Derrick Msibi, CEO at asset manager Stanlib, says he expects a big merger in the industry to take place as consolidation in the industry ramps up in light of high costs, a tough trading environment and search for scale.
Msibi, who presides over a money manager with nearly R700bn in assets under management, said consolidation in the industry was well under way, with merger and acquisitions (M&As) more prevalent among the smaller players in the sector.
However, he said the consolidation would eventually lead to bigger players pursuing acquisitive growth to increase revenues and build scale.
“The industry will end up doing some form of consolidation and there would be niche players and players of scale. You don’t want to be in the middle where you’re neither big or niche. Globally it is very clear that there is a lot of M&A in asset management,” Msibi told Business Day in a wide-ranging interview.
“We are starting to see players in the industry looking to bulk up and be scalable. Some of them are going to do that by buying up other players. What has not yet happened in SA is what I call a mega M&A transaction, which takes two very large players. But at some stage, there will be scope for two players who have got north of R300bn in assets under management getting together to create something closer to R1-trillion or more.”
One of the last mergers in the industry took place two years ago when Sanlam and Absa combined their investment management businesses in SA — creating one of the country’s largest black-owned asset managers.
Corporate and investment bank Rand Merchant Bank last year said it expected the SA management industry to shrink further in the next five years, with companies with assets under management of less than R10bn at risk of becoming economically unviable in a tough trading environment.
Msibi said despite the recent boost in asset prices after the formation of a government of national unity, the industry still faced with a tough few years to grow revenues.
“It is going to be tough for a while. We have got this two-pot system that is seeing money leaving the industry. We know it is short-term pain for long-term gain. Some people say the withdrawals might be as high as R100bn. None of us know where this will end up. But the fact of the matter is that this is money leaving the industry,” he said.
“I am a bit more cautious about long-term returns. I certainly don’t think they will be as high as we were used to historically. The wave that carries all of us is asset prices rising. I am not convinced that the wave will be as high as we were accustomed to.
“One of the challenges is costs and talent. People have options to work anywhere in this industry. The systems that we are using as an industry are largely becoming dollarised. If you look at the IT systems we use or trading systems, they all come in dollars and if the rand weakens as it has we have cost pressures.”
Data from 27four, released on Wednesday shows that the industry is ripe for consolidation, with few players dominating the sector. The data shows that excluding the Public Investment Corporation (PIC), the industry boasts R8.4-trillion assets under management with the vast majority of this in the hands of few companies.
Excluding the PIC, Ninety One is the largest asset manager in the country, with a 35.8% market share, followed by Stanlib with a 8% market share, Coronation with 7.5%, Allan Gray with 6.4% and Sanlam Investment rounding off the top 5 with a 5.3% share of the pie.
Together, these five big players account for 65% of the total market, made up of more than 90 players.
The data shows the Western Cape, historically the home of asset management in SA, continues to dominate the industry, with 36 firms managing a substantial R6.9-trillion.
27four said given the large number of players in the market, there was potential for consolidation as firms may look to streamline operations and solidify their positions in an increasingly competitive environment.
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