Slow Progress Financial Mail 10 October 2008 By Stephen Cranston Many blacks hold senior jobs but developments at black boutiques are sluggish. The past year has proved to be a year of consolidation in the fund management industry's long road of change. It was a year with few notable moves. One of the most important was around the time that the FM published the feature a year ago - the move of Romeo Makhubela from Stanlib to take over as chief investment officer (CIO) of Metropolitan Asset Managers (MetAM). Soon after that Craig Whittle left the Old Mutual Investment Group (OMIGSA) value boutique to join Makhubela's equity team, to run small-cap funds and other portfolios. And more recently Ameer Amod moved to MetAM from Futuregrowth to beef up its quantitative management capability. Metropolitan already had Rejane Woodroffe on board. She is by far the most prominent black fund manager of international assets. She regularly appears in surveys such as "the young South Africans you have to take to lunch" and she was a rated economic analyst at Merrill Lynch (remember them?) She has stayed loyal to Metropolitan partly because it has accommodated her unusual lifestyle, which includes spending two weeks a month at her husband's guest lodge in the Transkei. Some moves have been out of the industry. Imtiaz Ahmed, the chief investment officer (SA) at Investment Solutions, left to join stockbrokers Macquarie First South as chief investment officer - though he might soon be bringing Macquarie buy-side products onto the market. John Oliphant, the head of quants at Stanlib has moved to become head of actuarial and investments at the Government Employees Pension Fund (GEPF) - making him a kind of glorified internal consultant. This has intriguing implications in the power struggle between the GEPF and its asset manager, the Public Investment Corp (PIC). It allows the GEPF to do more asset management in-house if it wants. Stanlib has a great depth of black (and other) talent and the quants team will now be run by Teboho Tsoletsi and Bonolo Zwane under the watchful eye of chief investment officer Patrick Mamathuba. Ashraf Mohamed has taken Makhubela's place in the Stanlib Multi Asset team. Patrick Ntshalintshali left Old Mutual, where he was cohead of Core Equity, to join Circle Capital, a private equity firm spearheaded by former UCT vice-chancellor Mamphela Ramphele. With markets being so volatile, private equity, where you do not have to worry about quarterly performance, looks like a refuge. Others have looked for a time-out in their careers, such as Kelebogile Moloko, who left Futuregrowth. Another top industry job went into black hands when Hugo Nelson took over the CEO's chair at Coronation from Thys du Toit. Nelson, a medical doctor who won awards as manager of the Coronation Resources and Top 20 funds, had been earmarked for the position since February 2007. It is certainly an important measure of progress that in the 11 managers that make up the Large Manager Watch (LMW), seven now have either a black CE or chief investment officer. The largest manager, Old Mutual Investment Group, has Thabo Dloti as CEO; Sanlam Investment Management's CEO is Armien Tyer; Mamathuba rose to become Stanlib CIO from being a personal assistant to then CIO Sidney Place, not an easy boss. At Investec, Thabo Khojane now has more than a year as CEO, though the Black Management Forum would be disappointed to see that John Green has maintained what looks like an oversight role as head of Investec Pan Africa. Oasis is the only LMW to have been black controlled and managed since inception. Adam Ebrahim, who was the first black portfolio manager at Allan Gray, has been the dominant influence on the investment process and he is now CEO, with brother Shaheen running the business as chairman. Tyer says to build the next sustainable generation of black fund managers it is important to build up talent from scratch. "We are very proud of the people who have joined us at the beginning of their careers and who are now among the best analysts in their sector, such as resources analyst Shoaib Vayej, construction analyst Michael Canterbury and Munaar Khan in small caps. "We have also been prepared to increase the responsibility of the people who we hire such as Natasha Narsingh and Nigel Sulaiman, who joined us from Metropolitan where they were resources analysts. Natasha now runs balanced and equity funds, Nigel is a key member of the team that runs the Sanlam Life money." Patrice Rassou, a Mauritian who is an award winning manager of the Old Mutual Mining Fund, has evolved into a key member of the equity team's model portfolio group. Old Mutual is also maintaining a pipeline of black managers. Under Dloti, one of the handful of executives at the corporate centre is Derrick Msibi, who ran private investments such as private equity and infrastructure funds before becoming director for sales & marketing. If you talk to him it is clear that private equity remains his passion, but he is also ambitious and keen to get well-rounded management experience. "I get a bird's eye view of the business from here," he says. Msibi blazed the trail for alternative investments, which is perhaps the most transformed part of OMIGSA, with portfolio managers such as Makole Maponya and Ismail Matthews. Under the boutique structure, adding a new person to the team adds to the overheads of the boutiques concerned and can be justified only when extra capacity is needed. There are two black boutique heads, Ben Kodisang - a veteran of old black economic empowerment (BEE) boutiques Prodigy and African Harvest - who runs the R26bn property boutique and Tendai Musikavanhu of index boutique Umbono (which, like Futuregrowth, was once a BEE business in its own right.) Godwin Sepeng, who used to run the Top Companies unit trust has moved to Johannesburg and now runs the Community Growth Fund and some specialist large equity mandates, including R18bn for the PIC. On the unit trust side another rising manager is Mandla Mapondera who runs the Old Mutual gold fund and works closely with head of resources Anwaar Wagner. And one of the handful of black actuaries in SA, Tassius Chigariro, is the investments structuring actuary who developed new hedge funds and structured products. He was a pension consulting actuary at Alexander Forbes (UK). There is also a pipeline of trainee portfolio managers such as Verusha Daljee and Feroz Basa in the value equity franchise; Mila Mafanya (appointed just in August) at the Core Equity team; Jacob Chacko in the infrastructure team; and