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Black asset managers must invest in transformation

May 6 '16 | By La Afrique Media | Views: 115 | Comments: 0

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AS THE Treasury looks to make the savings industry work better for the masses, it needs to strike a delicate balance to avoid undermining the already weak transformation in SA’s asset management industry.

More than a month ago, the Treasury invited comment on draft regulations on default options aimed at making SA’s retirement industry work better. This is part of its Treating Customers Fairly agenda, aimed at ensuring clients get better value for financial services products they buy.

In terms of this strategy, the Treasury has decried the fact that, in most cases, when people retire they are automatically defaulted into investment strategies that are complex, carry high charges, have limiting policy conditions and no option to invest in passive investments such as exchange-traded funds.

The word from some quarters in the market is that the Treasury is sympathetic to passive investments, hence its stance. There are fears some established elements are influencing the policy debate to favour passive investments, which is something that could undermine transformation. I believe it’s still too early to judge, as my experience with the Treasury shows it has people who are willing to engage.

For the record, the debate around passive investments is not from the Project Spider Web conspiracy, which argues that in the dying days of apartheid, some in the white establishment plotted to retain control of the Treasury as the African National Congress could not be trusted with state finances. Not that at all!

But a number of people I have engaged with point to the fact that passive investments are not necessarily cheap and that a drastic shift that channels savings to this could undermine transformation in the asset management space.

Some of the views on the ground point to the fact that black fund managers, who have had to fight hard to be where they are, largely operate as active money managers.

After 21 years of democracy, only 4.4% of SA’s R6.97-trillion investment and savings industry is managed by black-owned firms. Strides have been made in building black-owned asset managers who now have about R309.2bn. In 2009, black firms managed about R91.4bn, and we don’t want to go back to those days.

Having said that, if there is a strong case for passive investments, black asset managers should also evolve and offer the best and most cost-efficient investment platform for people. However, it would be disastrous to argue that passive investments must replace the active ones. Such a move would also cascade to kill asset management schools and intellectual property.

If a computer can simply decide what stocks to track, then why should people be taught asset management?

Beyond this, there is also the bigger issue of transformation of the entire economy and not just the asset management industry. There are fears that the passive investments that come in the form of trackers largely favour blue chips and often neglect the small and promising companies that need capital the most to grow. One is yet to see a small-cap tracker in the market that targets solid small companies.

In its policy agenda, SA has been preaching about the importance of growing small to medium enterprises in order to create more jobs and entrepreneurs doing great things. Active managers play a key role in identifying companies as they take the time (we hope) to analyse their prospects of growth. It would be difficult for a computer to search actively for a small or medium-sized enterprise in need of capital to grow.

But having said that, the black asset management firms should also demonstrate that, in line with their mandates, they are playing a role in actively selecting small-and medium-sized options that are black-owned and worthy to be invested in.

Therein lies transformation.

If some black asset managers are actively aping the way that some established, white-controlled money managers invest, then I’m sorry, they have no case.

In safeguarding the active role of a money manager, black asset managers must think carefully about investing in the outlying marginal areas, building small and medium-sized enterprises and transforming the social infrastructure by investing in healthcare and education in previously disadvantaged communities.

source: BDLive

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