1. EXPLAINING its recent partnership with a
foreign fund manager, Argon Asset Manage-
ment CEO Mothobi Seseli says there has
been a trend over the past three to four years
for investors – whether institutional or retail
- to opt for fully discretionary multi-asset
funds, with 49 percent of assets under man-
agement today compared to 22 percent only
five years ago. Argon is a multi global
award winning firm which currently has
committed client assets under management
in excess of R24bn
Seseli explains that this desire for in-
vestors to leave the investment decisions to
a professional fund manager, combined with
strong interest in offshore investments,
means that any firm serious about respond-
ing to client needs effectively requires a
sound offshore investing capability
.
“One could attempt to manage global as-
sets from South Africa or by partnering with
a global player. We have chosen the latter as
we believe it offers substantially more ad-
vantages for our clients including a much
higher probability of meeting with invest-
ment success than the former. To this end we
have entered into an exclusive partnership
with the venerable Schroders Investment
Management,” he says.
Schroders is the second largest independ-
ent investment management firm listed on
the London Stock Exchange with in excess
of $464bn in client assets under manage-
ment. Built over 208 years, Schroders is well-
established in all key investment regions,
with over 380 portfolio managers and ana-
lysts over 27 countries.
“This is a fantastic opportunity for our
clients to access true global pedigree, and
also reinforces our internal focus on
global standards across all aspects of our
firm, as demonstrated by our aspirational
payoff line: ‘An African investment firm
with global standards’. Previously our
mandates were entirely domestic, we now
have an expanded product range which in-
cludes all of the offshore capability offered
by Schroders and spanning all the asset
classes,” says Seseli.
He lists a number of key benefits to Ar-
gon and its clients from this relationship:
“We get access to global product, reach and
thinking, global best practice benchmarking
across our firm, skills and people develop-
ment effects, new investment skill creation
through an Argon/ Schroders global gradu-
ate trainee programme.”
Seseli offers one possible explanation for
the relatively low percentage of assets under
management currently held by black-owned
and managed firms (just 4.4 percent): “It
takes time to establish a trusted brand, but
relationships such as ours with Schroders
helps enormously – as does long-term invest-
ment performance.”
He notes that according to last year’s
27Four BEE 2014 Fund Manager Survey of
the 32 black firms in South Africa, eight
were brand new and 18 had been in opera-
tion for less than four years (with three
years being the minimum period over which
one can gauge performance.
“The report confirms that the low mar-
ket share is not for want of performance by
those with the necessary track record. Sev-
eral firms, including ourselves, have demon-
strated sterling performance, consistently
delivering returns ahead of their bench-
marks and larger industry peers.”
To back this up, Seseli points out that the
Argon SA Bond Fund is placed third in the
Alexander Forbes Specialist Bond Survey
for the three years to December 2014, ahead
of stalwarts such as Stanlib, Prescient and
Investec.
In the more competitive SA Equity Fund
category it is placed sixth in the Alexander
Forbes Specialist Equity Survey over three
years. In the Absolute Return ‘CPI+4%’ do-
mestic category Argon is placed first in the
one year and three year time periods.
“These are all upper quartile placements in
peer relative surveys, which is a position
most managers work hard at attaining,” he
says.
As to how the 4.4 percent level can signif-
icantly be increased, Seseli points out that
while support by government and its related
institutions is absolutely critical, the private
sector needs to embrace transformation
more meaningfully
. “Meeting the aspira-
tional needs of African society is a risk man-
agement requirement of enormous impor-
tance today
. Both the public and private
sectors have a huge role to play in this re-
gard.
“Of course, when one operates in the
‘other people’s money’ space, a range of fac-
tors must be considered by potential in-
vestors, such as performance, relationships,
values, brand, processes and people. All
could be captured rather loosely under the
label trust. Having successful black-owned
asset management firms is an important
component of normalising South African
society
, as well as about growing the number
of people in this country with ‘skin in the
game’,” adds Seseli.
TRANSFORMATION in all aspects of South
African society is an urgent imperative. As
it stands the playing fields are not level for
all asset managers, despite the two decades
since 1994.
