Silverman: It used to be all Allan Gray, now Coronation walks on water

Investment Solutions is in the business of rating the performance of asset managers. It recently  concluded another round of discussions with 41 of these teams. Chief investment officer Glenn Silverman came through to the CNBC Africa studio today to share the findings – including his assessment that where Allan Gray reigned supreme a decade back, the crown has now switched to appropriately named Coronation. Can the new kings stay there? Silverman  has some interesting views on that – and on where the money management game is heading. – AH

GUGULETHU MFUPHI:  After ruling the asset management industry for a while, life companies have experienced a more difficult period over the last decade.  Joining us now for more is Glenn Silverman, Chief Investment Officer of Investment Solutions.  Glenn, the change that we’re seeing in the environment: what are contributing factors?

GLENN SILVERMAN:  We tend to do is spend a lot of time with asset managers.  We’ve just seen 41 of the most senior members of the asset management fraternity – the Chief Executive, and the Chief Investment Officer – and we got a lot of perspective, just on the world, so there are many things happening.  This is one of the sub-themes which we’ve detected from it.

GUGULETHU MFUPHI:  So what is happening?

GLENN SILVERMAN:  It’s interesting.  We’ve seen it for a long period of time.  You could have safely ignored the life companies and gone with the independents.  The Coronations, the Prudentials, and the Foords of the world have kicked butt for a long period of time – it has been a decade now.  You could actually have forgotten about the other ones such as Old Mutual, Asset Management Arms – and I know we just had that speaker on the phone – Stanlib, and the likes of Momentum etcetera really haven’t done anything.  I am detecting a change.

GUGULETHU MFUPHI:  The attraction towards the boutique route:  you also touched on the fact in this release that Old Mutual as well as Stanlib, have moved towards that.  What is the particular interest around that?

GLENN SILVERMAN:  It’s quite interesting because Thabo Ndloti, who was the Head of Old Mutual Business, at that point in time, had the feeling, and they’d a lot of time with consultants and others – that they had to compete.  They needed to compete with independents.  They saw that the best way to do that was through a long process, which they went through, is to set up a boutique structure.  In other words, separate boutique teams, with much more ownership, much more focus, and much more dedication, as well as hiring their own team etcetera, and being incentivised to do so, would be a good route.  He then resigns from Old Mutual, goes to Stanlib, and has done something quite similar in terms of the structures put in place there.  Two of the major assurers have now gone the route of boutique models.

ALEC HOGG:  What happens to the guys who were in the structures at Stanlib?  Do they join boutiques or do they depart?

GLENN SILVERMAN:  It depends on the model you put in place and actually, the models have changed somewhat, so with Thabo moving from one to the other there’s obviously new management in place now.  Old Mutual for example, largely has integrated research into the boutiques and that’s been the approach they’ve taken.  In the case of Stanlib where Thabo Dloti currently is, they’ve not gone that route.  You therefore have these different boutiques, but a more centralised research base behind it.

ALEC HOGG:  Glenn, why do you contrast the one up, which clearly, is Coronation – I mean, they’re shooting the lights out – and the one down, particularly over the past couple of years, is Investec?  What’s been happening in those two?

GLENN SILVERMAN:  Yes, funnily enough, Investec also has – kind of – a boutique-type structure in the sense that you have these different portfolio managers focused in different spaces.  They have growth, quality, and different types of boutiques.  Almost following the standard model in that you have research analysts supporting all the different portfolio managers – they don’t call them boutiques, but nevertheless, just to stay with the analogy  –  Investec have been unbelievably successful internationally.  I think much of the focus has been in terms of growing assets.  They’ve grown assets slightly less well in South Africa.  They lost a bit of market share locally.  Coronation has just trumped everyone, so Coronation has walked on water of late.  This used to be the Allan Gray.  Ten years ago, you’d speak about Allan Gray only and now everyone talks about Coronation.

GUGULETHU MFUPHI:  Is their company still well positioned for growth?

GLENN SILVERMAN:  I think the company is well positioned, mainly from the perspective of the team that is there: relatively young, very committed, and focused.  If you say ‘does arrogance exist’, I’d say ‘largely not’.  They’re focused on pushing their team very hard and their past success is something that they just don’t take for granted.  In the two-hour meeting we had with them, probably 50 percent of the time was spent talking about culture, this need to just keep challenging one another and drive harder, and I have a lot of respect for that.  That doesn’t mean performance can’t turn down.  They have had such a good period of time that they, themselves, caution that at some point in time it must slow.

ALEC HOGG:  That comes from Leon Campher – probably from the early days: ‘arrogance and complacency’ remember were the two watchwords he spoke about.  What about Allan Gray though?  Ten years ago as you say, everyone spoke Allan Gray.  They’re kind of sliding down market share, which is a surprise.

GLENN SILVERMAN:  You say it’s a surprise.

ALEC HOGG:  Well, it’s a surprise if you consider how well they…  If there were anyone that was going to challenge Old Mutual, you would have thought it would be Allan Gray.

GLENN SILVERMAN:  Yes, Allan Gray has had an interesting period of time.  Over the past ten years, we tracked staff changes in the industry.  They’ve had quite a few senior people who left.  Many times it’s been quite concerning, because you haven’t always been certain there’d been enough time for the new people to be inculcated in the new culture and yet, that’s not been the case.  They have some amazing transmission mechanism – osmosis – that they’re able to do relatively quickly, and bring the new people through.  In the institutional space, they definitely lost some ground, but they’ve been very strong on the retail side, making up almost 50 percent of their profits.

ALEC HOGG:  So if you were…with all that you know – these 41 different asset managers you’ve been researching – if you went down to one of the bottom guys and they approached you as a consultant, what would you advise?

GLENN SILVERMAN:  At the end of the day, I have a management research team who goes and does all the work for us, so they’re doing a lot more work than I am.  We’re seeing something like 400 managers every single year, both locally and globally.  In the past, they said ‘listen, you obviously have to see the life companies and if you see them once a year, it’s probably enough’.  My challenge to them is that that’s no longer the case.  Within those companies, there are some boutiques coming through, and independence is increasing.  Electus is one of the sub-boutiques within the Old Mutual stable, and it is actually going to be leaving the building soon, so different name, different brand, incorporated research into them…  That model has been taken out almost to the nth degree.  Can they compete with anyone else out there…why not?

ALEC HOGG:  Who’s hot and who’s not?

GLENN SILVERMAN:  Well currently, Coronation’s hot and the others aren’t.  The value managers have really found the going very tough.  They’ve had a terrible time over the last three or four years in Investec’s stable and yet, of late…quite a nice rebound, but it’s dependent on gold staying where it is, and some of these resources companies etcetera.  There’s therefore a lot of volatility still in the market.  While the market is holding its own, there’s a bit of changing styles, so you have a month where it looks fantastic in the one style.  A month later, it looks as though it’s going the other way.