SA’s top asset managers foresee industry consolidation

SA’s leading asset managers have drawn attention to the country’s dwindling savings pool and the likelihood of consolidation in the industry as smaller firms are swallowed up by bigger competitors.

Stanlib CEO Derrick Msibi, who heads a group with more than R600bn in assets under management, told delegates at the INN8 summit such consolidation would affect both asset managers and discretionary fund managers. 

His views were shared by Hendrik du Toit, CEO of Ninety One, SA’s biggest asset manager.

“This is such a fragmented industry,” du Toit said, adding that high operating costs were also likely to spur consolidation. 

“In SA specifically, we face our challenges,” said Anton Pillay, CEO of Coronation Fund Managers, SA’s fourth-largest asset manager. “The market isn’t growing. There’s low economic growth, and savings levels are exceptionally poor.” 

Business Day reported last month that Rand Merchant Bank (RMB) expects the SA fund management industry to shrink further in the next five years, with companies managing assets of less than R10bn at risk of becoming economically unviable in a tough trading environment. 

Isabella Mnisi, RMB’s sector head for asset management and funds, said the number of SA asset managers is expected to shrink by 3% over the next five years, continuing the trend of consolidation in an industry that faces mounting challenges. 

In December 2022, Moody’s Investors Service lowered its outlook for the global asset management industry to negative from stable. It cited factors such as a more volatile operating environment since central banks started raising interest rates and Russia invaded Ukraine. 

The need for consolidation has been evident in the sector over the past year. In that time Rathbones and Investec’s private clients unit have merged, creating a £100bn UK-based discretionary wealth manager. 

Stanlib has already warned that the industry will face more headwinds than tailwinds over the next two to three years. It notes that the sector's performance effectively depends on savings, which is  is influenced by how fast the economy grows, how many people have jobs, returns from capital markets and whether money is being saved or taken out of SA. 

One of the biggest pools of funds is pensions, which has experienced systematic outflows, with overall growth being dependent on market returns. 

The cost of running asset management firms is outstripping inflation as a result of rising employment costs, while the rand’s weakness against the dollar means technology costs have increased.