10X acquires CoreShares to create R31bn asset manager – first step in mission to become SA’s Vanguard.

10X CEO Tobie van Heerden and Gareth Stobie, his counterpart at CoreShares, join BizNews editor Alec Hogg to explain how having the two disruptors in a single unit will impact SA’s investment market. Van Heerden, appointed six months ago to lead 10X, explains how the acquisition of CoreShares is the first step in an ambitious plan to dramatically scale the business into becoming the local equivalent of global giants Vanguard and BlackRock.

Gareth Stobie on building a contemporary passive asset manager challenger brand

We started launching ETFs back in 2012 and then we launched CoreShares a couple of years later, in 2015. We have been on this journey to build a contemporary passive asset manager, challenger brand to some of the big market incumbents. 10X and CoreShares have followed a similar but different journey. 10X has been very retirement focused where we’ve [concentrated] on the ETF market. We also have a range of collective investment schemes but positioned slightly differently and, more recently, building segregated accounts for clients. We have often stood up at conferences, both promoting the passive markets, but Toby and his executive team approached CoreShares about a transaction. It really was a great fit in terms of our complementary product sets and also our complementary client channels. That is why it felt good for CoreShares to take this new step in our journey because we boost our assets from R12bn under management. Now under 10X that suddenly shoots over R30bn. In a passive industry where we scale everything, suddenly a lot of things start to click and we are very excited. 

Toby van Heerden on being in the South African asset management space 

It’s not there yet but we are on our way. If you look at South African industries, typically you get managers – especially in the asset space – stuck at R10bn. Then to make the move from ten to the thirties is quite tough. It’s a hard road. We’re doing it inorganically to R30bn but to move from R30bn to R50bn is pretty quick.

Gareth Stobie on 10X acquiring CoreShares

[Regarding] conversation we have had at a board level, they’ve been incredibly supportive shareholders for us, both in terms of providing growth capital. CoreShares runs a proper business. We have a highly talented team, best-in-class infrastructure around how we’ve been managing money. That takes some capital investment. We have also built a brand over the years. So, they’ve been very supportive from a growth capital perspective, guiding me and the management team. We had an honest conversation at board level that the scale is critical, the passive market. It was important for CoreShares to work out how, through time, we are going to unlock scale and if that means distribution partnerships, JV partnerships or indeed changes to shareholding, as a board we should be open-minded about that.

Toby van Heerden on scaling the business

When I took over in September last year, my mind was really going: where can 10X go? That is organic growth; looking at various things in terms of its current distribution channels it is servicing, what distribution channels it should be servicing, what product it has, where should the product range evolve to, what assets can you gain in those? We did a lot of work with that and I presented it to the board. We have a five-year view of what we are going to try and execute. These are large numbers we’re aiming for. We are thinking big. This is step one in a broader strategic rollout. In the next couple of months, we’ll be talking to you a bit more about the other things we are planning and doing. It is aggressive and it doesn’t say we are going to acquire the world. It is not about acquisition, it’s about doing interesting transactions; about the products deteriorating; our clients, getting this global mindset into our business and rolling that out.

Scale is absolutely key in the passive space. In an active business, the fee rate is effectively three, four or five times higher than ours. They make a lot of money on that. But they also have a slightly higher cost structure because they have got to pay for expensive portfolio managers. Whereas on the passive side, we have to get to scale to get the revenue in. Once we have the revenue in, the scale helps us to bring efficiencies in our business where we can bring administration costs down, operational costs. And this is where tech comes in for a passive business. If you can automate and bring in very clever tech into your business, you can reduce your costs even more. It is like quant client acquisition. How cheaply can you acquire a customer in terms of them accessing your investments through an application form? If you can do that for a fraction of the cost, your cost comes down. Then you can make more money, but you need scale to do that.

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