FM Survey 4 May 2012

F I N A N C I A L M A I L M AY 4 , 2 0 1 2 3

Miller says he would like to see AbsaInvestments grow into a heavyweight in-vestment house with at least R200bnunder management, with assets undermanagement growing at 15%/year —since 2005 it has, in fact, grown by

18%/year — superior in-vestment performance.

It has a full range ofinvestment products andservices, a powerful brandknown for quality cus-tomer service, which pro-vides shareholders withoutstanding results. Return

on equity is already more than 40%.With attributable earnings of R312m,

it is still small in the total Absa Group,but it has considerable operationalleverage — any increase in assets undermanagement will increase earnings dis-propor tionately.

It was decided to put the Absa In-vestments business into one campus atEmpire Road, which had originallyhoused Absa Trust. Abvest minoritieswere bought out. The investment team,with two exceptions, decided not to re-locate to Johannesburg, soMiller was able to build hisown team — Absa AssetManagement (ABAM).

That is what Miller likesto call a “one-stop invest-ment shop”.

In its most recent annualresults, Absa Investmentshad R168bn of assets. With a head countof 428 people, it is a tight ship comparedwith many of its peers, considering thatit covers institutional and private clientasset management, multimanagement,stockbroking, part bonds and linked in-ves tments.

Calculated moveAbsa Investments is a ’one-stop shop’ for generating wealth

WHAT IT MEANS

> Assets have morethan doubled toR168bn

> Group has shed theone-trick pony tag

Absa Investments is emerging as oneof the strongest contributors within theAbsa Group. Yet just seven years ago itdid not exist in its present form.

“I could see that there would bestrength in an integrated manufacturing,packaging, administration and sales busi-ness,” says CEO Alan Miller, who joinedin 2005.

That was not the case in 2005 whenthe asset manager, then Abvest, wasbased in Cape Town and most of the unittrusts were managed by third parties.

Though the Absa sales force was usingAbsa Investment Management Servicesas its linked provider, it gave little sup-port to the underlying Absa unit trusts.The investment units within Absa re-ported to different executive committees.

“We had endless debates about theright levels of intercompany charges,which were destructive,” he says.

Alan Miller

CORPORATE REPORT ABSA INVESTMENTS

4 F I N A N C I A L M A I L M AY 4 , 2 0 1 2

administering andmarketing the retailinvestment portfoliosfor ABAM and AbsaMulti Management. Itis one of the two largeadministrative enginesin the group.

The other is AbsaInvestment Manage-ment Services (AIMS)— the linked invest-ment business. Millersays Absa requires itsadvisers to use theAIMS platform as away to protect clientinformation. “Do I re-ally want a competitorto be able to mine anAbsa client’s informa-tion because he sits on,say, the Momentum platform?”

Depending on their level of quali-fications and accreditation, Absa advisersare now required to select from ABAMand Absa Multi Management funds. “Ifclients are unhappy, we can protect our-

selves as our advisersare obliged to gothrough an investmentrisk profiling analysisbefore putting clientmoney into unit trusts,”he says.

And because bothABAM and Absa MultiManagement now havecredible records in theequity, balanced and ab-solute return space,these funds can be of-fered without too muchresis tance.

“We do not try to befancy, but I think wehave got the basicsright,” says Miller.

For people who prefermore tailored invest-ments, there is ABAMPrivate Clients, whichfocuses on segregatedprivate portfolios andhas its own investmentprocess, but whichshares macroeconomicresearch with ABAM.

Absa Investments of-

fers products and ser-vices to individual in-ves tors looking either tosave monthly or invest alump sum. And it alsooffers asset managementto institutional investorssuch as the Public In-vestment Corp as wellas a place for corporatetreasuries to parkmoney in the AbsaMoney Market Fund. Itis one of a handful ofproviders of participa-tion mortgage bonds —through Absa MortgageFund Managers —which are still a reliablesource of income in ex-cess of cash for thosewho need it. Multiman-

agement provides solutions to institu-tions, financial advisers and direct clientswho prefer a blend of managers.

Being part of the Absa Group, AbsaInvestments insists on some of thestrictest risk controls in the investmentworld. It is designed to complement thebanking offerings in the group by pro-viding a range of wealth-building andwealth-preservation opportunities.

Absa Investments avoids flavour of themonth products. It has no hedge fundsor funds of hedge funds, no privateequity, not even a small cap or a re-sources unit trust.

The closest it gets to a theme fund isthe Property Fund run by MarietteWarner, which is a very popular unittrust category.

Miller says the advantages of beingpart of the Absa Group outweigh thedisadvantages. It is a problem to getclients to associate the Absa brand withinvestments rather than banking, butAbsa is seen as a secure partner. Andthere are 1m customers that use AbsaOnline, which has a convenient link tothe Absa Investments website.

