It was one of the worst-kept secrets. But it has now been confirmed that Sanlam and Absa will be combining their asset management operations.
No money will change hands, and Absa will own up to 17.5% of the combined operation, which will have more than R1-trillion under management, making it second only to the Public Investment Corp as a manager of domestic assets.
This deal makes Sanlam Investments, which is already the largest black manager, even larger, given the involvement of Patrice Motsepe’s African Rainbow Capital (ARC). ARC is a wholly owned subsidiary of Ubuntu-Botho Investments, which bought a 25% share in Sanlam Investments last year.
Absa has thrown in more assets than many expected. As well as the mainstream active fund manager, Absa Asset Management (Abam), it is selling its exchange traded funds business into the larger group, which will soon be combined with Satrix, which vies with Sygnia for the market leadership of this fast-growing segment. Absa’s multimanager and alternative investments (hedge funds and structured products) will also merge with their Sanlam counterparts, as will the unit trust management company.
Mergers are never pleasant, and the first place to see retrenchments is bound to be the unit trust company, a back-office operation where only 50% of the combined team will be needed to do the job.
In the investment team, Sanlam will be the dominant partner, but it will want to keep some of Absa’s skilled investment professionals such as Eben Mare’s award-winning Absolute Return team. The Absa Balanced team of Kurt Benn and Greg Kettles has recently been outpunching its Sanlam counterparts. But the winners in office politics are not necessarily the best performers.
Realistically, the axe needs to fall at the top. It is unclear to outsiders why the big blue needs Robert Roux as CEO of Sanlam Investment Group and Nersan Naidoo as CEO of Sanlam Investments. Then add Armien Tyer, an old Sanlam Investment Management boss, who is now head of Absa Investment Management.
At least Ann Leepile, the head of Abam, can slot into the vacancy created at Sanlam Investment Management when Azola Mayekiso left about two years ago.
Sanlam’s successful linked investment service provider, Glacier, is, bizarrely, considered a life insurance business and does not form part of Sanlam Investments. But in a separate deal, it will take over its Absa counterpart. This is an overcrowded sector and will lead to Glacier being close to taking the No 1 spot, with R350bn under administration.
For Absa it is a neat solution for its orphan asset management business, which has been held for sale for the past two years.
Not that Sanlam can be considered one of the country’s best asset managers. There has been an exodus of talent, such as head of equities Patrice Rassou and top Absolute Return manager Philip Liebenberg, over the past few years. Its stars are often in highly niched areas, such as small-cap manager Vanessa van Vuuren.
Commercially, however, the deal makes sense as it will provide a wider range of products to be sold through the Sanlam agency and broker channels and through Absa bank brokers, as well as selling investments through two powerful apps.
ARC will eventually reduce its holding in the enlarged group from 25% to about 21%, but will see a doubling of the distribution footprint at no extra cost.
Yet, in the short term, it will be difficult to get new institutional business. Asset consultants are likely to stop giving new mandates until the merger has settled down. But some might be forced to use them if their clients need a complex BEE mandate. Most BEE firms might not have the scale or expertise to take on highly specialised mandates as easily as Sanlam can.
Much work ahead
If this relationship works, it could lead to a deepening of links between Sanlam and Absa. Sanlam agents might soon be distributing Absa banking products and Sanlam could get a dominant share of the complex life products sold through the Absa channels.
There is a lot of work to be done, as there is an arduous balloting process to combine unit trusts, and that cannot even begin before Competition Commission approval.
But the question remains: can two somewhat average fund managers be combined into an excellent one?
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