Manager Research

Sanlam and African Rainbow Capital (ARC) recently announced that they have agreed on the terms of a deal that would see ARC purchase a 25% stake in Sanlam Investment Holdings (SIH), the insurer's asset management division. Sanlam will retain a controlling 75% stake in the unit. The agreement is still subject to regulatory approval but is expected to be concluded in the final quarter of 2020. The transaction includes the South African asset management business only (i.e. SIM, Satrix, Sanlam Multi-Manager), and does not include the international business, Sanlam Private Wealth or Sanlam Specialised Finance.

ARC is a 100% owned subsidiary of Ubunto-Botho Investments (UBI), which in turn is owned by various broad-based BEE groups, the Sanlam Ubuntu-Botho Community Development Trust and the Motsepe Family Trust. UBI also owns 13.3% of Sanlam. UBI was founded by Patrice Motsepe in 2004 as Sanlam’s empowerment arm with the purpose of creating a black-owned and controlled financial services company.

Sanlam separated out their third-party asset management business from the life business (responsible for managing the life insurance book) back in 2017. The purpose of this move was to enable the third-party business to compete for a broader pool of assets by partnering with a BEE shareholder down the line. Following the transaction with ARC, SIH will be considered a black-owned asset manager according to the Financial Sector charter, creating one of the largest broad-based black-empowered asset management companies in the country.

The parties have been discussing the deal since 2018, so the announcement is not unexpected. While change does create background noise in the business which can be distracting, we would expect the day to day running of the funds to be largely unaffected. The biggest impact will likely involve remuneration. Asset managers backed by financial institutions often struggle to incentivise staff and align them with investor outcomes. Direct participation in the success of the business is often limited (i.e. no shareholding) and the remuneration structure is often subject to change. SIH has a reasonably strong remuneration policy, but any incentivisation involving shareholding is at the group level, not at the SIH level, which doesn’t really align the team with the fruits of their labour. We had hoped that a deal involving external shareholding in SIH might create an opportunity for the business to extend direct shareholding to staff.

We will be engaging with the business over the coming weeks as part of our regular review cycle, during which we’ll evaluate the impact of the change as well as any changes to remuneration.