JOHANNESBURG - It's been seven years since the end of apartheid, but black South African money managers say they still are getting a raw deal.
Senior executives at black-owned money management firms say pension plan trustees and consultants generally have not supported them when hiring managers.
"The stigma of apartheid has stayed," said Tendai Musikavanhu, managing director of Umbono Asset Managers Ltd., Johannesburg, a newly established passive management firm partly owned by Old Mutual PLC, London.
The limited number of black investment professionals and the lack of support from large pension plans have hobbled the growth of a strong black-owned money management industry, he said.
The five largest black empowerment asset managers collectively manage around 55 billion rand ($6.8 billion) compared with total industry assets of at least 600 billion rand. "The proportion is minuscule," said Nku Nyembezi-Heita, chief executive officer at Alliance Capital Management Ltd., Johannesburg. (Firms with a strong focus on affirmative action in recruitment or where black people are majority shareholders are referred to locally as black empowerment companies.)
But trustees of some of the country's largest pension plans say they cannot hire black empowerment firms if the manager's performance is not up to scratch.
"Those ... who are crying should remember that performance, not blackness, will attract money," said Lumkile Mondi, a trustee of the 13.6 billion rand Transnet Retirement Fund, Johannesburg.
The five biggest firms
The five largest black empowerment money managers, the four biggest of which are based in Cape Town, are:
* Metropolitan Asset Managers Ltd., with 30 billion rand in assets under management;
* African Harvest Fund Managers Ltd., 10 billion rand;
* Real Africa Asset Management Ltd., 4.5 billion rand;
* Oasis Asset Management Ltd., 3 billion rand; and
* Alliance Capital, 2 billion rand.
"An `entitlement complex' seems to exist among many asset managers, who feel that they should be allocated funds to manage merely because they have opened their doors for business. ... Trustees have a fiduciary duty to their members to ensure that they have sufficient assets to retire on," said Ralph Franks, senior director at Alexander Forbes Asset Consultants Ltd., Johannesburg.
But even firms like Real Africa, Metropolitan and Oasis, whose domestic balanced funds have outperformed industry benchmarks in one- and three-year periods, say they are being overlooked.
Little has changed
Boetie Toerien, Real Africa's marketing manager, said there has been very little change in the balance of assets managed by long established money managers such as Old Mutual and Investec Group Ltd., Johannesburg, compared with those managed by black empowerment firms.
"Trustees have not done what they can to support black empowerment money managers," he said.
Metropolitan began pitching for third-party mandates in 1997, but business has been slow, said Philip Morrall, managing director. Currently 84% of the firm's assets under management come from its parent company, insurer Metropolitan Life Ltd., Cape Town.
But he believes trustees are concerned that black empowerment managers still don't have sufficient scale to handle large mandates. "A successful manager needs a critical mass of assets or at the first patch of bad performance firms will start to lose both clients and staff," he added.
A particular problem for relative newcomers such as African Harvest and Alliance Capital, which started in December 1997, is that they don't yet have track records of longer than three years.
Transnet Retirement's Mr. Mondi said his fund does hire newer teams so long as one member of the team has an established performance record from previous work at other management firms.
"If there are individuals in the empowerment team who have done well, we will invest starting with between 50 million rand and 150 million rand. We will watch them very carefully," he said.
Transnet invests with African Harvest and Alliance Capital but these mandates are under review following the adoption earlier this year of a new asset allocation strategy, said Esmarie Strydom, investment manager for the plan, who would not give further details.
Similarly, the 19 billion rand Eskom Pension & Provident Fund Johannesburg, has awarded domestic equity mandates of 450 million rand and 150 million rand to African Harvest and Prodigy Asset Management Ltd., Cape Town, respectively, said Abe Sithole, the plan's chief executive. Neither firm has a track record longer than a year, according to performance numbers published by Alexander Forbes Asset Consultants.
"But these firms have to start somewhere," said Mr. Sithole.
Mergers and acquisitions also can cause problems for pension plans that invest in black empowerment firms. The 500 million rand Boputhatswana National Provident Fund dropped Greenwich Asset Management Ltd., Cape Town, from a 125 million rand mandate after the manager was acquired late last year by Franklin Templeton NIB Investments Ltd., Cape Town, said Jeremiah Moropa chairman of the board of trustees.
He said the ownership structure of the firm had changed to the extent it no longer was considered a black empowerment firm.
John Bestbier, chief executive officer, Franklin Templeton NIB Investments, said he was disappointed at the loss of the mandate. He said the firm is putting effort into empowerment initiatives to make the firm's business more representative of South African society.
But the Transnet, Eskom and BNPF plans are among the few local plans that take black empowerment issues into account when hiring money managers.
Consultants say public sector pension plans and plans with a large number of union representatives on trustee boards are at the forefront of hiring black empowerment firms. Corporate plans rarely use black empowerment as a criterion when hiring managers.