation

Conduct of FinancialInstitutions (COFI) Bill

Prudential Authority’stransformation mandate

Third party riskmanagement

Retail Distribution Review(RDR)

Description

The COFI Bill outlines what customers and industryplayers can expect of financial institutions andaims to streamline the legal framework for theregulation of the conduct of financial institutionsand to give legislative effect to improving marketconduct and customer protection.

COFI will also require financial institutions to havepolicies in place to comply with the Financial SectorCode. The supervision of institutions’ implementa-tion of policies will be undertaken by the FSCA.The expectation is that the FSCA will be empoweredby COFI to issue penalties, with financial and/orlicense impact, to institutions that breachtransformation principles and requirements.

The PA has a clear mandate to advance financialinclusion, competition and transformation underthe provisions of the Insurance Act.

The FSCA and the PA are in the process ofdeveloping a Joint Standard relating to outsourc-ing. The Standard is largely based on the currentprudential outsourcing standard with respect tothe outsourcing of material, management andcontrol functions, but has been amended toincorporate various conduct specific requirements.

In December 2019, the FSCA published an updateand it is clear from this paper that there has beena lot of progress made even though there are stilla number of proposals that have not beenfinalised.

Status

The revised Bill has been submitted toCabinet. The next iteration of the COFIBill is expected to be published forpublic comment during the third orfourth quarter of 2020.

Insurance Act has been signed into law.Prudential supervision of the assetmanagement sector will be furtherexpanded in the near to medium term.

Joint standard effective date unknown.The PA has considered the draftstandard and discussions are on-goingbetween the FSCA and PA on the wayforward.

Update is expected in 2020 regardingthe proposals for ‘AdvisorCategorisation’ and ‘Investment-relatedmatters’.

96

Regulation

ASISA Retirement FundStandard, Effective AnnualCost (EAC) for IndividualFund Members

Protection of PersonalInformation Act (POPIA)

Financial ConsumerEducation Initiatives

Environmental, Social andGovernance (ESG)

Description

Standardised retirement savings cost disclosuremethodology.

The Protection of Personal Information Act 4 of2013 gives effect to section 14 of the Constitutionwhich provides that everyone has the right toprivacy. The Act promotes the protection ofpersonal information processed by public andprivate bodies and seeks to balance the right toprivacy against other rights, such as access toinformation.

The FSR Act extended the jurisdiction of the FSCAto protect financial customers by providing themwith financial education programmes, and topromote financial literacy and sound financialdecision making.

The FSCA has affirmed its commitment to refiningthe regulatory framework relating to issues ofsustainability in consultation with industry players.

Status

Standard was approved in May 2019and comes into effect 1 October 2020.

All institutions that process personalinformation are required to be POPIAcompliant by 1 July 2021.

Discussion document published in June2020.

The expectation is that the final set ofrequirements, in relation to ESG, willbe incorporated into prudential and/orconduct standards in future.

Complianceand operations

Section highlights

81%Of firms outsource compliance

19%Of firms have an internal audit function

50%Of firms hold < R20 Million Crime and Civil Liability cover

16%Of firms are covered for cyber risk

PREFERREDMaitland Fund Services is the most preferred fund administrator

97

Quality education

Public markets

4

98

For the second year running all of those surveyed holdFSCA licences. In the past we have seen companies usingother’s licences, which is not considered best practice.Specifically, start-ups had gone out to raise capital,before obtaining their licences. It is encouraging to seethat the 100% record has remained consistent.

While the majority of firms have one or two keyindividuals on their FSCA licence, it is encouraging tosee that the number per firm has increased comparedto the previous survey. Key individuals have a numberof responsibilities including exercising executive controlfor the activities of the business as well as the fiduciaryresponsibility of treating customers fairly. Theseresponsibilities must be executed with the necessary

care, skill and diligence. With several key individuals, itis more likely that the asset manager will follow bestpractice in terms of governance and accountability, sincemore people are responsible for executive decisions.Given the size of the businesses, it is understandablethat the numbers are low, but it is encouraging to seea shift in the right direction.

a. Licenced by the FSCA

100,00%

0,00%

Yes

No

b. Number of key individuals on FSCA licence

1

Num

ber

of fi

rms

201816141210

86420

Number of key individuals2019

2020

52 4 Over 53

10

18

34

8

12

4

7

1

99

The percentage of companies that operateinternationally remains low and has seen a marginaldecline to approximately 16% from 17% on the previousyear. This reflects a continued, and perhaps increasedfocus on the domestic market. The low numbers are

not surprising, as global expansion requires maturestrong balance sheets. There is clearly much work tobe done by black-owned asset managers when it comesto playing in the international market.

c. Hold licences with regulators outside of South Africa%

of f

irm

s

100%90%80%70%60%50%40%30%20%10%

0%

20202019

17.14% 15.62%

No

Yes

82.86% 84.38%

Central Bank of Ireland

Central Bank of Lesotho

Financial Services Regulatory Authority (eSwatini)

Namibia Financial Institutions Supervisory Authority

Non-Bank Financial Institutions Regulatory Authority (Botswana)

Qualified Foreign Investor (QFII, China)

Regulators outside South Africa Number offirms

1

1

2

2

1

1

d. Compliance officer

% o

f fi

rms

100%90%80%70%60%50%40%30%20%10%

0%

External

Internal

20182014 2015 2017 20192016 2020

91.67%87.50% 84.38% 88.89% 85.71%82.93% 81.25%

8.33%12.50% 15.62% 11.11% 14.29%17.07% 18.75%

100

Our 2020 survey shows an increase to 19% of companieswith internal compliance officers, a 4% improvementsince 2019. The low percentage of black-owned assetmanagers that have internal compliance officers isconsistent with the make-up of this universe of managerswhere the large managers with scale and multiplelicences have appointed full-time compliance officerswhereas the smaller managers have outsourced thisfunction.

SNG Grant Thornton remains the single largestappointed auditor in the black-owned asset managementsegment. New entrants to this list include EY andIntegritas Auditors & Chartered Accountants. Smallerfirms are fee sensitive and seek to achieve an optimalbalance between costs, auditor reputation and capabilityas well as meeting their preferential procurement objec-tives.

There has been a steady decline in the use of the big 4following a number of high-profile corporate scandals.The asset management sector should lead by exampleand apply the same ESG principles to which they holdinvestee companies accountable when it comes to audittenure and the independence of audit partners.

Managers seeking to transform their supply chains donot have many options as there are a limited numberof black-owned external compliance officers, reflectinga potential black skills deficit in the compliance officerprofession. Managers who do outsource theircompliance function to such untransformed firms shouldpush for greater diversity in the teams that service them.

Compli-Serve SA

The Corporate Counsel

eComply

Independent Compliance Services

Moonstone Compliance

Outsourced Compliance Services

Simply Comply

External compliance officers Number of firms

e. External auditor

4

1

4

1

1

1

2

3

1

1

1

2

2

1

1

6

BDO

Certified Master Auditors

Deloitte

Exceed Johannesburg

EY

Integritas Auditors & CharteredAccountants

KPMG

Mazars

Moore

Nexia SAB&T

PKF

PwC

Reliable Accountants

RSM

RWFC

SNG Grant Thornton

Number offirmsExternal auditors

4

1

5

10

4

1

1

101

At present only six firms have a dedicated internal auditfunction and two of these firms outsource this functionto an independent external third-party auditor. The roleof internal audit is to provide independent assurancethat an organisation's risk management, governanceand internal control processes are operating effectively.

2020 has seen a marked increase in the internaladministration of funds by asset managers. In general,the outsourcing of this responsibility is consideredinternational best practice. Independent administrationmitigates the likelihood of potential conflicts of interestarising between fund management and portfoliovaluation providing clients with confidence in the integrityof such valuations. Small asset managers in particularwould be better served by focusing on their corecompetencies and avoid the distraction of the resourceintensive task of fund administration.

The concentration of the fund administration sector hasunfortunately not improved since our last report. It isto be expected that greater competition in this areawould lead to better pricing and quality of service.Globally, fund administration services have extendedbeyond the provision of portfolio valuations to includeinvestment risk analytics, back-and-middle office supportand regulatory reporting. The South African market isripe for disruption from new entrants in this space.

f. Internal audit function

Companies who have an internal auditfunction:

81.25%

18.75%

Yes

No

Responsibility of internal auditfunction:

33.33%

66.67%

Companyemployee/s

External firm

g. Fund administration

% o

f fir

ms

100%90%80%70%60%50%40%30%20%10%

0%

20202019

5,71%

Internal

External

94,29%

12.50%

87,50%

Curo Fund Services

Global Administrators

Maitland Fund Services

Prescient Fund Services

Sanne Group

Numberof firms

External fundadministrators

2

1

13

10

2

This is an important function for businesses thatare rapidly growing as it helps to provide the boardand senior management with insight to improveand enhance operational processes.

102

The two consecutive years of 100% compliance in termsof insurance cover is good news. In previous years wehave noted that several start-ups only bought insuranceafter they had raised AUM. On the downside, there arestill no black-owned insurers that asset managers can

turn to. Insurance pricing remains stubbornly high. Webelieve this is an area that the authorities should payattention to, with the aim of promoting greatercompetition and diversity in the industry.

h. Crime and civil liability and directors and officers liability insurance

Firms holding cover:

% o

f fi

rms

100%90%80%70%60%50%40%30%20%10%

0%

No

Yes

20182014 2015 2017 20192016 2020

97.92%

68.75% 74.19%93.33% 100.00%

90.00%100.00%

2.08%

31.25% 25.81%6.67%10.00%

Crime and Civil Liability

AIG

Camargue

Hollard

Lombard Insurance

Marsh

Mutual and Federal

Santam

Southern Cross

Stalker Hutchison Admiral

Zurich

7

6

3

2

1

1

5

0

5

2

Insurance providers Directors and Officers Liability

5

6

3

0

1

1

6

0

5

2

103

In previous editions we focused on the level of insurancecoverage as a percentage of firm AUM and groupedfirms, based on their cover, within bands of 0%-2%, 2%-4% and >4%. However, the bands were too wide anddid not provide sufficient insight into the level of coverheld by the dataset. Many firms grapple with determiningwhat insurance coverage they should have given thelimited guidance provided by insurance companies andthe regulator. We hope that by publishing the Randvalue of cover held by this group of managers it willserve as an industry benchmark against which firmscan measure themselves.

A key observation from the data is that managers holddifferent levels of cover for the two types of insurance.Around 40% of firms hold the minimum cover as isrequired by the FSCA. A little under 20% of firms holdmore than R100m cover across both insurancecategories.

Our previous report identified the emergence of cyber-attacks as a major threat facing financial institutions.Unfortunately, the companies surveyed this year indicatea decrease in the number of firms who have cyber-riskinsurance - down by almost 5% from the already lowbase of 20%. Having adequate measures in place to

prevent and respond to cybersecurity breaches shouldbe a priority especially as the use of data and technologysolutions expand. Hence the decline is disappointing.Possible reasons for the trend may include a lack ofawareness of the risk, and possibly the expense of thistype of insurance cover.

Rand value of annual cover:

R100m - 200m

R200m - 300m

R300m - 400m

R400m - 500m

>500m

R1m - 10m

R10m - 20m

R20m - 50m

R50m - 100m

% o

f fir

ms

Directors andOfficers Liability

Crime and CivilLiability

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

40.63%

9.38%

18.75%

12.50%

6.25%

6.25%3.13%

3.13%

37.93%

20.69%

13.79%

10.34%

3.45%3.45%

3.45%6.90%

i. Cyber risk insurance

Firms holding cover:

No

Yes

% o

f fir

ms

100%90%80%70%60%50%40%30%20%10%

0%

20202019

80.00%

20.00%

84.38%

15.62%

2

2

1

ITOO

Camargue

Allianz Global Corporate andSpecialty SA

Numberof firmsInsurance providers

104

Of the five managers who have cyber cover, three holdcover of R50 Million, one has cover of R10 Million andthe other has R1 Million cover. Such insurance shouldbe correlated to the size of business, data use andtechnology infrastructure. In the event of a cyber incidentthe severity of a data breach could be disastrous forthe reputation of a firm and could potentially lead toclient losses and therefore should be taken much moreseriously.

This result seems to indicate that most asset managersconsider the risk to be “somebody else’s problem”. Thiscould explain the low levels of cover taken out by thecompanies surveyed. It is our view that everyone isvulnerable to cyber-attacks, and that this segment ofmanagers is overlooking an important aspect of theirrisk management policy.

% o

f fir

ms

100%90%80%70%60%50%40%30%20%10%

0%

Cyber Risk

R1m

R10m

Rand value of annual cover:

R50m

60.00%

20.00%

20.00%

Where in your organisation’s ecosystem do you seethe greatest cyber security threat?

72.73%

27.27%

Internalinfrastructure

Third parties(administrators,custodians etc.)

j. Regulation 28 compliance

100%90%80%70%60%50%40%30%20%10%

0%

% o

f fi

rms

External

Internal

20182014 2015 2017 20192016 2020

62.16%62.50% 59.38%46.67%

60.00%57.89% 65.63%

37.84%37.50% 40.63%53.33%

40.00%42.11%34.38%

105

Retirement funds are required to demonstratecompliance with prudential limits under Regulation 28of the Pension Funds Act. Asset managers managingcompulsory savings are therefore responsible forcollating data, monitoring, and identifying breaches.This function is either conducted in-house by the assetmanager or outsourced.

As most fund administrators offer Regulation 28compliance reporting as an add-on service to assetmanagers, most companies outsource this function,where it is cost-effective to do so. Outsourcing thisresponsibility appears to make business sense for over65% of respondents, and this figure has increasedsince last year.

Many emerging enterprises comprise small teams andtherefore turn to outsourced providers to helpstreamline their operations so that they can focus onmanaging money. It is also not uncommon within thesebusinesses for executives to perform multiple functionsuntil profitability is reached. Specialised functions suchas legal and company secretarial are in general out-sourced.

Managing an asset management business is becomingincreasingly costly and complex. Fee compression,regulatory complexity, cost of skill and technology arejust some of the pressures faced. And in a tougheconomic environment, managers need to weigh which

functions can be performed in-house and what benefitscan be gained from outsourcing certain functions.

The growing role of technology in financial services,makes this a key differentiator, and so it is of concernthat most respondents (more than 90%) outsourcethis function. A similar argument can be made forkeeping the accounting function in-house - over halfthe dataset outsource this function.

Moonfire Technology

H4 Collective Investments (RF)

Proprietary Limited

Independent Compliance Services

Maitland Fund Services

Prescient Fund Services

Sanne Group

Numberof firms

External Regulation 28verifiers

1

1

1

6

10

2

k. In-house versus outsourced functions

100%90%80%70%60%50%40%30%20%10%

0%

% o

f fi

rms

Internal Resource

Outsource

Companysecretary

Humanresources

Payroll Accounting LegalIT

43.75%

71.88%

37.50% 43.75%

3.12%9.40%

56.25%

28.12%

62.50% 56.25%

96.88%90.60%

106

The results correlate with the composition of the poolof survey respondents which comprises a few very largemanagers followed by a string of mid-sized and smallfirms. The larger firms have instituted board sub-committees as their businesses are much more complexand therefore allow boards to divide the work of theboard into manageable sections. Such committees

We see a clear shift compared to 2019 with respect tofuture technology spend (BEE.conomics 2019). In 2020respondents are generally much less optimistic aboutfuture technology spend. Compare the >50% positiveresponse to enhancing the client experience throughtechnology in 2019, to just under 20% in 2020. This shiftaway from a bullish view on technology spend is seenall through the value chain. It appears that respondentsare taking a more cautious view on investment intechnology, which may be part of a general conservativeapproach to investment in response to a batteredeconomy and potentially long road to recovery.

constitute an important element of the governance andoversight process. Whilst small companies do not ingeneral establish separate committees to perform suchoversight functions, they should still ensure that thesefunctions are appropriately addressed by the board.

The top two areas of future investment are focused onoperational aspects of the business - back officeefficiencies and protfolio management. Data vendors(the likes of Bloomberg and Reuters) are a low priority.The low importance placed on enhancing customerexperience, especially in the context of a world wheretechnology is becoming the main channel forcommunicating and servicing customers, is a cause forconcern. We feel that it is important to keep abreast oftechnologies which make life easier for the customerand allow the firm to remain relevant.

l. Board sub-committees in place

70%

60%

50%

40%

30%

20%

10%

0%

% o

f fi

rms

Social and EthicsCommittee

NominationCommittee

RemunerationCommittee

AuditCommittee

NoneRiskCommittee

18.75%

0.00%

31.25% 34.38%

43.75%

59.38%

m. Largest future technology spend

Portfolio management - using big data tomanage investments

Enchancing the client experience (distribution,access to information) etc.

Improving the efficiency of back office systems

Data vendors

(Where 5 is the most important and 1 the lowest investment made)

1 2 3 4 5

0% 20% 40% 60% 80% 100%

% of firms

107

The improvement in the implementation of good practicepolicies, which are regulatory requirements, has continuedinto 2020. It is also encouraging to see that almost 80%of respondents make their policies available on theirwebsites. This is a marked improvement compared tothe 40% response reported in 2019. Accessibility andtransparency promotes good governance and ethicalbehaviour.

% o

f fir

ms

Com

plai

nts

polic

y

FAIS

dis

clos

ure

Pers

onal

acc

ount

trad

ing

Gen

eral

con

ditio

nsan

d di

sclo

sure

s

Gen

eral

lega

ldi

scla

imer

Busi

ness

con

tinui

tyan

d di

sast

er re

cove

ry

Risk

man

agem

ent

plan

/fra

mew

ork

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

Conf

licts

of i

nter

est

Priv

acy

and

secu

rity

stat

emen

t

AML

polic

y

No

Yes

Risk

man

agem

ent

and

com

plia

nce

prog

ram

me

100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

n. Compliance policies

Policies in place:

21.88%18.75% 12.50%6.25%

78.12% 81.25%87.50%

93.75%

Required policies available on website:

78.12%

21.88%

Yes

No

108

External service providers make up a large portion ofan asset management firm’s expenses, outside ofhuman capital and technology. Licenced financialservices entities are measured under the FinancialSector Code where preferential procurement targetsneed to be met to achieve a competitive B-BBEE rating.

Compliance officers and insurers remain the leasttransformed. It is disappointing to see black-ownedfirms procure services from companies with poor ratingsof which some are in fact non-compliant for services inindustries where black participation is high, like forexample audit.

o. B-BBEE rating of external service providers

% o

f fi

rms

100%90%80%70%60%50%40%30%20%10%

0%

7

8

6

4

5

2

3

1

Non-Compliant

Dir

ecto

rs a

ndO

ffic

ers

Liab

ility

Exte

rnal

Audi

tor

Com

plia

nce

Off

icer

Crim

e an

dCi

vil L

iabi

lity

Cybe

r Ri

sk

Fund

Adm

inis

trat

or

Regu

latio

n 28

Aver

age

109

110

Section highlights

Productdistribution

No poverty

LARGEST SOURCEAsset consultants are the largestsource of assets

IRELANDThe preferred domicile for globalfunds

40%Of firms’ funds are accessible through LISPS, up from 38%

19%Of firms’ funds are accessible through Umbrella Funds

106The number of registered unit trusts, up from 84

Public markets

1

111

Black-owned firms, in the primary, depend on theinstitutional market for flows as is evidenced from thethree bars to the left side of the graph. Retail marketshare has always been low for this segment. Hence thelargest threat to the sector is the consolidation of privatesector retirement funds under “super” commercialumbrella funds, currently a negligible source of flowsfor this pool of managers. This move towards consolida-

This pool of managers has always held a home clientbias with around 20% of managers having expandedoutside of South Africa. The majority are focused onAfrican institutional investors from Lesotho, eSwatini,Botswana and Namibia. Close to home countries areattractive sources of flows for South African assetmanagers given the dearth of managers that exist inthose regions. There are currently two managers whohave European clients.

a. How are assets sourced?N

umbe

r of

firm

s

30

25

20

15

10

5

0Financialadvisors

Assetconsultants

Multi-managers

Umbrellafunds

Directinstitutionalrelationships

LISPs Individuals DiscretionaryFund

Managers

Familyoffices

Nr 2 SourceTop Source Nr 3 Source

b. Global institutional investors

Have global clients:

% o

f fir

ms

100%

80%

60%

40%

20%

0%2019 2020

28,57%

71,43%

21.88%

78.12%

No

Yes

Domicile of global clients:

% o

f fir

ms

80%

70%

60%

50%

40%

30%

20%

10%

0%North

AmericaAfrica ex SA Asia Europe Central and

South AmericaAustralia Middle East

0,00%

71.43%

0,00%

28.57%

0,00%0,00% 0,00%

tion is being given additional momentum by theregulator.

