It was no secret that African Rainbow Capital (ARC) was lined up as the BEE empowerment partner to Sanlam Investments (SI). But it took incoming Sanlam group CEO Paul Hanratty to insist that negotiations were brought to a close. And it is not as if either party is so financially stretched it needs to quibble over the last rand to pay, either.
ARC is controlled by the Ubuntu-Botho Investments consortium, headed by billionaire Patrice Motsepe, and is probably the wealthiest BEE consortium in SA. It was given a R2bn facility by Sanlam in 2018 to expand its financial services portfolio.
Both sides have some flexibility if the R787m reference price for 25% of SI proves too low or high. This will be determined by the level of assets under management at the business.
SI group CEO Robert Roux says it has R450bn under management, with about 55% in retail assets through Sanlam unit trusts, Sanlam MultiManager and Graviton and Amplify. (The new shareholders should perhaps suggest some brand rationalisation?)
Sanlam has split the internal Sanlam assets into a separate unit which will not be sold to ARC.
Sanlam Investments can’t hope to gather sizable new assets without good performance
Hanratty argues that Sanlam is a peculiar "client" with a high level of guarantees which also has the pressures of managing regulatory capital. There is no doubt Sanlam has done an excellent job managing this balance, so why change? Other life companies have also tried to split their life and third-party assets. Liberty, for example, gave third-party assets to Sidney Place and life assets to Dave Golembo back in the late 1990s, but mainly because the two couldn’t work together and this was eventually reversed.
When Old Mutual started Old Mutual Asset Managers as a notionally independent business, the life assets were managed separately by Roddy Sparks, who later became MD. This worked well enough but it got to a point where cost duplication was high.
Carrying on
Johan van der Merwe, who was head of SI before moving to ARC as joint CEO, will almost certainly become a director of the company. He says he does not expect major changes in the short term. Nersan Naidoo will remain CEO of the business even after ARC takes its seat and Helena Conradie will remain head of its Satrix unit, the index fund manager which should arguably be the fastest-growing part of the business.
Of course it won’t matter too much what Sanlam is paid for its shares in SI if it gets a boost from its new shareholding. It now has the official credentials of a black-controlled asset manager according to regulations.
Some asset consultants will take the view that the changes are cosmetic — Sanlam remains at heart a pillar of the Afrikaans establishment, even if the current and past CEOs both hold Irish passports. But it has some very senior black talent such as Naidoo himself, Satrix senior portfolio manager Jenny Albrecht, joint head of equities Cromwell Mashengete and head of absolute return Natasha Narsingh.
Still, it can’t gather assets without good performance. If you look at its balanced performance over the past three years, it was ninth out of 10 in the large manager watch. (The worst was Allan Gray.) But Sanlam has had a strong performance in equity-only funds where its Aggressive Equity and Top Choice portfolios are well above their benchmarks.
Van der Merwe says there are no pressures to change the name of the business, which will still report into the Sanlam management structure.
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