Manager Research

We have rated a number of passive funds within the local market and all of the fund managers suffer the same dilemma.  Its one which originates from how our industry is structured and how fund buyers make their decisions.  Each one of the main passive players is owned and controlled by an active management business. Satrix (Sanlam), Dibanisa (Old Mutual), Stanlib (Stanlib), the list goes on.  Even 10X in the RA space is now owned by Old Mutual. Given the lower margin associated with passive management the inclination to promote passives from within an active business has been low.  This has meant that all promotional activities linked to passive management have historically been substantially less than their active counterparts. 

Passive management requires huge asset scale to bring through the real benefits to clients – this being really low cost investment products.  As each of the main players in SA is not independent of its active management oriented owners, this has led to a scenario where there are a number of relatively sub-scale passive businesses managing index funds.  Add to this the influx of ETF’s - which often seem to be conjured up for reasons other than long term savings – and there is a highly fragmented, sub scale passive industry in SA.  It’s no wonder the bulk of flows have historically headed to active funds – strongly promoted through large marketing budgets and a substantially higher vested interest.  Part of the reason passives have failed to really penetrate the market lies at the door of the passive managers themselves – being drawn into the active vs passive debate which will never resolve itself, and failing to take real accountability for the fact that they are also investment managers, not just manufacturers of investment product.  Now has the trend towards passive started to gain some momentum?  Over the past few years declining charges as well as a tailwind provided by trending equity markets has resulted in the profile of passive being raised and flows being attracted.  In the institutional space this trend is more pronounced, no doubt driven by the asset consultants who heavily influence those buying decisions.  Is the same about to happen in SA in the retail market?  Its likely there can be an impact, but in the absence of consolidation of the main passive managers into a proper, low cost provider, the hurdle still seems too high.