The retail industry is highly intermediated throughfinancial advisors who are increasingly making use ofDiscretionary Fund Managers who in turn areimplementing on Linked Investment Service Providers.The data affirms our long-held view that there areexcessively high barriers to entry to this value chain.

112

There was a small uptick (one manager) in the numberof firms offering unit trust portfolios and a 26% rise inthe number of registered unit trust portfolios.

According to statistics released by ASISA for the periodending 30 June 2020 there were a total of 1629 Randdenominated unit trusts with a total value of R2.54Trillion and 509 foreign currency denominated fundswith a total asset value of R533 Billion.

So, despite the impressive increase in the number ofregistered funds, this dataset only represents 6.5% of

the total number of registered unit trusts in South Africa.Our data indicates that the total value of assets managedin unit trust portfolios by black-owned managers standsat R221.2 Billion as at 30 June 2020, which representsjust under 9% of the total value of Rand denominatedfunds.

c. Collective investment schemes

Number of firms managing unit trusts:

Num

ber

of fi

rms

that

hav

e un

it t

rust

s

30

25

20

15

10

5

0

810 11

13 13 13 14

18

21 22

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

24

2020

25

Total number of unit trusts managed:

120

100

80

60

40

20

0Tota

l num

ber

of u

nit

trus

ts

40 43 4955

7284

2014 2015 2016 2017 2018 2019 2020

106

113

Of the 25 managers who have registered unit trusts,more than half manage two or less funds. This is expectedas many of the firms who make up this dataset arespecialist managers focused on the management ofassets in no more than two asset classes.

Over the years hedge funds have given up market shareto other competitive products. Much of this lacklustreappetite has to do with muted performance, high costsand slow reporting. The largest threat to this industry

is that hedge funds are bucketed together with privateequity and collectively limited to 15% of a total retirementfund’s exposure to alternatives. The rise in private equitydoes not bode well for hedge funds as institutionalinvestors could potentially allocate their full Regulation28 allocation to such unlisted investments.

Number of CIS in securities:

2017

2018

2019

Num

ber

of fi

rms

2020

5 or more

9876543210

1 2 3 4

3

7 78 8

5

7

56

3 3

2

0

21 1

2

4 4

6

Number of CIS in hedge funds:

Num

ber

of fi

rms

6

5

4

3

2

1

0

5 or more

2017

2018

1 2 3 4

2019

2020

0 0 0 0 0 0 0 0

3

5

2 2

3

1

3

4

1

0 0

1

0

114

Of the firms with unit trust offerings, only two suchfirms have their own unit trust management companieswith the remainder opting for co-naming arrangements.This has not changed from last year. Given that PrescientInvestment Management forms part of a larger groupwhich operates one of the largest third-party unit trustmanagement companies and Kagiso Asset Managementis one of the top 5 managers by retail AUM, it is under-standable for these firms not to utilise co-naming arrange-ments. Anecdotally, for smaller firms the co-namingoption could be more beneficial and cost effective.

There are a number of co-naming partners available toselect from. The decision of which partner to choose islargely dependent on cost, reputation, the quality ofadministration services and B-BBEE. Africa Collective

Investments (RF) (Pty) Ltd, following corporate activityover the reporting period, has been renamed 27fourCollective Investments (RF) (Pty) Ltd.

CIS management companies:N

umbe

r of

firm

s

25

20

15

10

5

0

2014

2015

2016

2017

2018

2019

2020

Co-naming in Securities Have unit trust MancoCo-naming in Hedge Funds

4

75

1113

1715

2019

21

6

21 1

21

2 2

Firms that own a CIS managementcompany:

Kagiso Asset Management

Prescient Investment Management

Co-naming partners of choice:

Num

ber

of fi

rms

8

7

6

5

4

3

2

1

0

Co-naming in Securities Co-naming in Hedge Funds

Afr

ica

Co

llect

ive

Inve

stm

ents

Bo

uti

qu

e C

olle

ctiv

e In

vest

men

ts

7

0

3

0

5

IDS

Man

agem

ent

Co

mp

any

0

1

IP M

anag

emen

tC

om

pan

y

Mo

men

tum

Co

llect

ive

Inve

stm

ents

Pres

cien

t Man

agem

ent

Co

mp

any

Prim

e A

lter

nat

ive

Inve

stm

ents

Rea

l Fin

Co

llect

ive

Inve

stm

ent

Sch

emes

San

lam

Co

llect

ive

Inve

stm

ents

San

ne

Man

agem

ent

Co

mp

any

1

0

2

1

0

1

0 00

11

2

0

H4

Co

llect

ive

Inve

stm

ents

2

0

115

An overwhelming majority of participants hold the viewthat owning a unit trust management company is a non-core activity and that outsourcing this function leads toefficiency and productivity gains. It is also encouragingto observe that licencing is no longer considered abarrier to entry.

LISP platforms remain the largest distribution channelfor retail investors in South Africa. Independent FinancialAdvisors are placing more business on such platformson behalf of their clients as they allow them to switchbetween funds, deduct fees and manage and report onclient portfolios. There has been little improvement inthe percentage of firms whose products are availableon LISPs. This is an ongoing frustration for black-ownedfirms as the barriers to accessibility remain excessivelyhigh thereby limiting participation in the retail market.

The majority of managers have only accomplishedgetting their products loaded onto one and two LISPswith two managers succeeding on eight LISPs. Not all

LISPs are the same and some are more popular withfinancial advisors than others.

Reasons for not owning a CIS management company:%

of f

irm

s

100%

80%

60%

40%

20%

0%

Cannot meet licencing requirements

Other reasons

Easier to and cost effectiveto rent a CIS licence

2018 2019 2020

47.62%

19.05%

33.33%

57.14%

42.86%

82.61%

17.39%

d. LISPs

Unit trust products available on LISPs:

% o

f fir

ms

100%

80%

60%

40%

20%

0%

No Yes

20182017 2019 2020

31.82%28.57%37.50% 40.00%

68.18%71.43%62.50% 60.00%

Number of LISPs on which unit trusts are available:

Num

ber

of fi

rms

4

3

2

1

0

2017

2018

2019

2020

1 2 3 4 5 6 7 8

1

2 2

1 1

3

0

1

0

1

0

1

0

1 1

0 0 0

1 1

22

1

0 0

3

0

2

1

2

1 1

116

Currently the Glacier platform houses the largest numberof black-owned firms’ products. Often LISPs will onlyadd a product onto the platform if they receive demandfrom financial advisors to do so. One also has to be

There was no real change since last year in the numberof managers offering UCITS compliant global funds.Global portfolios have consistently attracted strongretail flows as evidenced from the data released byASISA on foreign denominated funds. Such funds haveoffered domestic investors diversification, Rand hedgeexposure and better investment returns. Considering

aware of the changing patterns of retail distribution,which is increasingly becoming muddled in view of thelinkages between asset manager, advisor, DFM and LISP.

how these funds may support retail market penetration,it is disappointing that so few managers have opted toestablish global portfolios. Ireland is the preferreddomicile for South African asset managers.

LISPs utilised:

Num

ber

of fi

rms

1110

9876543210

2017 2018 2019 2020

Alla

n G

ray

Stan

lib

ABSA

Mom

entu

m

Gla

cier

Dis

cove

ry

PPS

PSG

Old

Mut

ual

Libe

rty

Sygn

ia

Nin

ety

One

AIM

S

3

2

4

1

2

3 3

1

4

6

3

8

9

6

4

0

2

11

2 22

3

11

2

11

Ashb

urto

n

Hol

lard

1

0

1

2

4

5

4

5

10

2 2 2

111 1

2

3

2

1

0

33

5

4

e. UCITS compliant products

% o

f fir

ms

100%90%80%70%60%50%40%30%20%10%

0%

No

Yes

20182017 2019 2020

5.41%17.14% 18.75%

94.59%100.00%82.86% 81.25%

Jurisdiction used:Dublin

0

117

Less than 20% of firms’ products are accessible onumbrella funds. The consolidation of private sectorstandalone funds into umbrella arrangements wasmotivated by the regulator based on anticipatedreduction of costs and enhanced governance. As arguedin the piece titled “The shift to umbrella funds - doesconsolidation support transformation?” this has onlyled to the establishment of commercial “super” fundswhose primary focus is to expand the distribution oftheir own asset management products. The result ofsuch consolidation has led to an exclusionary outcomewhich is not supportive of transformation objectives.

Only a handful of manager funds are available on anyof the commercial “super” umbrellas. Also, manyumbrella funds have different entry points meaningthat they may have a core list and a demand list, wherethe core list is what is marketed to clients, while the

Online, direct-to-consumer distribution is a powerfulmedium to attract AUM. Consumers have becomedigitised and more so following the lockdowns instituteddue to COVID-19, making it the norm to purchase goodsand services online. Less than forty percent of managers’funds are available for investment through thecompanies’ websites. Online distribution should be partof any asset manager’s strategic blueprint for marketpenetration.

demand list is driven by the asset managers who bringclients to the umbrella fund. There are many barriersmanagers face to get onto the core list, which can resultin despondency and so managers eventually give uptrying as they lose confidence in the system.

f. Umbrella funds

Firms who have portfolios on umbrella funds:

81.25%

18.75%

Yes

No

Umbrella funds which have included firm portfolios:

5

4

3

2

1

0

Tota

l num

ber

of fi

rms

Old Mutual AlexanderForbes

MMI Liberty Sanlam GrantThornton

Fairheads Multilect

g. Fund accessibility through firm website

62.50%

37.50%

Yes

No

118

These numbers are discouraging. Mainstream assetmanagers should have the ability to play a role in boththe accumulation and decumulation phases of investorlives, and cater for varying needs including promotingtax efficiencies. To grow a retail footprint requires

Total Investment Charge (”TIC”) is the Total ExpenseRatio (fund management fees + administrative costs)plus transaction costs. TIC is important in that it allowsinvestors to evaluate the all-in cost of funds so they canmake an informed decision when purchasing a fund.High fees can erode investment returns and so assetmanagers are required to provide full transparency anddisclosure on all fees charged. It is worrying that somemanagers only disclose the annual management feecharged and not the TIC.

products that can appeal to such a market. Only a fewfirms have established such products, which limits thelevel of retail participation by this segment.

h. Disclosure of total investment charges

Num

ber

of fi

rms

35

30

25

20

15

10

5

0Life licencemandates

Unit trusts Segregatedmandates

(on owner’sbalance sheet)

We don’t manage this type of product

Annual Management Fee only

Total Investment Charge

i. Retail offering

Tota

l num

ber

of fi

rms

25

20

15

10

5

0

Tax-free savings Retirementannuity

Preservationfund

Livingannuity

Endowment None

119

Brand buildingand industryinfluence

Industry, innovation& infrastructure

ABSIPIndustry body most firms affiliate themselves with

Section highlights

5Number of firms who have won a Morningstar Award

44%Of firms have ambitions to berecognised as a household brand

Public markets

9

120

There are several industry bodies representing businessin South Africa that are relevant to the interests of black-owned asset managers. These range from industry wideinitiatives, to those focused on the specific challengesfaced by black-owned business. Given the centrality ofnetworks of trust and reciprocity essential to growthand development - key components of social capital -it is somewhat disappointing that membership remainslow. What is encouraging is that membership of bothASISA and ABSIP increased by approximately 10% duringthe current period. While ASISA membership isconsidered by many to be expensive and representativeof the largest firms in the industry, it is the overarchingrepresentative body and plays many vital roles in setting

industry standards, ensuring best practice and makingthe sector’s voice heard by government and regulators.As black-owned investment managers it is importantthat companies join ABSIP, to advance the cause ofmeaningful transformation and to have our particularconcerns and needs addressed. A third of firms aremembers of TAF, and nearly 10% of public markets firmsare members of SAVCA, up from 6% compared to 2019.

a. South African industry body memberships

% o

f fir

ms

100%90%80%70%60%50%40%30%20%10%

0%

The

Asso

ciat

ion

of B

lack

Secu

ritie

s an

d In

vest

men

t P

rofe

ssio

nals

(ABS

IP)

The

Asso

ciat

ion

for

Savi

ngs

and

Inve

stm

ent

Sout

h Af

rica

(ASI

SA)

Sout

hern

Afr

ica

Vent

ure

Capi

tal a

nd P

rivat

e Eq

uity

Asso

ciat

ion

(SAV

CA)

Blac

k In

vest

men

tM

anag

emen

t Bus

ines

sFo

rum

(BIM

BF)

Tran

sfor

mat

ion

Actio

nFo

rum

(TAF

)

Asso

ciat

ion

of S

outh

Afri

can

Blac

k Ac

tuar

ial

Prof

essi

onal

s (A

SABA

)

Blac

k Bu

sine

ss C

ounc

il(B

BC)

Blac

k M

anag

emen

tFo

rum

(BM

F)

Busi

ness

Uni

ty S

outh

Afri

ca (B

USA

)

Inst

itute

of R

etir

emen

tFu

nds

(IRF)

Busi

ness

Lea

ders

hip

Sout

h Af

rica

(BLS

A)

No

Yes

121

The low levels of leadership participation in the activitiesof industry bodies is disappointing. A probable factorin the representation of leadership by black-ownedasset managers is that they are small, with the owners

and directors immersed in the day-to-day operationsof their businesses. That aside, the low representationis inadequate and needs to be addressed urgently if theindustry is to transform at an acceptable rate.

In an environment of changing policy and gazetting ofnew legislation, it is very important that black assetmanagers have a seat at the table. While more than halfof respondents report regular engagement with financialsector policy makers, it is disappointing to see a slighttrend in the wrong direction this year. With South Africahaving established the Twin Peaks framework there ismuch legislation currently under review (refer to“Regulations all asset managers need to be aware of”).In particular the draft Conduct of Financial InstitutionsBill (COFI), aimed at reforming the financial sector, isexpected to be gazetted soon. This is an opportunity toeffect real change in the industry, one that we hope willbe seized by black-owned financial firms.

Leadership contribution to industry bodies:

% o

f fir

ms

100%90%80%70%60%50%40%30%20%10%

0%

The

Asso

ciat

ion

of B

lack

Secu

ritie

s an

d In

vest

men

t P

rofe

ssio

nals

(ABS

IP)

The

Asso

ciat

ion

for

Savi

ngs

and

Inve

stm

ent

Sout

h Af

rica

(ASI

SA)

Sout

hern

Afr

ica

Vent

ure

Capi

tal a

nd P

rivat

e Eq

uity

Asso

ciat

ion

(SAV

CA)

Blac

k In

vest

men

tM

anag

emen

t Bus

ines

sFo

rum

(BIM

BF)

Tran

sfor

mat

ion

Actio

nFo

rum

(TAF

)

Asso

ciat

ion

of S

outh

Afri

can

Blac

k Ac

tuar

ial

Prof

essi

onal

s (A

SABA

)

Blac

k Bu

sine

ss C

ounc

il(B

BC)

Blac

k M

anag

emen

tFo

rum

(BM

F)

Busi

ness

Uni

ty S

outh

Afri

ca (B

USA

)

Inst

itute

of R

etir

emen

tFu

nds

(IRF)

Busi

ness

Lea

ders

hip

Sout

h Af

rica

(BLS

A)

No

Yes

b. Regularly engage on financial sector policy

% o

f fir

ms

100%

80%

60%

40%

20%

0%2019 2020

42,86%

No

Yes

57,14%

46.88%

53.12%

122

It is pleasing to see an increase in the prevalence ofregular presentations by senior staff at industry events.This is a cost effective means to increase visibility,influence thought, and extend networks. It is good tosee that more than half of the survey pool publish

articles regularly. While this is onerous on already busysenior staff, it is important that firms express their viewsand unique insights publicly. We hope to see positivetrends with respect to thought leadership from this partof the financial sector, going forward.

c. Thought leadership

Senior investment personnel speak regularly at industry events:

No

Yes

% o

f fir

ms

100%

80%

60%

40%

20%

0%2019 2020

48,57%

51,43%

37,50%

62,50%

Firms regularly publish researcharticles of interest:

% o

f fir

ms

100%

80%

60%

40%

20%

0%2019 2020

42,86%

No

Yes

57,14%

43,75%

56,25%

Num

ber

of fi

rms

4

3

2

1

0

Number of Raging Bull Awards

1 2 3 4 5 Over 5

2017

2018

2019

20202

3

1

0 0

1

0

1

0 0 0

1

0 0

2

1

3

2

11

0 0 0

1

d. Industry awards won for investment performance

Raging Bull Awards won (since inception of firm):

123

Advertising and marketing are key to market penetration,by making potential clients aware of your products, andwhat you stand for as a company. There is no doubtthat effective spending in this area increases a firm’sclient base. While this would depend on the developmentstage of a business, research indicates that for anestablished enterprise, spending approximately 10% ofgross revenue on advertising and marketing is optimal.It is telling that almost half of surveyed companies spendless than 1% of revenue on marketing, although this is

The prestigious Raging Bull and Morningstar Awardsrecognise top performing funds in the unit trust sector.While it is only a handful of managers who have beenrecognised, we note a pleasing positive trend in theRaging Bull Awards, with one firm boasting four bulls

in the trophy cabinet, and two firms with more thanfive. We see a similar positive trend in the internationallyadministered Morningstar Awards. It is important forblack-owned managers to compete in this space, dueto the prestige and visibility associated with these awards.

a slight improvement compared to last year. Small firmsfind themselves in a “Catch 22” situation - having aninsufficient client base to improve revenues, yet riskaverse to allocating revenue to increase the client base.Any increased spend is likely to be affected by COVID-19. As we have seen, asset management firms haveindicated that one of the key cost containment measurestargeted is marketing expenditure (see section titled“Impact of COVID-19”). Measures taken in 2020 are likelyto be reversed in the short-term.

Morningstar Awards won (since inception of firm):

Number of Morningstar Awards

Num

ber

of fi

rms

3

2

1

0

1 2 3 4 5 Over 5

2017

2018

2019

2020

0

1

2

0

1

0 00 0

2

1

0 0

11 1

0 0

2

0 0 0 0

e. Advertising, branding and marketing

Percentage of revenue spent on advertising, branding and marketing:

% o

f fir

ms

100%90%80%70%60%50%40%30%20%10%

0%

Over 15%

10%-15%

5%-10%

1%-5%

Under 1%

20182017 2019

50,00%

37,50%

53,33%

33,33%

54,29%

34,29%

2020

46.88%

37.50%

6,67% 10,42% 2,86% 12,50%

% of revenue

0

124

Print media and conference/exhibitions are the preferredmeans of marketing in 2020. The latter may beunderstood in terms of the targeting of institutionalinvestors via direct contact. This is not surprising sincemost firms have a strong institutional bias in their

investor base (see “Fund Facts”). It is concerning to seea continued decline in the use of social media andonline marketing, where the eyes of a large, young retailmarket are focused. This trend does not augur well interms of expansion in a limited market.

Advertising and marketing mediums used:

% o

f fir

ms

60%

50%

40%

30%

20%

10%

0

Prin

t

Radi

o

Tele

visi

on

Soci

al m

edia

On-

line

(eg

Mon

eyw

eb)

Billb

oard

Con

fere

nce

spon

sors

hip

(exh

ibiti

on s

tand

, bra

ndpo

sitio

ning

, spe

akin

g)

Non

e

56,25%

3,13%0,00% 0,00%

21,88%18,75%

53,13%

28,13%

f. Communication with investors

Hold investor roadshows:

% o

f fir

ms

100%90%80%70%60%50%40%30%20%10%

0%

No

Yes

20182017 2019

52,08%

47,92%

53,33%

46,67% 57,14%

2020

56,25%

43,75%

42,86%

Frequency of communication withclients:

% o

f fir

ms

100%90%80%70%60%50%40%30%20%10%

0%20182017 2019

44,00%29,17% 26,67%

2020

61,11%

every 6 months

every 3 months

at least once a year

12,00%

37,50%

11,11%

13,33%

33,33%

44,00% 60,00%

27,78%

125

The use of roadshows, a familiar tool in the industry,has returned to just over 55% in 2020, although onewould expect that social distancing in response to COVID-19 would adversely affect this measure in the nextsurvey cycle. What is worrying to see is the sharpdecrease in frequency of communication with clients,eroding the gain of 2019. For the first time there was

an uptick in the use of webinars which is reflective ofthe COVID-19 communication environment. Thepreferred means of communication however are stilldominated by email campaigns and company websites,reflecting an institutional rather than retail bias. Theprofessional network LinkedIn is used increasingly, butthe use of social media in general remains unpopular.

