South African asset managers – at a crossroad?

Dr Nico Marais from Schroders.

Asset managers across the globe are increasingly under fire about the value they deliver for looking after investors’ money. Putting traditional asset managers in particular on the spot, these concerns range from their ability to consistently beat their benchmark, to whether fees are appropriate, to the lack of transparency on risk management and other investment processes.

Do these concerns also apply for South African investors? Does this place South African asset managers at a crossroad?

These were among the many questions addressed at recent conference in Stellenbosch on the latest trends in the investment industry at Stellenbosch University (SU), jointly hosted by global asset management firm Schroders and Lombard Insurance.

The conference is one element of a partnership between SU and Schroders’ Multi-Asset Investments and Portfolio Solutions (MAPS) division. This partnership also provides annual opportunities for graduate students to receive scholarships, to participate in essay competitions judged by industry professionals, and to collaborate on research that both expands academic knowledge and enhances the value of services for investors around the world.

One of the important conclusions from the conference is that the move towards passive asset management, ETFs, and smart betas is likely to continue to place significant pressure on the management fees and business models of the more traditional asset managers. Conference delegates echoed this forecast, voting the shift toward passive management as the key trend that will shape the South African industry going forward.

Throughout the world, investors are also moving away from traditional investment funds, instead seeking solutions that meet their goals, such as diversified sources of income and robust, risk-controlled growth.

The head of MAPS, Dr Nico Marais and SU alumnus, said:

“Investors are demanding more from their asset managers. Increasingly asset managers must be able to create bespoke and robust solutions with bespoke beta building blocks, and at competitive fees. There is more value added through quality portfolio construction and asset allocation than the manager’s stock selection, so naturally this is also where investors are now increasingly focusing.”

The topic of smart betas was discussed at length, including how these funds can be useful tools in portfolio construction. Managers who create and combine smart betas effectively have already begun to stand out among their peers.

For Schroders and many asset managers in South Africa, these are indeed exciting times. Some managers, however, may find themselves at an uncomfortable crossroad.

Professor Willie Conradie, chair of the Department of Statistics and Actuarial Science at SU, said:

“Portfolio managers at Schroders base their investment decisions on advanced research and a multitude of data, which is not yet common practice in South Africa.”

Partnerships that bridge the gap between academia and the financial services industry are a promising force for change.

“This type of interaction with international asset managers has the potential to greatly influence the asset management practice in South Africa in a very positive way,” Professor Conradie said.