At the Raging Bull Awards, held in Cape Town on January 31, a special new award initiated by Independent Media chairperson Dr Iqbal Surve, the Chairman’s Raging Bull Award for the Best Black-Owned Asset Manager, went to Vunani Fund Managers.
Vunani was the best-performing black-owned company among registered collective investment scheme management companies and companies whose underlying funds are administered by registered management companies.
The award’s criteria to qualify as a black asset manager are the same as those used by the 27four Investment Managers Annual BEE.conomics Transformation in Asset Management Survey: a minimum of 50% black ownership with accompanying voting rights, a minimum of 50% black representation at board level, and at least 50% black individuals in senior fund-management positions.
To be eligible for the award, black asset managers have to offer retail products with track records of at least five years across all four major asset classes: South African equity and real estate, South African interest-bearing and multi-asset income, South African multi-asset, and global and worldwide.
The PlexCrown methodology to calculate the overall ratings weights each of the four broad unit trust sectors based on the total amount of money invested in the sectors and investment skill.
The requirements are similar to those that apply when choosing the coveted Raging Bull Award for the South African Management Company of the Year, except that the asset manager does not have to be a registered collective investment scheme management company.
Most small asset managers, and, in particular, black asset managers such as Vunani, use co-naming arrangements, because running a management company is not a core business function, due to the investment required to run such an operation.
According to the 2017 BEE.conomics survey, the number of black asset management companies increased from 14 in 2009 to 45 last year. But these companies find it difficult to break into the investment industry. Of the estimated R4.6 trillion in assets available to private-sector asset managers, only 9%, or about R415 billion, is managed by black asset managers. These firms find it particularly difficult to break into the retail space: their market share is a mere 4.35%.
Vunani Fund Managers was established in 1999 and is the only black asset manager with skills across all the major asset classes. The investment team is research-driven and consists of small teams of highly experienced and seasoned investment professionals supported by rigorous systems development.
The company’s overall risk-adjusted performance was based on its management of the Mi-Plan funds. If Vunani were measured against registered collective investment scheme management companies, it would have ranked 10th out of the 17 qualifying companies.
The company was the first fund manager to offer free float construction in the South African market, and it provided the JSE with historic data for its free float indices launched in 2002.
Vunani has grown its assets under management from R12.6bn three years ago to R20.2bn, of which R3.75bn is in retail assets or collective investment schemes. Considering the company’s overall performance, Vunani may emerge as the dominant independent black player that can give the large non-transformed enterprises a run for their money.
Black asset managers really do have their work cut out for them, and it’s going to be tough for them to get a fair share of the pie. It’ll be particularly hard for new entrants, because 10 companies control more than 86% of all the assets under management by black firms. The other 35 black firms share about R56bn, or an average of R1.6bn per firm.
The Public Investment Corporation is often the largest client of many black firms. For investors such as retirement funds, the decision to move their funds from traditional asset managers to black asset managers – particularly newcomers with little or no track record – is very difficult to make. This is understandable given the risks.
According to the BEE.conomics survey, a staggering 40% of black firms did not have a member of the investment team with the Chartered Financial Analyst designation – a global benchmark for investment knowledge.
The client-base risk of black firms is such that a quarter of these firms would lose nearly all their assets under management if one or two clients left.
According to the survey, nearly 80% of black firms have professional development programmes in place for their staff, but 60% of these firms spend less than 1% of their revenue on such programmes.
In many cases, particularly among the well-established black firms with proven track records, junior staff are mentored by seasoned investment professionals in the fields of research, administration and technology.
Some black firms, such as Mazi Asset Management, Aeon Investment Management and Pan African Fund Managers, have excelled in their respective specialist investment fields, while Vunani has proved that it is a serious player across all the major asset classes.
The black asset management industry has turned out to be a significant job creator. The total number of employees grew by more than 69% between 2015 and 2017, from 346 to 586.
The transfer of skills and experience is crucial to grow the black asset management industry. It is imperative for the big funds and their consultants either to include them as managers of some of their assets or at least to give them an ear.
Transformation goes deeper than having a broad-based black economic empowerment rating. The big asset managers were also small at one time.
Ryk de Klerk was co-founder of PlexCrown Fund Ratings is a consultant for the PlexCrown Ratings.