A fully functional website should be considered aminimum requirement for any business, and so, whileimproving, there is no excuse for the large proportion(nearly 30%) who do not maintain a website. The websiteis the first stop when seeking information about a

Medium used to communicate with investors:%

of f

irm

s

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

Emai

l cam

paig

n

Blog

ging

Web

inar

s

Face

book

YouT

ube

Twitt

er

Link

edIn

Web

site

Mob

ile (e

g. S

MS,

vira

l mar

ketin

g)

Inst

agra

m

2018

2019

2020

g. Access through technology

Have a mobile app:

% o

f fir

ms

100%90%80%70%60%50%40%30%20%10%

0%

No

Yes

20182017 2019

2.70%

97.30%100.00% 97.14%

2020

100.00%

2.86%

Have a fully functional website:

% o

f fir

ms

100%90%80%70%60%50%40%30%20%10%

0%

No

Yes

20182017 2019

67.57%

32.43%

51.11%

48.89%34.29%

2020

71.88%

28.12%

65.71%

company, whether by institutional or retail investors.No companies are providing a mobile app in 2020,reflecting the immaturity of the industry in the retailspace, where this has become one of the most popularmeans for interacting with customers.

126

h. Brand recognition drivers

2018

2019

2020

The upward trend in the ambitions of black-ownedmanagers to become high profile brands in the publicmarkets space has continued, despite more than halfseeing themselves as niche players. The ambitiousshould find comfort in the fact that the tailwinds of B-BBEE will continue to support their efforts. By keepingtheir eye on the ball in terms of investment performance,strong leadership, and high visibility, one would expectthat these aspirations will eventually materialise forthose with the will to battle on.

The distribution of brand recognition drivers, from theviewpoint of our survey pool, has seen little movementover the past three years. The delivery of consistentinvestment performance remains top, while having adifferentiated product offering, a good team, and beingclient focused are all considered important. Values arealso rated high, reflecting a recognition of ESG as a

differentiating factor. Marketing is not rated as important,in line with an emerging theme that most firms do notsee this as an effective means to grow their brand. Lowfees, interestingly, continue to not feature as a branddriver, despite the competitiveness of the market andthe rise of low-cost passive investments.

Cons

iste

ntin

vest

men

tpe

rfor

man

ce

Low

fees

Adve

rtis

ing

and

mar

ketin

g

Diff

eren

tiate

dpr

oduc

t

Your

peo

ple

Clie

nt fo

cuse

d

Valu

es

% o

f fir

ms

i. Ambition to become South Africa’s next Coronation/Allan Grayor positioned as a boutique/niche asset manager

% o

f fir

ms

100%

80%

60%

40%

20%

0%

Household brand

Boutique

20182017 2019

64,58%

47.32%

77,78%

22,22%40,00%

2020

56,25%

43,75%

60,00%

35,42%

100%

80%

60%

40%

20%

0%

127

Environmental,social andgovernance

128

12Number of firms who are UN PRI signatories

Section highlights

38%Of firms have a dedicated ESG internal resource

69%Of firms acknowledge that ESG impactedthe risk and return characteristics of their portfoliosClimate action

Public markets

13

129

The Principles for Responsible Investment (”PRI”) werelaunched by the United Nations (”UN”) in 2006, in supportof their Sustainable Development Goals (”SDGs”). Theseprinciples apply worldwide and seek to make financialorganisations accountable to the imperatives ofenvironmental, social development, and governance.This forward-looking initiative aims to accomplish itsobjectives through six guiding principles:

Principle 1: We will incorporate ESG issues into investment analysis and decision-making processes.

Principle 2: We will be active owners and incorporateESG issues into our ownership policies andpractices.

Principle 3: We will seek appropriate disclosure in ESGissues by the entities in which we invest.

This year 12 of the 32 respondents in the public marketsspace are PRI signatories. While the trend since 2010has been positive, the result has plateaued since 2014.Factors that limit the adoption of the PRI by South African

a. United Nations Principles for Responsible Investment (UN PRI)

Principle 4: We will promote acceptance and implementation of the Principles within the investment industry.

Principle 5: We will work together to enhance our effectiveness in implementing the Principles.

Principle 6: We will each report on our activities and progress towards implementing the Principles.

Being a signatory to the PRI requires a high level ofcommitment. One way in which the PRI monitors theefforts of its signatories is through its reporting tools.Reporting is a key mechanism to establish a frameworkof accountability, transparency, and assessment of thePRI signatories.

asset managers could be related to the cost associatedwith, and an under estimation of the benefits of, beinga signatory.

Signatories to the UN PRI:

Num

ber

of fi

rms

14

12

10

8

6

4

2

0

2010 2011 2012 2013 2014 2015 2016 2017

4

6 6

8

10 10 10 10 10

2018

11

2019 2020

12

Aeon Investment Management Makalani Management CompanyAfena Capital Meago Asset ManagersAll Weather Capital Mergence Investment ManagersArgon Asset Management Mianzo Asset ManagementDifferential Capital Perpetua Investment ManagersLima Mbeu Investment Managers Prescient Investment Management

Source: https://www.unpri.org/signatories

130

A signatory is able to calculate their performance inregards to the principles set out by the UN PRI. Thereare modules which assess the various individualindicators, and the modules are rated from E to A+. Forthe purposes of illustrating the data numerically wehave converted the scores to percentages. The graphshows that the module “Strategy and Governance” hasthe majority of positive scores. Overall the managershave scores higher than 50% on the majority of themodules.

Of the companies that are signatories it does appear

CRISA is a local set of principles focused on the South African market. The effectiveness of the Code is dependenton collaboration by all participants in the industry.

The period 2014 to 2020 has seen significant growth inthe number of firms endorsing CRISA to a current valuegreater than 80%. While this bodes well, the resultcontrasts with the adoption rate of the PRI. Since CRISAis more “symbolic” and therefore less onerous on firmsthan the PRI, the results could reflect that, while firmssee the importance of ESG for long term sustainability,

that there is firm commitment to the goals of principledinvestment, reflecting a conscientious long-termapproach which is encouraging. There is variation interms of the investment categories, but even if limitedit is a clear indication of a move in the right direction.The trends can be explored going forward with a build-up of longitudinal data to assess the trajectory andalignment of strategy over time with respect to the 6PRI objectives. The 12 signatories will hopefully pavethe way for a more enabling environment for theimplementation and practice of the PRI.

b. The Code for Responsible Investing in South Africa (CRISA)

the cost and effort involved in implementation are stilla barrier to progress on this front. In the absence ofasset owner pressure and a champion to co-ordinatePRI objectives, there is no driver to effect movementtowards a paradigm that prioritises the six overarchingprinciples.

Signatory PRI Transparency Report scores:%

of

firm

s

100%90%80%70%60%50%40%30%20%10%

0%

40%-60%

20%-40%

80%-100%

60%-80%

0%-20%

PropertyStrategy andGovernance

Listed EquityActive Ownership

Fixed IncomeSSA

ListedIncorporation

Endorse CRISA:

% o

f fi

rms

No

Yes

100%90%80%70%60%50%40%30%20%10%

0%

2019

85,71%

14.29%

2020

81.25%

18.75%

20182014 2015 20172016

64,58%

35.42%

53,13%

46.88%

60,61%

39.39%

57,78%

42.22%

68,29%

31.71%

131

It is encouraging to see the continued increase in thenumber of black-owned asset managers who disclosetheir ESG policy to all stakeholders, with this measurebreaching 80% this year. A transparent ESG policyprovides investors with confidence that a firm isimplementing procedures which are in line with globalbest practice. It is also an indication that firms aretaking ESG seriously, and recognise the benefit ofoperating, and directing investments in a mannerconducive to sustainability. The policies developedand reported will need to be evaluated relative to thepractical steps taken in implementation.

c. ESG policy is publicly made available%

of f

irm

s

100%90%80%70%60%50%40%30%20%10%

0%

No Yes

2018 2019

41.67%

58.33%

31.43%

68.57%

2020

18.75%

81.25%

d. ESG integration

Integrate ESG factors into the investment process:

% o

f fir

ms

ESG integration invaluation process

Corporateengagement

Negativescreening

Positivescreening

None

100%90%80%70%60%50%40%30%20%10%

0%

2018

2019

2020

Negative screening factors applied:

% o

f fi

rms

Environmentaland social

practices andperformance

Product Activity Geographicregion

Corporategovernance

Sector

100%

80%

60%

40%

20%

0%

132

The prevalence of ESG integration into the investmentprocess has remained high (>80%), firms have steppedup corporate engagement efforts, while the use ofpositive and negative screening processes have seen asharp decrease. It is pleasing to see that very few firmsreport no integration. The upward trend in corporateengagement suggests firms have been sensitised to thisarea, given the number of high-profile corporate scandalswhich have occurred in South Africa. The predominanceof ESG factors in the negative screening processes canalso be understood in this light.

The number of firms with dedicated ESG staff hasremained steady at a reasonable 40%, which is pleasing

given that the firms represented in the survey aretypically constrained in terms of personnel. It is alsonotable that investment teams are engaged with respectto ESG on at least a monthly basis by over 70% ofrespondents.

With regards to sources of ESG data, there has been aslight increase in the use of external data vendors, atthe expense of internal analysts and the use of companyreports. It is, however, clear that most companies usemore than one of these sources. A good balance isimportant, to mitigate internal biases by referencingindependent sources. A steady increase of firms reportusing other sources of data.

Have a dedicated ESG team/individual:

% o

f fir

ms

100%

80%

60%

40%

20%

0%2018 2019

68.75%

31.25%

60.00%

40.00%

2020

62.50%

37.50%

71.88%

28.12%

Yes

No

Investment team holds at leastone monthly ESG meeting:

Sources of ESG data:

% o

f fir

ms

Internal ESGanalyst/team

research

External third partyESG data/research

provider

Company reports Other

100%

80%

60%

40%

20%

0%

2018

2019

2020

No Yes

133

e. Proxy voting

Proxy voting policy is publiclyavailable:

65.62%

31.25%Yes

No

Not applicable

3.13%

Proxy voting frequency:

56.25%

More than 90%

Between 50%-90%

Less than 50%

Not applicable21.88%

6.25%

15.63%

Proxy votes published on website:

65.62%

18.75%15.63%

Yes

No

Not applicable

Proxy votes cast directly or througha dedicated voting service provider:

46.88%

31.24%

Directly

Throughdedicated votingprovider

Not applicable

21.88%

Number of companies voted on inthe past year:

Num

ber

of f

irm

s

10

8

6

4

2

0

0-20 Over 10080-10020-40 60-8040-60

134

One would expect consensus in proxy voting. Mostmanagers have voted on 40 to 60 companies. This is abalanced effort and reflects the desire of managers toengage and justify their positions. Proxy voting frequencyhas increased, with the majority (56%) voting more than90% of the time. While proxy voting may be viewed asa form of engagement, we have also gathered datameasuring to what extent the managers surveyed haveengaged with boards or senior management ofcompanies held in their portfolios. It is pleasing thataround 80% of managers report having done so in thelast year.

Regarding transparency, it is encouraging to see thatmost (66%) managers make their proxy voting policiespublicly available. Managers surveyed, however, remainreluctant to make their votes public, and most do notcast votes directly, but through a service provider.

Communicating with clients on ESG matters enhancesinvestor awareness and is an important aspect of clientengagement. The data illustrates that there has been amove to more structured reporting, with more than 40%of the survey pool reporting on at least an annual basis.Going forward, we hope to see this trend continue, asa large proportion of companies report on an ad hocbasis, and a few are still not reporting at all.

There exists significant leverage in the South Africanpublic and private sector, where the bulk of the savingsof the ordinary South African is invested, to address thegovernance challenges faced in the country, and toimprove investor outcomes. The moderate improvementin the collaborative efforts of asset managers in 2019has unfortunately eroded in 2020, with 50% of managersreporting taking part in such activity. It remains to beseen how this trends in a post COVID-19 environment.Collaborative efforts by this population of assetmanagers has the potential to boost ESG awareness inthe aftermath of what has been an unprecedenteddisruption to our economy.

Held meetings with boards or seniormanagement of the companies/entities held:

78.12%

21.88%

Yes

No

f. ESG reporting to clients

% o

f fir

ms

100%90%80%70%60%50%40%30%20%10%

0%2019 2020

We don’t report on ESG activitiesas part of our client reporting

Ad hoc

Quarterly

Annually

5.71%

17.14%

31.43%

45.71%43.75%

37.50%

12.50%

6.25%

g. Collaborated with other organisations in seeking to address an E, S or G issue in the previous 12 months

% o

f fir

ms

100%

80%

60%

40%

20%

0%

No

Yes

2018 2019

52.08%

47.92%

42.86%

57.14%

2020

50.00%

50.00%

135

Investment does not meet an ESGrating is still considered investable:

Company incorporates ESG incorporate culture:

ESG is not separate to the investment process; it isfundamental to business operations to promotetransparency and integrity. The data suggests that therehas been a marginal increase in companies incorporatingESG into their remuneration policies and practice forthe investment teams, although the survey groupremains largely split on the issue. As ESG issues are

incorporated into business functions, one would expectthat they should naturally filter into the corporate cultureof the company. While 2020 has seen a decline inmanagers reporting the incorporation of ESG into theirculture, the percentage of positive responses remainshigh.

h. Firm practice

Remuneration policy for the invest-ment team requires the integration ofESG issues across the investment portfolios:

% o

f fir

ms

100%

80%

60%

40%

20%

0%

No

Yes

2018 2019

52.08%

47.92%

54.29%

45.71%

2020

46.88%

53.12%

% o

f fir

ms

100%

80%

60%

40%

20%

0%2019 2020

11.43%

No

Yes

88.57%

18.75%

81.25%

i. Investment portfolios

ESG affected portfolios’ risk andreturn characteristics:

% o

f fir

ms

100%90%80%70%60%50%40%30%20%10%

0%2019 2020

17.14%

No

Yes

82.86%

31.25%

68.75%

No

Yes

% o

f fir

ms

100%90%80%70%60%50%40%30%20%10%

0%2019 2020

45.71%

54.29%

43.75%

56.25%

136

Two thirds of managers surveyed agree that ESG doesimpact the risk and return characteristics of the portfoliosthey manage. This is in contrast to the fact that managersremain divided on whether an asset that does not meetESG criteria is still considered to be investable. Thismeans that many firms consider ESG as one of manyfactors, rather than a hard filter, when makinginvestment calls. Most managers do not rely on ESGteams to make the final investment call. This is notsurprising, as it is the portfolio manager, in most cases,who bares the final responsibility for investmentdecisions.

It is encouraging that most firms feel comfortablediscussing ESG concerns with large portfolio companies.This shows a widespread view that corporations,regardless of size, should be held accountable withrespect to the way they are run, and the impact theyhave on all stakeholders. Despite the high numbersholding this view, it is noteworthy that there has beena decline by 7% in those who feel this way.

ESG team makes the final call onwhether an ESG issue leads to a buyor sell decision:

No Yes

j. Risky to discuss ESG issues with large corporationsbecause of the influence they have

% o

f fir

ms

100%90%80%70%60%50%40%30%20%10%

0%2019 2020

91.43%

No

Yes

8.57%

84.38%

15.62%

k. Invest in any ESG related bonds

% o

f fir

ms

100%90%80%70%60%50%40%30%20%10%

0%2019 2020

77.14%

22.86%

81.25%

18.75%

90%80%70%60%50%40%30%20%10%

0%

Sustainability bonds are bonds where the proceeds areused to finance or refinance a combination of greenand social projects and is the most preferred by thosesurveyed. The second most popular bond is the greenbond, which is different in that the proceeds from thebond is used for environmental benefits which can bequantified and assessed.

Gre

en b

onds

link

edto

env

iron

men

tal

goal

s

Soci

al b

onds

link

edto

soc

ial g

oals

Sust

aina

bilit

y bo

nds

(com

bina

tion

ofgr

een

and

soci

allin

ked

to m

ultip

leSD

G c

ateg

orie

s)

Not

app

licab

le

9.38%0.00%

12.50%

84.38%

137

Investmentperformance

Section details

Peace, justice & stronginstitutions

30 JUNE 2020Portfolio and benchmark returns are as at this date

ZARCurrency in which all data is quoted

FEESGross of fees performance is used except for South Africa Hedge Funds which are net of fees

ANNUALISEDReturns longer than 12 months are annualised

RISKWhere available, 3-year annualised volatility and tracking error are provided

INFORMATIONRATIODemonstrates how successful the assetmanager has been in outperforming thebenchmark considering the degree ofactive risk the asset manager assumedin achieving this return and is measuredover a 3-year period

Public markets

16

138

a. Multi-Asset Class

SA ABSOLUTE RETURN FUNDS

Risk statistics (3 years)

Fund name Benchmark 30-Jun # Quarter # 1 year # 3 years # 5 years # 7 years # 10 years # Volatility # Tracking # Information # error ratio

Balondolozi Absolute Return Fund CPI+3% 2,50% 2 11,70% 1 3,16% 5 8,30% 4 7,53% 4 8,17% 3 - - 7,79% 5 8,18% 5 0,20 4

Mianzo CPI+3% Fund CPI+3% 3,05% 1 10,52% 2 2,87% 6 5,81% 6 6,05% 6 - - - - 8,34% 6 8,74% 6 -0,09 6

Taquanta True Absolute Fund CPI+3% 0,68% 6 0,74% 6 8,83% 1 11,11% 1 11,40% 1 - - - - 1,01% 1 1,46% 1 3,06 1

Taquanta Absolute Fund CPI+3% 1,41% 3 4,73% 4 5,03% 4 9,29% 3 9,07% 3 7,86% 4 7,35% 3 3,62% 3 4,07% 3 0,65 3

Taquanta Pooled Reg 28 Absolute Fund CPI+3% 0,77% 5 2,65% 5 5,23% 3 10,43% 2 10,08% 2 8,44% 1 7,81% 2 2,78% 2 3,25% 2 1,17 2

Vunani Global Absolute Return Composite CPI+3% CPI+3% 1,16% 4 8,57% 3 5,76% 2 7,85% 5 7,01% 5 8,19% 2 9,18% 1 6,49% 4 6,78% 4 0,18 5

CPI+3% -0,36% -0,03% 5,05% 6,63% 7,50% 7,80% 7,94% 1,22%

Argon Absolute Return Fund CPI+4% 1,43% 5 6,76% 5 0,20% 4 4,85% 3 5,33% 1 7,66% 1 8,62% 1 6,02% 2 6,56% 2 -0,42 5

Mergence CPI + 4% Fund CPI+4% 2,95% 1 10,29% 3 0,63% 2 4,76% 4 5,04% 3 6,47% 4 7,79% 2 7,09% 3 7,57% 3 -0,38 3

Prescient Positive Return Fund CPI+4% 0,76% 6 5,04% 6 -2,59% 5 5,30% 2 5,17% 2 6,49% 3 6,49% 3 5,91% 1 6,36% 1 -0,37 2

Sentio Absolute Return Fund CPI+4% 2,91% 2 11,22% 1 -5,52% 6 1,90% 6 0,87% 5 4,83% 5 - - 9,79% 6 10,24% 6 -0,56 6

Vunani Domestic Absolute Return Composite CPI+4% CPI+4% 1,44% 4 10,30% 2 0,30% 3 4,25% 5 4,52% 4 6,53% 2 - - 7,90% 5 8,27% 5 -0,41 4

Vunani Global Absolute Return Composite CPI+4% CPI+4% 1,59% 3 9,58% 4 4,93% 1 7,43% 1 - - - - - - 7,75% 4 7,98% 4 -0,03 1

CPI+4% -0,28% 0,22% 6,05% 7,63% 8,50% 8,80% 8,94% 1,22%

Mergence CPI + 5 % (Local) Fund CPI+5% 3,51% 1 12,18% 1 -1,20% 2 4,78% 2 4,92% 2 6,66% 2 8,11% 2 8,83% 1 9,26% 2 -0,42 2

Vunani Global Absolute Return Composite CPI+5% CPI+5% 1,66% 2 10,23% 2 3,64% 1 6,44% 1 5,94% 1 8,14% 1 9,90% 1 8,99% 2 9,19% 1 -0,24 1

