Blue Chip Issue 86

BLUE
CHIP
On the money
Making waves this quarter
The future of the local DFM sector and a motivational read
NEW REPORT SHINES LIGHT INTO THE FUTURE OF SOUTH AFRICA’S DFM SECTOR
South Africa’s Discretionary Fund Managers (DFMs) will play a vital role
to financial advisors and wealth managers as they face a barrage of
complex investment decisions, a new report reveals. The report, created
by The Collaborative Exchange and sponsored by financial technology
provider Bravura, pinpoints the growing prominence of global passive
investments and ESG filters in portfolio construction, combined with
the rise of alternative strategies as a driving force of change across the
market. This leaves a large proportion of financial advisors and wealth
managers now sub-delegating their selection of investment managers
and asset allocation to DFMs, particularly to those who underpin their
offering with technology to aid investment decisions. While this is good
news for DFMs, the report identifies various longer-term challenges for
the sector that has mushroomed over the past two years. These include
potential regulation from industry bodies including the Association
of Savings of South Africa, which could place DFMs under further
scrutiny, and may include more onerous barriers to entry and the
standardisation of investment performance analysis.
However, larger DFMs with access to scale, market-proven
technology and extensive research capabilities will be able to weather
these challenges and are set to increasingly dominate, according to
the research. The report also predicts there may be several corporate
actions and mergers in the pipeline, such as Glacier’s recent acquisition
of Absa, to help with further market consolidation. Kevin Hinton, CEO
of The Collaborative Exchange, said: “While this research paints a mixed
picture, ultimately it highlights the crucial role DFMs play for wealth
managers and financial advisors. DFMs have shown good growth in
assets under management or administration since 2019, although we
expect a combination of regulation and
market saturation to put a dampener on
this in the future.”
Carolyn Erasmus, Country Head South
Africa at Bravura, added: “Across the board,
the current backdrop of a worldwide
downturn and inflation is causing huge
pressure in the sector. With regulation
expected to arrive shortly, we’re seeing elements of this report mirrored
in real life conversations, as DFMs look to cement their position in the
market with industry-leading technology that helps make sense of
complexity and create value right through the industry chain.”
According to The Collaborative Exchange’s data, the larger DFMs have
been growing their ZAR assets by more than 15% Compound Growth
Annual Rate (CGAR) over the past three years ended 31 December
2021. There are, however, several outliers that have underperformed
while exposing investors to higher volatility. Moreover, there has been a
plethora of new entrants, since The Collaborative Exchange’s last report
in 2019.
The research was conducted as part of The Collaborative Exchange’s
South African Discretionary Fund Manager Survey which aims to create
a single reference and guide capturing the breadth of information
regarding DFM service models in South Africa. In total, 26 DFM businesses
were surveyed, including 11 larger DFMs with AUM greater than R2.5-
billion were surveyed in 2021.
The report can be accessed via this link (note subscription required)
https://www.thecollaborative.co.za/dfmsurvey.
WE PROVIDE
PEACE OF MIND
MitonOptimal provides advisers with peace of mind by offering
established investment expertise, dedicated support and long-term
partnership in managing their clients’ investment affairs.
George Dell | Executive Director, Discretionary Fund Management | E: george@mitonoptimal.com | T: 021 689 3579 | www.mitonoptimal.co.za
Issued by MitonOptimal Southern Africa Group (MitonOptimal). MitonOptimal South Africa (Pty) Ltd, registration no. 2005/032750/07, an authorised Financial Services Provider (“FSP”) with
license no. 28160. MitonOptimal South Africa (Pty) Ltd complies with all the requirements of the Financial Advisory and Intermediary Services (FAIS) Act (Act 37 of 2002).