“However, if we don’t pay attention to
some of the unintended consequences of its
implementation, the result is often to create
a stigma to being black-owned asset man-
agers,” says Mohamed Mayet, MD of Sentio
Capital.
The irony is that to compensate for their
perceived higher risk black owned asset
managers have to prove themselves more de-
spite often have a better track record than a
traditional asset manager. In fact most cap-
ital entrusted to them is seen by the institu-
tional investor as corporate social invest-
ment as the ‘right thing to do’.
“Yet many of us [black fund managers]
have previously worked for global firms and
competed on an equal footing with the inter-
national majors – so where’s the extra risk?
Many black-owned firms such as ourselves
outperform the traditional firms – for in-
stance, all Sentio’s funds are in the top quar-
tile and some in the top decile, and despite
this we are forced to compete not with the
entire industry for 100 percent of invest-
ment assets but for the 4.4 percent that is set
aside as crumbs for ‘black asset managers’.
“There is an asymmetrical set of expec-
tations between black asset managers and
traditional firms, that effectively works
against us when in fact many people might
think the rules favour us. For instance, we
use exactly the same administrators that
large asset managers do, so our competency
is identical in many respects,” says Mayet.
“It becomes an issue of dignity
. There is
no extra risk attached to dealing with a
black asset manager, the performance is of-
ten superior simply because we have to out-
perform to get noticed, and yet investors al-
locate only a tiny
percentage of their capi-
tal to black firms to as-
suage their conscience.
“The playing field is
not level – all we ask is
that the same rules be
applied, not that we have
preferential treatment,”
he says.
“We have to wait
longer for people to trust
us. At Sentio, we’re not
complaining: we have
been in existence for
more than seven years
and have a growing mar-
ket share – but what of
some of the other black-
owned firms that came af-
ter us? We all need to con-
tinue growing to make a
difference,” adds Mayet.
His view is that there
are two sets of rules: hav-
ing 32 black-owned firms
compete for 4.4 percent of
the market is to set them
up for failure, while five
or six big asset managers
compete for 95.6 percent.
The cause of this is
the narrow view of
transformation in the in-
dustry, one which Mayet
says is seen primarily as
a box-ticking exercise.
“Superficially, one may
say the industry is
highly transformed, for
instance, if one simply
looks at the number of
blacks employed in it.
The industry rightly
boasts of the number of
black professionals, but
should one of those
black professionals wish
to set up his own busi-
ness, then he will find
doors closing and be
viewed as a second-class
citizen in the industry
.
“The attitude is, ‘See, we
have given you a chance’
so long as you don’t
think of competing with
the big players,” he says.
BUSINESS REPORT Friday, February 27 2015
SPECIALPROJECTS
SALES REPRESENTATIVE:GREG STOCK
WRITER:EAMONN RYAN
Published in The Star, Pretoria News, The Mercury & Cape Times
99
BlackAssetManagersReviewFor2015
ADVERTISING FEATURE
M
EAGO ASSET
MANAGERS is a
black-owned and
managed asset
management company cele-
brating its tenth anniversary
this year, a decade in which the
company has pioneered the
emergence of black asset man-
agers and grown exponentially
.
Meago has during this time
also become a role model for
the more than 20 black-owned
asset management firms that
have followed in its wake (there
are today a total of 32 black as-
set management companies).
There have certainly been a
few catalysts in the industry
,
such as the support of the Pub-
lic Investment Corporation,
Metal and Engineering Indus-
tries and Eskom Pension
Funds who are actively pro-
moting the emergence of black
asset managers and placing
pressure on the industry to
transform with stringent re-
quirements for those that man-
age their money
.
However, Meago executive
director Thabo Ramushu says
much more needs to be done in
order to boost the market share
of BEE (Black Economic Em-
powerment) firms beyond its
paltry 4.4 percent level, as cal-
culated in 27Four BEE Fund
Manager Survey 2014.
“The other big pension
funds need to get involved.
