Independent asset managers in South Africa have attracted nearly four times the net inflows over the past three years then their bank/insurance-lead competitors.
Although the larger, traditional players still control 50% of industry assets, a new study by RMI Investment Managers finds that banks and insurers with investment arms are only capturing 20-25% of industry net flows.
As a result, the 126 independent fund houses and boutiques in the country are gain meaningful traction and now manage R2.4trn ($180bn), roughly 47% of assets under management in the country.
This compares to around 45% in the US and 41% in the UK.
“If one takes a closer look at the net flows to independent asset managers, it is clear that boutiques (‘challengers’ which include managers such as Visio, Truffle, 36One, Prescient, Rezco etc.) have been the clear winners,” RMI’s experts wrote in the study.
Contenders (managers such as Nedgroup, Prudential and PSG) have also been able to secure net inflows, but RMI's statistics show this trend has been waning over the past few quarters.
Meanwhile Foord, Investec, Coronation and Allan Gray have been suffering declining net inflows over the past three years as the majority of inflows have been channelled towards boutiques.
Despite the growth for independents, RMI’s experts argue that the South African boutique asset management landscape is still fairly underpenetrated, considering the fact that only a handful of managers dominate the independent asset management industry in terms of AUM.
65% of the independent/boutique asset management industry in South Africa manage less than R5bn. Only 8% of firms manage more than R50bn.
AUM of R5bn is seen as a critical level, particularly for a long only asset manager, in order for the business to become profitable and for larger clients to take the firm ‘seriously’.
This could mean that the majority of independent/boutique asset management industry in South Africa is below this threshold, suggesting that some kind of consolidation or failure of smaller firms is likely.
Asset classes and performance
RMI’s figures show 62% of the independent/boutique asset management industry in South Africa have active equities as their primary asset class focus.
The same is true when comparing the long only industry to the hedge fund industry – equity managers dominate in both.
There is a relative dearth of independent fixed income boutiques in the country due to higher fee structures, an institutional bias towards active equity managers and investment talent in stocks as opposed to bonds.
Over a 3-year period 37% of South African active funds have beaten their respective benchmarks which is in line with Europe (36%) but better than the performance of US mutual funds where only a quarter have been able to outperform their benchmarks.
South African hedge fund performance has been considerably better than international peers with ZAR returns 7-8% higher than the international (USD) returns of their peers.
Even after considering South African hedge fund returns in USD these funds have still managed to outperform international peers.