Miller is not concerned that there areother pockets of asset management inthe group, notably the Exchange TradedFunds business in Absa Capital. “We area mainstream investment business. Therewill always be a role for merchantbankers to design niche products. We aremore concerned about helping the publicwith their savings.” ■

“I could seethat therewould bestrength in ani nte g ra te dm a n u fa c tu r i n g ,pa c ka g i n g ,a d m i n i st ra t i o nand salesb u s i n ess ”

—ALAN MILLER

When Miller joined, Absa Investmentswas something of a one-trick pony withhalf of its money in the Absa MoneyMarket Fund. Abvest had little successgrowing the balanced, equity and bondassets. But last year, equity and assetallocation funds increased by 42% toR44bn.

ABAM has proved to be among thetop-performing asset managers in thecountry since the current team underErrol Shear started managing the moneysix years ago. Its domestic balanced port-folio is second out of 15 over five years toFebruary 29 and its much newer globalbalanced fund is third over one year. Onthe back of this track record, ABAM hasbeen SA’s fastest-growing large fundm a n a ge r.

Miller says the time has come to letpeople know more about AbsaInvestments, which is spending more onadvertising to show the extent of itscompe tences.

ABAM sister companies include AbsaFund Managers, which holds the Absagroup’s collective investment schemelicence and which is responsible for


ASSETSUNDER MANAGEMENT5yr CAGR*: 18% vs industry 11%

2005 2006 2007 2008 2009 2010

72,4

Asset under management as at 28/08/2012 = R175,2bn

*Compound annual growth rate

SOURCE: ABSA

Rbn

96,6118,2 116,9

144,8163,4

THE UPS AND DOWNSGrowth in unit trust equity & asset allocation assets

2005 2006 2007 2008 2009 2010

2,5

Unit trust equity & asset allocation AUM as at 28/02/2012 = R21,8bn

SOURCE: ABSA

Rbn

3,0

8,87,0

9,8

14,3


Quality is king

For about five years Absa had the un-satisfactory arrangement in which its as-set manager (then Abvest) was in CapeTown and was not wholly owned. Itreceived only limited distribution supportfrom the group. It was profitable onlybecause of the fees it earned on themoney market funds. Equity, asset al-location and even bond mandates weresubscale.

After Alan Miller persuaded ErrolShear, a senior portfolio manager atStanlib, to come to Absa as chief in-vestment officer, he had the chance torebuild the team in Johannesburg inclose proximity to the rest of the group.

Absa Asset Management (ABAM) hasa tight team with Shear as the leadportfolio manager for the equity andasset allocation funds. There is a singlephilosophy, which Shear likes to call“pragmatic value”. It has a quality biasand pays little attention to bad com-panies in trouble “because they often

remain bad companies”.He does not believe in holding shares

simply because they are in the bench-mark. “Anglo American is 8% of the allshare index, but in 2008 we had a zeroposition for some portfo-lios. Mr Price is outsidethe Top 40, but I am gladwe owned it as it grewfrom R15 to R100/share.

“We are more likely todo well when we havefewer restrictions. I do not believe in thevalue of sector funds such as small capsand financials,” he says.

Though he likes dividends, Shear saysit does not always make sense to focusentirely on high dividend shares.“Naspers is not a generous dividendpayer, but for many years its share pricehas been at a significant discount to thesum of the parts.”

Shear’s selection is eclectic. In theAbsa Select Equity Fund, Anglo Amer-

ican is the biggest share, followed byBHP Billiton and Sasol. But the Top 10also includes Spar, Adcock Ingram andAV I .

Absa itself is the fifth-largest holding,but Shear says that there has never beencorporate pressure to own the share. “Wehave no day-to-day interference and thatis helped by the fact that we are a fewkilometres from head office in Parktown.”

Shear’s senior colleagues includeStephen Arthur, the former manager ofthe award-winning Nedcor InvestmentBank Flexible Fund. He is a miningengineer and takes lead responsibility forthe resources coverage.

There is also Greg Kettles, a formermanager of the Stanlib Financials Fund,who runs the international equities. Ma-riette Warner, a seasoned specialist inproperty and multiple industry-awardwinner, runs the property investments.Other experienced members of the equityteam are Michael van Andel, DaleHutcheson, Louis Chetty and FayyazMottiar. Pumla Molope recently joined

the team as a traineeportfolio manager.

Juan Bekker, part ofthe cash team at Stanlib,now applies his expertiseto the Absa Money Mar-ket Fund along with Re-

hana Rungasamy, who also runs the In-come Enhancer Fund.

Out of the R103bn managed by ABAMas at February 2012, R60bn is in the

money market fund, about R20bn inequities, R17bn in various asset allocationfunds and R6bn is in other fixed income.

The company has a good balance be-tween institutional and retail business.The biggest client is the Public Invest-ment Corp, with a large general equitym a n d at e .

Taking full advantage of what the grouphas to offer

WHAT IT MEANS

> Boasts an experiencedand dedicated team

> Products tailored toc l i e nts ’ w i s h es

Absa Asset Managemet Value5 year cumulative performance

200

220

180

160

140

120

100

70

2007 2008 2009 2010 2011 12

GAUGING GROWTH

SOURCE: ABSA

Absa Asset Management value

FTSE/JSEall share index

Errol Shear


considered a single sales team for retailand institutional investors. But it soonrealised that the two markets haveunique needs and had to have inde-pendent sales teams.