Farhad Khan in private equity. And, of course, the largest fund manager in SA, the PIC, has an entirely black top tier. It is hard not to choose its CEO Brian Molefe as the most influential person (black or otherwise) in the fund management industry. Molefe was part of the treasury dream team that brought public finances from a hefty deficit to a budget surplus. When he joined the PIC in June 2003 he had been head of asset & liability management (responsible for issuing government bonds). He has been most famous for putting pressure on companies to transform their boards, resulting in public humiliation for companies such as Sasol and Barloworld. Ironically, he has been slow to transform the PIC's line-up of external equity managers - the asset management arms of the top life insurers of 1996 still run this money. Only one of its five managers, Futuregrowth (which inherited the money from the defunct Southern Life), was majority black-owned. But this year, even Futuregrowth has ceased to be a BEE fund manager, after OMIGSA bought Wiphold's two-thirds share of the business. The PIC has undertaken a long tender process, hiring multimanagers Advantage to reallocate R90bn of equity assets on a specialist equity basis, including sector mandates such as property. Raymond Ndlovu, head of BEE stockbrokers Noah says that this reallocation was an ideal opportunity to kick- start the black-owned fund management sector. "It is difficult to see long-term transformation until a significant amount of assets moves to black-owned managers." Apart from Oasis, the only other black-owned managers with more than R10bn are Taquanta and Kagiso. The R34bn-strong Taquanta is predominantly a cash and quantitative equity manager working on tight margins (see feature company). Its top management is still white but there are now key black decisionmakers such as Saleem Gamza, who runs the Nedgroup Money Market Fund, as well as Manas Bapela and Ahmed Manjoo on absolute return and equity funds. Kagiso began at the passive management arm of Coronation Fund Managers (they cut equity ties four years ago). But under CEO Roland Greaver it has evolved into a broader product set. Some people believe that Greaver, an experienced business manager at Sanlam, Gryphon and Coronation should have had the top job at Coronation, given his much greater general management experience than Nelson. But even Kagiso has not been able to grow over the past two years, remaining at the R12bn assets mark. Many black managers have already picked the low hanging fruit of the sympathetic public sector, municipal and union funds but are finding it tough to win mandates from corporate pension funds. Ndlovu says the current environment is not good for boutiques in general as investors see safety in large managers with at least R100bn under management. Pickings have been slim for even high profile black managers. Argon and Renaissance, for example, are both equipped to compete effectively for mainstream equity mandates but remain small. Argon has R4,6bn under management, Renaissance R3,3bn. The Renaissance team - with Khaya Gobodo as head of equity, Nothando Ndebele as head of research and Khulekani Dlamini as portfolio manager - inherited a gift for self-promotion from their days at Investec, and they are naturally articulate (perhaps sometimes a little bit too much so). CEO Tebogo Naledi has been at pains to say that Renaissance does not want to be pigeonholed as a BEE manager but it is still seen to be in this niche by most consultants and trustees. Mothobi Seseli at Argon, which has a six-month head-start on Renaissance, has built up a wider range of products, including bonds, cash and absolute return funds. It is hard to avoid Seseli, who seems to be waging a one-man campaign to bring kipper ties back into fashion. His investment colleagues may not have the decibel count of the Renaissance team but they have a strong pedigree: as well as founder members Duzi Ndlovu and Nazeem Hendricks, the team has been beefed up recently with the appointment of James Mohlaba, who was a senior fund manager at hedge fund group Brait Specialised Funds. After nearly five years, Mergence has R3,2bn under management, but MD Masimo Magerman says it does not intend to be an asset gatherer. It has a signifiicant hedge fund book and its absolute return fund is in the middle of the pack of CPI plus 5% funds, ahead of much more established names such as Foord, SIM and Stanlib. Mergence's head of asset allocation, Fabian de Beer, a former head of multimanagement at the Eskom Pension Fund, has a rare mix of experience in the BEE category. Black fund managers have enjoyed support through the 27Four BEE incubator fund, which supports emerging black managers and also provides a database for investors who want to make their own BEE investments. The 27Four MD Fatima Vawda was the first black fund of hedge funds manager in SA at Legae Capital, and will almost certainly be back in that game once her restraint with Legae expires. "But our business cannot survive on a niche BEE product on its own. We also now compete with multimanagers such as Advantage and Symmetry with mainstream products," she says. Vawda says that there is a particular shortage of black fixed-income management skills. But it is emerging, notably at the quantitative asset manager Prescient. People expecting to see veteran quant manager Herman Steyn presenting at the Nedgroup Investments quarterly roadshow would have been surprised to see Rashaad Tayob in his place. But after seven years he has been promoted to senior portfolio manager in the fixed interest team. The money market funds are run by Farzana Bhayat who has been in the cash team for five years. The top black fixed income manager in SA is Victor Mphaphuli at Stanlib, who recently took over from Henk Viljoen as manager of the bond fund. Many BEE managers are resigned to remaining in a niche and have moved into hedge funds where asset size is less important. Two of these managers have escaped the corporate environment of RMB Asset Management, still the most centralised of the large managers. They are Rayhaan Joosub of Sentio Capital and Malungelo Zilimbola of Mazi Capital. Mazi has a strategic alliance with the secretive, but highly successul Visio Capital group run by Patrice Moyal. Another niched hedge fund business is QT Capital run by Raphael Nkomo with a former proprietary trading team from Investec. The most high profile of this group is Asief Mohamed, who has been chief investment officer of MetAM and now runs his own boutique Aeon Global Capital.