Few financial groups have had a well-developed incubation programme. There have been a few ad hoc investments into start-up asset managers, such as Old Mutual’s into Cachalia Capital and Sanlam’s into First Avenue, but little on a sustained basis.
There is an element of incubation in the allocations to smaller managers by the Public Investment Corp, as well as by multimanager 27four. But neither of these has invested permanent capital in these managers or provided formal logistical or distribution support.
So when RMI Investment Services opened last year under former RMB Morgan Stanley boss Chris Meyer, it was the first mover. RMI has an advantage over Old Mutual, Sanlam and Stanlib as it does not have an incumbent legacy fund manager. And much as it has no desire to hold more than a minority stake in Discovery or MMI, RMI holds minority stakes in its affiliates. It is a model adopted from the US-based Affiliated Managers Group, which owns 25% of midsized Cape Town manager Abax.
“RMI comes from a group which has encouraged the development of entrepreneurial businesses,” says Delphine Govender, chief investment officer of Perpetua, one of the first RMI affiliates, “and it came with a reputation of noninterference, which it has stuck to.”
Govender says she believes RMI really wants to build up the next tier of managers with scale. “We hope that with a shareholder of the stature of RMI the consultants and other gatekeepers will at least listen to us, instead of giving all mandates to a handful of large managers.”
RMI did not originally offer much distribution support beyond access to Meyer’s Rolodex. But it has not stinted in recruiting some top names in distribution, such as Alida de Swardt, head of financial institutions distribution at the global markets division of Rand Merchant Bank, and Kevin Hinton, former head of investment distribution at Momentum Life. The third member of the triumvirate is Zamazulu Molai, the most celebrated distribution executive at Coronation since Magda Wierzycka left more than a decade ago.
Meyer says that the in-house distribution will focus primarily on top independent financial advisers, linked product platforms and multimanagers.
But it also hopes to get support from the MMI distribution platform. The life assurer accounts for 10% of the savings market, says Meyer.
There will be the opportunity to pitch for part of the MMI life assets. Part of the Momentum Asset Management team has moved to the BEE start-up Aluwani. The rest are waiting to be allocated to the new MMI outcomes-based investment unit, which will outsource the underlying fund management.
RMI has chosen to invest in a range of managers which each has a distinctive character. There are no low-tracking-error, follow-the-herd shops.
For those who want it, there is Coreshares, which used to focus on exchange traded funds, but has expanded.
Coreshares is quite unusual, as it has two other corporate shareholders: Yellowwoods, which controls Hollard, and Grindrod.
Meyer says he saw the potential for passive products when he was in the US and UK and says RMI cannot afford to ignore this sector in SA. If Coreshares proves to be competent there is no reason why MMI and Discovery shouldn’t both use it for their index funds. Right now it is the smallest of the affiliates, with R1.5bn under management.
The sweet spot for affiliates has been around R4bn. Perpetua, Tantalum Capital and Northstar are all this size. In Delphine Govender, Perpetua has the most celebrated fund manager in the line-up. She worked for 11 years at Allan Gray. Until recently, though, it was struggling, as it is a deep-value manager. But Govender says it is important that fund managers perform as you would expect them to: RMI certainly didn’t interfere.
Tantalum is the oldest affiliate, having been started in 2005.
It originally focused on hedge funds but as that industry refused to grow it changed tack. Co-founder Rob Oellermann says there is enough difference between all the affiliates to be able to say they are not direct competitors. Northstar, for example, veers towards quality, not value shares, and has a background as a private client manager, and the largest affiliate, Sentio Capital, with R7bn under management, has a background in absolute return funds.
RMI also has an affiliate in its own name, RMI Specialist Managers (RMISM), in which it has a majority stake.
Some asset managers do not want to take the risk of starting their own shops, and among these was the former fixed-interest team at Cadiz, led by Jonathan Myerson and Bronwyn Blood. It has launched the first three unit trusts under the RMISM brand — a money-market fund, a multi-income fund and an unconstrained fixed-interest fund.
RMI has embarked on the next phase of its programme.
In April, Kabelo Rikhotso, previously head of portfolio management at Investment Solutions, began an incubation programme for early-stage black managers. It is a joint venture with Royal Bafokeng Holdings, RMI’s BEE partner.
Rikhotso says there will be an emphasis on helping the underlying companies to run their businesses, which the affiliates in the core RMI portfolio should already know.
“We will play the role of a coach,” he says.