“Most institutionalclients prefer tailor-made solutions ratherthan off-the-shelf typeproduc ts.

“There are also spe-cific issues such as asse tallocation regulationsand the challenges ofmember-level invest-ment choice.”Musundwa believes thateach client should have abusiness consultant whocan be a single point ofcontact for all queriesfrom trustees and thefund.

“To help the teambuild relationships withasset consultants, wehad to consider that


Busisa Jiya

ABAM offers segregated portfolios forclients with more than R50m, both insingle-asset classes such as equities andmulti-asset class risk-profiled funds.These allow portfolios to be tailored per-fectly with the requirements of eachclient, though the composition will oftenbe very similar to those of the pooledportfolios, as ABAM operates with asingle investment philosophy.

C lients have usually been attracted toABAM by the reputation built up by theequity, balanced and absolute funds.

Shear is a believer in going out andgetting his hands dirty by visiting com-pany management. ABAM keeps track ofquantitative factors but Shear believescomputers cannot replace analysis on theground by experienced investment pro-fessionals. He says at least 80% of theresearch should be generated internally,but there is scope for some selectedresearch from stockbrokers.

ABAM is probably not going to fulfilthe needs of clients looking for a spec-

Mariette Warner

ulative, short-term or momentum-basedstrategy. Long-term quality and valuewill always be at the heart of the in-vestment approach.

Shear says there are numerous benefitsto being part of a large group. It canafford to invest in the best informationsystems, such as Charles River, Statpro,HiPort and Barra. There is huge dis-tribution from the branch network aswell as from the 1 000-strong Absa bro-ker force, by far the largest bank brokerin SA. The Absa brand gives ABAMinstant recognition, but almost everyoneassociates Absa with retail banking andnot yet with investment excellence. Theexperiment of renaming the business Ab-vest and distancing it from the bank wasnot, however, a success.

But (except, perhaps for the moneymarket fund) ABAM cannot rely on theAbsa channels for support. It has toprovide quality products. With a stream-lined uncluttered approach, it is startingto achieve that. ■

Absa Investments is now at the stagewhere its products are a success and itcan market them with renewed con-fidence. To give extra focus to Absa AssetManagement (A BA M ) and to help itmeet its ambitious goals, Alan Millerhanded over the reins to Busisa Jiya inOc tober.

Miller remains managing executive ofthe Absa Investments cluster.

Jiya was head of Stanlib Multi Man-ager and also a former principal officer ofthe Eskom Pension & Provident Fund, aswell as MD of Thomson Reuters Africa.

“Over the past five years the invest-ment team has been allowed to con-centrate on portfolio management.

“We are now ready to take that offeringwith confidence to asset consultants, ac-tuaries and retirement funds,” Mi l l e rs ay s .

ABAM has established a focused in-stitutional sales team under SnowyMusundwa, previously with Stanlib andAlexander Forbes. The primary focus isto increase assets under management.

Musundwa says Absa Investments had

I N V EST M E N TS

The changing of the guardsome consultants such as Riscura preferspecialist mandates while others, such asTowers Watson and Ginsburg, focus onbalanced funds.”

Jiya says many people do not yetrealise that ABAM is now the ninth-largest asset manager in SA, with morethan R100bn under management. How-ever, he says it still punches below its

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weight in institutional segregated man-dates, which make up just 25% of assets,with the rest in unit trusts.

A BA M ’s two largest clients are thePublic Investment Corp, with which ithas an equity mandate, and the AbsaPension Fund.

Musundwa says pensions would ratherappoint a fund that is consistently in thetop quartile rather than one that is at thevery top and can only go down.

ABAM is in the fortunate position thatthe two most successful asset managersof the past five years in terms of assetgrowth, Allan Gray and Coronation, haveclosed their specialist equity and bal-anced business to new institutionalclients. It has taken some scalps, with anew R600m client this year, R300mfrom a multimanager and R1bn in newmoney from existing clients.

The asset manager holds high hopesthat it will start to win institutionalproperty mandates, following the ap-pointment of Mariette Warner last year.

Jiya says a key message that needs tobe sent out is the importance of eachmember of the team, as there is still aperception that there is a high level ofkey man risk in chief investment officerErrol Shear. “We will be giving ourclients and potential clients more ex-posure to the rest of the team.”

There are some experienced people toflaunt such as Warner, Stephen Arthurand Greg Kettles.

Nonetheless, Shear’s reputation fortreating client money with the greatest

respect, and the painlosing money causeshim, have set thetone for the entire in-vestment approach.

“We don’t managemoney against thepeer group. And wedo not hold sharessimply because theyare in the bench-mark. We negotiatewith each client as totheir expectations,though most of theirneeds are covered inthe specialist equity,absolute and bal-anced mandates,”says Jiya. ABAM iscertainly not trying

to offer all products to all clients.Jiya says that clients get comfort from

the fact that ABAM is a single philos-ophy house with a straightforward com-mon sense approach to investment. Theinvestment professionals team managedby Shear sits together and everyone iswithin eyeball range. If decisions have tobe taken quickly, an ad hoc meeting canbe set up.

