Is Sygnia ready to strike?

Despite being a relative minnow in South Africa’s extensive financial services waters, Sygnia makes a bigger splash than its much larger competitors.

On paper, the R3bn group should be lucky to get even a few glances from investors and savers alike. What’s more, Sygnia’s shares have very low tradability, with more than two-thirds of its equity owned by founders Magda Wierzycka and her husband Simon Peile, both actuaries. The group’s marketing budget is almost invisible — though for a while it did advertise its Skeleton fund range on Cape Town’s MyCiTi buses.

Sygnia, however, has a high profile because of the media attention Wierzycka generates. 

Her memoir, Magda: My Journey, which Penguin published two years ago, was a best-seller. The media hangs on her every word,  whether it is about the economy, the shrinking JSE or state capture.

She attracts more attention than her male counterparts. Nobody particularly cares what Sanlam CEO Paul Hanratty wears. Not even the dapper Absa CEO Arrie Rautenbach, who favours brands such as Eden Park, gets much attention. But people watch carefully to see what colour Wierzycka favours this winter. 

It’s not just because she is a woman. By comparison Momentum Metropolitan’s Jeanette Marais gets little airtime. Marais tends only to comment on issues relevant to the job.

“I always engage in my personal capacity,” Wierzycka tells the FM. “It’s definitely not a marketing strategy.  I think in the case of state capture, I would not have put myself and my family at personal risk as part of a Sygnia campaign.” In 2017 she temporarily left the country due to her involvement in the Gupta leaks.

“Tackling things that I think are wrong and commenting on those are very much part of my DNA. You can blame it on my genetics or personal history — from communism, apartheid, tough teenage years to  Coronation treatment.”

Rising through the ranks

Wierzycka came to prominence at Coronation Fund Managers, where she worked from 1997 to 2003 as head of institutional business; her sales expertise helped the boutique fund manager increase its assets under management substantially. 

But in her memoir she shows some bitterness towards her former colleagues. She felt underappreciated financially and never got the CEO position — either of the group itself in Cape Town or its London office — which she says she had been promised.

I don’t know many people who work harder than Magda

—  Andrew Steyn

“I learnt numerous lessons from the Coronation years,” she writes in Magda, “the clearest one was that women must work harder than men to succeed. I struggled to compete with male aggression in the workplace and to voice my opinions.”

But she certainly got her big break at Coronation after holding low-key positions in product development at the now-defunct Southern Life and as a junior member of the fledgling Alexander Forbes specialist asset consulting team.

“I don’t know many people who work harder than Magda,” says Sygnia group executive Andrew Steyn, now the de facto No 2 at the group.

Wierzycka’s desire to prove herself in a man’s world — that she could set up and run a successful business — turned her into a serial entrepreneur. She initially set up a niche fund-of-hedge-funds business with the catchy name IQVest, then was headhunted by empowerment investor Mzi Khumalo to run African Harvest, an established fund manager, for three years, before starting Sygnia in 2006.

Sygnia, as Steyn points out, has a similar product set to Alexforbes and they both sit in the asset managers and custodians subcategory of the JSE. It is no accident that Wierzycka, Steyn, Peile, former CEO David Hufton and head of institutional business Iva Madjarova were all trained at Alexforbes.

The latest Forbes-trained member of the team is Leanne van Wyk, who joined on July 1 as head of legal and company secretary.

“I find Sygnia quite different from Forbes,” she tells the FM. “The decision-making is lightning fast. And the executive management is a lot more hands-on.”

Van Wyk has been exposed both to corporates, through 24 years at Alexforbes, and to small shops, having worked for the past six years for Dave Weill, a Wierzycka-style serial entrepreneur.

Internal transformation

Perhaps it’s no surprise that not everyone who has made the transition from incumbent Alexforbes to disrupter Sygnia has stuck with that choice.

John Anderson, now executive for solutions and enablement at Alexforbes, worked at Sygnia for 18 months before returning to the fold. Anderson loves the limelight — but in a small firm such as Sygnia there probably isn’t room for two showstoppers.

Alexforbes veterans Leon Greyling, who rose to Sygnia Asset Management deputy CEO, returned to manage Investment Solutions (now Alexforbes Investments) and Nic Campbell, head of Sygnia business development for about three years, has also returned to the Forbes fold. But Steyn, who came over from Forbes as part of the same business unit, has flourished.

We manage savings. I need to make sure that people who are custodians of that are the best that I can find. I have done that throughout my career. I will make more changes as Sygnia grows

—  Magda Wierzycka

What many have been wondering is what the full story is of former CEO Hufton’s departure from Sygnia in April 2023 after a seven-year stint. Hufton, who had worked as a consultant at Alexforbes for 26 years, is now taking an extended sabbatical. 

Wierzycka says she doesn’t want to comment on Hufton’s departure specifically.

“I think that executives come and go, based on delivery and suitability,” she says. 

“We manage savings. I need to make sure that people who are custodians of that are the best that I can find. I have done that throughout my career. I will make more changes as Sygnia grows. 

“But I have made amazing appointments, with many people having worked with me for 10 years plus. The media tends to focus on two or three people. But we have 320 staff and [are] growing.”

She adds that Sygnia is not unique in replacing executives — “we just gather more media interest than others”. 

Due to Sygnia’s success, some jobs have literally “outgrown” the incumbents, she argues.  The skills required to grow a medium-sized company are very different to those required by a small company.

“Given where we are, we need executives with more corporate experience, including mergers & acquisitions.

“We also need to focus on transformation.  As I retain 60% of the company, Sygnia cannot achieve a majority black ownership threshold.  Hence the focus needs to be on the internal transformation.  Over 72% of our staff are black and over 50% are women.  Most senior positions are held by women and most senior management positions are held by black staff.”

