Pension fund trustees, fed up with the slow pace of transformation in South Africa’s asset management industry, have flexed their muscles and threatened to withdraw funds from those that don’t have Black ownership.
Coronation Fund Managers made this abundantly clear when it announced a R1.5bn BEE deal this month. It was a move not sparked by altruism or a desire for good PR; it was all about protecting the business.
Coronation, the country’s third largest asset manager with R667bn under its auspices, had already witnessed outflows from its funds to Black-controlled asset managers. Nor was it able to participate in industry surveys focused on Black-owned money managers, which limited its ability to attract assets.
Facing the risk of losing market share, it had little choice but to act.
Rand Merchant Bank (RMB) market client executive Isabella Mnisi says her office is fielding numerous inquiries from companies interested in BEE transactions, though none on the same scale as Coronation’s.
She expects more deals, likely between R200m and R300m, rather than Coronation’s monster R1.5bn deal.
“We could see quite a few deals in that range over the next year,” Mnisi tells Currency. “The push for transformation is now being driven by asset allocators, like pension funds.”
The lack of financial transformation in a country that is 81% Black is stark: firms that are at least 51% Black owned account for only 18% of South Africa’s total regulated savings pool, which is valued at R9.3-trillion, according to 27four’s 2022 BEE.conomics survey.
Shift in power dynamics
Pressure has been building for years. The Public Investment Corporation (PIC) – which manages funds for civil servants, including the Government Employees Pension Fund – as well as the Eskom Pension and Provident Fund, have been central to this pressure.
The PIC’s wallet, in particular, is a considerable influencing factor.
In the year to March, the PIC allocated R167bn – or 67% – of the R253bn it allocates to external managers to firms that were Black-owned and had 30% Black management. This is a step change from 2019, when only 17% was placed with Black firms.
Historically, most retirement fund trustees lacked financial sophistication, so asset managers mainly engaged with principal officers. As trustees have become more financially literate, they are now asserting greater influence. Institutions like the PIC and Eskom’s fund also pushed trustees to use their clout.
It sparked a major shift among pension fund trustees. “It’s almost as if they didn’t understand that the power sat with them, not with the asset managers,” says Mnisi.
This imperative is evident at other companies, too – notably Alexforbes, South Africa’s largest retirement fund administrator.
Alexforbes, which allocates R150bn to investment managers, has threatened to stop distributing funds to asset managers that don’t meet its transformation targets from July 2025.
“There might be some managers who think Alexforbes is bluffing,” Mnisi says. “But if they follow through and start withdrawing funds, it will send a powerful message that they mean business, and those firms will struggle.”
This is why Coronation’s deal to protect its market share sends a warning shot to other large managers that haven’t done deals of this sort, such as Allan Gray and Foord Asset Management.
The great asset crunch
Coronation’s empowerment deal will boost its Black ownership to 51% from 31%. Shares worth R1.21bn will be allocated to 193 Black staff, while R287m will go to a trust supporting public benefit organisations focused on empowerment.
CEO Anton Pillay acknowledges the stakes are high.
He tells Currency that Coronation had been working on the deal for six months, aiming to build on the success of its 2005 transaction, which it described as South Africa’s first staff-only BEE deal. That deal benefited more than 150 people, was fully funded – and paid for itself – and many beneficiaries remain shareholders today.
When you’re Coronation’s size, the deal was strategically necessary.
It sets the firm apart from rivals that don’t have BEE credentials and puts it on par with those that do, such as Sanlam Investment Management, linked to Patrice Motsepe, and Old Mutual Investments Group, where the majority of equity is held by Black senior management and investment professionals.
Coronation will still have a lower Black-ownership stake than rivals like Taquanta Asset Managers or Aluwani Capital Partners, but Pillay says it will “now be able to compete in spaces we couldn’t before”.
This is a competitive issue, as the battle to manage assets is intensifying.
Last year’s change to regulation 28 of the Pensions Fund Act, which allows investors to allocate up to 45% of their portfolios overseas, has seen South African managers lose mandates to international players better equipped to handle global investments.
“We’ve run some numbers at RMB that show local equity allocation has declined, and global equity allocation has increased, but the global equity allocation is not being managed by local asset managers,” says Mnisi. “So, if you’re a local equity manager, you want to hold on to it, because you don’t have global equity capabilities.”
The new two-pot pension fund system, implemented in September, has turned up the heat even more. Since pension fund members can now withdraw a portion of their savings earlier, this has reduced the local “pool of money”, says Mnisi.
Data from the South African Revenue Service shows that 1.15-million withdrawal applications have been approved, totalling R21.4bn, in nearly two months of the new two-pot system.
“You need to protect what you have,” Mnisi says. “Fund managers are fighting for assets in a diminishing pool.”
Coronation has shown what it is willing to do to retain the assets it controls; the only question is whether others can afford to delay doing the same.
Top image: Currency.