Buying decisions are also taking sur-prisingly quickly for a unit of a giantfinancial services group. For example, itrecently decided to buy the Charles RiverInvestment Management System.

Jiya says ABAM is well placed tobenefit from the trend back to balancedmandates, in which the fund manager isgiven responsibility for both asset al-location and securities selection.

“We don’t believe in tacticalasset allocation on a standalonebasis. We can give the best out-performance to clients when allthe levers are in our hands.”

He says it is critical thatABAM does not take the busi-ness it has won from the AbsaGroup as captive business. “Wehave to keep delivering the ap-propriate investment returnsand service to maintain thisbusiness.”

A focus on retailSylvester Kgatla oversees

product development at Absaand this is an increasingly com-

plex process, involving detailed analysisof the business case and often manyhours liaising with the Financial ServicesBoard.

Absa Investments still needs to get itsproducts rubber stamped in the Absaretail distribution channels by the prod-uct clearing house headed by TrumanZuma, who, like several of the seniorAbsa Investments team, previouslyworked for Stanlib. Kgatla says that theintention is to reduce the number offunds.

It has refocused its fund of funds rangeinto the more clearly defined CPI Plus 3,4, 5 and 6 range.

It is an indication of the winner takesall nature of unit trust sales that after 10years the Rand Protector has barelyR300m while its main rival has morethan R7bn, despite ranking in the topquartile among its peers.

Absa has also decided not to followStandard Bank, which has three separatemoney market funds. It has kept a singlefund as the retail flows are quite smooth,but institutional clients can be verylumpy. There was an outflow of morethan R11bn by institutional clients fromthe money market fund in 2011 as thefund delivered returns that were lessthan the inflation rate.

At Absa Investment Management Ser-vices (AIMS) the big development is thenew select platform. AIMS has thewidest range of any linked producthouse, with 700 funds on its platform.The new platform will have 85 funds,still a few more than the Investec FundSelect and Allan Gray.

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“Absa wanted to restructure its rangeas 80% of its flows were provided byapproximately 20% of the funds. Wethink this will soon be our primaryplatform and the original AIMS platformwill eventually be closed,” says Kgatla.

Another sales opportunity is openingup with the proposed tax-sheltered sav-ings funds in which investors will be ableto invest up to R30 0 0 0 /y e a r. Indicationsare that costs will be capped at a lowlevel, giving Absa, with its large branchnetwork, a competitive advantage overmany other asset managers.

There is a gap in the range right now.An offshore endowment was offered onthe Absa Life licence, which invested inthe London 360 product — which re-cently pulled out of SA.

In the more niched areas, Absa islooking at the introduction of an IslamicBalanced Fund — Absa already has aShariah Top 40 ETF managed by AbsaCapital.

And it is also working hard on anAfrica equity fund. Jiya says there is a lotof work involved along with several reg-ulatory hoops to get through. He isaiming to take it to market in early 2013.It still has to appoint a specialist Africafund manager, which is essential.

“Our links to Barclays should proveinvaluable. It helps when investing in theAfrican markets to have a reputation anda good calling card,” he says.

Another challenge will be to give someimpetus to the Fundisa product. This isan income fund that provides bonusunits to clients who stay in the fund forat least five years. This was given in

preference to a tax deductionas few people in the targetmarket pay income tax.Kgatla says that unfortu-nately only R5m has beenattracted into the fund.

“This product was consid-ered an advice product. Theadvisers have to go through afinancial needs analysis be-fore they can sell it, and for aproduct with a minimum in-vestment of R40/month,t h at ’s not practical. IfFundisa could be sold overthe counter at the branch, wecould conservatively sell sub-stantial amounts permonth.” ■

Absa Asset Management Pr i vat eClients provides personalised port-folios for clients large enough todemand bespoke portfolios. It startsbuilding private portfolios at R1mand manages two fiduciary unittrusts for Absa Trust targeted atsmaller clients with total assets ofR1, 3bn.

Private Clients has R6bn undermanagement. Many clients are at-tracted by its s tability, backed by theAbsa group and ultimately by theBarclays balance sheet. It has a closerelationship with the high-perfor-mance Absa Asset Management(ABAM) team, sharing daily morn-ing meetings and asset allocationsummits.

Investments GM Craig Pheiffersays Private Clients is known forgood investment performance aswell as service. After fees, it re-turned compound annual rates of14,4% in its Core Equity Fund overone year, 20,1% over two years and28,7% over three years — in allperiods well ahead of the all shareindex. He says the average client ageis close to retirement as its targetmarket is people who have alreadymade money and now want it to bemanaged well.

Unlike most of its competitors inthe high net worth private clientspace, it relies entirely on fee in-come from clients and does not earnany brokerage. Portfolio dealing isthrough Absa Stockbrokers, which is anentirely separate business.