CPI+5% -0,19% 0,47% 7,05% 8,63% 9,50% 9,80% 9,94% 1,22%

Vunani Domestic Absolute Return Composite CPI+6% CPI+6% 2,25% 1 11,61% 1 -0,65% 1 3,63% 1 3,37% 1 6,04% 1 8,43% 1 9,99% 1 10,27% 1 -0,58 1

CPI+6% -0,11% 0,72% 8,05% 9,63% 10,50% 10,80% 10,94% 1,22%

Vunani Global Absolute Return Composite CPI+7% CPI+7% 1,17% 1 9,51% 1 2,86% 1 7,07% 1 5,51% 1 8,17% 1 10,96% 1 9,03% 1 9,20% 1 -0,39 1

CPI+7% -0,03% 0,97% 9,05% 10,63% 11,50% 11,80% 11,94% 1,22%

a. Multi-Asset Class (Absolute Return and Balanced)b. South Africa Hedge Fundsc. Offshored. South Africa Equitye. South Africa Fixed Incomef. South Africa Money Marketg. South Africa Incomeh. South Africa Listed Property

Performance and risk analysis is providedon the following product categories:

SA BALANCED FUNDS

Risk statistics (3 years)

Fund name Benchmark 30-Jun Quarter 1 year 3 years 5 years 7 years 10 years Volatility Tracking Information error ratio

Kagiso Stable Fund CPI+2% 0,49% 0,51% 2,99% 5,21% 5,61% 5,94% - 1,02% 1,62% -0,26

Prescient Absolute Defensive Fund CPI+3% 2,30% 9,25% 0,07% - - - - - - -

Aeon Global Balanced Fund CPI+5% 3,43% 16,41% 7,11% 7,12% 6,92% 8,75% - 11,18% 11,36% -0,13

Aeon Local Balanced Fund CPI+5% 4,35% 18,21% -5,35% - - - - - - -

Balondolozi Active Balanced Fund CPI+5% 3,07% 15,68% -0,43% 6,24% 6,01% - - 11,59% 11,82% -0,20

Kagiso Protector Fund CPI+5% 4,68% 11,46% -2,12% 4,56% 6,10% 7,52% 7,81% 10,99% 11,37% -0,36

Lunar BCI Worldwide Flexible Fund CPI+5% 3,10% 11,63% 18,16% 11,19% - - - 11,90% 11,82% 0,22

Mergence Global Balanced Fund CPI+5% 3,21% 11,89% 3,57% - - - - - - -

Prescient Balanced Fund CPI+5% 3,92% 15,38% 1,93% 6,32% 5,73% - - 11,68% 11,96% -0,19

Excelsia Balanced Fund Median Return: 6,63% 23,93% -5,99% - - - - - - -Alexander Forbes Survey

Kagiso Domestic Balanced Fund Median Return: 9,07% 14,43% -6,29% 3,22% 3,99% 5,54% 7,66% 14,64% 6,74% 0,20Alexander Forbes Survey

Taquanta Global Balanced Fund Multi Asset1 4,83% 16,60% 1,37% 5,07% 4,87% 8,34% 10,91% 12,31% 0,48% 0,55

Lima Mbeu Multi Asset Fund Multi Asset2 3,50% 13,91% -2,08% - - - - - - -

Kagiso Balanced Fund South African - Multi 5,79% 13,46% -1,87% 4,80% 6,05% 7,91% - 13,63% 5,74% 0,21Asset - High Equity

Kagiso Islamic Balanced Fund South African - Multi 4,10% 13,46% 1,11% 5,63% 6,08% 7,58% - 10,22% 2,67% 0,75Asset - High Equity

Perpetua Global Balanced Fund South African - Multi 5,94% 14,16% -1,45% 2,01% 2,32% - - 12,44% 4,26% -0,38Asset - High Equity

CPI+2% -0,44% -0,28% 4,05% 5,63% 6,50% 6,80% 6,94% 1,22%

CPI+3% -0,36% -0,03% 5,05% 6,63% 7,50% 7,80% 7,94% 1,22%

CPI+5% -0,19% 0,47% 7,05% 8,63% 9,50% 9,80% 9,94% 1,22%

Median Return: Alexander Forbes Survey 3,06% 14,18% -5,20% 1,86% 3,02% 5,96% 8,92% 12,00%

Multi Asset1 4,83% 16,48% 0,58% 4,81% 4,79% 8,32% 10,78% 12,42%

Multi Asset2 3,83% 14,68% -1,96% - - - - -

South African - Multi Asset - High Equity 3,06% 13,44% 0,51% 3,62% 3,53% 6,22% - 10,98%

SA HEDGE FUNDS

Risk statistics (3 years)

Fund name Benchmark 30-Jun Quarter 1 year 3 years 5 years 7 years 10 years Volatility Tracking Information error ratio

Value Capital Partners H4 QIHF Mid Cap 12,69% -4,71% -47,30% - - - - - - -

AWC Long Short Fund STeFI -5,18% 3,99% 5,55% -0,79% 4,05% - - 10,29% 10,23% -0,78

AWC Market Neutral Fund STeFI -1,52% 6,74% 16,57% 11,94% 11,87% - - 9,42% 9,38% 0,51

IA Muhu MS Hedge Fund STeFI -1,10% -0,37% 4,46% 3,59% - - - 2,97% 2,92% -1,23

Terebinth SNN Fixed Income Retail Hedge Fund STeFI 2,22% 10,63% 13,20% 17,54% 13,75% 12,56% - 13,72% 13,65% 0,76

IA Muhu Short Biased Equity Hedge Fund STeFI +5% -3,25% 1,22% 43,47% 26,21% - - - 11,88% 11,76% 1,19

FVC Endurance Global Equity Long/Short US Cash Hurdle (ZAR) 2,05% 8,91% 14,13% 4,22% 4,78% - - 16,85% 10,10% -0,71

Mid Cap 6,06% 15,37% -17,60% -3,50% -0,62% 3,75% 8,00% 20,32%

STeFI 0,44% 1,46% 6,86% 7,17% 7,20% 6,81% 6,48% 0,12%

STeFI +5% 0,86% 2,71% 11,86% 12,17% 12,20% 11,81% 11,48% 0,12%

US Cash Hurdle (ZAR) -1,05% -2,78% 24,77% 11,40% 8,33% - - 17,92%

139

b. South Africa Hedge Funds

C. Offshore

OFFSHORE LISTED EQUITY FUNDS

Risk statistics (3 years)

Fund name Benchmark 30-Jun Quarter 1 year 3 years 5 years 7 years 10 years Volatility Tracking Information error ratio

AWC Norges Portfolio FTSE South Africa All Cap Weighted Index 5,09% 14,91% -19,53% -8,86% - - - 19,54% 6,85% -0,94Norges Constituent Service

FTSE South Africa All Cap Weighted Index Norges Constituent Service 7,31% 21,85% -13,82% -2,43% 19,67%

Benguela Offshore Equity Fund MSCI ACWLD (ZAR) -0,51% 12,31% 25,46% 18,67% - - - 15,82% 4,13% 0,45

MSCI ACWLD (ZAR) 2,14% 16,05% 26,14% 16,82% 17,05%

First Avenue Global Equity Composite MSCI World Price Index (ZAR) 0,83% 16,07% 34,08% 15,87% - - - 16,31% 7,80% 0,09

MSCI World Price Index (ZAR) 1,42% 15,51% 24,40% 15,13% 17,55%

Kagiso Global Balanced Fund Median Return: Alexander Forbes Global 6,01% 14,00% -1,63% 5,19% 6,22% 7,89% - 14,05% 6,05% 0,08Large Manager Watch

Median Return: Alexander Forbes Global Large Manager Watch 3,06% 13,89% 1,42% 4,73% 5,02% 7,86% 11,34%

Kagiso Islamic Global Equity Feeder Fund Global - Equity - General 1,56% 14,60% 16,58% - - - - - - -

Global - Equity - General -1,65% 13,80% 13,74% -

Lodestar Global Core Portfolio MSCI World Net ZAR 0,69% 13,05% 28,39% 17,01% - - - 17,16% 4,94% -0,06

MSCI World Net ZAR 1,55% 16,01% 26,58% 17,29% 17,55%

Prescient Global Core Equity MSCI World Net Daily Total Return (ZAR) 1,48% 14,08% 26,91% - - - - - - -

MSCI World Net Daily Total Return (ZAR) 1,00% 16,12% 26,70% -

Vunani Global Active Equity Composite 80% MSCI,15% US$,5% STeFI 2,65% 10,27% 31,51% 21,32% 17,87% 20,21% - 17,53% 7,06% 0,62

80% MSCI,15% US$,5% STeFI 1,14% 13,30% 27,08% 16,98% 14,31% 15,85% 16,12%

OFFSHORE LISTED PROPERTY FUNDS

Risk statistics (3 years)

Fund name Benchmark 30-Jun Quarter 1 year 3 years 5 years 7 years 10 years Volatility Tracking Information error ratio

Meago Enhanced Global Property Fund GPR 250 REIT Index (ZAR) 0,90% 7,94% 5,63% 9,57% - - - 20,18% 3,07% 0,16

GPR 250 REIT Index (ZAR) 1,32% 8,54% 3,42% 9,08% 21,16%

140

141

d. South Africa Equity

SA EQUITY FUNDS

Risk statistics (3 years)

Fund name Benchmark 30-Jun # Quarter # 1 year # 3 years # 5 years # 7 years # 10 years # Volatility # Tracking # Information # error ratio

Aeon Active Equity Composite SWIX All Share 6,68% 11 23,51% 6 -3,70% 2 3,80% 2 3,59% 1 8,57% 1 11,78% 1 16,37% 2 3,96% 11 0,45 4Aeon Smart Multi-Factor Equity Fund SWIX All Share 6,78% 10 22,99% 7 -5,59% 6 2,74% 4 2,28% 7 7,09% 3 - - 17,87% 9 2,66% 4 0,28 5All Weather NCIS General Equity Fund SWIX All Share 7,42% 8 24,22% 4 -7,93% 9 1,54% 8 3,06% 2 - - - - 18,99% 12 3,95% 10 -0,12 8ALUWANI SWIX Equity Fund SWIX All Share 7,25% 9 20,34% 12 -6,37% 7 4,10% 1 2,83% 3 - - - - 17,03% 5 2,46% 3 0,85 3Argon Specialist Domestic Equity SWIX All Share 7,52% 7 24,01% 5 -4,29% 3 2,78% 3 2,55% 5 8,49% 2 10,68% 4 18,46% 10 3,38% 6 1,06 1Excelsia Aggressive Equity SWIX SWIX All Share 8,91% 2 32,27% 1 -10,26% 13 -1,94% 13 - - - - - - 22,18% 14 7,60% 14 -0,52 12Excelsia Core Equity SWIX SWIX All Share 9,59% 1 29,08% 2 -6,63% 8 0,17% 12 - - - - - - 20,44% 13 4,39% 12 -0,42 10First Avenue General Equity SWIX Composite SWIX All Share 5,20% 14 14,69% 14 -12,00% 14 -4,21% 14 -2,32% 12 2,96% 8 - - 14,83% 1 4,89% 13 -1,27 14Mergence SWIX Fund SWIX All Share 8,80% 3 22,26% 8 -8,67% 11 0,44% 11 1,39% 10 6,92% 5 10,71% 3 17,18% 6 1,79% 2 -0,87 13Mianzo Active Equity Fund SWIX All Share 8,54% 4 24,43% 3 -10,01% 12 0,50% 10 0,90% 11 6,02% 7 - - 18,76% 11 3,40% 7 -0,44 11Perpetua Relative Value Equity Fund SWIX All Share 8,40% 5 21,35% 10 -1,93% 1 0,89% 9 1,62% 8 - - - - 16,95% 3 3,01% 5 -0,37 9Prescient Core Equity SWIX Fund SWIX All Share 7,69% 6 22,13% 9 -5,26% 5 2,45% 5 2,60% 4 - - - - 17,67% 7 0,49% 1 0,91 2Sentio General Equity Fund SWIX All Share 6,44% 12 20,08% 13 -8,67% 10 2,13% 7 1,51% 9 6,97% 4 10,93% 2 16,97% 4 3,63% 8 0,04 7Vunani Core Equity Composite SWIX All Share 6,14% 13 20,67% 11 -4,48% 4 2,40% 6 2,47% 6 6,73% 6 - - 17,84% 8 3,92% 9 0,10 6SWIX All Share 8,07% 22,09% -6,09% 2,00% 2,08% 7,05% 10,61% 17,68%Afena Capital Moderate Equity Capped SWIX Capped SWIX All Share 4,39% 17 15,17% 17 -21,82% 19 -4,66% 8 - - - - - - 16,99% 4 4,30% 7 -0,89 10Afena Capital Unconstrained Equity Capped SWIX Capped SWIX All Share 3,78% 19 13,42% 19 -20,91% 18 -4,92% 10 -2,12% 2 1,43% 3 - - 16,14% 2 5,15% 8 -0,80 8All Weather Capped SWIX Fund Capped SWIX All Share 6,62% 10 21,60% 7 -11,27% 11 - - - - - - - - - - - - - -ALUWANI CAPPED SWIX Equity Fund Capped SWIX All Share 6,22% 13 20,16% 11 -9,79% 4 1,24% 2 - - - - - - 16,89% 3 2,83% 3 0,73 1Balondolozi Active Equity Fund Capped SWIX All Share 6,13% 14 22,42% 3 -10,42% 7 - - - - - - - - - - - - - -Benguela Capped SWIX Composite Capped SWIX All Share 6,50% 11 18,22% 15 -9,31% 3 -1,23% 5 - - - - - - 15,71% 1 3,92% 5 -0,11 5Excelsia Core Equity Capped SWIX All Share 8,39% 4 28,23% 1 -10,75% 10 - - - - - - - - - - - - - -First Avenue Equity Capped SWIX Composite Capped SWIX All Share 4,31% 18 14,52% 18 -17,13% 17 - - - - - - - - - - - - - -Kagiso Core Equity Fund Capped SWIX All Share 9,17% 2 22,95% 2 -13,45% 14 -2,21% 6 - - - - - - 19,15% 9 4,11% 6 -0,34 6Kagiso Managed Equity Fund Capped SWIX All Share 13,02% 1 20,77% 9 -8,95% 1 1,28% 1 - - - - - - 19,67% 10 8,27% 10 0,25 2Lima Mbeu SA Equity Fund Capped SWIX All Share 6,41% 12 20,26% 10 -9,81% 5 - - - - - - - - - - - - - -Mergence Capped SWIX Fund Capped SWIX All Share 7,66% 5 21,66% 6 -13,43% 13 -2,37% 7 - - - - - - 17,21% 5 1,92% 1 -0,81 9Mianzo Tracker Equity Fund Capped SWIX All Share 6,92% 8 21,70% 4 -10,62% 8 -0,86% 4 -0,36% 1 5,38% 1 - - 18,15% 7 2,37% 2 -0,02 4Ngwedi Core Equity Fund Capped SWIX All Share 7,13% 6 18,56% 14 -12,57% 12 - - - - - - - - - - - - - -Perpetua True Value Equity Fund Capped SWIX All Share 8,53% 3 17,92% 16 -13,58% 15 -4,92% 9 -2,13% 3 1,58% 2 - - 18,18% 8 5,33% 9 -0,77 7Prescient Core Equity Capped SWIX Fund Capped SWIX All Share 6,64% 9 21,69% 5 -10,23% 6 - - - - - - - - - - - - - -Sentio Capped SWIX Fund Capped SWIX All Share 5,40% 16 19,73% 12 -13,73% 16 0,01% 3 - - - - - - 17,45% 6 3,73% 4 0,22 3Vunani Domestic Active Equity Capped SWIX Capped SWIX All Share 5,41% 15 19,39% 13 -9,13% 2 - - - - - - - - - - - - - -Vunani Domestic Passive Equity Composite Capped SWIX Capped SWIX All Share 6,96% 7 21,51% 8 -10,67% 9 - - - - - - - - - - - - - -Capped SWIX All Share 6,98% 21,64% -10,78% -0,81% 0,07% 5,51% - 17,45%Afena Capital Moderate Equity CAPI CAPI ALSI 4,90% 3 17,14% 4 -16,23% 4 -0,16% 4 0,85% 3 4,65% 2 6,85% 2 16,22% 2 3,94% 3 -0,99 4Afena Capital Core Equity CAPI CAPI ALSI 4,72% 4 18,99% 3 -12,65% 3 1,23% 3 - - - - - - 16,21% 1 3,04% 2 -0,83 3Cachalia Capital C Value Fund CAPI ALSI 6,74% 2 24,94% 1 0,70% 1 7,09% 1 4,56% 1 - - - - 18,31% 4 4,37% 4 0,76 1Mergence CAPI Fund CAPI ALSI 7,67% 1 22,88% 2 -7,55% 2 2,62% 2 2,89% 2 7,21% 1 10,48% 1 16,38% 3 1,77% 1 -0,64 2CAPI ALSI 7,03% 22,94% -5,64% 3,76% 3,41% 7,37% 10,55% 16,92%Kagiso Top 40 Tracker Fund Top 40 7,86% 2 24,97% 1 2,30% 1 7,44% 1 5,03% 1 8,51% 2 11,17% 2 16,86% 3 1,48% 1 0,51 1Prescient Core Equity ALSI Top 40 Fund Top 40 8,04% 1 23,80% 3 -0,33% 2 6,89% 2 4,89% 2 8,74% 1 11,41% 1 17,06% 2 0,66% 2 0,32 2Vunani Domestic Passive Equity Composite Top 40 Top 40 7,82% 3 24,01% 2 -0,76% 3 6,50% 3 4,70% 3 8,34% 3 11,14% 3 17,28% 1 0,17% 3 -1,04 3Top 40 7,85% 24,18% -0,55% 6,68% 4,82% 8,49% 11,23% 17,36%

e. South Africa Fixed Income

SA NOMINAL & FLEXIBLE BOND FUNDS

Risk statistics (3 years)

Fund name Benchmark 30-Jun # Quarter # 1 year # 3 years # 5 years # 7 years # 10 years # Volatility # Tracking # Information # error ratio

Argon Core Bond ALBI -0,84% 3 10,11% 4 1,79% 10 8,87% 5 8,40% 3 8,33% 1 9,08% 2 10,14% 12 1,21% 6 0,63 5ALUWANI Active Bond ALBI -1,41% 11 8,92% 8 2,00% 7 8,12% 9 7,76% 8 7,63% 6 8,80% 3 9,43% 10 0,62% 2 0,01 8Balondolozi Bond Fund ALBI -1,29% 9 8,39% 10 1,86% 9 8,36% 6 8,73% 1 8,07% 3 - - 9,01% 6 1,16% 5 0,21 6Balondolozi ALBI Tacker Fund ALBI -1,21% 7 9,88% 5 2,71% 4 - - - - - - - - - - - - - -IA Muhu Active Bond Fund ALBI -0,77% 2 10,92% 1 6,37% 1 10,37% 2 - - - - - - 9,03% 7 1,03% 4 2,19 1Kagiso Bond Fund ALBI -1,24% 8 6,79% 13 1,40% 11 8,25% 7 7,95% 5 7,33% 10 8,23% 7 8,54% 1 1,75% 10 0,08 7Makalani Core Fixed Income Startegy ALBI -1,13% 6 10,44% 3 4,87% 3 11,92% 1 - - - - - - 8,73% 4 2,73% 11 1,39 2Prescient Bond Quantplus Plus ALBI -1,86% 13 8,19% 12 -0,49% 12 7,00% 11 7,59% 9 7,52% 9 8,38% 6 9,17% 8 1,39% 7 -0,80 12Prescient Bond Quant Fund ALBI -1,49% 12 9,37% 6 1,88% 8 7,95% 10 7,78% 7 7,61% 7 8,59% 4 9,72% 11 0,58% 1 -0,27 10Prescient Flexible Bond Fund ALBI -1,31% 10 8,39% 9 -2,33% 13 6,03% 12 7,57% 10 7,89% 5 8,20% 8 8,78% 5 3,19% 12 -0,65 11Prowess Corporate Bond Fund ALBI -1,03% 5 9,16% 7 2,51% 6 8,12% 8 7,82% 6 7,53% 8 8,43% 5 8,64% 2 1,42% 8 0,00 9Taquanta Core Bond Fund ALBI -0,57% 1 10,64% 2 6,26% 2 9,33% 3 8,58% 2 8,18% 2 - - 8,72% 3 1,58% 9 0,77 4Vunani Domestic Active Bond Composite ALBI -0,99% 4 8,29% 11 2,55% 5 8,93% 4 8,40% 4 8,03% 4 9,22% 1 9,25% 9 1,02% 3 0,80 3ALBI -1,18% 9,94% 2,85% 8,11% 7,49% 7,30% 8,30% 9,57%