Wierzycka says the company struggles with the retention of black executives. These have included Duane Naicker, who as head of retirement solutions was responsible for a key asset, the Sygnia retirement umbrella fund, marketed as Surf.

There was at one stage talk of the Sygnia “revolving door”, though it has just announced the appointment of a home-grown black CFO, Rashid Ismail. He replaces Niki Giles, who is stepping down to focus on special projects.

“Unfortunately, the salaries offered to executive staff are significant and the entire financial services industry is chasing the same talent,” Wierzycka points out. “At some stage we have to accept that we may have to remain a ‘training/mentoring’ ground for black executives and focus on that.”

But is there a role for a small player in a consolidating industry or should the family cash in their chips? For one thing, Sygnia remains an “also ran” in the retirement umbrella sector.

Since Sygnia acquired the Gallet Group in 2016, assets under management at Surf have increased from R1.3bn to R17.4bn with 841 underlying companies under the umbrella. But this makes it a distant sixth behind the giants  of the sector — Old Mutual SuperFunds and Alexander Forbes Retirement Fund — and the other three umbrella funds of scale: Momentum’s Funds@Work, the Sanlam Umbrella Fund and Liberty’s Corporate Umbrella Fund Solutions.

It helps Sygnia mitigate its risk when its supporting advisers ask Sygnia consultants for advice on how to construct their portfolios

—  George Dell

Discovery also has an umbrella fund, and with a much larger distribution footprint and marketing budget will probably overtake Surf in membership any day now.

Like Alexforbes, the core business at Sygnia is its multimanager, which manufactures the Sygnia Skeleton and Signature ranges and is responsible for Sygnia’s wide range of exchange traded funds (ETFs).

But unlike Alexforbes, Sygnia has a retail investment platform that provides services to intermediaries, whether independent financial advisers (IFAs) or discretionary fund managers.

Alexforbes sold its retail platform to Glacier by Sanlam. But even before the sale it was used almost exclusively by Alexforbes’s in-house financial planning consultants.

Sygnia, for example, has a relationship with MitonOptimal, a prominent discretionary fund manager (DFM), in which MitonOptimal manages a suite of model portfolios on the Sygnia platform.

Says MitonOptimal DFM executive director George Dell: “It helps Sygnia mitigate its risk when its supporting advisers ask Sygnia consultants for advice on how to construct their portfolios.”

Sygnia broker consultants can refer to MitonOptimal’s funds as an alternative, though by no means the only one, to the wholly Sygnia-manufactured funds.

These portfolios have the benefit of using low-cost Sygnia building blocks, allowing retail clients to pay an asset management fee as low as 0.45%, when 1.5% is a typical cost for a balanced fund.

Investing in the brand

Sygnia’s fund range has an impressive track record. The philosophy on Skeleton and Signature in the institutional market is not to overcomplicate things by detailed manager selection, but rather to focus efforts on asset allocation, which is responsible for most of the added value in investment. 

The heads of asset management, Iain Anderson and Kyle Hulett, both have a background in the fund-of-hedge-funds industry, which was also Peile’s area of expertise. 

Because of the high costs of the fund-of-hedge-fund product, Sygnia discontinued this service in 2018. But with this background, Anderson and Hulett are more concerned about absolute returns, and the peace of mind this number brings to clients, than about benchmark returns.

In fact, there is a social media campaign running right now for ZenFunds, a repositioning of the dullest but most stable funds in the Sygnia range such as the Sygnia Money Market Fund and the Sygnia Enhanced Income Fund. But given Sygnia’s meagre budget, it’s a case of blink and you’ll miss these social media ads. 

Veteran small-cap analyst Anthony Clark says Sygnia could boost its share of the retail market quite significantly if it increased its marketing budget. 

While Wierzycka is well known, even professional investors often have little idea of what Sygnia does.

“Sygnia should consider investing more in the brand and cutting back on the dividend,” says Clark, “but it’s the high Sygnia dividend that finances Magda’s lavish lifestyle.”

Sygnia should consider investing more in the brand and cutting back on the dividend. But it’s the high Sygnia dividend that finances Magda’s lavish lifestyle

—  Anthony Clark

Fortunately, Sygnia’s head of marketing Ashka Corelli (who also happens to be Wierzycka’s sister) has learnt how to make silk purses out of sows’ ears through past clients with tight budgets, such as the Market Theatre in Joburg and the South African National Gallery.

There has been considerable coverage of Sygnia’s sexier products with names such as FAANG.AI, though much less for its run-of-the-mill offerings such as its money market fund.

If it devoted more resources to marketing, Sygnia could spread the message more effectively about some of its successes in bread-and-butter balanced products. Its Sygnia Skeleton Balanced 40 unit trust is first (net of fees) out of 66 low-equity funds over 10 years to June 2024; its medium-equity Skeleton Balanced 60 fund is second out of 47 funds; and its Skeleton Balanced 70 is 11th out of 83, according to Morningstar. The Skeleton range has gone from zero to R12.6bn over 10 years, plus a further R12bn in institutional funds, even though Sygnia doesn’t have a tied agency force.

“It is outperforming most active competitors on a net-of-fees basis in line with global experience and that’s why money is moving from active to passive products,” says Wierzycka.

But it is the thematic funds, not the balanced funds or the prosaic ZenFunds, that attract most attention. These technology and health-care focused funds are definitely not the kind of investments that can be stuck in a bottom drawer. None of them  has a 10-year track record, but the much publicised Sygnia Fourth Industrial Revolution Global Equity Fund was 77th out of 84 funds in the global equity category over that period.