Old style managers lose their appeal
Johannesburg - Both institutional and retail investors are increasingly moving their money away from asset management firms linked to banks and insurers, in line with international trends.
According to Anne Cabot-Alletzhauer, chief strategist at Advantage Asset Managers, more and more investors are seeking out quality managers with a perceived higher level of independence.
"Over the last seven years, independent management boutiques have captured the lion's share of asset flows from asset managers owned by life companies," Cabot-Alletzhauser told Fin24.com.
She said firms like Old Mutual Investment Group SA (Omigsa), Sanlam Investment Management (SIM), RMB Asset Management and Stanlib have seen far slower asset growth than peers such as Investec Asset Management, Allan Gray, Coronation Fund Managers [JSE:CMS], Prescient and Foord Asset Management.
Cabot-Alletzhauser said while it is harder for bigger asset managers to grow their assets at the same rate as smaller ones, an institution like Investec managed to grow its asset base at a rate three times higher than that of Sanlam [JSE:SLM] since 2002. The companies had more or less the same amount of assets at the time.
Her research also seems to suggest investors are seeking out firms with a perceived independence that are not tied into product-pushing models, which have become common in the closely integrated financial services sector.
Cannon Asset Managers CEO Geoff Blount said a boutique asset manager's style differs significantly from that of industry peers owned by larger corporate institutions.
Two distinct styles
"The psychology of the former is a desire to grow the business via alpha - in other words, be an asset manager. Without alpha, the business will fail," said Blount.
Alpha refers to the adding of investment return on top of a fund's benchmark performance - the "value add" the manager brings to the party that justifies not simpy buying the index.
He goes on to say that the psychology of the latter is that the corporate owner typically sets earning growth targets, and the easiest way to achieve those is via asset growth and product proliferation - they need to be asset gatherers rather than active managers.
So why do many of South Africa's smaller niche players maintain they are unable to gather sufficient assets to become competitive?
"South African asset management is susceptible to what can be called 'herd investing'," said Cabot-Alletzhauser. She said when a particular investment style is popular - for example, small cap shares - this leads to the establishment of a number of funds claiming to be small cap specialists.
At the moment, "value" investing is flavour of the month.
Cabot-Allethauser showed there were 24 managers in 1999 purporting to offer "growth" investing, and six offering "value" style investing. Now there are 22 value managers, while five are offering growth style strategies.
"If smaller niche managers want to grab business away from the big boys who may be better resourced, they have to offer a distinctly different investment proposition to get attention," she said.