SA INFLATION-LINKED BOND FUNDS

Risk statistics (3 years)

Fund name Benchmark 30-Jun # Quarter # 1 year # 3 years # 5 years # 7 years # 10 years # Volatility # Tracking # Information # error ratio

ALUWANI Active Inflation Linked Bond IGOV -1,08% 4 4,01% 5 -3,61% 5 1,09% 4 2,46% 4 - - - - 7,39% 3 0,57% 2 0,60 2Balondolozi Inflation Linked Bond CILI -0,95% 3 4,92% 2 -3,21% 4 - - - - - - - - - - - - - -Prescient ILB Fund SAGLIB -1,17% 5 5,03% 1 -3,14% 3 1,82% 2 3,03% 2 4,40% 1 6,03% 2 7,33% 2 9,02% 3 0,11 3Taquanta Enhanced Inflation-Linked Bond SAGLIB -0,61% 1 4,34% 4 -2,02% 2 1,36% 3 2,57% 3 4,21% 3 6,15% 1 7,00% 1 10,10% 4 0,05 4Vunani Inflation Linked Bond Composite CILI -0,87% 2 4,82% 3 -1,95% 1 2,31% 1 3,32% 1 4,28% 2 - - 7,56% 4 0,43% 1 3,03 1CILI -0,91% 4,68% -2,95% 1,01% 2,25% 3,92% 6,07% 7,45%IGOV -0,94% 4,75% -3,27% 0,75% 2,08% 3,85% 6,04% 7,66%SAGLIB -0,40% 17,73% -2,98% 0,81% 2,12% 3,90% 6,08% 15,39%

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143

SA INCOME FUNDS

Risk statistics (3 years)

Fund name Benchmark 30-Jun Quarter 1 year 3 years 5 years 7 years 10 years Volatility Tracking Information error ratio

ALUWANI Flexible Income Fund STeFI +2% 0,38% 3,00% 6,99% 8,85% 8,73% 8,37% 8,53% 1,45% 1,45% -0,22ALUWANI High Yield Credit Fund STeFI +3% 0,64% 1,49% 7,83% 9,72% 10,06% 9,36% 9,73% 1,00% 0,97% -0,47Amplify SCI Strategic Income Fund (Terebinth) STeFI +1% 0,98% 5,60% 9,25% 9,15% 8,79% - - 2,89% 2,88% 0,34Argon Flexible Income Fund STeFI 110% 1,30% 7,75% 4,36% 10,27% 9,78% - - 6,62% 6,60% 0,36Balondolozi Income Fund STeFI 110% 0,16% 3,58% 7,36% 8,77% - - - 2,16% 2,14% 0,40Ngwedi Active Income Fund STeFI 110% 0,69% 1,27% 7,81% - - - - - - -Prescient Income Provider Fund STeFI 110% 0,86% 4,04% 6,33% 8,29% 8,86% 9,13% 9,19% 2,30% 2,29% 0,16Terebinth SCI Enhanced Income Fund STeFI 0,36% 1,87% 7,37% - - - - - - -Vunani Enhanced Income Composite STeFI 110% 0,76% 3,18% 8,62% 10,59% 10,15% 9,01% - 2,16% 2,14% 1,25STeFI 0,44% 1,46% 6,86% 7,17% 7,20% 6,81% 6,48% 0,12%STeFI 110% 0,48% 1,61% 7,57% 7,92% 7,95% 7,52% 7,15% 0,14%STeFI +1% 0,52% 1,71% 7,86% 8,17% 8,20% 7,81% 7,48% 0,12%STeFI +2% 0,61% 1,96% 8,86% 9,17% 9,20% 8,81% 8,48% 0,12%STeFI +3% 0,69% 2,21% 9,86% 10,17% 10,20% 9,81% 9,48% 0,12%

SA LISTED PROPERTY FUNDS

Risk statistics (3 years)

Fund name Benchmark 30-Jun Quarter 1 year 3 years 5 years 7 years 10 years Volatility Tracking Information error ratio

AWC Specialist Listed Property SAPY 3,32% 21,52% -21,35% -8,30% - - - 21,52% 12,09% 0,83Meago Property SAPY Composite SAPY 12,93% 20,67% -39,61% -17,87% -7,98% -1,17% 5,87% 27,92% 0,82% 0,56Prescient Property Fund SAPY 13,07% 19,62% -40,01% - - - - - - -Meago Property ALPI Composite ALPI 12,24% 19,32% -38,61% - - - - - - -MSM Property Fund ALPI 13,63% 31,32% -34,68% -17,80% - - - 28,71% 7,27% -3,42SAPY 13,41% 20,43% -39,98% -18,33% -9,06% -2,51% 4,68% 27,96%ALPI 12,94% 18,73% -40,24% -19,75% -11,04% -3,51% 3,78% 27,37%

SA MONEY MARKET FUNDS

Risk statistics (3 years)

Fund name Benchmark 30-Jun # Quarter # 1 year # 3 years # 5 years # 7 years # 10 years # Volatility # Tracking # Information # error ratio

Argon Enhanced Cash STeFI 0,45% 10 1,86% 3 8,27% 4 8,40% 7 8,34% 7 7,79% 5 7,37% 5 0,27% 7 0,23% 8 5,33 9ALUWANI Active Money Market STeFI 0,44% 12 1,62% 8 7,90% 9 8,57% 6 8,62% 4 8,08% 4 7,75% 4 0,24% 6 0,15% 6 9,05 7Afena Money Market Fund STeFI 0,44% 13 1,54% 11 7,22% 13 7,58% 10 7,57% 9 - - - - 0,14% 1 0,02% 1 17,71 1Balondolozi Cash Fund STeFI 0,53% 2 2,02% 2 8,54% 2 8,59% 5 8,49% 5 - - - - 0,30% 9 0,28% 10 5,09 10Kagiso Money Market Fund STeFI 0,50% 5 1,84% 4 8,03% 8 8,39% 8 8,37% 6 7,78% 6 7,20% 6 0,18% 3 0,12% 4 10,04 5Ngwedi Enhanced Yield Fund STeFI 0,47% 7 1,35% 14 7,68% 10 - - - - - - - - - - - - - -Prescient Money Market Fund STeFI 0,47% 9 1,62% 9 7,64% 11 8,06% 9 8,04% 8 7,57% 7 7,18% 7 0,17% 2 0,08% 2 11,65 3Prescient Yield QuantPlus Fund STeFI 0,52% 4 1,79% 5 8,31% 3 8,67% 4 8,67% 3 8,20% 2 7,76% 3 0,18% 4 0,10% 3 15,09 2Prowess Money Market Fund STeFI 0,41% 14 1,62% 7 7,47% 12 - - - - - - - - - - - - - -Taquanta Core Cash Fund STeFI 0,47% 8 1,60% 10 8,23% 5 8,96% 2 8,97% 1 8,32% 1 7,97% 1 0,28% 8 0,19% 7 9,47 6Taquanta Pooled Cash Fund STeFI 0,48% 6 1,67% 6 8,06% 7 8,67% 3 8,69% 2 8,09% 3 7,77% 2 0,23% 5 0,14% 5 10,67 4Taquanta Enhanced Core Fund STeFI 0,52% 3 1,48% 12 8,16% 6 9,13% 1 - - - - - - 0,34% 10 0,26% 9 7,45 8SNN Money Market Fund (Terebinth) STeFI 0,45% 11 1,41% 13 6,85% 14 - - - - - - - - - - - - - -Vunani Money Market Composite STeFI 0,60% 1 2,04% 1 8,82% 1 - - - - - - - - - - - - - -STeFI 0,44% 1,46% 6,86% 7,17% 7,20% 6,81% 6,48% 0,12%

f. South Africa Money Market

g. South Africa Income

h. South Africa Listed Property

144

Asset manager profiles | Public markets

145

Name of company: Aeon Investment Management(Pty) Ltd

Date of inception: May-05Website: www.aeonim.co.zaAddress: 4th Floor, The Citadel, 15 Cavendish

Street, Claremont, 7708Telephone: +27 21 204 6061Email: funds@aeonim.co.zaContact person: Tshego ModiseTitle of contact person: Business Development ManagerTwitter: @AsiefMohamedFacebook: Aeon Investment ManagementInstagram: aeon_im_growthLinkedIn: Aeon Investment Management (Pty) Ltd

Name of company: Afena Capital (Pty) LtdDate of inception: Nov-05Website: www.afenacapital.comAddress: 6th Floor, Sunclare Building,

21 Dreyer Street, Claremont, 7708Telephone: +27 21 657 6240Email: info@afenacapital.comContact person: Thabang SengoaraTitle of contact person: Business Development ManagerLinkedIn: Afena Capital Proprietary Limited

Name of company: All Weather Capital (Pty) LtdDate of inception: May-08Website: www.allweather.co.zaAddress: 9th Floor, Katherine Towers, 1 Park

Lane, Wierda Valley, Sandton, 2196Telephone: +27 11 722 7382Email: info@allweather.co.zaContact person: Mark ScholefieldTitle of contact person: Administrator

Name of company: ALUWANI Capital Partners (Pty) LtdDate of inception: Dec-15Website: www.aluwanicapital.comAddress: EPPF Office Park, 24 Georgian

Crescent East, Bryanston East, 2152Telephone: +27 21 204 3800Email: aluwani@aluwanicapital.co.zaContact person: Lonwabo DambuzaTitle of contact person: Business Development ManagerTwitter: @aluwani_capitalFacebook: ALUWANI Capital PartnersLinkedIn: ALUWANI Capital Partners

146

Name of company: Argon Asset Management(Pty) Ltd

Date of inception: Apr-05Website: www.argonassetmanagement.co.zaAddress: 1st Floor, Colinton House, The Oval,

1 Oakdale Road, Newlands, 7700Telephone: +27 21 670 6570Email: info@argonasset.co.zaContact person: Luyanda JoxoTitle of contact person: Executive

Name of company: Balondolozi Investment Services(Pty) Ltd

Date of inception: Apr-10Website: www.balondolozi.co.zaAddress: 1st Floor, Building 1, Glenhove

Square, 71 4th Street, HoughtonEstate, 2198

Telephone: +27 11 484 9023Email: admin@balondolozi.co.zaContact person: Yolande MokhantsoTitle of contact person: Business Development Manager

Name of company: Benguela Global Fund Managers(Pty) Ltd

Date of inception: Feb-13Website: www.benguelaglobal.comAddress: 3rd Floor, Rivonia Village, Cnr.

Rivonia Boulevard and Mutual Road,Rivonia, 2191

Telephone: +27 10 596 8500Email: info@benguelaglobal.comContact person: Thandi ZwambilaTitle of contact person: Business Development ManagerTwitter: @benguela_globalLinkedIn: Benguela Global Fund Managers

Name of company: Cachalia Capital (Pty) LtdDate of inception: May-12Website: www.cachaliacapital.co.zaAddress: 12th Floor, Sinosteel Plaza,

159 Rivonia Road, Sandton, 2196Telephone: +27 11 883 0146Email: mashuda@cachaliacapital.co.zaContact person: Mashuda CassimTitle of contact person: Executive

Name of company: Excelsia Capital (Pty) LtdDate of inception: May-16Website: www.excelsia.co.zaAddress: 3rd Floor, Sunclare Building,

21 Dreyer Street, Claremont, 7708Telephone: +27 21 276 1740Email: info@excelsia.co.zaContact person: Rajay AmbekarTitle of contact person: ExecutiveLinkedIn: Excelsia Capital

147

Name of company: First Avenue InvestmentManagement (Pty) Ltd

Date of inception: Sep-10Website: www.firstavenue.co.zaAddress: Ground Floor, 21 Fricker Road,

Illovo, 2196Telephone: +27 11 772 2480Email: opsteam@firstavenue.co.zaContact person: Neetin GovanTitle of contact person: AdministratorLinkedIn: First Avenue Investment Management

Name of company: Fortitudine Vincimus CapitalAdvisors (Pty) Ltd

Date of inception: Aug-14Website: www.fvcadvisors.comAddress: 12 Lover's Walk, Rondebosch, 7700Telephone: +27 82 854 0808Email: info@fvcadvisors.comContact person: Mike KaneTitle of contact person: Executive

Name of company: Idwala Capital (Pty) LtdDate of inception: Aug-17Website: www.idwalacapital.co.zaAddress: 1st Floor, 63 St. Andrew Street,

Birdhaven, 2196Telephone: +27 11 447 1099Email: nandi@idwala.capitalContact person: Nandi RodoloTitle of contact person: Executive

Name of company: Independent AlternativesInvestment Managers (Pty) Ltd

Date of inception: Aug-15Website: www.independentalternatives.co.zaAddress: Jupiter House, River Park,

42 Homestead Road, Rivonia, 2191Telephone: +27 11 234 0187Email: info@independentalternatives.co.zaContact person: Tatenda ChapindukaTitle of contact person: ExecutiveLinkedIn: Independent Alternatives Investment

Managers

Name of company: Kagiso Asset Management(Pty) Ltd

Date of inception: Dec-01Website: www.kagisoam.comAddress: 5th Floor, MontClare Place, Cnr. Main

& Campground Roads, Claremont,7708

Telephone: +27 21 673 6300Email: info@kagisoam.comContact person: Tisha PowellTitle of contact person: AdministratorLinkedIn: Kagiso Asset ManagementYouTube: Kagiso Asset Management

Name of company: Lima Mbeu InvestmentManagers (Pty) Ltd

Date of inception: Sep-17Website: www.limambeu.co.zaAddress: 2nd Floor, Fredman Towers,

13 Fredman Drive, Sandton, 2196Telephone: +27 10 023 0113Email: invest@limambeu.co.zaContact person: Teboho TsotetsiTitle of contact person: ExecutiveLinkedIn: Lima Mbeu Investment Managers

(Pty) Ltd

Name of company: Lodestar Fund Managers (Pty) LtdDate of inception: Jan-15Website: www.lodestarfunds.comAddress: 2nd Floor, The Terraces, 25 Protea

Road, Claremont, 7735Telephone: +27 267 7812Email: info@lodestarfunds.comContact person: Reza KhanTitle of contact person: ExecutiveTwitter: @lodestarfundsLinkedIn: Lodestar Fund Managers

Name of company: Lunar Capital (Pty) LtdDate of inception: Jan-15Website: www.lunarcapital.co.zaAddress: 29 Seventh Street, Houghton Estate,

2198Telephone: +27 83 305 7860Email: sabir@lunarcapital.co.zaContact person: Sabir Mahomed MunshiTitle of contact person: ExecutiveTwitter: @sabirmunshiFacebook: Lunar CapitalLinkedIn: Sabir Munshi

Name of company: Makalani Management Company(Pty) Ltd

Date of inception: Aug-04Website: www.makalani.co.zaAddress: Ground Floor, 261 Oxford Road,

llovo, 2196Telephone: +27 11 428 0680Email: enquiries@makalani.co.zaContact person: Munier BadatTitle of contact person: ExecutiveTwitter: @MakalaniMCLinkedIn: Makalani Management Company

Name of company: Meago Asset Managers (Pty) LtdDate of inception: Mar-06Website: www.meago.co.zaAddress: 73 Oxford Road, Saxonwold, 2196Telephone: +27 11 646 2944Email: sanehm@meago.co.zaContact person: Saneh MemelaTitle of contact person: Administrator

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149

Name of company: Mergence Investment Managers(Pty) Ltd

Date of inception: Oct-04Website: www.mergence.co.zaAddress: 2nd Floor, Cape Town Cruise

Terminal, V&A Waterfront, DuncanRoad, 8001

Telephone: +27 21 433 2960Email: info@mergence.co.zaContact person: Ronel BantjesTitle of contact person: ExecutiveTwitter: @MergenceIMFacebook: Mergence Investment ManagersLinkedIn: Mergence Investment ManagersYouTube: Mergence Investment Managers

Name of company: Mianzo Asset Management(Pty) Ltd

Date of inception: Aug-10Website: www.mianzo.co.zaAddress: Unit EG01 Vesta House, The Forum,

Northbank Lane, Century City, 8000Telephone: +27 21 552 3555Email: zukile@mianzo.co.zaContact person: Zukile NchukanaTitle of contact person: Business Development Manager

Name of company: MSM Property Fund (Pty) LtdDate of inception: Aug-15Website: www.msmpropertyfund.comAddress: 1st Floor, 3 Exchange Square,

87 Maude Street, Johannesburg,2196

Telephone: +27 64 097 6456Email: musi.skosana@msmproperty.co.zaContact person: Musi SkosanaTitle of contact person: ExecutiveTwitter: @MSMPropertyInstagram: @MSMPropertyLinkedIn: MSM Property FundYouTube: MSM Property Fund

Name of company: Ngwedi Investment Managers(Pty) Ltd

Date of inception: Aug-18Website: www.ngwedi.comAddress: Suite 4b, 1st Floor, Madison Place,

Constantia, 7848Telephone: +27 21 000 1900Email: monei@ngwedi.comContact person: Monei Pudumo-RoosTitle of contact person: ExecutiveLinkedIn: Ngwedi Investment Managers

150

Name of company: Perpetua InvestmentManagers (Pty) Ltd

Date of inception: Oct-12Website: www.perpetua.co.zaAddress: 5th Floor, The Citadel, 15 Cavendish

Street, Claremont, 7708Telephone: +27 21 674 4274Email: info@perpetua.co.zaContact person: Kevin DantuTitle of contact person: Business Development ManagerTwitter: @Perpetua_InvestLinkedIn: Perpetua Investment Managers (Pty)

Ltd

Name of company: Prescient InvestmentManagement (Pty) Ltd

Date of inception: Sep-98Website: www.prescient.co.zaAddress: Block B, Silverwood Lane,

Steenberg Office Park, Tokai, 7945Telephone: +27 21 700 3629Email: kelly.castle@prescient.co.zaContact person: Kelly CastleTitle of contact person: Business Development ManagerLinkedIn: Prescient Investment Management

Name of company: Prowess Investment Managers(Pty) Ltd

Date of inception: Dec-08Website: www.prowessinvestments.comAddress: 20th Floor, Thibault Square,

1 Long Street, Cape Town, 8000Telephone: +27 21 565 0400Email: precious@prowessinvestments.comContact person: Precious ButheleziTitle of contact person: Business Development ManagerTwitter: @ProwessManagersFacebook: ProwessInvestmentsLinkedIn: ProwessInvestments

Name of company: Sentio Capital Management(Pty) Ltd

Date of inception: Jul-07Website: www.sentio-capital.comAddress: 1st Floor, Illovo Edge, Building 3,

5 Harries Road, Illovo, 2196Telephone: +27 11 880 1994Email: info@sentio-capital.comContact person: TC von Czettritz und NeuhausTitle of contact person: ExecutiveTwitter: @SentioCapitalInstagram: sentio_capitalLinkedIn: Sentio Capital Management

151

Name of company: Taquanta Asset Managers(Pty) Ltd

Date of inception: Sep-99Website: www.taquanta.comAddress: 7th Floor, Newlands Terraces,

Boundary Road, Newlands, 7700Telephone: +27 21 659 5100Email: crm@taquanta.comContact person: Ray WallaceTitle of contact person: ExecutiveTwitter: @AssetTaquantaFacebook: Taquanta Asset ManagersLinkedIn: Taquanta Asset Managers

Name of company: Terebinth Capital (Pty) LtdDate of inception: Apr-13Website: www.terebinthcapital.comAddress: 2nd Floor, Combined HQ Building,

4 Bridal Close, Tyger Valley, 7530Telephone: +27 21 943 4825Email: team@terebinthcapital.comContact person: Nomathibana MatshobaTitle of contact person: ExecutiveLinkedIn: Terebinth Capital

Name of company: Value Capital Partners (Pty) LtdDate of inception: Jul-16Website: www.valuecapital.co.zaAddress: 8th Floor, Rosebank Link,

173 Oxford Road, Rosebank, 2196Telephone: +27 10 060 0800Email: info@valuecapital.co.zaContact person: Samuel SitholeTitle of contact person: ExecutiveFacebook: Value Capital PartnersLinkedIn: Value Capital Partners

Name of company: Volantis Capital (Pty) LtdDate of inception: Jun-19Website: www.volantis.co.zaAddress: The MARC, 129 Rivonia Road,

Johannesburg, 2196Telephone: +27 10 006 0035Email: sisa.mayekiso@volantis.co.zaContact person: Sisa MayekisoTitle of contact person: ExecutiveTwitter: @Sisa_MayekisoFacebook: Sisa MayekisoLinkedIn: Sisa Mayekiso

Name of company: Vunani Fund Managers (Pty) LtdDate of inception: Jul-99Website: www.vunanifm.co.zaAddress: 6th Floor Letterstedt House,

Newlands-on-Main, Newlands, 7700Telephone: +27 21 670 4900Email: marketing@vunanifm.co.zaContact person: Snowy MasakaleTitle of contact person: Executive

Privatemarkets

152

Introduction

Private markets investing in South Africa has enjoyed ahigher profile over the past year as listed markets havecontinued to deliver muted returns, and investors havebegun to look for diversification. In addition, theincreased focus on infrastructure investments fromgovernment, and the emphasis on public-privatepartnerships to achieve both investment returns andsocial impact targets has created an important role forprivate markets fund managers. That said, increasedallocations to unlisted investments are yet to come fromSouth African institutional investors, and offshoreinvestors in recent years have only been active in someniche areas of our unlisted markets.

