By Gareth Stokes
The large fund managers looking after your clients’ retirement savings are revelling in the higher offshore limits introduced by 2022 amendments to regulation 28 of the Pension Funds Act. According to the latest Alexforbes Manager Watch™ Annual Survey of Retirement Fund Investment Managers, managers continue to shift capital away from domestic equity into offshore markets to access higher-quality stocks, particularly in sectors that are not meaningfully represented on the JSE.
Three decades of investment insights
Alexforbes’ Head of Investment Consulting, Janina Slawski, said that much had changed since the survey was first introduced 30 years ago. She commented on the ebb and flow of asset manager brands, perpetuated by market exits and merger and acquisition activity over those years. “We have seen a lot of change, some of the managers are still around in different forms, but others have disappeared,” she said. Further change is inevitable as asset managers reflect on assets under management (AUM), efficiencies, and offshore-onshore exposures.
The survey offers deep market insights informed by 30 large managers, including 15 multi-asset funds, 14 specialist funds, and one multi-manager. Beginning with the big picture, the survey showed a 5.8% growth in the number of asset managers from 87 in 2023 to 94 in 2024, and a 6.4% rise in strategies, from 749 to 797. One of the stand-out stats on the ‘strategy entries’ slide stems from South Africa’s transformation legislation. Managers added 45 Black Economic Empowerment (BEE) strategies to the mix, making for 165 such strategies in total. In contrast, there were only five new Global Best Investment View (BIV) strategies, and 47 in total.
Anecdotally, the most referenced information in the large manager survey deals with large manager rankings. The top five by AUM on 30 June 2024 were Ninety-One (R860.139 billion); STANLIB (R714.410 billion); Sanlam (R594.440 billion); Coronation (R572.812 billion); and Allan Gray (R561.349 billion). There were no major surprises in the top 20 rankings. Notable moves include Sanlam, which jumped two places thanks to its Absa Asset Management transaction, and Satrix, up three positions to 12th.
A barely visible trend
“The percentage of assets managed by the top 10 managers has been decreasing, with more going to smaller managers,” said Slawski. Not to nitpick, but your writer struggled to confirm this trend based on a slide going back to 2021. It is fairer to report that the share between top 10, next 10, and the remaining managers has locked into a 65:20:15 pattern. BEE featured again, with 19 out of the top 20 funds boasting Level 1 BEE ratings. Around 83% of the remaining managers achieved Level 3 or better.
The presentation finally got to the nuts and bolts of asset allocation and portfolio returns. A snapshot of SA Best Investment View (SA BIV) allocations on 30 December 2024 hints that asset allocation in that category is a two-horse race between SA Equities (67.36%) and SA Bonds (27.75%). This strategy included smatterings of SA Cash (5.22%), SA Listed Property (2.98%) and other. “There has been a relatively stable allocation to South African equity; South African bonds; and other asset classes over time,” Slawski said. She noted that funds’ exposure to alternative investments remained low, possibly due to liquidity concerns.
The picture changes for asset allocations across Global BIV strategies. “The Reserve Bank’s prudential allocations to offshore were increased early 2022,” the presenter said. Back in 2019, Global BIV strategies held 27.7% in global assets compared to 35.18% today. This global shift went hand-in-hand with a reduction in SA Equity exposures from 43.15% to 39.08%, on average. On 31 December 2024, these strategies also held 16.55% in SA Bonds, 3.86% in SA Cash, 3.22% in SA Listed Property, and 2.12% in other.
Managers quick to allocate offshore
Slawski said the shift from SA to offshore equities was not unexpected. “Once the door was opened to higher allocation offshore, asset managers could swap South African counters in their preferred sectors for superior counters offshore,” she explained. “Managers are not introducing more dollar exposure but upping the quality of the companies into which they allocate.” South African bonds remained attractive thanks to quite a substantial sovereign risk premium presently. As the presenter noted: “for as long as the sovereign continues to service its debt … there is a nice pickup [in this asset class] versus international bonds.”
From this point, attendees needed to brush up on their charting theory in order to interpret so-called box-and-whisker plots. These graphs offer a visual summary of funds’ performance data, showing how returns are distributed. The best or highest return sit at the top; the worst or lowest return at the bottom; and the median point somewhere in between. The median return refers to the return achieved by the manager that sits exactly in the middle of the performance ranking: so, half the managers did better, and half worse.
“These graphs give you a sense of how diverse returns are, or how clustered returns are around the median,” said Slawski. The first chart gave an overview of South African asset classes: equity, property, and bonds over one year. The highest earning equity manager was way above the median versus the worst performer, who was fairly close to it. “It is interesting to see the skill set over the last year in terms of equity managers versus property managers; there was some real outperformance in equity, and some real underperformance in property,” she said. Bond returns were clustered in a narrow range, as expected.
Best and worst converge over longer timeframes
Turning to strategies, the SA BIV showed a return dispersion from around 12% to 19% over one year, narrowing to 7% to 10% per annum over 10 years. Key observations from this slide include that the mix of assets reduce the volatility on display from a single, riskier asset class, and the absence of currency-related variability. Under Global BIV strategies, the one-year return ranged from 9% to just over 20%, with the median nearer to 15%. Over 10 years, this strategy delivered a median return of 9% annually, with a low of around 6% and a high of 11%.
A key observation here is that the larger allocation to offshore asset classes contributes to significant return variances across asset managers. “Today, you have managers who are still relatively low offshore [compared to] managers who are keeping their allocation at 45%,” Slawski said.