Pheiffer says it shares ABAM’s com-mitment to the long-term approach. Itfocuses on shares that have deliveredconsistent performance over time. “Webelieve that our clients need to be able tosleep at night,” says Pheiffer. Pr i vat eClients has a number of portfolio man-agers who operate in a common stockselection, asset allocation and portfolioconstruction framework to ensure port-folios meet client expectations.

It focuses on large-cap shares, usuallywith at least a R20bn market cap andeach share has to represent at least 3% of

PRIVATE CL IENTS

In it for the long haul

the portfolio. The smallest share by mar-ket cap is Mr Price (R23bn), which hasalso been the most successful.

Pheiffer says when companies withpredictable earnings are selected, there israrely a need to sell the shares, so port-folio turnover is low. Private Clients alsohas to bear in mind that unlike ABAM’sinstitutional and unit trust clients, everytime it sells a share it is potentiallytriggering capital gains tax. This means itbuys every share on, at least, a three-yearhorizon.

Its key is building portfolios that meetexpectations and creating personalisedcommunication, with frequent one-on-one contact with each client.

Craig Pheiffer

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1 0 F I N A N C I A L M A I L M AY 4 , 2 0 1 2

“Investment portfolios to our clients arelike tailor-made suits, with quality cloth,fine workmanship, made to measure andvery comfortable, and each client knowshis or her tailor personally,” says Pheiffer.It is a labour-intensive approach as thereis detailed client reporting and each clienthas both a portfolio manager and a re-lationship manager.

Absa Asset Management PrivateClients has to accommodate its clients’individual needs. For example, if theyhave a large holding of shares in acompany they used to work for and wantto hang on to some of them, they have tobear this is mind when constructing theportfolio. There are common threads inevery client’s portfolio, which currentlyhas just 18 shares from Anglo and BHP

Billiton, which account for about 25% ofthe portfolio between them, down to MrPrice and Discovery.

Many of the client referrals comethrough the Absa Group. There are nowportfolio managers based at Absa Wealthoffices in Rivonia and Cape Town.

Pheiffer says there are numerous ben-efits to being part of the Absa group interms of input on risk, compliance andlegal issues.

Though it is best known for managingequities, Private Clients also invests inlisted property stocks, preference shares,money market investments and listedbonds. Derivatives are used from time totime for hedging and not gearing. It hasused put options (giving it the right tosell at a strike price) in some portfolios.

Pheiffer says that in rare cases ex-change traded funds are used. In par-ticular, it has preferred NewGold, whichbuys bullion, to gold shares with theirissues around costs, mine closures andsafe ty.

Management fees are competitive withunit trusts. There is a 1% annual man-agement fee on all portfolios (reduced to0,5% if an accredited financial adviserprovides ongoing advice for a 0,5% fee),with preference share portfolios managedat 0,5%.

Private Clients has a domestic marketfocus and refers clients looking for off-shore exposure to Barclays Wealth, withits expertise in the international marketsincluding hedge funds and privateequity. ■

UNIT TRUSTS

A holisticoffe r i n g

Absa Fund Managers, the group’s unittrust business, gives the public exposureto Absa Asset Management (ABAM) andAbsa Multi Management in a flexible andconvenient form.

For as little as R100/month you canget exposure to a wide range of assetclasses from the two increasingly re-spected fund management teams.

It also ensures that all the compliancerequirements around unit trusts are ob-served and that customer requirements

are met, so that they can make informeddecisions on which funds to buy and sell.

Absa Fund Managers has no less than210 000 clients.

It is responsible for the actively man-aged funds in the group and Absa Capitalfor the exchange-traded funds such asNewGold and Mapps.

Absa Fund Managers GM Wayne Dickssays that up until 2007 it adopted anoutsourced strategy, giving mandates tothird-party fund managers. But with the

Wayne Dicks

return of Absa Asset Management in2006 to the Empire Road campus, it wassoon time for ABAM and Absa FundManagers to work closely together.

“It was a different setting in 2007, asthe linked investment companies werethe dominant sales channel. We now geta lot more business directly from advisersand investors. We have revisited ourpricing policy on a number of our pop-ular funds and we have abolished the 5%upfront fee for direct clients. The AbsaInternet platform has become so wellaccepted it is also becoming a significantsales channel,” he says.

There are now 1 000 transactions pro-cessed on unit trusts daily via Absabranches and adviser channels, withmoney market fund transactions exceed-ing 8 800 a day.

Dicks says the R60bn money marketfund still accounts for the bulk of theassets. But the nonmoney market fundshave grown significantly from R9bn toR25bn over the past three years. TheAbsolute Fund — a conservative, lowequity absolute return fund — has beenparticularly strong, growing from R250mto R7,6bn over the same time.

Money market is nonetheless an anchorproduct that can be sold by tellers at thebranch. There is a 0,4% initial fee, butDicks says this can be justified as themoney market fund has a great deal morefunctionality than its competitors. “Yo ucan get immediate access to funds at anyAbsa branch ATM, Saswitch ATM and viaAbsa’s Internet banking platform.”


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F I N A N C I A L M A I L M AY 4 , 2 0 1 2 1 1

The fund used to pride itself on a AAArating, but Dicks says that as criteria ofratings agencies changed, Absa FundManagers decided not to continue withthe rating.

