Asset management is arguably based on an illusion. The favourite cult book on the industry (Fooled by Randomness by Nassim Nicholas Taleb) argues that outperforming the market is little more than a product of chance. For somebody to boast that they have outperformed the market for 10 consecutive years is about as relevant to displaying skill as the fact that heads was called 10 times in succession.

Past performance is not an indicator of future performance. And certainly some managers have come down to earth recently. Internationally, the music stopped for Bill Miller of the Legg Mason Value Trust. After 15 years of outperforming the US stock market, it had a shocking underperformance - thanks to holdings such as Citigroup.

Locally the fallen angels have been Piet Viljoen of RE:CM and John Biccard of Investec's value franchise. The market was up 11,1% in the 12 months to March 2008, but RE:CM was down 9,7% and Biccard down 10,5%.

This level of underperformance can make trustees nervous and look for safe havens in index funds. But these two have such strong reputations that most asset consultants - influential at controlling flows into managers - are giving them the benefit of the doubt for at least another year.

Eric Potgieter of Fifth Quadrant Actuaries & Consultants says that many people still remember dismissing Allan Gray in 1997 when it materially underperformed, and then went to five spectacular years at the top of the log.

Investec Asset Management (SA) MD Thabo Khojane says that the house has in effect disbanded its index fund business for lack of demand. "We are a small market in which it is very difficult to create the economies of scale necessary to make index funds really cheap."

But Tendai Muskavanhu of Umbono Fund Managers believes that with R50bn he already has the scale to offer a competitive product. For clients of more than R4bn, it can offer fees as low as 0,08%.

Rob Rusconi, an actuary, has made scathing criticisms of consultants and multimanagers in his recent paper ("Whose Money is it Anyway?"). He says that there is little evidence that multimanagers can identify winners consistently.

Investment Solutions, the largest multimanager, has two balanced funds, the Performer and the Spectrum. Spectrum gives money equally to the top 11 managers, while in the Performer Fund it chooses what it considers to be the best balanced managers. However, over one, three and five years, Performer has under-performed Spectrum by a few basis points.

But Potgieter believes that with enough quantitative and qualitative research it is possible to pick winners. "You will have bad managers going through a lucky spell and good managers going through an unlucky spell." He says the focus has been more on expertise and skill, rather than philosophy and process. The balance of power has moved away from the team back to the star manager. This has encouraged shops such as Old Mutual and Stanlib, Sanlam and Metropolitan to set up distinct franchises or silos. One shop that has resisted this is RMB Asset Management, which retains a unitary structure. New CEO Deon Gouws has focused on ensuring that the right people are in the right jobs. Gouws says there is a role for boutiques in the specialist hedge area.

The favoured boutiques right now are a number of black fund management shops, which often have high-profile personalities in leadership roles, such as Masimo Magerman at Mergence, Mduduzi Ndlovu at Argon and Khaya Gobodo at Renaissance. These managers do not like to be called "black" or "emerging" managers as this would confine them to getting the token 5% or so which pension funds typically set aside for black managers. But there is a demand for black-owned fund managers as part of pension fund procurement strategies. The industry is waiting to see the results of the Public Investment Corp tender, where more than R150bn will be distributed.

The large fund managers are all empowered under the terms of the financial sector charter, but that does not mean much. Many of them have 10% ownership through their parent companies. Most plan to exceed the rather modest employment goal of 25% of "senior management". Almost all fund managers and analysts - because of their salaries - count as "senior".

Khojane expects the biggest portion of assets in future to come from individual retirement funds, in which brand names will be an important determinant of choice. "We no longer see a distinction between retail and institutional business," he says. "I think that with individual member choice we will evolve from the dispensation in which members choose risk profiles to one in which they can also choose managers."

Another change is the decline in captive business from life assurers. George Brits, CEO of Stanlib (part of the Liberty Group), says that he would welcome it if he were forced to compete with third-party managers, and he would prefer to run less money for Liberty for a higher fee. Stanlib has had a recovery over the past year.

Six years ago, Sanlam came close to subcontracting its assets because of the poor performance of its in-house manager. Performance has improved along with the quality of the staff.

Metropolitan has made a (perhaps final) effort to create a competitive asset manager with the appointment of Robert Walton, the energetic head of its unit trust business, as CEO; and Romeo Makhubela, previously one of the managers of the balanced funds at Stanlib, as chief investment officer.