Investment management insights - December 2020 - With us, it's personal
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Investment management insights
December 2020
With us, Think for a
it’s personal moment
Contents
Introduction 3
Environment, Social, Governance (ESG) 4
Industry dynamics 16
Page 2 of 23 Investments | Insights | 2020
Introduction
Eugene Botha | Deputy Chief Investment Officer
COVID-19 brought on 2020’s financial crisis, which was We take investments and the
an unforeseen risk that played out and changed our world. outcomes for our clients very
It hampered productivity, decimated living standards and personally. That’s why we believe
transformed the way we communicate and interact. in personal relationships and
partnerships with asset consultants and financial advisers,
Despite the wreckage from a philanthropic perspective, it
because we know nobody knows clients and their needs
forced introspection on multiple levels, to think about our
better than our partners.
purpose, interactions within our communities and our effect
on the planet. Investors and businesses took a step back to In this publication of Insights, in the article titled
re-assess practices and conduct, to re-think strategies not ‘Environment, Social, Governance (ESG): Everyone Should
only for survival but also to thrive. Get it!’, we explain ESG, its benefits and the variety
of approaches used to incorporate it into investment
More and more business communities have come to
processes. We showcase our ESG team and discuss our
realise the importance of integrating environment, social
responsible investment practices in the various capabilities
and governance (ESG) factors into their philosophies
and investment propositions.
and processes, and the compounded financial benefits
brought about when mitigating risks for all stakeholders The second part of our publication highlights changes in
of a business. We are proud in saying that this has the human capital aspect of the investment landscape, also
been and always will be at the core of our investment taking a moment to remember all those in our industry who
philosophy. Responsible investment practices resonate have passed away.
with our outcome-based investing philosophy and
2020 has been a tumultuous year and we would like to take
with the alignment of our clients’ long-term goals to
this opportunity to wish you and your families health, safety
positively influence the world they will retire to – a definite
and joy over the coming festive season.
requirement for a retirement fund solution focused on the
future. We focus on all of this because it is important to
Take care
our investors, and what is important to our investors is
important to us – with us, it’s personal.
Page 3 of 23 Investments | Insights | 2020
Environment, Social,
Governance (ESG):
Everyone Should Get it!
Tatjana Raunich | Manager research analyst
Environment, social and governance (ESG) factors have importance of the role of government and businesses
been topical in South Africa in the past few years and in shaping futures of countries. Even before COVID-19,
continues to gain more traction, as related risks become there has been a growing awareness from clients about
more poignant among our investment community. the effect of their investment decisions and their power to
shape their future, by choosing investment professionals
ESG is the acronym associated with responsible investing.
whose conduct and investment approach best represent
It describes the elements of custodianship that is already
their personal values through which investment decisions
an implicit expectation by our clients and our investment
are made. Clients and investment professionals do not
community. It captures the ripple effect that an investment
only seek financial wellness – they want to have a hand in
decision has on our world in terms of our environment,
sculpting the investment landscape.
society and governance. As Katherine Collins, head of
sustainable investing at Putnam Investments, puts it: Whether business stakeholders embrace ESG or not, it
“In making an investment decision, you get to shape the is the direction in which the collective world is moving.
world you live in, it is a vote for the world you want to see”. Responsible investing practices affect the sustainability of
their business, as clients and investment professionals play
We affect our world, touch our environment, our
a greater role in choosing which industries and businesses
communities as well as our ethics and principles through
survive…. Everyone Should Get it!
the way we invest. COVID-19 has heightened the
ESG works!