From the perspective of black fund managers active inthe private markets space, they have continued toexperience the challenges of long fundraising cycles.There have been new allocations to black funds overthe past year, mainly driven through specificprogrammes of retirement funds designed to increasethe share of capital managed by black fund managers.However, the notable absence of the PIC in making newfund allocations, the continued absence of local DFIsfrom fund investing, and the increasing reluctance ofoffshore DFIs to invest in South Africa focused fundshave contributed to such long fundraising cycles.

153

The COVID-19 environment has also affected privatemarkets, both from the perspective of impact on dealmaking and portfolio companies, as well as prolongingfundraising. Managers are being asked by investors tofocus on existing portfolios and delay new fundraisinguntil portfolio companies are better positioned to rideout the economic impact of the pandemic. Practicaldifficulties in creating new contacts and performing duediligences have also lengthened investment cycles, inaddition to the valuation uncertainty that the pandemichas created. On the positive side, many managers werequick to adapt processes, and go back to the negotiatingtable to structure more downside protection and reviseddeal pricing into their agreements.

SAVCA now counts 49 full members as black fundmanagers, with a total of R53 Billion of reportedcommitments. This continues the positive trend oftransformation within the private markets investmentindustry, which has made great strides in recent years.

Twenty firms completed our survey this year, whichhave raised a total of R19.3 Billion across 30 funds,representing both an increase in participation and AUMfrom last year. While the overall asset size is encouraging,it is important to note that the universe of participatingfirms’ AUM is highly skewed, with a long tail of managerscurrently subscale.

We view the post-COVID-19 environment as a favourableone for private markets investing as a result of thescarcity of capital in the market. Companies with strongfinancial backing and access to good strategic thinkingwill be well positioned to gain market share and prosperin this environment. In our engagement with appointedand prospective black managers, we continue to beexcited by the opportunities identified and dealsexecuted. In general, we are pleased with the way thatmanagers are adapting to incorporate the current riskenvironment, and to include more earnings protectioninto their deal structuring.

While there are certainly challenges for black privatemarkets managers, as a cohort they continue to dodeals, build track record and find opportunities to invest.We are proud to partner with many of them to achievegood outcomes for our clients and the economy.

154

Fund facts

Section highlights

R19.3 BillionTotal capital raised by20 firms across 30 funds

67%Of total capital is in first generation funds

65%Of managers were on their first fund, 15% on Fund II and 20% on Fund III or later

75%Of firms operate in the mid-market, and none operate in the large buyout space

52%Median size of largestinvestor in current fund

R850 MillionMedian AUM of those managers who have raisedcapital

75%Of managers are currentlyraising a fund

60%Of capital raised is from local retirement funds

5%Capital raised from DFIs

85%Of managers said there is a need for formal incubation of new managers

4The median size of investment teams

Partnerships forthe goals

Private markets

17

155

90%Of firms integrate and contract ESGand transformation approaches with investors and portfolio companies

Section highlights

82%Of all staff employed are black South Africans

81%Of black staff are at partner/principallevel, 74% at associate level and 90% atanalyst level

COVID-19 impact

FINANCIAL IMPACTBiggest concern raised by 75% of firms

60%Of firms implemented cost contain-ment measures such as cancellingbonuses or reducing salaries

PAYE DEFERRALTop relief measure used by firms

90%Of firms believe that investors will be more focused on the SDGs in a post COVID-19 environment

91%Of capital raised is from local sources, with the balance split between North America and Europe

15%Of managers see the current regulations as supportive to new black entrants

Private markets

156

a. Participants

Ascension Capital Partners

Ata Capital

Bopa Moruo Private Equity Fund Managers

Crede Capital Partners

Eklavya Asset Managers

Ethos Mid-Market Fund I

FyreFem Fund Managers

Khumovest

Kleoss Capital

Makalani Management Company

Medu Capital

Moshe Capital

PAPE Fund Managers

RH Managers

Sanari Capital

Senatla Capital

Summit Africa

Tamela Capital Partners

Third Way Investment Partners

Vuna Partners

Manager New participants

X

X

X

X

X

X

#

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

There were twenty participants in this year’s privatemarkets segment of the survey, a good increase on thefifteen participants in the previous year’s. The proportionof private markets respondents has been increasing inrecent years and now makes up 39% of all respondents(20 out of 51), up from 30% in 2019. The greaterparticipation has also reflected an increase in the sizeof capital under management, up to R19.3 Billion fromR15.2 Billion previously reported in 2019.

Those surveyed manage funds that invest across a widerange of unlisted investments, including private equity,infrastructure and private debt. They also invest acrossall sectors and are mainly focused on South Africaninvestments with a strong focus on the mid-market, aswell as facilitating black ownership of existing companies.

157

Private markets share of total participating firms%

of f

irm

s

100%90%80%70%60%50%40%30%20%10%

0%

Public Markets

Private Markets

2018 2019 20202017

There is a trend towards more participants coming intoprivate markets, particularly black managed funds. Thishas meant that such funds are starting to make up agreater proportion of the market but still represent asmall fraction of total industry assets. The latest SAVCAindustry report reflects the size of AUM in South Africanprivate markets as R184 Billion, meaning black-ownedmanagers manage approximately 10% of AUM basedon the respondents to the survey,

Based on an analysis of the SAVCA membershipdirectory, SAVCA considers 49 of its members to beblack fund managers, with total reported AUM of R53Billion, or 28.8% of industry AUM. There are four largefund managers on SAVCA’s list which did not participatein this survey, accounting for R26.8 Billion. The rest ofthe difference is largely explained through the exclusionof funds of funds, while the remainder of smallermanagers make up the rest. The results set out in thisreport have been presented on the basis of themanagers that completed the survey.

b. Distribution

% of firms currently raising capital

% o

f fir

ms

100%90%80%70%60%50%40%30%20%10%

0%2019 2020

73%

No Yes

27%

75%

25%

Generation of funds currently undermanagement or capital raising

% o

f fir

ms

100%90%80%70%60%50%40%30%20%10%

0%2019 2020

Later than Fund IIIFund IIIFund IIFund I

20%

53%

27%

15%

65%

15%5%

Fundraising is a perpetual issue in private markets inSouth Africa, and particularly for black fund managerswho tend to have shorter track records than othermanagers. With institutional allocations to privatemarkets at such low levels compared to internationalnorms, there are certainly more managers than cansustainably be funded. This is beginning to change withthe prominence of private markets investments in-creasing, if only as a result of the poor performance oflisted markets.

While we have not measured this, fundraising cycles forblack fund managers tend to be measured in severalyears, and many managers cannot sustain themselvesover this period. Even the most experienced black

managers may be subject to these long cycles, and someeven more so as they fall between the allocations for“incubation” as new managers and the more regularallocations to well established managers.

Three-quarters of respondents are currently fundraising,most of these for their first fund. Thirty funds arecurrently or have been historically managed by thetwenty respondents. In total, across these funds, R19.3Billion had been raised, with R13 Billion of this acrossseventeen first-generation funds. While thirteen of thetwenty respondents are currently raising or managingtheir first funds, six firms have already managed to raisecapital for subsequent funds, in all cases raising morecapital in each subsequent fund than the previous one.

158

Level of engagement of potential investors

Currently

2 years ago

Participants were asked to rank the level of engagementfrom different categories of potential investors currentlycompared to two years ago. The ranking was on a scaleof 1 to 5, where 5 was most engaged and 1 least engaged.

The participants did notice a small positive change inoverall engagement from potential investors over thepast two years. This was largely driven by more positiveengagement with local pension funds, funds of fundsand asset consultants, all of which showed notablepositive shifts. There was a relatively low level of interest

from life companies, wealth managers and offshoreinvestors, although respondents did reflect positivechanges in most categories. It was interesting to notethe relatively high level of engagement reflected fromlocal DFIs, despite the lack of any meaningful capitalcoming from this channel.

SA pension funds

Fund of funds

Asset consultants

Other local investors

International DFIs

Life companies

Other offshore investors

Wealth managers

Overall

Local DFIs

0 0.5 1.5 2.0 3.01.0 2.5 3.5 4.54.0

Level of engagement

159

Capital raised by geography

91%

4%5%

South Africa

Europe

US

Capital raised by LP type

% o

f fi

rms

70%

60%

50%

40%

30%

20%

10%

0%

SA RetirementFunds

Offshore InvestorsWealth Managers DFIsMulti-Managers

Eighty percent of respondents have raised their capitalexclusively from South African investors, with only 9%of total capital raised from non South African investors.It is also interesting to note that of this 9%, almost allof this was raised more than 5 years ago, indicating thatalmost no capital has been raised offshore in recenttimes.

In a similar vein, the role of development financeinstitutions, which were so instrumental in developingthe industry in the past, has diminished considerably.Only three respondents of the twenty had beenrecipients of funding from local DFIs and only two fromoffshore DFIs (only one in the past 5 years). Local DFIsallocations have also been very small in comparison tototal funds raised.

Sixty percent (2019:54%) of capital raised for blackprivate equity funds came from pension funds and a

further 19% and 11% from wealth managers and multi-managers respectively. Only 6% of actual capital raisedwas raised from DFIs with the remaining 4% from otheroffshore investors.

This clearly indicates that retirement savings pools areby far the largest source of capital for black privatemarkets funds. The relatively large portion from wealthmanagers is not widely spread, with 80% of this allocationgoing to two fund managers. As noted above, DFIs andoffshore investors have not been significant sources ofcapital for black private markets fund managers.

160

Managers receiving at least some funding from each LP type

SA pension funds (incl. throughconsultants

Fund of funds

Other local investors

Life companies

Other offshore investors

Local DFIs

Wealth Managers

International DFIs

0% 10% 30% 40% 60%20% 50% 70%

Sixty-five percent of managers surveyed has previouslyraised capital from local retirement funds. Managerslargely target local institutional capital by approachingasset consultants, multi-managers and pension funds.This is where capital has historically mostly come from

for these funds. To a lesser extent, managers are alsolooking to DFIs and offshore investors, despite the muchlower historical number of commitments from theseparties.

Actual funds raised by fund generation

ZAR

Mill

ions

14 000

12 000

10 000

8 000

6 000

4 000

2 000

0Fund I Fund II Fund III+

Num

ber

of fu

nds

181614121086420

Number of funds

Total capital

Seventeen of the thirty funds that have been raised arefirst generation funds of the managers, while six secondfunds and five third or further funds have been raised.A further two fund vehicles have also been raised thatdo not fall into these categories, in that they were raisedto invest alongside other fund vehicles rather than fullfunds in their own right.

161

Total capital by size quartiles of funds raisedZA

R M

illio

ns

14 000

12 000

10 000

8 000

6 000

4 000

2 000

0Largest quartile Upper quartile Lower quartile Smallest quartile

It must be noted that there is a large dispersion in fundsizes, with the smallest 50% of managers having a totalof R1.8 Billion (9%) of capital, with 3 having no capitalraised to date. The largest 20% have R10.2 Billion (53%)of total capital. This does call into question the viabilityof some managers in the market.

For independent fund managers without a tie to a singlelarge investor, median commitments are between R100-

200 Million per LP, while some managers choose to tieup with a single large investor to supply the majority oftheir capital.

The median fund manager had R850 Million (2019: R635Million) under management from three LPs, and 25%of firms had just one LP making up more than 80% oftheir capital.

A big question in the transformation efforts of theindustry is the exact nature of the challenges to achievinga more transformed private markets industry, andwhether the market interventions being made are theright ones to help black managers to overcome thesechallenges. The view historically has been that difficultiesrelated to creating the confidence in investors and thetrust required for large allocations of capital to be

c. Bottlenecks and barriers

committed to black managers has been the single largestchallenge.

Several questions were asked of fund managers relatingto bottlenecks and barriers to their creation of successfulfund management businesses. Their answers reflectedsome positive developments and policy assistance butalso highlighted some key challenges.

Current regulations encourage newblack private markets fund entrantsand build skills

% o

f fir

ms

100%

80%

60%

40%

20%

0%2019 2020

Not sureNoYes

60%

33%

7%30%

55%

15%

The regulatory environment around black private marketsfund managers do provide significant advantages, suchas the ability to confer black ownership onto investeecompanies if certain criteria are met. In theory, thisshould assist portfolio companies to prosper throughbetter B-BBEE ratings and an increased ability to dobusiness with customers sensitive to B-BBEE ratingssuch as corporates and government entities.

In a significant change since the previous survey, only15% of managers felt that private equity fund regulationswere appropriate to encourage new entrants and buildskills. This was in contrast to the previous survey wherea majority thought that these regulations were appropriate.It is unclear why there has been such a reversal ofopinion in the current year, but we can postulate thatthe crowded fundraising environment is a significantcontributing factor.

162

% of firms who believe they are able to compete fairlyagainst the dominant incumbent GPs

% o

f fir

ms

100%90%80%70%60%50%40%30%20%10%

0%2019 2020

6%

47% 65%

35%

No

Yes

Don’t have a view

47%

The South African private markets industry is fairly wellestablished, with R184 Billion in AUM according to themost recent SAVCA industry report. Within thisestablished industry there are several larger playerswhich have built up capacity, networks, track recordand investor relationships over long periods of time.Newer entrants (which most black firms are) are naturallygoing to be at an earlier stage in their life cycle, andmay not have advanced all of these components of theirbusinesses to the same extent.

Opinion was divided on whether black private equityfunds were able to compete effectively with moreestablished firms, and was more negative than theprevious year. In analysing the responses, those blackmanagers with more extensive investor relationshipsfelt more able to compete with the wider universe offund managers.

Is there a need for formal incubation of new GPs?

% o

f fir

ms

100%

80%

60%

40%

20%

0%2019 2020

7%

93%

15%

85%

There was continued overwhelming support for furtherinterventions to assist black private equity managers,including making the B-BBEE Scorecard for RetirementFunds compulsory; for the SAVCA Fund ManagerDevelopment Programme which aims to build skills innew management teams, and for incubating new fundmanagers. Most respondents, but not all, felt that therewas a need for formal incubation of new private marketsmanagers. It is interesting to note that even of thosemanagers which had successfully raised capital, mostsaid there was a need for incubation of new GPs. Fromour understanding of the market and the origins of thevarious black managers, many have benefitted fromelements of incubation even if they have not formallybeen incubated.

Have LPs played an incubation role in your fund?

% o

f fir

ms

100%

80%

60%

40%

20%

0%

No Yes

2018 2019

70%

30%

73%

27%

2020

80%

20%

Only one in five respondents have had an LP who hasplayed a significant incubation role to assist the managerto navigate some of the early challenges of fundmanagement. From the responses received, there hasbeen no single active LP providing this assistance acrossthe market, but it has rather been individual LPs assistingparticular managers.

There does also seem to be a wide range of differentinterpretations of what constitutes incubation frommanager to manager, depending on their needs. Whatis clearly required from any incubation approach, is agreater collaboration from potential LPs to acceleratetime taken to get a new fund to first close.

No Yes

163

Top 3 challenges for first time fund managers ranked by participants

Num

ber

of f

irm

s

201816141210

86420

2nd biggest challengeBiggest challenge 3rd biggest challenge

4 311

17

3

1

12

2

10

22

1

Man

agin

g pi

pelin

ew

hile

rai

sing

fund

s

Cost

s of

fund

set

up s

uch

as le

gal,

com

plia

nce

etc.

Back

off

ice

such

as

payr

oll,

com

plia

nce,

tax

and

fund

adm

inis

trat

ion

Fund

rais

ing

Dem

onst

ratin

g a

trac

k re

cord

Wor

king

cap

ital n

eeds

duri

ng fu

ndra

isin

g

Bui

ldin

g an

dm

aint

aini

ng a

team

Obt

aini

ng a

lice

nce

to m

anag

e fu

nds

Acce

ss to

hig

h ca

libre

IC m

embe

rs

1

As in prior years, fundraising was clearly flagged as thebiggest challenge for black managers. Seventeen of thetwenty respondents cited this as their top challenge,while the other three ranked this as the second biggestchallenge. Hand in hand with fundraising goes thechallenge of demonstrating a track record to prospectiveinvestors. This is not only a challenge for first time fundmanagers, but also in the raising of subsequent funds,if the manager has not yet exited a number of fund Ideals to demonstrate full deal cycles and realised returns.

A consistent message in the surveys over the years hasalso been the struggle to meet working capital needsand maintain a team through a fundraising period.Managers complain of the “chicken and egg” situationof needing capital to earn fees to pay for a team, butneeding a team in order to raise capital.

Part of this is also the challenge of obtaining a licence,but in the current survey, only one respondent flaggedthis as a challenge in their top three.

While it was lower rated than other challenges,maintaining a pipeline while going through a fundraiseof indeterminate length is a point of significant stressfor managers and their teams.

164

d. Investment philosophy

Investment strategies followed by respondents

% o

f fir

ms

80%

70%

60%

50%

40%

30%

20%

10%

0%

Larg

e bu

yout

Mid

-mar

ket

Earl

y st

age

Infr

astr

uctu

re

Real

est

ate

2019

2020

Acro

ss th

em

arke

t

B-B

BEE

tran

sact

ions

Seco

ndar

ies

Turn

arou

nd

SME

Survey respondents were asked to indicate whichstrategies formed part of their approach to investing,with similar results to last year. Almost three-quartersof firms indicated that their investment strategy wasfocused on the mid-market with 55% targeting B-BBEEtransactions where the primary driver of the deal is tobring empowerment to the investee company. There

were smaller focuses on infrastructure and turnaroundopportunities, with some focus on early-stage investing.

Interestingly there is still a low focus on infrastructure,despite the attention this is getting from governmentthrough the infrastructure investment office set up inthe presidency.

Target fund size

% o

f fir

ms

100%90%80%70%60%50%40%30%20%10%

0%

Below R300 Million

R300 Million - R500 Million

R500 Million - R1 Billion

Above 1 Billion

2017 2018

25% 20%

70%

2019

7%

33%

2020

5%5%

75%

10%

60%

45%

45%

The target fund size of respondents has fluctuated overtime with the current target sizes split between fundsover R1 Billion and those between R500 Million and R1Billion. The managers targeting lower fund sizes (underR500 Million) are doing so under specialist strategiesincluding SME funding and turnaround strategies, whilethose in the R500 Million - R1 Billion category are typicallyraising their first fund, or had small first funds withrelatively few LPs.

Those targeting over R1 Billion either have track recordand strong investor bases behind them, or are puttingsignificant resources into investor relations in order tomake these targets a reality.

165

Funds raised to date

% o

f fir

ms

100%

80%

60%

40%

20%

0%2019 2020

R100 Million - R200 Million

R50 Million - R100 Million

Less than R50 Million

Over R500 Million

R200 Million - R500 Million

Thirty percent of managers had not yet raised anysignificant capital in the current fundraising, while only35% had raised over R500 Million. This threshold ofR500 Million is seen in many cases as a minimum for aviable fund size to enable the manager to support ateam based on the fees earned on this capital base atstandard fee rates.

These findings take some interpretation, as R500 Millionraised by one manager may mean that their target hasbeen reached, but for another, it may not be enoughfor a first close. In their current fundraising, 30% ofmanagers indicated that they had not yet raised any of

their targeted capital, down from 53% in the prior year.A further 30% had raised totals within their target range.Overall the picture looks more positive than the previousyear, with a better mix of progression towardsfundraising targets.