Even though there are a few
progressive pension funds go-
ing out of their way to trans-
form, there has been general
pushback to slow the growth
of black asset managers,” he
says.
That pushback has little to
do with poor performance but
rather broader discomfort
amongst institutional in-
vestors regarding longevity
of black asset managers com-
pared with longer established
asset managers.
many of the other larger
black firms, Meago has outper-
formed and was in fact borne
in a culture of success. Our
decade of operations together
with a strong track record of
performance will enable us to
continue to grow, but equally
important we cannot forget
from where we started and will
remain an active promoter of
transformation in the indus-
try
,” says Ramushu.
“The story of Meago started
in 2002 when Jay Padayatchi
and I were managing a suite of
listed property unit trusts at
one of the large blue-chip cor-
porates. During our stint, our
performance was fantastic, and
we won numerous awards over
the years of our employment.
“By 2005 we felt our track
record was self-evident, the as-
set manager space was far too
concentrated and transforma-
tion was being stifled with lim-
ited new black players in the
market.
“We launched Meago with
two other partners, as a leap of
faith with virtually no start-up
capital or anchor institutional
shareholder, as a niche bou-
tique focusing on the listed
property space,” says Ra-
mushu.
This niche approach, at a
time the listed property sector
was relatively small, enabled
Meago to quickly differentiate
itself with institutional in-
vestors. The company lever-
aged its collective experience
and signed up its first blue
chip client, Absa Property
Fund, within six months.
The push for growth contin-
ued, the team focusing on es-
tablishing a unique identity in-
tertwined with strong
performance, thereby enabling
the business to grow with sev-
eral segregated mandates and
winning awards such as Mi-
cropal in association with Fi-
nancial Mail Award on behalf
of its clients.
However, Ramushu recog-
nises that firms following in
Meago’s footsteps might not be
as fortunate: they face competi-
tion from the massive tradi-
tional fund managers with
strong brands, and niche op-
portunities remain limited.
“It is no easy path building
a black-owned asset manage-
ment company: barriers to en-
try are high, big players domi-
nate, start-up capital is scarce,
and you need to prove yourself
to asset consultants over a pro-
tracted period of time, usually
three years.
“The retail market is not an
option without an established
distribution channel or a big
marketing budget – and all the
while you’re trying to feed your
family without having any of
the family silver to turn to.
“Consequently
, you have to
dig in and convince the institu-
tional space to provide you that
single opportunity to demon-
strate your capability
, and you
have to knock on every door in
town to find that one institu-
tion that will grant you this op-
portunity
,” he adds.
Ramushu believes the solu-
tion is for the bigger pension
funds to commit and put tar-
gets in place whereby they use
BEE fund managers to manage
a certain percentage of their
funds. “Once the commitment
is there, a shift will happen in
the industry
.”
He sees much opportunity:
“One has to look at transforma-
tion within the context of the
South African demographic
profile and landscape. BEE as-
set managers are as competent
as the traditional houses and
hence there is space for them to
exist independently
.
“In addition, their existence
provides hope for BEE firms
looking to grow within the
broader financial services sec-
tor, which by virtue of the large
barriers that exist has not seen
the emergence of large black-
owned entities.
“Research by 27Four Invest-
ment Managers reveals that
BEE firms only manage
R283bn out of a total R6.5 tril-
lion. Within that number, there
is a big spread separating those
managing substantial money
and those still gathering assets.
“This demonstrates that
transformation within the as-
set management industry is
happening very slowly and
BEE firms have the responsi-
bility to set up competent
teams and push for transfor-
mation.
“
As it stands, change is hap-
pening too slowly in South
Africa and Meago’s next chal-
lenge is to create a platform for
smaller black fund managers
or black professionals to realise
their ambitions.
“We are actively looking at
our options on what our next
steps must constitute for the
decade ahead,” says Ramushu.
Give us equal
playing fields
Argon
ties up
with
offshore
partner
Leading
the
charge
for
transformation
Thabo Ramushu,
Executive Director,Meago.
Argon Asset
Management
CEO Mothobi
Seseli.