When multi-management was introduced in SA in about 1997, the pioneers included Superflex, a division of asset consultant Ginsburg, Malan & Carsons, and mCubed, which originated in a niche life office TimeLife.
mCubed’s methodology relied heavily on the pioneer American multimanager SEI. However, the US business preferred to style itself as a manager of managers. It was a heavy proponent of combining fund managers with different styles.
Initially it was split between value investors, which focused on the cheaper half of the market, and growth investors, which focused on the more expensive but faster growing (as the name suggests) part of the market.
Over time some other styles have joined the line-up. There is quality, which focuses on compounders that have strong brands, reliable incomes and generally are light in assets. There is also momentum investing, which assumes shares that have seen an increase in price will continue to increase in price. This is historically an unusual approach as most investors look for undervalued shares, or at least assume share prices revert to the mean. But momentum investing has added value over time.
SEI opened its office back in 1995, even before the overseas market was opened up to pension funds. That happened only in 1997, when a 5% exposure was permitted.
Global strategies for pension funds
SEI has the most experience of providing global investment strategies to local pension funds. It has always been heavy on technology. It perfectly complemented the highly technical approach of long-time mCubed chief investment officer Anne Cabot-Alletzhauser, who reputedly said: “It works in practice, but does it work in theory?”
Eugene Barbaneagra, SEI’s global head of quantitative investment management, calls the group a leading provider of financial technology, operations and asset management services. SEI, which has its main operations in Philadelphia and London, is a huge business.
As at June 30 it managed, advised on and administer $1.7-trillion in assets. This contrasts with other large multimanagers such as Frank Russell (in recent years it has dispensed with the “Frank” and is simply the Russell Group) and Mercer, part of the giant Marsh & McLennan insurance broking and consulting business.
It offers what used to be called multimanager solutions to clients, but — especially after the tie-up with SEI — pure quants solutions without active managers is often the right solution.
Russell and Mercer are far more relationship and marketing driven, as their core business is investment consulting to pension funds. Many of their clients are still in old-school split-funded products — for example, they invest with two or three generalist managers along the lines of the SA default, which is to split equally between Ninety One, Coronation and Allan Gray.
Barbaneagra says SEI no longer considers itself a multimanager or even a manager of managers. He says there are other ways to beat index fund returns than simply picking the “best” managers. This can be a risky strategy as it is investing by looking through the rear-view mirror — multimanagers inevitably gravitate towards last year’s winners.
For example, so-called quality managers such as Terry Smith at Fundsmith, Lindsell Train and GQG did well for about a decade until three years ago, but they have struggled more recently as the market cycle has changed. Barbaneagra argues that there is only one way to invest, buying shares that are undervalued based on their future profits.
After keeping quite a low profile over the past decade or so, SEI has opened up further through a new distribution. It has set up a partnership with local consultants Mentenova. It offers what used to be called multimanager solutions to clients, but — especially after the tie-up with SEI — pure quants solutions without active managers is often the right solution.
Mentenova claims to combine global best practice with deep local knowledge. It still focuses on manager selection, but it also takes responsibility for tactical asset allocation and puts a strong emphasis on risk management.
More specifically, Barbaneagra’s team will launch a global active factor equity strategy in alliance with Mentenova. It will include a basket of strategies implemented passively. Mentenova will supplement this with active satellite managers.
Changes under way
The big gorilla in SA multi-management remains Alexforbes Investments, previously known as Investment Solutions. Its Performer Fund is by far the largest in the SA market at R270bn under management. Its historical competitors joined up, with mCubed and PSG Escher merging, and later Momentum bought the combined group.
The life offices are moving out of direct asset management. Sanlam is in the process of divesting its direct asset management unit to Ninety One. After that it will focus on its multimanager, Sanlam Multi Manager, and its rapidly growing index fund business, Satrix.
Stanlib has already closed down its fundamental equity business, and runs its domestic equity via a quants process through the award-winning Rademeyer Vermaak.
Discovery has never had a direct asset management business, though it offers managed portfolios through its discretionary fund manager, Cogence.
The spotlight is on Old Mutual, which admits that its active equity unit is getting special attention, and there is speculation that this capability will be outsourced to an independent such as Coronation or Allan Gray. In the meantime, Old Mutual has changed the name of its multimanager to Symmetry, to give some distance from the mother brand and gain traction in the independent market.
• Cranston, a veteran financial journalist, is author of ‘The Mavericks’, a new book about SA fund management.
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