The new Notice 1503 on unit trustshas put restrictions on money funds inany case: instruments that reset interestrates, say, quarterly, are permitted only ifcapital and interest is immediately avail-able on early exits, ensuring interest andcapital remains well managed.

Of course Absa Bank, with its appetitefor deposits, hasmixed feelings aboutthe money fund(which may invest nomore than 20% of itsassets in Absa paper).Therefore, to positionthe money marketfund as part of thetotal range of depositproducts in Absa, theminimum holding inthe money fund hasbeen increased fromR20 000 toR100 000.

Absa has fourfunds in the low-riskcategory — Mone yMarket, Income En-hancer, Absa Infla-tion Beater and theDividend IncomeFund. Because ofchanges in legisla-tion, the Dividend In-come Fund is being earmarked for clo-sure.

The Absolute Fund is in the mediumrisk category. It is 19% invested in eq-uities, 31% in inflation-linked bonds and9% in property.

The Absa Bond Fund also falls into thelow- to medium-risk category, but it is anunderappreciated fund, with just R61munder management.

Says Dicks: “It no longer makes senseto keep funds going with R100m or evenR300m under management. It is notp r o fi t a b l e . ”

Absa is seriously looking at introduc-ing a fund in the flexible fixed incomesector as this category is far more pop-ular than a pure bond fund category.

The Absa Balanced Fund is in themedium-risk category. It follows the

Absa institutional house view and isaimed at people saving for retirement. Itcan invest 40%-65% of its assets inequities.

In the medium to high category is theProperty Equity Fund, which has grownfrom R100m to R360m since the ap-pointment of Mariette Warner as port-folio manager. She built the propertysector into one of the most popularinvestment areas for unit trust investors.

Dicks says that it makes sense tomerge Absa’s two general equity funds,

Absa Select Equityand Absa General.They date back to thedays when Absa FundManagers used out-side managers. Selectis more aggressive,taking larger posi-tions in many sharesand with a clearervalue bias, but thedifference is marginal.

His long-term aimis to reduce the num-ber of retail fundsfrom 24 to 15.

Absa has a range ofinternational funds,which are all nowmanaged from Park-town. It has threevery conservative off-shore income fundsbased in US dollars,euros and sterling.

There is also aGlobal Bond Fund and the Absa In-ternational Fund, which started in 1994and focuses on international shares. It isrun by Greg Kettles, who ran inter-national equities at Stanlib. Over the pastyear it has been a strong performer,returning 8,52% compared with 5,21%from the average rand-based foreign eq-uity fund.

Absa is taking a serious look at settingup an Africa fund. The new MD ofABAM, Busisa Jiya, used to be head ofThomson Reuters Africa, which was animportant consideration when he wasappointed. Absa would be able to makeuse of the distribution and investmentskills available in the Barclays Africanetwork. But it will not rush into thissector as it is an illiquid market andexpenses are high. ■

MULTI MANAGEMENT

Stress ond i ve rs i tyMost large financial institutions haverealised that they need to cater for asector of the market that prefers a blendof managers to be their investment so-lution, rather than putting all their eggsin one basket.

Absa Multi Management has a largeand diverse client base to service withinthe Absa Group. It offers core solutionsto Absa advisers with varying levels ofcomfort relating to investment adviceneeds, as well as the Private Bank andWealth channels. Increasingly, it can seegrowth in providing a sensible range ofportfolios to umbrella funds and the

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“It was adifferent settingin 2007, as thelinked investmentfirms were thedominant saleschannel. We nowget a lot morebusiness directlyfrom advisersand investors”

— WAYNE DICKS


ministers assets for pension funds, med-ical aids and trusts.

Multi Management has close to R40bnunder management or administration.

Gouws says that with shifting demo-graphics, wealth distribution and reg-ulation, Absa Multi Management wantsto be the provider of choice by under-standing the needs and challenges ofadvisers and trustees.

Absa has a comprehensive, though notcluttered, range of multimanager prod-ucts designed to simplify financial andretirement planning. “We do not believein flavour of the month products. Ouraim is to build a clean business withoutany outdated legacy products,” he says.

There is a multidimensional approachusing the key disciplines of asset al-location, manager selection, strategy se-lection, blending and optimisation.

It goes beyond being a manager ofmanagers to be a manager of strategies,in order to maximise diversification andachieve an optimal risk/return profile forclients.

Gouws says picking managers isn’t justabout picking the best managers butabout picking managers in the best com-bination, ensuring that the most effectiveblend and diversification of managers ismaintained through the market cycles.

Multi Management operates throughretail and institutional unit trusts and italso offers target return and lifestyleinvestment portfolios. As such, pensionfunds can ensure that members have theappropriate asset allocation for their ageand financial circumstances. The unitcan also provide services, such as in-vestment manager selection, portfolio de-sign as well as management, performanceand risk analysis, on a standalone basis.