There is a significant number of studies that point to the There is a greater focus on ESG by investors, indicating
positive contribution of sustainable investing to financial the increasing importance of the role of ESG in investor
performance. Deutsche Asset and Wealth Management in decisions. The Macquarie Infrastructure and Real Assets
the company’s white paper (ESG and Corporate Financial Report ESG Survey outlines the key survey findings from
Performance: Mapping the Global Landscape: 2015), 150 real asset investors responsible for managing more than
through its research in conjunction with the University $US20 trillion of investments globally (at 30 November 2019).
of Hamburg, examined ESG and corporate financial The responses from 150 global investors show their focus on
performance (CFP) across more than 2 000 academic ESG has been growing and intensifying. 58% of investors have
studies published since 1970. The study led to a number of increased their ESG focus during the past five years, and 91%
notable findings, one of which is that 62.6% of meta-studies expect it to increase further in the next five years.
(that use meta-analysis to aggregate findings of studies
econometrically) yield positive findings in terms of the
ESG-CFP relationship and only 10% of the studies display a
negative relationship.
91% 9%
More focus on ESG No change
Source: Macquarie
Page 4 of 23 Investments | Insights | 2020
ESG
WHAT IS IT?
Page 5 of 23 Investments | Insights | 2020
E stands for the
environmental factor
• This refers to physical risks, such as droughts, flooding • Transforming economies to reduce their carbon
or pollution, which can result in material financial footprint and to focus on climate risks through
losses for businesses in sectors such as agriculture, structural change can lead to innovation, employment,
mining, healthcare and fisheries; through crop failure, new industries and growth in the longer term. In the
infrastructural damage, epidemics and destruction shorter term, unintended consequences in transitioning
of ecosystems. The negative financial effects are not to low-carbon-footprint economies could be severe.
only seen on devaluation of physical assets but also The consequences such as displaced workers could
through increasing operational costs resulting from be significant, as labour skills are not homogenous
indirect effects, such as disruption of supply chains that and displaced workers cannot easily shift to different
cause input costs to rise, as well as costs to businesses sectors. The ‘Just Transition’ addresses this:
through regulation where businesses that are seen to
• Just Transition is ancillary to the Paris Agreement,
damage the environment are taxed. Companies that are
set up by the Principles for Responsible Investment
not evolving their processes to account for these risks
(PRI) in partnership with various other institutions,
can be become competitively disadvantaged.
whose purpose is to connect action on climate change
• Increasing greenhouse gas emissions into our with inclusive development pathways, as countries
atmosphere is one of the main causes of climate transform their economies to reduce their carbon
change, which result in an increase (in frequency and footprint through structural change. Certain processes
severity) of phenomena such as hurricanes, droughts, and industries may become obsolete and workers
floods and tsunamis. Influential international societies redundant, and communities could be displaced from
and organisations such as the Organisation for their locations where sea levels have risen.
Economic Co-operation and Development (OECD) Just Transition gives guidance on judicious
and the Intergovernmental Panel on Climate Change redeployment of resources.
(IPCC), as well as the American Meteorological Society
(AMS), all have climate change featuring on their
agendas making it very topical in the ESG space.
Page 6 of 23 Investments | Insights | 2020
S stands for the
social factor
• This refers to risks that will affect the company in terms In South Africa, this is legislated through a Black
of its relationship between communities or institutions Economic Empowerment (BEE) integration programme,
outside the business and people or institutions inside and this legislation functions in conjunction with
the business. Responsible investing involves identifying various other forms of legislation, including the
and minimising risks that social factors will have on Employment Equity Act, Skills Development Act
the financial performance of a company. Bad labour and Preferential Procurement Framework. It serves
practices, such as unfair dismissal and wage disputes, to redress imbalances created in the past, to enable
can sour relations between company management and previously disadvantaged people to participate
employees, which can lead to strikes, protests or just meaningfully in the economy and make sure the
unhappy employees. This disrupts business operations economy is representative of the country’s racial and
and productivity, negatively affecting a company’s other demographics. Companies are rated by score
profitability. Occupational health and safety within cards, which incorporate principles set out by the
the workplace affect productivity, and companies Codes of good practice of Broad-Based Black Economic
that engage in efforts to promote health and safety Empowerment (B-BBEE). Ratings are disclosed on
ultimately improve financial performance. BEE certificates, which are used in compliance with
Reputational risk – behaviour or actions by a company regulations on government spending. Businesses with
that negatively influence the way in which it is good B-BBEE ratings stand a better chance of accessing
perceived by stakeholders – could reduce demand or business opportunities in South Africa.
