Well placed for the PIC reshuffle

By Shaun Harris

IT’S BEEN NO secret that the Public Investment Commissioners (PIC) intended withdrawing assets from South Africa’s established asset managers and dispersing them more widely throughout the industry.

However, the extent of the withdrawal – around R25bn – is large and will have an effect.

But the principle is hard to disagree with. Newer, smaller and black-owned and staffed asset managers are often overlooked just because the large institutional clients such as retirement funds aren’t aware of them. The PIC’s stated aim is to encourage and develop those managers by allocating parts of its large holdings to them.

A new investment manager that looks ideally placed to benefit from this is 27Four. Recently launched by Fatima Vawda, who founded Legae Capital a few years ago, the intention is to move into mainstream multimanagement but sticking to its specialised mandate of identifying, researching and monitoring black – specifically black female – talent in the industry.

“We’re the first black women established investment multi-manager in SA – 100% black owned, managed and controlled,” says Vawda. The firm has already won its first mandate from the Mines Pension Fund – to multi-manage and invest R500m with empowerment managers. “We see this allocation as affirmation of the need to address transformation but, importantly, within a commercially viable model. For us it’s a vote of confidence in 27Four’s ability to construct and manage investments that also meet the transformational goals that an increasing number of retirement funds are seeking.”

The product offering will probably be expanded as mandates increase, but currently include the black female 90Four fund, Legae Capital’s SA Fund-of-Hedge-Funds (FoHF) and the offshore FoHF run by Larch Lane in London.

Says Vawda: “We can offer institutional clients a customised or off-the-shelf solution. Depending on the mandate, we’ll select the appropriate single managers to run various asset classes and tailor that to meet the required risk profile. Our offerings are sophisticated and niche, so it’s likely we’ll get a percentage of a portfolio we’ll then construct to reflect the assets in the main part of the portfolio.”

Vawda says a priority is to provide full transparency and disclosure of fees, often difficult to determine when investments are multi-managed and there’s a second, underlying layer of fees. “There’s no black box.

Our focus will also be on good corporate governance and stringent risk management.”

As the PIC argues, Vawda says SA’s large asset managers tend to be over researched by retirement funds, multi-managers and asset consultants. “Surveys are compiled but most don’t include funds with a track record shorter than three years or with less than a prescribed amount of assets under management. One problem with that is it prevents new entrants from gaining exposure, building up track records and winning mandates.”

Other problems with the status quo are that fund diversification and innovation are restricted, as start-up managers tend to differentiate their products with suitable value propositions. “Healthy competition is therefore limited, as is the need to build sustainability in the fund management sector through instituting proper empowerment investment policies and guidelines at the retirement fund level,” says Vawda.

27Four has launched an emerging manager database, empowerment fund manager survey and manager research so that retirement funds can access investment skills they may otherwise not have been aware of. “Our value proposition is to assist pension funds with establishing an empowerment fund manager policy and ensuring the policy’s in line with the strategic objectives of the pension fund.

“We can implement the agreed on empowerment policy through the construction of customised portfolios and conduct daily risk monitoring and compliance provided to both the asset manager and the pension fund. The aim is to provide the pension fund with the comfort of a sound investment strategy that also meets transformation goals.”

Vawda has a history of incubating empowerment asset managers. “We have the experience to help these new funds with the important issues, such as brand development, product development and positioning. We’re ultimately seeking to establish institutional credibility for those asset managers so they can reach the critical mass required for sustained profitability.”

Vawda is also adamant that all benefits must be passed directly to clients. She says there will be no bulking, fees negotiated with individual asset managers are disclosed to the retirement fund and as assets under management increase, clients will get a reduced fee structure.

Many of the PIC’s redistributed assets should find a home with the 13 fund managers currently being researched by 27Four.