Its investment administration offeringprides itself on reliability, consistency andaccuracy. It can administer customisedmultimanaged investments. Services suchas unitisation, portfolio performance andrisk analysis as well as compliance andclient reporting are all offered.

James says a number of principles runthrough the Multi Management business.A key view is that no single manager canconsistently outperform across all assetclasses all the time. Each manager has aspecific area of expertise.

A second key principle is that differentstrategies are required for specific marketcircumstances, a different blend is re-

independent adviser network.“There will also be greater retailisation

in the retirement solution space. Withcaps on the tax deductibility of pensionfund contributions, any capital above thethreshold is likely to be self-invested,”says Multi Management head JohanG ouws.

Multi Management looks for the rightbalance of stability and performance. Forexample, in the equity portfolio there arefour managers, one of which happens tobe Absa Asset Management (ABAM),which has been one of the best additionsover the past three years. “ABAM is thereon merit,” says Gouws, “and it has thesame notice terms as any of the otherm a n a ge r s . ”

Like ABAM, the other three managersall call themselves value managers —John Biccard at Investec, Prudential andCannon. But they have proved to havedistinctive return profiles — there was a10 percentage point difference in thereturns of the best and worst performerslast year.

Says chief investment officer NevilleJames: “I think three or four equitymanagers is about right for the localmarket. Multimanagers with six or moreare overdiversifying, resulting in averagere turns.”

He says all the managers are given abroad mandate — unlike some othermultimanagers that carve up the marketinto small caps and resources, amongothers. “We don’t believe in putting toomany restrictions on managers.”

And Absa Multi Management does notfire managers, unless they do not dowhat they were mandated to do.

As part of its continued process ofenhancing its investment approach, theunit is debating whether to keep all itsequity money with active managers orlook at a core/satellite approach withanything between 25% and 35% of fundsin either an index fund or a low trackingerror fund.

“We are not very keen on a coreportfolio based around the Alsi 40, butthere are a lot of smart beta productssuch as the Rafi and Divi, which aremore interesting,” says James. He sayspassive portfolios are even more ap-propriate for international investment asactive management has added far lessalpha than it has in SA.

It already uses a low tracking error

fund for its property investments in thePrudential Enhanced Index Tracker.

Absa Multi Management is housedwithin Absa Investment ManagementServices, providing multimanager solu-tions to the financial advisers who adviseon client money on the AIMS platform.It was started in 1998 by Gouws, whostill runs the business. Absa Multi Man-agement has expanded beyond its retailroots and now also manages and ad-

N ev i l l eJa m es


Like all forms ofasset management,m u l t i m a n a g e rsneed to ensurethat theappropriate level ofrisk is taken for thereturns achieved

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F I N A N C I A L M A I L M AY 4 , 2 0 1 2 1 3

Absa Investment Management Ser-vices (AIMS) provides an investmentplatform for financial advisers, privatebankers and wealth managers in thegroup. It also sources 70% of its fundsunder administration from the group,with the remaining 30% sourced fromindependent financial advisers. The un-derlying clients are individuals andtrus ts.

Like all linked investment serviceproviders (Lisps) it offers a discre-tionary unit trust-based portfolio, withAbsa and non-Absa funds available, aswell as retirement annuities, preser-vation funds and living annuities.

AIMS GM Mark Kitching says itlooks at areas of the investment valuechain where it can leverage off its corecompetences. It does not let every fundonto the platform — it carries out adue diligence on every fund before itcan come on board. But it still offersone of the widest ranges of funds in themarket, with more than 700 available.

“Because we were not born out ofeither an asset manager or a life com-pany, we have always taken an in-dependent approach to the products weo ff e r, ” says Kitching.

“We care about our investors andtheir choices. Originally, the ability toswitch between funds was seen as animportant part of the Lisp value propo-sition. But since the global financialcrisis, people have a more cautious,long-term approach, and we encourage

engagement with a qualified financiala d v i s e r. ”

AIMS offers end-to-end solutions andto do so it first determines client needs

— providing the adviser with ap-propriate long-term planningtools available elec tronically.

It then puts effort into invest-ment product development andprocurement and the designingand development of solutions. Ithas a core competence in theadministration and managementof investment products as well asin financial adviser and investorsupport through the Absa Invest-ments website tools and qualifiedconsultant call centre.

AIMS goes through a process ofcomprehensive market researchbefore taking products to market.Corporate, broker networks andindividual financial advisers canall make use of the AIMS AdvisoryServices. This gives them the helpthey need to provide investmentadvice as well as to meet reg-ulatory compliance requirements.It also supports the adviser andinvestor over their lifetime of sav-ings and investments.

To enable all this, AIMS relieson its technological infrastruc-ture, which provides a core ad-ministrative and product manage-ment system, as well as its teamof staff, which accounts for almosthalf of the Absa Investments staffcomplement. It is a scalable sys-tem that can respond to require-ments quickly, including productenhancements as well as industry

INVESTMENT MANAGEMENT

Aiming to please

Mark Kitching

quired during each part of the invest-ment cycle.

James says multimanagement at itscore is about the effective selection andcombination of specialist investmentmanagers and strategies. It needs spe-cialist insight and attention to effectivelyharness the collective expertise of theunderlying asset managers.