disrupt supply for its product or service, thereby hurting
• Geopolitics is a social risk, where political tension
financial performance. This usually results from unfair
between countries can hurt trade relations, which lead
treatment of clients, suppliers or employees.
to reduced demand for products and services and
• Business behaviour affects communities from a social disruption of supply chains.
inclusionary perspective. Social inclusion empowers
poor and marginalised people, so they are able to
participate in opportunities available in society.
Page 7 of 23 Investments | Insights | 2020
G stands for the
governance factor
• This refers to corporate governance, the purpose the election and removal of directors, decisions
of which is to facilitate prudent management of on remuneration policies, material acquisitions or
a company, leading to long-term success. It is disposals of assets and other matters of a material
implemented by the adherence to principles that guide nature. Investment managers will vote against
directors in the way in which they control and manage excessive remuneration packages, which do not align
their organisations. Companies need to be transparent to performance objectives, against the appointment of
on how they implement governance principles, which directors, which are not seen as independent, as well as
allows stakeholders to be aware of and understand against irresponsible capital expenditure decisions.
management actions, empowering the stakeholder to
• The practice of good corporate governance guides
hold company management accountable for
business decisions to be in the best interest of
their actions.
stakeholders and not exclusively to the benefit of
• Active ownership refers to an investment manager’s company management. Good corporate governance
responsibility of holding company management leads to wise capital expenditure decisions and cost
accountable for their actions and decisions through control – all positive factors for company earnings.
shareholder activism. Shareholder activism is where It is therefore important for investment managers
shareholders, as partial owners of companies, influence to monitor risks of non-compliance by companies
corporate behaviour by exercising their rights. This can to corporate governance principles, which affect the
include voting on shareholder resolutions, litigation, and financial performance and profitability of a company.
engagement with management.
• Investment managers will vote on their clients’ behalf,
which is known as proxy voting. Voting takes place
in shareholder meetings, which typically involve
Page 8 of 23 Investments | Insights | 2020
Investment managers do it all the time Investment managers implement ESG using various
approaches (or a combination of these):
For the most part, investment managers have been
practicing responsible investing in some shape or form • Exclusionary approach: Where companies that involve
for a while. ESG methodology organises risks between the controversial practices or manufacture controversial
three factors, alongside financial risks. Governance covers products are excluded from portfolios at the outset.
important risks inherent in corporate conduct, which were These companies are typically tobacco companies,
formally identified and addressed by codes of conduct, companies that produce or trade in controversial
such as the King Report, which was published in 1994, and weaponry, or companies involved in gambling or in the
the Code for Responsible Investing in South Africa (Crisa), pornography industry.
which came into effect in 2012. Over time, investment • Collaborative approach: It’s not just what you do, it’s also
managers have been incorporating governance risks into how you do it. Collaboration is executed through corporate
their investment processes. engagement, where the investment manager strives to
Environmental and social risks have received less attention improve company behaviour in terms of ESG, which will
in the past. However, with the passing of time, symptoms ultimately affect shareholder value. Investment managers
of neglect have led to a greater focus on environmental and will use active ownership – their ownership position of
social risks by the investment community. shares or bonds – to encourage positive change through
The Marikana massacre, which followed the breakdown in discussions and voting. When companies are made to
wage negotiations between company management, miners understand that it is to their benefit to improve ESG, which
and labour unions, was an example of how relationships reduces risk or positively affects profitability, engagement
between stakeholders can go fatally wrong. Another example becomes easier.
is the three-year-drought-induced municipal water crises in • SA has a relatively small investment universe of
Cape Town, which caused water costs to rise and carries the investment opportunities, be it the listed equity
additional risk of affecting public health negatively. universe or credit space. SA investment managers do
The ESG approach to responsible investing qualifies risks not have the luxury of choice and therefore it is not
related to ESG factors and guides the implementation of risk always easy to simply exclude a share like
mitigating approaches in the investment process. British American Tobacco (BTI), which has generated
Formally incorporating ESG into the investment process stable returns for shareholders in the long term and is
makes sure of the improvement and continuity of considered to have rand-hedge qualities. Exclusion can
responsible investing through time and assists in making the be seen as an opportunity cost from a fundamental
reporting of ESG systematic and repeatable. Comprehensive research and portfolio construction perspective.