It must be noted that a number of managers who areat an early stage in their fundraising, or those who arestruggling to raise capital have decided not to participatein the survey. It is likely that the apparent success oftargeted fundraising has an element of survivorshipbias to it and should be interpreted as such.

e. Establishment of track records

Number of deals completed to date across all funds

Num

ber

of fi

rms

7

6

5

4

3

2

1

0

2019

2020

0 1 2-5 5-10 Over 10

Number of deals

53% 30%

13%

5%

20%

10%

20%

14%

35%

166

Each year, there is a steady progression of deals doneacross the managers responding. Eleven managers(2019:9) have now done at least five deals. This pointsto the growing maturity of the space, indicating that themedian manager is now approaching the end of theirfirst fund, looking to raise a subsequent fund, ratherthan the median manager being in the early stages oftheir first fund.

The other side of this coin is that the median managerhas not yet exited any of its investments, with 70% ofthe managers indicating this in their responses.However, at least three managers have now done morethan ten exits, and a further three who have at leastdone some exits.

Deals exited to date across all funds

Num

ber

of fi

rms

2019

2020

Number of deals

16

14

12

10

8

6

4

2

00 1 2-5 5-10 Over 10

Funds currently active

Num

ber o

f fir

ms

12

10

8

6

4

2

0

2017

2018

2019

2020

0 1 2 3 Over 3

Number of funds

167

Funds sucessfully exitedN

umbe

r of

firm

s

1816141210

86420

Number of funds

2017

2018

2019

2020

0 1 2 3

Four managers have fully exited at least one fund, whileseven managers have more than one active fundcurrently operating.

When it comes to active funds, ten of the respondentshad one active fund, a significant increase from the prior

year. While this looks encouraging, it is at least partlyexplained by a higher participation in the survey in thecurrent year. It also counts smaller funding vehiclesformed by some managers to build track record beforelaunching fully formed institutional funds later on.

Classification of Limited Partners

% o

f fir

ms

50%45%40%35%30%25%20%15%10%

5%0%

2019

2020

Asse

t con

sulta

nts

Mul

ti-m

anag

ers

SA p

ensi

on fu

nds

Um

brel

la fu

nds

Wea

lth m

anag

ers

DFI

s

Off

shor

e in

vest

ors

There has been a continuing shift towards local pensionfunds, including deals done through their assetconsultants. Conversely, DFIs that at one stage playedan anchor role in many private markets funds, haveallocated very little to black private equity funds. Thisshift from DFIs has been most pronounced from theoffshore DFIs, which now mostly regard South Africa asmiddle income, or have steered away from single countryprivate markets funds, and Rand denominated fundsin particular.

On the local DFI front, the large DFIs have not beenmaking commitments to funds for many years now,

preferring to build teams within their own organisationsto better fit their own mandates.

The fundraising market has also noted the absence ofthe PIC, which has been busy with an extended duediligence process for new fund managers since 2018,without new commitments being made over this time.

It has been clear, since the initiation of this survey, thatblack private markets funds are overwhelmingly fundedby local investors, with more than 90% of the LP basein any given year coming from South Africa.

168

f. Brand building

Building a brand is an important part of the creation ofany business, including fund management businesses.We asked the respondents several questions aroundtheir brand building activities including their participation

in industry bodies, market presence and advertising.Overall it must be said that these activities were at alow level, but an overall improvement was noted fromthe previous year.

Industry membership and participation

No

Yes

100%90%80%70%60%50%40%30%20%10%

0%

% o

f fir

ms

Representation on SAVCA (or any other industry body)

% o

f fir

ms

100%

80%

60%

40%

20%

0%2019 2020

No

Yes

Black private markets funds are well represented onthe boards of SAVCA and other industry bodies, withalmost half of respondents confirming that they haverepresentation at this level. This is an improvementfrom last year when 40% of respondents said that theyhad representation at this level.

This improvement in transformation is also reflectedwithin the main industry body, SAVCA, which hascontinued to transform at both its board level as wellas the makeup of its executive team.

Eighty-five percent of respondents are members ofSAVCA as required by the Conditions for Private EquityInvestment under Regulation 28. Those that are not yetregistered are expected to be registered before theycan manage pension fund capital according to theseregulations. The next biggest representation is withABSIP, where 45% of respondents are members. There

is limited representation across the other business andpro-fessional bodies present in the market.

Only three respondents are members of the IRF, despiteretirement funds being easily the largest source ofcapital for black private markets funds.

The

Asso

ciat

ion

of B

lack

Secu

ritie

s an

d In

vest

men

t P

rofe

ssio

nals

(ABS

IP)

The

Asso

ciat

ion

for S

avin

gsan

d In

vest

men

t Sou

th A

fric

a(A

SISA

)

Sout

hern

Afr

ica

Vent

ure

Capi

tal a

nd P

riva

te E

quity

Asso

ciat

ion

(SAV

CA)

Blac

k In

vest

men

tM

anag

emen

t Bus

ines

sFo

rum

(BIM

BF)

Tran

sfor

mat

ion

Actio

nFo

rum

(TAF

)

Asso

ciat

ion

of S

outh

Afri

can

Blac

k Ac

tuar

ial

Prof

essi

onal

s (A

SABA

)

Blac

k Bu

sine

ss C

ounc

il(B

BC)

Blac

k M

anag

emen

tFo

rum

(BM

F)

Busi

ness

Uni

ty S

outh

Afri

ca (B

USA

)

Inst

itute

of R

etir

emen

tFu

nds

(IRF)

Busi

ness

Lea

ders

hip

Sout

h Af

rica

(BLS

A)

169

Regular speakers at industryevents/webinars?

Does the company exhibit at orsponsor industry conferences?

% o

f fir

ms

100%90%80%70%60%50%40%30%20%10%

0%2019 2020

No

Yes

% o

f fir

ms

100%

80%

60%

40%

20%

0%2019 2020

No

Yes

Publishing research articles or case studies is perhapsan area where more could be done to gain valuableexposure, but doing so is time consuming, making itdifficult for teams who are already stretched. We haveseen this strategy used effectively to gain exposure andto demonstrate the principles behind the approach ofparticular managers.

Has the firm participated asa speaker in webinars in 2020?

Yes

No

Has the firm published research?

% o

f fir

ms

100%90%80%70%60%50%40%30%20%10%

0%2019 2020

No

Yes

50% 50%

There has been an increase in the brand developmentactivities of the respondents, with more saying that theyexhibit at industry conferences, speak at industry events,

run their own webinars and publish research. Whilemany are coming from a low base of activity, it ispleasing to see the positive momentum in progress.

170

Has the firm received an award for investment performance?%

of f

irm

s

100%

80%

60%

40%

20%

0%2019 2020

No

Yes

There are not many awards programmes focused onSouth African private equity, with the notable exceptionof the relatively new SAVCA industry awards. The longinvestment cycles of private markets investing also makeawards much more subjective, but we do expect to seemore awards in place in future years. In the currentsurvey we started to see some awards come throughin the responses for the first time.

Advertising

As in prior years, it is evident that very little is spent onmarketing activities - there are two likely reasons. Firstly,black managers tend to be newer and have tighterbudgets than more established players. Secondly, themarketing spend that is incurred is directed towards

fundraising, where there are relatively few parties beingmarketed to, and where this happens directly. This suitsa relationship-building style of marketing much betterthan a broadcasting strategy of advertising and brandbuilding.

% of revenue spent on advertising, branding and marketing

% o

f fir

ms

100%95%90%85%80%75%70%65%60%55%50%

2019 2020

5% - 10%

1% - 5% Under 1%

Over 15% 10% - 15%

Where advertising spend is incurred, the vast majorityis spent on print and social media advertising, wherecosts are manageable. The high cost and wide reach ofTV, radio and outdoor campaigns is not seen as effectivespend given the very niche target audiences of privateequity funds.

Paid medium used for advertising

% o

f fi

rms

50%45%40%35%30%25%20%15%10%

5%0%

Billb

oard

Radi

o

Tele

visi

on

Onl

ine

Non

e

Spon

sors

hips

Soci

al m

edia

Prin

t

171

What is disappointing from a brand building point ofview, is that managers do not fully use the opportunitiesavailable to them to build their brands. Press releasesat key milestones are low cost and effort, but over timebuild the prominence of the brand in the market.

What is also perhaps often overlooked by managers isthe positive deal flow that can be created by having amore public profile.

Events for which the firm issues press releases

% o

f fi

rms

80%

70%

60%

50%

40%

30%

20%

10%

0%

Non

e

Fund

clo

ses

On

succ

essf

ulco

nclu

sion

of d

eals

Onl

y w

hen

requ

ired

by c

ompe

titio

nco

mm

issi

on

On

exit

of d

eals

While marketing budgets are tight, it is concerning tosee that 70% of black fund managers do not have a fullyfunctioning website. While some point to regulatoryreasons for keeping a lower profile, we do consider thisa limitation for those fund managers choosing not tomanage their presence online effectively. As privatemarkets funds get closer to being included in regulationsand become more commoditised investment products,managers will need to do better on this front if they areto compete for capital effectively.

% of firms with fully functional websites

% o

f fir

ms

100%

80%

60%

40%

20%

0%2019 2020

No

Yes

172

Drivers of brand recognition as ranked by managers%

of f

irm

s

100%90%80%70%60%50%40%30%20%10%

0%

2019

2020

Cons

iste

ntin

vest

men

tpe

rfor

man

ce

Peop

le

Impa

ct o

fin

vest

men

ts

Clie

nt fo

cuse

d

Valu

es

Diff

eren

tiate

dpr

oduc

t

Adve

rtis

ing

and

mar

ketin

g

Low

fees

Managers consistently rank investment performanceas the biggest driver of brand recognition, and 2020continues this view. The impact created throughinvestments is also seen as an important driver of brand,along with the name recognition of key investmentprofessionals.

Surprisingly, having a differentiated product was rankedas only the 6th most important driver of brand recog-

nition, with low fees seen as least important. Creatinglower fee products and creating specialisation forinvestors are two trends of global investment marketsand it is interesting to note that the respondents didnot see these areas as important. This is particularlytrue in an increasingly crowded market, and suggestthat managers should spend the time to understandthe needs of their LP universe.

Measures of success as ranked by managers

% o

f fir

ms

30%

25%

20%

15%

10%

5%

0%

2019

2020

Cons

iste

ntin

vest

men

tpe

rfor

man

ce

Gro

wth

in A

UM

Clie

nt s

atis

fact

ion

Prof

itabi

lity

Empl

oyee

satis

fact

ion

Inno

vatio

n

Shar

ehol

der

satis

fact

ion

Com

petit

ive

stan

ce

Clie

nt g

row

th

Clie

nt r

eten

tion

Predictably, investment performance and growth inassets are the two biggest measures of success citedby managers, followed by client satisfaction. Employee

and shareholder satisfaction ranked quite low, and mayexplain some of the regular staff movements that occurin the sector below the partner/principal level.

173

g. Team

Total staff (aggregate of respondents)

160

140

120

100

80

60

40

20

02019 2020

134143

Tota

l num

ber

of s

taff

Staff by category (aggregate of respondents)

Tota

l num

ber

of s

taff

70

60

50

40

30

20

10

0

2019

2020

Principal Associate Analyst Support

Managing a private equity fund typically requires atleast five people but this number can vary according toa firm’s investment style. The more actively involved themanager is in the operations of the underlyingcompanies, and the more deals it does, the moreresources are required. Less active managers may beable to get away with fewer than five investment teammembers but most need more than five to enable themto properly build and work through a pipeline ofopportunities. As teams grow, more support staff areoften added.

The median team

Median team make-up

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

SupportPartner/Principal Associate Analyst

The median team is made up of 3 principals, 1 associateand 3 support staff. Given the varying life stage of blackmanagers, there is a large degree of variation aroundthis, with teams as large as 12 or as small as 2. Each

manager has to balance the build-out of the team toenable it to prove its capacity to deploy capital, as wellas managing its ability to pay salaries and maintainsufficient working capital for sustainability.

Tota

l num

ber

of s

taff

174

Experience of principals

Partners/principals with 10+ years experience

Num

ber

of p

artn

ers/

prin

cipa

ls 504540353025201510

50

2019

202036

47 All of the 47 partners and principals of the firmsresponding to the survey had at least 10 years ofexperience. This demonstrates one of the truths ofprivate markets investing, in that it is learned over along period of time, and only experienced individualshave a realistic chance of success at both capital raisingand deal making. This statistic also points to the factthat the partners and principals get their experienceelsewhere, mainly in investment banks and other privateequity firms, before deciding to start their own firms.

Investment team demographics across all respondents

Num

ber

of s

taff

35

30

25

20

15

10

5

0

African

2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 2020

Irdian Coloured White African Indian Coloured

2019 2020 2019 2020

White Male

2019 2020

Female

SA Male SA Female Non-SA

Investment analystsInvestment associatesPartner/principals

Of the 143 people employed, black staff made up 82%,with black women representing 45% of all staffemployed. The racial makeup mirrors the demographicsof the country much more closely than the broaderprivate equity market.

44 of 54 partners/principals (81%) were black, and 10(19%) white or non-South African. This demonstratesthat the vast majority of senior staff at black privateequity firms are, in fact, black. Partners/principals are69% male.

Only 19 associates were employed, less than half thenumber of partners/principals. On average, there wasone associate per fund and some of the respondentshad no associates. One reason for the low number ofassociates may be their cost relative to the developmentstage of most firms. People with sufficient experienceto be at associate level are instead looking to be atpartner/principal level while those that are not may betoo expensive for the firms relative to what associate-level staff can earn elsewhere.

175

Alignment of interests

GP commitment to most recent fund

% o

f fir

ms

100%90%80%70%60%50%40%30%20%10%

0%2019 2020

Over 2%

1% to 2%

0% to 1%

The median GP commitment to committed capital is1%, with half of respondents reporting this level ofcommitment alongside LPs. More experienced managerstend to commit a bit more than this level, dependingon their particular circumstances.

GP commitment by staff category

% o

f spl

it

100%

90%

80%

70%

60%

50%

40%

30%2019 2020

Other

Analysts

Associates

Principals

Management Company

Carry share by staff category

% o

f spl

it

100%90%80%70%60%50%40%30%20%10%

0%2019 2020

Other

Analysts

Associates

Principals

Management Company

The vast majority of the GP commitment normally comesfrom the house and the principals, with smaller amountsin certain circumstances coming from associates.

Similarly, the carry split tends to go along similar lines,with a significant part going to the house and principals,

with smaller shares to next level staff. The house sharemay also be allocated through other share schemes inthe manager or be retained for commitments tosuccessor funds.

176

Employees other than partners that have equity in the firmor share of carry

% o

f spl

it

100%90%80%70%60%50%40%30%20%10%

0%2019 2020

4

3

2

1

0

5 and more

allocate carry and equity over time. If this is the casewe can expect to see greater allocations to broader staffgoing forward as the average age of the respondeefirms increases and staff earn these incentives.

It is interesting to note that the current year showslower allocations to shares and carry outside of theprincipal/founder level compared to the prior year. Thismay be a result of the early stage of many of themanagers responding to the survey, as many firms

How firms are financed at start-up

Source of start-up funding

% o

f fir

ms

100%90%80%70%60%50%40%30%20%10%

0%2019 2020

Friends and family

Private equity

Traditional bank financing

Family office backing

Shareholder loans

Personal finance

Founders mostly finance the start-up of their firms,these individuals having often earned and saved capitalfrom their previous jobs. Several firms have takenworking capital facilities from private equity investorsor have been privately assisted with other forms of

finance. The long fundraising cycles have a clear impacton these financing arrangements, which becomestretched if managers are not able to raise capital withintheir envisaged timeframes.

177

h. ESG and transformation

ESG and transformation are well entrenched conceptswithin private equity funds, and these are almostuniformly in place. Almost all managers responded thatthey contract for these processes with their investors,and that they formalise these processes with investeecompanies. These are typcially implemented throughESG+Transformation reviews during the due diligence

phase of deal making, with critical items included in 100day plans post deal completion, and medium term itemsimplemented over time. It is now common to seetransformation plans put in place at the time the dealis concluded, in order to properly implement this overthe investment period.

Number of respondents integrated ESG+Transformation

Yes

NoTransformation agreed with

portfolio companies

ESG agreed with portfoliocompanies

Transformation agreed with investors

ESG agreed with investors

0 2 6 8 124 10 14 15

B-BBEE contribution level of respondents

All participants are rated either level one or two as theyare all majority black owned. They also all meet thedefinition of Black Private Equity funds set out in theFinancial Sector Code. These criteria are that:

• At least 51% of exercisable voting rights associatedwith the equity instruments through which the privateequity fund holds rights of ownership are held byblack people;

• At least 51% of executive management and seniormanagement are black people;

• At least 51% of the profits made by the private equityfund manager after realising any investment madeby it, by written agreement, accrue to black people;and

• Over the term of the fund, the private equity fundmanager must invest at least 51% of the value of theSouth African funds under management in companiesthat have at least a 25% direct black shareholding,post investment of the investment by the privateequity fund, using the modified flow-through principle.

178

i. Compliance

Is your firm a juristic representativeon another FSP’s licence?

% o

f fir

ms

100%90%80%70%60%50%40%30%20%10%

0%2019 2020

No Yes

% of firms that would allow others toact as juristic representatives undertheir licence

65%

35%

Yes

No

All respondents are operating under a FSCA licence,with 90% of firms taking part in the survey operatingunder their own licence, slightly down from the previousyear’s reported number, but on a larger base ofrespondents. This demonstrates that securing a licenceis certainly possible if the applicants have the appropriateexperience. This was also shown in the bottlenecks

section of the report, where only one respondent flaggedthis as a significant issue to overcome.

Perhaps because of the relative success in securing theirown licences, two thirds of respondents indicated thatthey would not allow other firms to act as a juristicrepresentative on their own licences.

Number of Key Individuals registered with FSCA

Num

ber

of fi

rms

2019

2020

9876543210

1 2 3 4 5 Over 5

8 8 8

6

3

01 1

0 0 0 0

Number of key individuals

Most firms have one or two key individuals on theirlicences, but this year’s survey has also shown threefirms with three key individuals on their licences. Thisis consistent with the early stage of most of these firms,

and the relatively small quantity of assets. Firms typicallystart with one or two key individuals before expandingthis as their firms grow.

179

j. Socio-economic impact

The sustainability of the managers as reported is broadlyin line with the prior year, marginally more positive interms of profitability. It is important for firms to besustainable in order to retain staff and maintain focuson investment outcomes for their investors.

That said, there is typically little wiggle room forspending, and firms do not tend to spend more than0.5% of revenue on CSI initiatives.

% of firms with net profit after taxover the last three years

% o

f fir

ms

100%90%80%70%60%50%40%30%20%10%

0%

No Yes

2019 2020

Income tax paid in the last financialyear

% o

f fir

ms

100%90%80%70%60%50%40%30%20%10%

0%2019 2020

The majority of respondents had not made a profitconsistently for the past three years, but 75% had paidincome tax in the past year, indicating that the mostrecent year was more likely to have been profitable.

Given the mix of respondents at different stages in thefundraising and deployment cycle, it is not unexpectedto see such a mix.

% o

f rev

enue

100%90%80%70%60%50%40%30%20%10%

0%2019 2020

2% - 5%

1% - 2%

0.5% - 1%

0% - 0.5%

0%

Over 5%

The sustainability section above shows that there is amix of respondents that are profitable and sustainableand those that are not. It is therefore unsurprising tosee a mix of CSI spend from the respondents. Eightypercent of respondents spend less than 0.5% of turnoveron CSI, while one respondent spent over 5%. It is perhapsin light of the COVID-19 pandemic and the relatedeconomic hardship that we are seeing a higher level ofcontributions this year than last year.

No Yes

Corporate social investment as a % of revenue

180

Big 4 firms

Mid-tier firms

Small firms

External auditors

6

7

7

Number ofmanagers

k. Service providers

External auditorThe only Big 4 firm that appears to have gained tractionacross a number of managers is Deloitte, which is onlyservicing firms which are fully operational. Mid-tier firmsare being used extensively and normally offer morevalue for money while still being accepted by investors.The use of very small firms could be a cause for concernfor investors, who may question their ability to provideassurance on private markets investment valuations.

% o

f fir

ms

100%90%80%70%60%50%40%30%20%10%

0%

Internal

External

2019 2020

Fund administration External administrators

14%

29%Prescient FundServicesMaitland FundServices

29%

Sanne Group

Augentius

Realfin14%

14%

Most firms have internal administration capability with35% of firms opting for external administration. Thisseems to come down to personal preference and issimilar to the broader market and internationally. When

it comes to choice of external administrator, there is noclear market leader, with each of the providers havingone or two respondents as clients.