Of course, like all forms of asset man-agement, multimanagers need to ensurethat the appropriate level of risk is takenfor the returns achieved. Historically,multimanagers have proved to improverisk adjusted returns as much by re-

ducing risk as by increasing returns.Absa Multi Management believes that

it will be able to keep its clients if it isable to achieve consistent, incrementaloutperformance. It is not about pickingthe next lottery winner.

The Absa Multi Management portfoliooffering can be divided into differentcomponents: target return portfolios;CPI plus 3%, 4%, 5% and 6%. TheCPI+3% and 4% funds are structured toprevent losing money over any rolling 12-month period, while the CPI+5% and 6%funds aim for no loss over a rolling 24months.

“The strategic long-term asset allo-cations approach applied to these port-folios provides better risk adjusted re-turns than holding the entire portfolio inequity or entirely in cash,” says James.

Fixed Asset Allocation portfolios in-clude the Absa Multi Managed Balanced,Absolute and Cautious funds, while thebuilding block range consists of an equityfund and a bond fund.

Multi Management is able to focus ondelivering competitive investment per-formance and quality administration byoutsourcing noncore functions to strate-gic business partners. ■

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Corporate Report written byStephen Cranston

Advertising executive: Lyn Hill

Absa Stockbrokers, the re-tail stockbroking arm ofAbsa Investments, is the JSEentry-point of choice forAbsa banking group retailclients from all walks of lifeand every age group.

Duncan Ingram, head ofAbsa Stockbrokers, says theclient base ranges from stu-dents to people in their 90s.

Ease of market access andaffordability are key featuresof the firm’s wealth-buildingmission. Fees are competi-tive. For Online trading, theminimum brokerage is R120.A brokerage fee of 0,4% islevied on transactions ofmore than R30 000.

Ingram says fees are keptas low as possible, whileclients are kept informed ofall pertinent market infor-mation. “We like to give ourclients the tools to make in-formed investment decisions,so when a client wishes totrade via the website we dis-play information such as thetop five bids and offers.”

Absa Stockbrokers is sin-gle-minded in its approach.The core task is to assist self-motivated investors by providing a re-liable, client-friendly fast-track to theJSE.

There is a measure of overlap, how-ever, with the activities of Absa AssetManagement Private Clients (ABAM PC),an operation that provides private port-folio services to many sophisticated in-vestors. “We have common clients withABAM PC,” says Ingram. “PC mightmanage the long-term investment port-

folio, but if the client has spare cash hemight buy short-term holdings throughus.”

Focus on core competence enablesAbsa Stockbrokers to maintain high ser-vice levels across a substantial funds basewith just 24 staff.

The firm has R16,6bn under custo-dianship, including R5,3bn from ABAMPC. It serves clients who take both acontemporary and traditional approach

to stockbroking transactions.Ingram says most of Absa Stockbro-

ke r s ’ clients bank with Absa and mostare directed to its services by Absa’sgroup website. In addition, clients usingAbsa’s Internet banking website can lookup their portfolios via this site with aseamless login to the online trading web-site should they wish to transact.

Clients who prefer to maintain a tra-ditional stockbroker relationship are alsoaccommodated. “We have quite a largebook of legacy clients who like to dealwith us on the telephone,” he says, “but itis growing at a much slower pace thanour Web-driven client base.”

Before any online deal is executedvarious system checks are performed toconfirm that the order is correct, therand has not been mistaken for cents, orprice for volume. The administrationteam ensures trades are settled on time,that client accounts are in good shapeand dividends are paid promptly. Ef-ficient execution is a point of focus.

Provided buy and sell prices and vol-umes are within the trading range for thetransacted share, the deal can usually beexecuted the same day, says Ingram. Itmay take longer when a bid or offer isout of range or there is insufficient vol-ume.

He says clients have access to anyshares on the JSE main board and AltXand to all exchange traded funds. But thefirm does not offer exotic instrumentssuch as futures and contracts for dif-ference.

Client portfolio information is storedon the JSE’s BDA system and clienttrading is conducted on the central JSEsystem. Shares are only purchased onbehalf of clients who have already de-posited money into the firm’s accountsand sales only executed if the client’sshares are held by Absa Stockbrokers. ■

STO C K B R O K I N G

Trading with ease

and regulatory changes.AIMS has a protected product, the

Absa Protected Accumulator, which isunderwritten by Absa Life. It is availableonly in nondiscretionary portfolios.

This product gives exposure to localequity and bond markets, while also

protecting capital at all times. It makesmonthly bonus declarations, which willnever be negative.

It aims to provide a CPI plus 4%return over three years. It also aims tobeat money market returns by a sig-nificant margin over the medium to long

term and in all market conditions.For complete certainty of returns,

AIMS also offers the Absa GuaranteedInvestment Plan, which gives a fixedreturn over five years. The underwritersof the product include Guardrisk Lifeand Absa Life. ■

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FM Survey 4 May 2012

Documents

Transcript of FM Survey 4 May 2012