By Khaya Gobodo, Managing Director of Old Mutual Investment Group
The two most significant challenges we face as South Africans is to solve the desperate levels of poverty we have and solve the massive inequality we experience in this country. That’s why black economic empowerment and transformation are such pivotal conversations for us to have as South Africans.
This conversation is particularly relevant in the asset management industry; not only because the industry should transform for its own sake, but also because it plays such a pivotal role in the allocation of capital, which is essential for the growth, development and evolution of the economy.
In recent times, the conversation around transformation in the asset management industry has been narrowly focused on the portion of assets that are managed by black firms. This is an important yardstick because it tells you the extent to which businesses founded and managed by black people have come to play a more meaningful role in the industry and, therefore, the economy at large.
If we look at the data from the 27FOUR annual 2017 Transformation in South African Asset Management Survey, it would suggest that black firms manage about 9% of total industry assets and industry assets really represent the country’s stock of savings; a total number of about R4.6tn. No matter which angle you look at this from, it’s an embarrassingly low figure.
Going back to first principles
However, that’s not the entire story - and it is worth widening the lens on transformation in the industry by going back to first principles. What do people really care about? They care about the extent to which black investment professionals are actually making investment decisions, the proportion of firms led by black executives and, finally, the proportion of black ownership in the industry. And so we need to consider transformation on the basis of these three pillars if we want to get closer to establishing how well - or badly - the industry has done in serving the country as far as transformation goes.
Firstly, let’s look at the proportion of assets managed by black investment professionals at not only black firms. Secondly, let’s look at the number of black executives who are leading those businesses and deciding who make the investment decisions on behalf of clients. Thirdly, let’s look at the average level of black equity ownership in those businesses.
If we take the emotion out of it, the data paints a slightly different picture; not, by any means, one that says we have arrived at the promised land but certainly an interesting picture worth considering and debating.
When it comes to the proportion of assets managed by black investment professionals, the only reliable, publicly available information is unit trust data. In this respect, Morningstar’s database indicates that black investment professionals manage about 18.5% of industry retail assets excluding fund of funds, multi manager and money market funds (75% of total retail assets).
It’s not a leap to assume at least the same to be true in the institutional industry. In fact, the proportion of black investment fund managers could well be higher given the more intense pressure on managers of institutional assets to transform compared with the retail industry.
With regards to the second pillar relating to the leadership profile of the industry, five of the top 10 largest fund management businesses are led by black executives. That means almost 60% of the industry’s total assets under management including life funds are overseen by black chief executives, as reflected in the Alexander Forbes Survey of Retirement Fund Managers to end June 2017.
Finally, and again if we use the top 10 investment houses as a proxy, the average level of equity ownership by black people through BEE schemes and/or direct equity stakes is 26%, based on black ownership/economic interest figures published on their B-BEE scorecards.
Progress – but a long way to go
So, in fact, if we step away and take some of the emotion out of the debate, I’d venture to say that the industry has come a significant way as far as transformation is concerned. But we clearly have a long way to go and it’s important that we maintain vigilance and continue investing and making progress in transformation if we are to hold ourselves to a higher standard as an industry.
The industry manages other people's hard earned money. That makes us fiduciaries, which compels us to act with due care, skill and diligence in their best interests. And we can include transformation, in addition to investment outcomes, as being in their best interest. So maybe, like few other industries, we are being held to a particularly high standard – and rightly so.
As such, it's important for clients and the country as a whole to continue holding a mirror up to the industry to keep us honest as we journey to change the face of asset management.