AIG

Aon South Africa

Camargue

Picara

Santam

Southern Cross

Stalker Hutchison Admiral

Insurance providers Crime and CivilLiability (”PI”)

Directors and OfficersLiability (”D&O”)

5

2

2

1

3

2

3

5

2

2

1

3

1

2

Insurance cover

181

PI cover as a % of target committedcapital

2% to 4%0% to 2%

% o

f fir

ms

100%90%80%70%60%50%40%30%20%10%

0%2019 2020

Over 4%

D&O cover as a % of targetcommitted capital

2% to 4%0% to 2%

% o

f fir

ms

100%90%80%70%60%50%40%30%20%10%

0%2019 2020

Over 4%

The only significant change this year has been theincrease in respondents taking PI cover and D&O coverat a level between 2% and 4% of target commitments.

Cyber cover

It is interesting to note the significant increase in thetake-up of cyber insurance, which went from being inplace in only one manager last year, to seven in thecurrent year. Firms primarily see this risk in externalservice providers.

% of firms with specific cyber coverin place

% o

f fir

ms

100%

80%

60%

40%

20%

0%2019 2020

No

Yes

Where do you see the greatest cybersecurity threat?

75%

25%

InternalinfrastructureThird parties(administrators,custodians etc.)

This may simply result from a different respondent mix,or may be a result of different insurers.

l. impact of Covid-19

Top 3 concerns with respect to COVID-19

Num

ber

of f

irm

s

201816141210

86420

2nd biggest concernBiggest concern 3rd biggest concern

Redu

ctio

n in

sta

ffm

oral

e an

dpr

oduc

tivity

4

Key

supp

ly c

hain

disr

uptio

n: fu

ndad

min

istr

ator

/val

uato

r

Regu

lato

ry c

hang

es

Fina

ncia

l im

pact

:pr

ofita

bilit

y, li

quid

ityan

d ca

pita

l res

ourc

es

Loss

of c

lient

conf

iden

ce in

cap

ital

mar

kets

Cybe

r se

curi

ty r

isks

Not

hav

ing

enou

ghin

form

atio

n to

mak

ego

od d

ecis

ions

13

1

8

1

12

3

415

3

1 231 2

5

182

183

Cost containment measures applied

Yes

No

Type of cost containment measures applied

Nm

ber

of f

irm

s

7

6

5

4

3

2

1

0

Redu

cem

arke

ting

budg

et

Re-in

sour

ceso

me

prev

ious

lyou

tsou

rced

func

tions

Redu

ce IT

budg

et

Froz

en n

ewhi

res

Sala

ry s

acri

fices

Def

er o

r ca

ncel

plan

ned

inve

stm

ents

Bonu

s sa

crifi

ces

5

Oth

er

6 6

4

2

5 5

2

The impact of COVID-19 on black private marketsmanagers have largely been in the form of delays totheir various processes, including fundraising andcompletion of deals, be they entry or exit transactions.Managers did flag some risk of decrease in profitability

and liquidity in their operations, and most implementedsome form of cost containment as a buffer against this.However, most did not consider it necessary to use anyof the various relief schemes offered in the market, witha minority opting for the PAYE deferral relief option.

40% 60%

184

Expectations in a post-COVID-19 world

Num

ber

of

firm

s

25

20

15

10

5

0

Face

-to-

face

road

show

s

Use

of w

ebin

ars

toho

st e

vent

s

Inve

stm

ent i

ndi

gita

lin

fras

truc

ture

Airl

ine

trav

el

Use

of d

igita

lco

mm

unic

atio

npl

atfo

rms

Focu

s on

hea

lthan

d w

ellb

eing

of

staf

f

Rem

ote

wor

king

by s

taff

15

Decrease Increase Revert to pre-COVID-19

Phys

ical

ly a

tten

dco

nfer

ence

s

41

1

19

1

19

3

17

1

19

5

15

1

18

7

12

1

1

Do you expect an increase in investor appetitefor impact investment aligned to meeting SDGSin a post-COVID-19 world?

90%

10%

Yes

No

There was a high degree of consensus that investorswould be more focused on SDGs going forward. This isthe continuation of a long trend in private marketsinvesting of full integration of ESG and transformationconsiderations into investment processes. Despite thevery small share of DFI investment into black privatemarkets funds, institutional investors have taken up thebaton and are seen to be likely to place more emphasison the impact of investments in future.

Predictably, managers expect less air travel, moreworking from home, more focus on digital communica-tions and employee well-being in the COVID-19 recoveryperiod and beyond. However there was a minority ofrespondents who expected some aspects of previousbusiness such as in person meetings and conferences

to resume. This speaks to the people side of privatemarkets investing, which involves trust building, oftenin person over periods of time, with investors, investeecompany management and other partners andstakeholders.

185

It was very interesting to see that black private marketsfund managers considered policy uncertainty and themacroeconomic situation of the country to be the biggestrisks to their businesses. Outside of these factors, therewas a wide spread of risks cited that were rated at leastmedium by the majority of managers.The only riskflagged as low by the majority of managers was the riskthat the investment style of the manager is out of favour.

Biggest risks managers face in a post-COVID-19 world

Num

ber

of f

irm

s

201816141210

86420

Medium LowHigh

Ove

rly

com

plex

and

cos

tlyre

gula

tory

env

iron

men

t

Polit

ical

inte

rfer

ance

Cann

ibal

ism

bet

wee

n as

set

man

ager

s fo

r a

pool

of

capi

tal t

hat i

s no

t gro

win

g

Low

eco

nom

ic g

row

than

d go

vern

men

tin

debt

edne

ss

Subd

ued

perf

orm

ance

from

cap

ital m

arke

ts

Econ

omic

pol

icy

unce

rtai

nty

Exce

ssiv

e m

arke

tvo

latil

ity

Your

inve

stm

ent s

tyle

isou

t fav

our

in c

urre

ntm

arke

t cyc

le

Chan

ging

inve

stor

dem

and

and

beha

viou

r

Mem

bers

of r

etir

emen

tfu

nds

de-r

iski

ng

9

6

9

6

5

9

3

12

12

6

5

149

4

4

2

9

6

9

7

5 5 562 1

7

14

54

This is very encouraging to see that the managersthemselves see their own investment style as one whichhas relevance in the current economy.

186

An interview with Shainal Sukha,investment consultant to Consolidated Retirement Fundfor Local Government (”CRF”)

An investment consultant’stake on Regulation 28 andunlisted investments

CRF, a large defined contribution scheme, has allocatedsignificant capital to unlisted investments when comparedto industry average allocations. Why have they done soand how can we get more pension funds making largercapital allocations within Regulation 28 limits, to privatemarkets and the real economy?

The following are some of the factors that led to CRF’slarge allocation to unlisted assets:

• The preamble of Regulation 28 of the Pension FundsAct states that funds should follow a risk-basedapproach to their investment strategy by targeting“adequate risk adjusted” returns. It goes further tostate that environmental, social and governancefactors should be considered as part of a “responsibleinvestment” approach. CRF therefore integrated ESGfactors into their decision-making and adopted aholistic approach to risk management. The result wasthat CRF not only targeted good risk-adjustedcommercial returns, but also sought to make a positiveenvironmental and social impact with its assets, sothat its members could retire in prosperous communi-ties and sustainable environments.

• In 2015, when the industry debated the concentrationof Naspers in our equity benchmarks, we noticed thatour clients’ capital kept going into a relatively expensiveand concentrated local stock market that wasbecoming increasingly global in its exposure.Companies were raising money locally to investoffshore, often with poor outcomes. Our clients werenot actually allocating a large portion of their capitallocally and into the real economy. An abundance ofcapital within domestic listed equity seemed to be

generating complacency and poor capital allocationdecisions by local companies. On the other hand,other areas of the economy, where capital was scarceoffered attractive return potential and better diversifi-cation benefits. So basic risk-management practiceand taking a prospective view resulted in CRF investinginto the local real economy, largely through alternativeasset classes.

• With Government fiscally constrained and Corporatesseeking certainty and confidence to invest, CRF feltfrustrated with the lack of progress and constant“circle of blame”. It therefore sought to use itsinfluence, as a large asset owner, to take action toreduce ESG risks for its members.

• CRF seeded an unlisted credit fund in 2015, which notonly targeted commercial returns, but being a blendedfinance fund, targeted job creation as well. Theexperience with this fund showed that it was possibleto generate good risk-adjusted returns, while alsohave a positive social impact, and this event enabledfurther investment into unlisted assets.

• Currently, CRF has allocated more than 18% to unlistedassets, all of which have performed in line withexpectations after all fees and costs. Of this, 12% hasa relatively high ESG impact.

It is important for Trustees to understand the flexibilitythat Regulation 28 provides and the benefits anddisadvantages of unlisted assets. Consider what will beappropriate for your fund. Do not be obsessed withdaily liquidity if your member profile is relatively youngand stable. Obtain a second opinion on complex issuesand make sure that your asset consultant is beingproactive and bringing suitable opportunities to thetable.

In your experience, what do you see as the key benefitsand risks of your clients investing in private markets?

Private markets allow one to exploit the illiquiditypremium and gain exposure to other risk premia. Thishelps to diversify risks for asset owners and providemore consistent and stable returns, depending on thenature of the investment. It generally channels capitalinto the real economy and can help to reduce negative

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externalities or create positive externalities. However,private markets are not without risk and require greaterdue diligence and scrutiny. Private market fundsgenerally have lock-up periods, charge higher fees andhave higher cost structures. Concentration, liquidity andcredit risks can be quite high, and most funds are closelycorrelated to the economic and business cycle.

In light of the current economic environment, SAVCA haveproposed two amendments to Regulation 28: separatinghedge funds and private equity into independent assetclasses, each with their own caps and increasing theprivate equity cap from 10% to 15%. Do you think theseproposed changes to Regulation 28 will unlock additionalcapital or, in your view, what will?

We support SAVCA’s proposal to split out hedge fundsand private equity into separate categories as well asincrease the private equity limit to 15%. We do not seea need to make further changes to Regulation 28, aswe have shown through a case study of CRF thatRegulation 28 is not prescriptive and provides sufficientflexibility. While these changes may unlock additionalcapital from retirement funds, the biggest stumblingblock is not Regulation 28. What is lacking is theimplementation of Regulation 28 and application of itsprinciples by asset consultants and Trustees. If thestructural shortcomings in the industry (as per RobRusconi’s 2008 paper “Whose money is it anyway?”) areaddressed, particularly in asset consulting, it will allowfor better capital allocation into the real economy andapplication of Regulation 28. We should be thinkingabout making it easier for retirement funds to allocateto illiquid assets by offering some kind of liquidity facilityor perhaps offering open-ended funds. To address highfees, the industry could play a role in coming up withbetter-aligned fee structures, which are often cited byasset consultants as a huge stumbling block.

In light of the current economic environment and COVID-19 crisis, what in your experience does private marketinvesting deliver in terms of broader social benefit andimpact goals in the real economy? And will largerallocations be supportive in confronting the currenteconomic challenges being experienced in South Africa?

Climate change will amplify our social risks of highunemployment, poverty and inequality in South Africa.In my opinion, we have around ten years to urgentlytransition to a low carbon economy in a just manner.We also have ten years to achieve the United NationsSustainable Development Goals. The COVID-19pandemic has highlighted the weaknesses of our systembut given us an opportunity to “build back better”.

The next ten years will be a massive opportunity for theprivate markets industry. Given the lock-up periods,private market fund managers can take long-term viewsand invest in solutions that address long-term risks. Theprivate markets industry were early adopters of ESGintegration and generally invest in the real economy.The mainstreaming of impact investing will be the nextevolution of Responsible Investing, and the privatemarkets industry therefore has a critical role insupporting this move.

CRF has invested in a number of blended finance solutionswhere government agencies provide some form ofdownside protection to catalyse investment from othersources. These blended finance solutions aim to providecommercial returns and social impact outcomes forinvestors. What has been your client’s experience of thesepartnerships in terms of returns and impact?

CRF has invested in three blended finance funds, all ofwhich have delivered a positive experience thus far, interms of both risk and return. All three funds target jobcreation, which is an important part of CRF’s ResponsibleInvesting Policy. The funds are run by professional assetmanagers who also measure and report on the numberof jobs that are created. The Jobs Fund has been anexcellent partner in the process through their technicalinput and being receptive to investor concerns. Theirinvolvement has lowered risks for both investors andasset managers and we hope that Government willcreate a “second” Jobs Fund or equivalent.

Concessional capital, often provided by the Governmentor an entity like the Jobs Fund, does serve to make iteasier for retirement funds to invest in alternative assetclasses. The concessional capital can either reducedownside risks by offering a first loss guarantee or itcan act as a return enhancer, or both. We feel thatblended finance could help mobilise the finance industryto invest more in the real economy, to crowd in long-term asset owners and to create positive environmentaland social impact in our country. Blended finance fundscould also help meet our National Development Plantargets and address the United Nations SustainableDevelopment Goals.

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Asset manager profiles | Private markets

Name of company: Ascension Capital Partners(Pty) Ltd

Date of inception: Feb-18Website: www.ascensioncapital.co.zaAddress: Die Groenhuis, 38 Garsfontein Road,

Pretoria, 0145Telephone: +27 87 357 9750Email: kabelo@ascensioncapital.co.zaContact person: Kabelo MojaTitle of contact person: Executive/Principal

Name of company: Ata Capital (Pty) LtdDate of inception: Feb-12Website: www.atacapital.co.zaAddress: 9th Floor, 90 Grayston Drive,

Sandton, 2196Telephone: +27 11 321 1629Email: info@atacapital.co.zaContact person: Maredi MampuruTitle of contact person: Executive/PrincipalLinkedIn: Ata CapitalYouTube: Ata Capital

Name of company: Bopa Moruo Private Equity FundManagers (Pty) Ltd

Date of inception: Jan-12Website: www.bopamoruo.co.zaAddress: 3 Exchange Square, 87 Maude Street,

Sandton, 2196Telephone: +27 84 909 9999Email: info@bopamoruo.co.zaContact person: Nthime KhoeleTitle of contact person: Executive/PrincipalLinkedIn: Bopa Moruo Private Equity

Name of company: Crede Capital Partners (Pty) LtdDate of inception: Jun-15Website: www.credecapital.co.zaAddress: Ground Floor, Vdara Office Park,

41 Rivonia Road, 2196Telephone: +27 11 268 6900Email: sandile.sokhela@credepartners.co.zaContact person: Sandile SokhelaTitle of contact person: Executive/Principal

Name of company: Eklavya Asset Managers (Pty) LtdDate of inception: Jan-16Website: www.eklavyaam.comAddress: 2nd Floor, Suite 2.3, Open Workspace,

138 West Street, Sandton, 2195Telephone: +27 10 592 1867Email: sbhala@eklavyaam.comContact person: Satish BhalaTitle of contact person: Executive/Principal

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Name of company: Ethos Mid Market Fund I (Pty) LtdDate of inception: Oct-15Website: www.ethos.co.zaAddress: 35 Fricker Road, Johannesburg, 2196Telephone: +27 11 328 7400Email: tmatheolane@ethos.co.zaContact person: Tabane MatheolaneTitle of contact person: Executive/PrincipalTwitter: @ethosmidmarketLinkedIn: Ethos Private Equity

Name of company: FyreFem Fund Managers (Pty) LtdDate of inception: Sep-17Website: www.fyrefem.comAddress: 10 Harrier Crescent, Douglasdale, 2191Telephone: +27 83 266 8125Email: cathy@fyrefem.comContact person: Cathy GoddardTitle of contact person: Executive/Principal

Name of company: Khumovest (Pty) LtdDate of inception: Sep-15Website: www.khumovest.comAddress: 2nd Floor, Building A, Silverpoint

Office Park, 22 Ealing Crescent, 2191Telephone: +27 11 883 2274Email: info@khumovest.comContact person: Priyan PadayichieTitle of contact person: Executive/PrincipalTwitter: @Khmovest_SAFacebook: KhumovestLinkedIn: Khumovest South Africa

Name of company: Kleoss Capital (Pty) LtdDate of inception: Jun-14Website: www.kleosscapital.comAddress: One Vdara, 41 Rivonia Road,

Sandhurst, 2146Telephone: +27 11 666 1660Email: zain.laher@kleosscapital.comContact person: Zain LaherTitle of contact person: Executive/PrincipalLinkedIn: Zain Laher

Name of company: Makalani Management Company(Pty) Ltd

Date of inception: Aug-04Website: www.makalani.co.zaAddress: 261 Oxford Road, Illovo, 2196Telephone: +27 11 428 0680Email: enquiries@makalani.co.zaContact person: Keshan PillayTitle of contact person: Executive/PrincipalTwitter: @MakalaniMCLinkedIn: Makalani Management Company

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Name of company: Medu Capital (Pty) LtdDate of inception: Jan-02Website: www.meducapital.co.zaAddress: 4th Floor, 35 Ferguson Road,

Sandton, 2196Telephone: +27 11 268 9140Email: lboshoff@meducapital.co.zaContact person: Leone BoshoffTitle of contact person: AdministratorLinkedIn: Medu Capital

Name of company: Moshe Capital (Pty) LtdDate of inception: Dec-13Website: www.moshecapital.comAddress: 2nd Floor, The Place, 1 Sandton

Drive, Sandton, 2196Telephone: +27 11 326 9733Email: info@moshecapital.comContact person: Pauli van GreunenTitle of contact person: Administrator

Name of company: PAPE Fund Managers (Pty) LtdDate of inception: Mar-15Website: www.papefunds.co.zaAddress: 222a Grosvenor Road, Sandton,

2191Telephone: +27 82 653 8669Email: guy@papefunds.co.zaContact person: Guy BaxterTitle of contact person: Executive/PrincipalTwitter: @papefunds

Name of company: RH Managers (Pty) LtdDate of inception: May-13Website: www.rhmanagers.co.zaAddress: 3rd Floor, 18 Melrose Boulevard,

Melrose Arch, 2076Telephone: +27 10 007 2171Email: quinton@rhmanagers.co.zaContact person: Quinton ZungaTitle of contact person: Executive/Principal

Name of company: Sanari Capital (Pty) LtdDate of inception: Nov-13Website: www.sanari.co.zaAddress: 7th Floor, 90 Grayston Drive,

Sandton, 2196Telephone: +27 76 456 3339Email: spokroy@sanari.co.zaContact person: Sipho SibekoTitle of contact person: Business Development

Manager/Investor RelationsTwitter: @SanariCapitalFacebook: SanariCapitalLinkedIn: SanariCapital

Name of company: Senatla Capital (Pty) LtdDate of inception: Jun-10Website: www.senatlacapital.comAddress: 9th Floor, The Forum,

2 Maude Street, Sandton, 2196Telephone: +27 11 784 5929Email: owen@senatlacapital.comContact person: Owen MaubaneTitle of contact person: Executive/Principal

Name of company: Summit PE Investment Managers(Pty) Ltd

Date of inception: Aug-16Website: www.summitafrica.comAddress: 3rd Floor, Vdara Building,

41 Rivonia Road, Sandhurst, 2196Telephone: +27 82 486 1928Email: langa@summitafrica.comContact person: Langa MadonkoTitle of contact person: Business Development

Manager/Investor RelationsTwitter: @SummitAfrInstagram: @SummitAfricaLinkedIn: Summit Africa

Name of company: Tamela Capital Partners (Pty) LtdDate of inception: Sep-16Website: www.tamela.co.zaAddress: Ground Floor, Golden Oak House

Ballyoaks OfficePark, 35 BallyclareDrive, Bryanston, 2021

Telephone: +27 10 443 4615Email: info@tamela.co.zaContact person: Beena MorarTitle of contact person: AdministratorLinkedIn: Tamela Group

Name of company: Third Way Investment Partners(Pty) Ltd

Date of inception: Jul-15Website: www.thirdway.co.zaAddress: 9th Floor, Katherine Towers,

39 Wierda Road West, Wierda Valley,Sandton, 2196

Telephone: +27 11 684 1192Email: info@thirdway.co.zaContact person: Fulu MakwetlaTitle of contact person: Executive/PrincipalTwitter: @ThirdWayZA

Name of company: Vuna Partners (Pty) LtdDate of inception: Jun-19Website: www.vunapartners.co.zaAddress: 3rd Floor, 28 Sturdee Avenue,

Rosebank, 2196Telephone: +27 10 595 4990Email: siya@vunapartners.co.zaContact person: Siya NhlumayoTitle of contact person: Executive/Principal

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