For years many asset managers hoped that the Public Investment Commissioners (now the Public Investment Corp [PIC]) would provide them with a lifeline.
Few pension funds still carry out their own asset management - the Metal Industries Benefit Fund Administrators is an exception, with about R36bn in-house. There is little organic growth in the SA pensions market. Most funds are cash-negative because the withdrawals and benefits paid exceed the premium income, and they continue to lose members as more private-sector jobs are shed.
So the PIC, with R440bn under management, is seen as the last hope. It already has R120bn under management, but its manager selection has not been changed since 1996 and it represents yesterday's winning companies.
Old Mutual and RMB happen to be at the top of the investment surveys, but the same cannot be said for Sanlam, Stanlib or Futuregrowth, the other three managers. And why haven't such strong names as Investec, Coronation and Allan Gray been added to the line- up? Some niche-fund management operations such as Kagiso and Umbono, and before that Prodigy, were set up with the explicit intention of winning mandates from the PIC, which was expected to be a supporter of empowered asset managers. But these firms did not expect mainstream fund management companies to come under pressure (not least from the PIC itself) to become empowered in their own right.
All five of the PIC's external asset managers now have empowerment shareholdings in line with the financial sector charter - the last, Old Mutual, did so in mid-April.
Just before it corporatised on April 1, the PIC withdrew a total of R22bn to manage internally. It is still not clear how much the PIC ultimately wants to manage in-house.
But PIC CEO Brian Molefe says the new-look PIC will become more proactive, as it can play a significant role in encouraging empowerment and good corporate governance. Molefe says the PIC's mission is to be the preferred provider of asset management services to the public sector. If it does not provide a world-class service, there is nothing to stop its clients moving to an asset manager such as Old Mutual or Sanlam.
As it is no longer subject to civil service remuneration practices, the PIC can now pay market-related salaries. However, Molefe says the pay scales will be lower than in the private sector - but the PIC hopes to attract managers who believe they can "make a difference". In 1996, the PIC was one of the pioneers of the specialist equity mandate. Then, almost all institutional mandates were "balanced" - asset managers had the freedom to make their own asset allocation decisions, subject to regulation 28 of the Pension Fund Act, which sets limits on the amount of investment permitted in each asset class. Funds can be up to 100% invested in bonds or cash, but no more than 75% in equities.
But more recently, most new business is in the form of specialist mandates. Either a fund in its own right or a multi-manager such as Investment Solutions or Advantage gives each manager a slice of the fund - which can be as specific as small-cap growth equities or as broad as fixed interest (including cash and bonds) or all equities.
Muthieri Wahome, head of research at Alexander Forbes Asset Consultants, who is responsible for the Manager Watch series of asset management surveys, says there is now about R52bn in the flagship Global Large Manager Watch (LMW) balanced survey, but R117bn in the equity surveys.
The specialist equity and bond surveys also provide a shop window for asset managers which do not yet have sufficient assets to appear in the balanced survey - some good performances from Fraters, Abvest and Futuregrowth were highlighted.
Stanlib Asset Management MD Alan Miller says there is still a significant amount of money in balanced mandates, but growth increasingly comes from specialist portfolios.
"Pension funds undertake an asset liability modelling exercise and end up with a strategic asset allocation which suits their liabilities [their obligation to pay pensions]. But I believe asset managers are better placed to make asset management decisions than either fund trustees or consultants."
Allan Gray has dominated the LMW since the August 1998 crash and it continues to be the top performer over three years (with a 21%/year return in the global LMW and a 26,5%/year return in the domestic-only portfolio). But there has been a shift in the rankings over the past 12 months.
In the domestic LMW survey, midsized Coronation, with R70bn, is top over one year.
This was in spite of the sudden resignation in January of chief investment officer Morné Marais, along with head of research Rob Oellermann and senior portfolio manager Richard Kommel. A matter of weeks before, retail fund manager Walter Aylett, one of the shop's celebrities, had resigned.
In a round of musical chairs, Louis Stassen came back to Coronation as chief investment officer, and senior professionals from Old Mutual Asset Managers (OMAM) Charles de Kock and Peter Leger were recruited.
Investment Solutions head of research Geoff Blount says that in a defensive move to lock in staff and counter the allure of boutiques and hedge funds, fund managers are offering more shares to staff. Coronation has offered staff 11% of the company's shares through a new incentive scheme, and African Harvest's staff shareholding will grow from 25% to 45%. It remains a black-owned company, however, as Mzi Khumalo's Metallon retains a 55% stake. Coronation acted as banker in its own transaction, but African Harvest staff had to borrow from a third party to buy these shares. African Harvest CEO Magda Wierzycka says that as owner/managers the team will be encouraged to focus on investment performance.
Another highlight of the year to date was Allan Gray's black economic empowerment (BEE) initiative. It has set up a broad-based BEE trust that will promote and support black entrepreneurs in small business to purchase 15% of Allan Gray. A further 10% is reserved for present and future black staff.
