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Diversity and innovation key to the future of asset managers in South Africa

20 July 2020 Alexander Forbes

Diversity and innovation will be key in the future of asset managers in South Africa as the client base evolves to more multicultural and multifaceted millennials, says Alexander Forbes Head of Manager Research at Alexander Forbes Investments, Lebo Thubisi

In South Africa, millennials represent the largest generation to enter the workforce – more than 50% of the workforce in 2020, and 75% by 2030. The bulk of assets will be managed on behalf of millennials – our “future pensioners”. Understanding this increasingly diverse client base is critical.

Having an employee population that mirrors the overall population is key to a varied workplace that drives affinity with and insights into the “future pensioners”.

The asset management industry is changing due to innovations brought about by the fourth industrial revolution. To remain competitive and be relevant in a market where the client base is becoming even younger, there is a need to embrace diversity. This is because millennials have their own investment expectations and the challenge for asset managers is how to anticipate and meet them.

Millennial expectations are:

1. An environment that fosters innovation or innovative thinking
Asset managers must be aware of this both in creating products and building internal culture. One way for asset managers to differentiate themselves is by enhancing innovation.
2. Augmented intelligence
Use artificial intelligence in a supportive and assistive role by adding new or cognitive technology to enhance human intelligence rather than replace it. Augmented intelligence is less threatening than artificial intelligence, as it does not remove the status quo. There is still some time to go before artificial intelligence becomes a real threat. Asset managers must use the time to see how they can augment what they are already doing with some assistance from artificial intelligence. In this way, they can improve information from investment decision-making and operational perspectives by looking at artificial intelligence from different aspects within the organisation.
3. Positive impact on society
The future workforce wants to see more positive impact on society as millennials are eager to make a difference and retire in a better world. This talks to diversity because an array of research shows that companies that embrace diversity (race, gender, ethnic and cultural) display greater economic performance. Therefore, if you want to attract millennials to your business, you need to show that the make-up of your investment team represents the demographics of society.

Companies should demonstrate their strategic intent around diversity. There is a growing expectation that environmental, social and governance (ESG) factors be embedded in asset management processes and products. For example, asset managers must create solutions that deal with climate change and income inequality. Innovative thinking is required around solutions to meet the needs of this coming workforce. Asset managers need to demonstrate that they are both good stewards of clients’ capital and that they have a fully integrated ESG practice. Those who are going to do well going forward are those who do both.

Transformation is a subset of diversity, but the pace of transformation in the asset management industry in South Africa has been slow. Black-owned asset managers’ market share of traditional South Africa equities has fallen consistently, and the growth of black-owned asset managers has been slow. Global research shows that more diverse and more inclusive businesses that have female representation and a broad range of ethnicity have higher profits than those that do not. We can build on these results locally because we can see globally that the more transformed the industry, the better asset managers’ pensioners and listed companies all do.

Big asset managers are starting to use the diversity index as a measure of success, which stresses the need for asset managers to structure their business to align the interests of clients and managers.

Cognitive diversity is all the more important as a risk management tool to navigate businesses successfully in today’s ever-changing environment. With a wider range of cognitive diversity, the risk of underperformance is muted as more people from different backgrounds contribute their thinking. The impact of Covid-19 shows that for organisations to thrive, they need a diverse and inclusive workforce.

Quick Polls

QUESTION

Is the commission procurement rule introduced via clause 5.14 of the Amended Financial Services Sector Code (AFSSC) an important piece of the transformation puzzle?

ANSWER

The clause’s implementation coincides with an increase in the minimum spend targets, which further complicates matters
Many FSPs still view the AFSSC as a matter of choice and consequence rather than compliance
Transformation represents a great opportunity for growth and penetration by brokers
Brokers are unlikely to find their commission business yanked away from them by insurers looking to influence procurement scorecards
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