Sanlam and Ninety One seal their alliance

It was a bold step for Sanlam CEO Paul Hanratty to exit asset management, one of the life office’s primary activities. Investment is a core business for life insurers. Good investment returns make core products such as unit trust and endowment policies more competitive in both the retail and pension fund market.

But Sanlam Investment Management (SIM), as its direct asset manager is called, has been a perennial underperformer. The Alexforbes Large Manager Watch is the survey that asset consultants watch most closely. Over seven years SIM’s balanced portfolio has been last out of the nine big balanced pension fund managers with an annualised 7.9% return, against 9.7% from Ninety One, which will now take over these mandates.

Ninety One, formerly Investec Asset Management, was second only to Coronation Fund Managers, which achieved 10%.

This isn’t yet a done deal. Hanratty and his Ninety One counterpart, Hendrik du Toit, have entered into a binding framework agreement (FWA).

Under the terms of the FWA, the parties have agreed to establish a long-term relationship whereby Sanlam will appoint Ninety One as its primary active investment manager for single-managed (as opposed to multimanaged) local and global products.

As part of the proposed transaction, Ninety One will acquire all the issued shares in SIM, the active investment management business wholly owned by Sanlam Investment Holdings, in which the Sanlam Group holds an effective 65.6% interest, with Patrice Motsepe’s African Rainbow Capital and the Absa Group holding the balance.

Following the implementation of the proposed transaction — if it’s approved — SIM will become a wholly owned subsidiary of Ninety One Ltd.

There is a somewhat different set-up in the UK. Hanratty has appointed Ninety One as the permanent investment manager to manage assets for Sanlam Investments UK. He tells the FM that Sanlam UK is a subscale business, which would be a suitable international investment manager in the long term.

Hanratty says Sanlam considered plugging into the international operations of its pan-African partner Allianz, which include the California-based global bond manager Pimco.

But Ninety One turned out to be more fit for purpose, with a range of global products suitable for Sanlam’s core South African client base, such as its global balanced fund (branded global strategic managed) and conservative fund (global multiasset income).

Sanlam will also act as an anchor investor in Ninety One’s international private and specialist credit strategies that meet its investment requirements. Ninety One is rolling out a series of regionally based credit funds, in Europe, North America and ultimately in Asia.

If this was a simple outsourcing deal, Sanlam could end the mandates with Ninety One at short notice — anything between 24 hours and a month.

So Hanratty and Du Toit are sealing their relationship with hard equity.

Sanlam will acquire a 12.3% equity stake in Ninety One through a combination of shares in Ninety One Ltd (with a primary listing on the JSE) and Ninety One plc (with a primary listing in London).

Sanlam has promised to act as a long-term shareholder of Ninety One, so the stake will not be traded up and down like a standard portfolio holding.

Du Toit says there is nothing unique about the Sanlam/Ninety One deal . The giant French life office Axa, for example, is busy offloading its fund management operation to banking group BNP Paribas, which has provided its clients with better investment performance.

Sanlam merged its asset management businesses with Absa’s only as recently as December 2022. Ninety One funds will now inherit the preferential distribution arrangements through the Absa banking and financial planning channels which the SIM funds enjoyed. Much of this will be in the fixed income sector, in which SIM has been relatively strong historically.

The main SIM fixed income managers, Mokgatla Madisha and James Turp, will probably survive the inevitable purge of the SIM investment staff after the merger. In the equity and multiasset (balanced) sectors, where SIM has been noticeably weaker than Ninety One, there will probably be casualties.

This doesn’t mean Carl Roothman, CEO of Sanlam Investments (SI), will be out of a job. He says that just 30 investment professionals will move over to Ninety One. In due course the SIM funds will be rebranded as Ninety One funds, or merged with Ninety One funds with similar mandates.

But Sanlam Investments: Multi-Manager, which has more than R320bn under management, remains part of SI — as does the successful index fund manager, Satrix.

Sanlam has been quite competitive in multimanagement, in which it constructs a portfolio by selecting a basket of underlying direct managers.

Its SMM Select Balanced Fund was second out of 10 managers in the three years to October 31 2024, for example, with an 11.3% annualised return. This is according to the Alexforbes Multi-Manager Watch.

Roothman says Sanlam has a strong distribution presence in the retail market, selling through its Sanlam Blue Star tied agents and through independent financial advisers, which are provided with support from discretionary fund managers in the group such as Glacier Invest and Graviton.

Sanlam will continue to distribute its Amplify best-of-breed funds, which are run by external managers including Laurium Capital and Truffle Asset Management. Sanlam Multi-Manager selects the underlying managers for the Amplify range.

Glacier by Sanlam, the investment platform, is unaffected and will not merge with its counterpart at Ninety One. This merger would present serious competition issues as the combined platforms would be by far the largest in South Africa, dwarfing competitors such as the Allan Gray investment platform, Momentum Wealth and Old Mutual Wealth.

By contrast, the expanded Ninety One, with about R950bn of domestic assets under management, will still be smaller in South Africa-sourced assets than its two main rivals, Allan Gray and Coronation, combined. Old Mutual, including its fixed income subsidiary Futuregrowth, will not be far behind, with about R800bn under management, including its alternatives business and the Marriott Income Solutions boutique in Durban.

Asief Mohamed, chief investment officer of Aeon Investment Management, says that as a boutique investment manager he welcomes the takeover, combined with the news of the Coronation broad-based BEE transaction.

“We will support both transactions on behalf of our clients,” he says.

“These deals have the potential to deepen South Africa’s capital markets and provide global scale for Ninety One, while allowing Coronation to defend outflows from existing clients and maybe even grow assets.

“On balance these deals should provide positives for the investment management industry. The impact of these deals on black-owned fund managers and boutiques will depend on client perspectives,” Mohamed says.