What To Ask Your Asset Manager: Transformation

Meaningful transformation remains one of the biggest challenges for South Africa’s asset management industry.

The asset management industry is a key enabler of economic activity and plays a pivotal role in the functioning of our economy. According to ASISA, the local Collective Investment Schemes (CIS) industry finished 2023 with R3.5 trillion in assets under management, a new record for the industry. This makes the retirement industry a significant contributor to South Africa's GDP and its growth and developmental needs. 

At Futuregrowth we have long recognised that transformation requires much more than mere scorecards and tick boxes. When considering what is required for the transformation of our industry, we believe that asset management companies should consider not only the impact of their business and investments on the broader environment in which they operate, they also need to demonstrate a meaningful commitment to growing the pool of Black and female investment analysts and portfolio managers in South Africa.  

Where are we now?

The latest BEE.conomics survey (September 2023) compiled by 27four reveals the following insights on diversity, equity and inclusion (DEI): 

• Although 90% of participants acknowledge the significance of DEI in enhancing investment performance and revenue outcomes, only 49% have a formal DEI policy in place.

• Despite employing more women overall, the sector shows a gender imbalance in portfolio manager roles, where women are underrepresented. While an equal number of African men and women work as investment analysts, more African men hold portfolio manager positions.

• The shortage of high-level skills has resulted in intense competition, particularly for qualified African and female candidates, in an unequal playing field.

• Asset owners are increasingly backing women-managed funds to address the underrepresentation of women in the sector. The move aims to encourage greater gender diversity by giving more opportunities to women in asset management.

• Asset managers are also grappling with a new reality defined by complex regulations and rapid technological advancements, requiring skilled and experienced professionals to navigate this environment.

Source: BEE.conomics_Transformation_in_SA_Asset_Management   

Questions to ask managers

The asset management business is complex, and transformation is likely to take different forms. Here are some useful questions and checks for your asset manager, gathered from a combination of client interactions over the years, and our own experience. These aim to assist Pension Funds trustees when assessing asset management companies’ commitment to transformation. 

The company should be able to provide the following particulars: 

• lists of names of actual staff in the relevant categories; 

• clearly defined policies, that set out goals and objectives, and provide direction on execution and monitoring outcomes; and 

• evidence of actual examples to illustrate its answers. 

1. Equity ownership and voting rights

• What percentage of the shareholding is held by Black people and by Black women, respectively?

• What percentage of these have voting rights?

• What actions are being taken to address racial and gender gaps in either of the above?

• Can you provide your latest BEE certificate and the detailed report relating to this?

• What is your long-term objective in this regard?

2. Leadership/senior staff representation

• How many of the directors on your board are Black?

• How many of the directors on your board are Black women?

• How many key senior leadership positions are occupied by Black staff and by Black women?

• What are the following senior management ratios?

• The number of Black employees in senior management as a percentage of all senior management?

• The number of Black female employees in senior management as a percentage of all senior management?

• The number of Black African employees in senior management as a percentage of all senior management?

• Do you have a succession plan in place?

• What is your long-term strategic objective in terms of leadership representation?

3. Investment team diversity

• What is the size of your investment team?

• How many investment team members are Black and Black African, respectively?

• How many investment team members are Black women, and Black African women, respectively?

• Do you have any programmes in place to increase diversity in the investment team?

• How has the diversity in the team changed over the past 5 years?

4. Portfolio manager diversity and development

• How many Portfolio Managers (PMs) do you have?

• How many PMs are Black and Black African, respectively?

• How many PMs are Black women, and Black African women, respectively?

• Do you have any programmes in place to increase diversity in your PMs?

• How has the diversity in your PMs changed over the past 5 years?

5. Staff training and development

• What policies/programmes do you have in place for staff training and development?

• What do you spend in total on staff training per annum, and has this changed over recent years?

• What is the uptake of staff training opportunities among Black staff and Black female staff, respectively?

• In what way, if any, are your training opportunities geared to promote transformation?

6. Recruitment policy

In what way, if any, is transformation reflected in your recruitment policy?

How has your recruitment contributed to transformation of the business over the past 5 years?

7. Contribution to the industry

• In what ways, if any, do you contribute to the transformation of the asset management industry?

8. Investment strategies

• What role, if any, does transformation/socio-development play in your investment process?

• Are you able to measure whether your investments are contributing to transformation in any way?

• How do you measure/report on the impact of your investments?

• Do you engage with your investee companies on transformation-related matters, and if so, what is the process for doing this, and what results have been achieved?

9. Limitations

• What issues could prevent the business from achieving its desired targets?

• What factors currently limit your business from improving overall transformation and/or inclusivity?

• Can anything be done to mitigate these factors?

Evaluation

The answers to these questions should provide a comprehensive indication of the asset management company’s commitment to transformation, and its progress in this regard. The statistics obtained can be evaluated against some of the benchmarks suggested in the section “What should we aim for?” above, and gaps identified. The strategies and programmes in place in the company can then be assessed for effectiveness in addressing these gaps.

This article has been repurposed and updated from the late Mzukisi Ralawe’s original publication, for which we thank him.