Recently the Prescient Balanced Fund celebrated two significant milestones as it passed the 10-year track record and R5bn in Assets Under Management (AUM). These achievements give us an opportunity to reflect on where we have come from and where we believe the asset management industry is headed.
Pictured : Rupert Hare, Head of Multi-Asset at Prescient Investment Management
This question of what the asset management business of the future will look like is something that we think about extensively and informs our strategy and interaction with our clients.
If we look into the future, we believe that there is significant disruption coming in the South African asset management industry. It will no longer be a case where advisors will simply look at the top 5 biggest funds across asset classes and rotate between them.
Our departure point is that the concept of a personality-driven – or in some cases a cult personality-driven – asset managers with star fund managers is not sustainable in the South African context. Going forwards as investors switch from the narrative to the numbers there will be other drivers of success in the broader savings and investment landscape.
The first is technology. It is fascinating to watch the dynamic in the market at the moment where you will see a number of active asset managers looking at the investment universe and talking about the economic potential that Artificial Intelligence (AI) will unlock …. yet at the same time, they continue to depend on individuals to make discretionary investment decisions and have chronically under-invested in their technology capabilities.
If we look at our business, we currently employ 25 programmers, and they are constantly refining an investment process that handles 120 million different data points to distil down to investment decisions.
Does it work? Well, if we consider that we are now closing in on the top 10 biggest managers in the country, we believe so. A key driver of our outperformance was that we were one of the early asset managers to push the offshore allocation – this wasn’t done because an individual portfolio manager thought offshore might trump domestic markets. Rather this decision was taken because it mathematically made sense and we are not tied to any narrative.
This segues into the discussion around the type of people that asset managers should be hiring. It is interesting that very few of the asset managers are actively investing in quantitative analyst skills – something we believe is critical if you plan to run a technology-led asset management business.
Many people would be surprised to know that our investment teams are actually larger than many of the top 5 by AUM.
Now the immediate rebuttal may be that all this brain power must surely be a cost which is being passed on to the investor, something which will ultimately impact long-term investment performance.
The answer is the opposite. The key difference is that while other investment houses may have a similar team size, they rely heavily on sell-side research to build on their investment theses which adds additional costs. At Prescient we run all of our research internally – preferring to build and test common investment theories often taken as a given by other industry players. We test concepts like “is a low PE ratio good for equity returns?”
Through our investments in technology and highly skilled analysts, we are able to extract efficiencies which we can pass on to the client. The evidence is in the public domain. If we look at the Prescient Balanced Fund[1], we can charge a Management Fee of 0.3%, incur Total Expense Ratio of 0.53% and a Total Investment Charge of 0.57%.
This is a fraction of many of the other balanced funds and our actively managed peers.
Human nature is intriguing. We feel reassured that our money is being managed by one of the well-known industry experts we see being featured in the business media. Rightly so – your investments, savings and retirement are all emotional subjects and we want to know that the best are giving us the best chance to meet our financial goals.
Initially the idea that you are entrusting your wealth to a technology-driven environment will run counter to these emotions, but it is important to make a distinction here. While technology helps us to drive efficiency, people still play an important role in the relationship around your money management. One of the key criticisms from Independent Financial Advisors (IFAs) is that they get very little face-time with portfolio managers – the difference when your investment team is not centered around an individual, you are able to present as a team which allows you more opportunities to engage IFAs and understand client needs.
As a business, we believe our early adoption of technology has given us a 10-year head-start over many of our peers. We are constantly asking ourselves: “What about the next 10 years?” – and if we look at the asset management industry, we see significant changes coming for those who do not embrace the shifting market.
Disclaimer
This document is for information purposes only and does not constitute or form part of any offer to issue or sell or any solicitation of any offer to subscribe for or purchase any particular investments. Opinions expressed in this document may be changed without notice at any time after publication. We therefore disclaim any liability for any loss, liability, damage (whether direct or consequential) or expense of any nature whatsoever which may be suffered as a result of or which may be attributable directly or indirectly to the use of or reliance upon the information. There are risks involved in buying or selling any financial product.
Prescient Investment Management (Pty) Ltd is an authorised financial services provider (FSP 612). Collective Investment Schemes in Securities (CIS) should be considered as medium to long-term investments. The value may go up as well as down and past performance is not necessarily a guide to future performance. CISs are traded at the ruling price and can engage in scrip lending and borrowing. A schedule of fees, charges and maximum commissions is available on request from the Manager. A CIS may be closed to new investors in order for it to be managed more efficiently in accordance with its mandate. There is no guarantee in respect of capital or returns in a portfolio. Performance has been calculated using net NAV to NAV numbers with income reinvested. Prescient Management Company (RF) (Pty) Ltd is registered and approved under the Collective Investment Schemes Control Act (No.45 of 2002). For any additional information such as fund prices, fees, brochures, minimum disclosure documents and application forms please visit www.prescient.co.za.
[1] A2 class