ESG reporting enhances transparency, which enables more ESG can therefore rather be applied on a relative basis,
efficient and effective decision making by investors. where investment managers consider ESG scores
relative to their sector and relative to the company’s
How ESG plays into the investment process own historical score. BTI has meaningfully improved
its overall ESG score, according to some investment
The conduct of businesses affects the environment and
managers, and the company’s investment in
communities, which in turn influences the sustainability
new-generation products is seen to have reduced
of their business, the way in which they are perceived and,
social risk. This is where engagement plays a very
ultimately, their profitability. Investment professionals
important role, because it assists in the improvement
choose to adopt ESG principles as guidelines to make
of responsible investment practices by the underlying
sure their business conduct leads to more sustainable and
companies and the measurement and monitoring of
responsibly managed investments. This also implies the need
those practices.
for the investment manager to understand the exposure of
companies (underlying portfolios) to ESG risks through the • Sasol is a dominant player in SA’s energy sector, but,
incorporation of ESG into their investment process. besides being a culprit of high greenhouse gas emissions,
it is also regarded as having poor governance by
ESG investment principles, which, when adopted and
allowing the Lake Charles Chemical Project to run over
integrated, should lead to a more a holistic approach to the
budget (the cause of this being attributed to ineffective
way in which underlying investments are evaluated and
leadership). Investment managers that see potential
chosen, while also being financially viable and generating
in this company have engaged with management on
positive returns for investors.
governance issues and this led to a change in leadership
Page 9 of 23 Investments | Insights | 2020
and the replacement of the joint CEOs, in addition to confirms intentions for additional energy to be procured
the changes that were made to general management. from diverse sources, such as solar power, wind and
An environmental risk that will detract from future gas. The above supports the government’s Integrated
shareholder value is carbon taxes that could be Resource Plan released in 2019 (which updates the
levied due to high carbon emission levels, and Sasol national energy forecast and provides a roadmap for
is in the process of addressing this risk plans that are our energy sector for the next decade).
being instituted result mainly from engagement by
• The investment industry is moving towards integrating
investment managers in collaboration with stakeholders.
sustainability into investments through impact investing.
Where investment managers see that steps are being
implemented to reduce the risk of carbon taxes, in • Impact investing is more predisposed to funding from
combination with other risks, and where valuations still private equity investors. This is because of the nature
hold, then investment managers will still be willing to of private equity, characterised by direct funding of
invest in Sasol from an ESG perspective. long-term projects with the ability to draw on needed
specialist knowledge. Our Portfolio Solutions capability
• Positive screening approach: This is the converse of
has exposure to private equity funds, continually finding
the exclusionary approach. The investment manager
ways of incorporating impact investing into their
establishes a set of criteria to identify companies that
multi-strategy portfolios.
integrate responsible practice into their management
and operations measured by ESG factors, for inclusion • Integrative approach: ESG can be integrated across all
into portfolios. asset classes by incorporating it into valuation models
or portfolio construction:
• Impact investing approach: This is where investments
are made into businesses whose purpose and • The investment manager can use a set of criteria,
objectives lead to a positive effect on the environment qualitative and quantitative, to score companies
and communities. These types of businesses have individually in terms of ESG risks. Quantitative and
a direct and measurable effect on society and the qualitative risks can be determined for each company
environment and are directly involved in themes that by scoring them on the individual components of
target sustainability, including renewable energy and ESG, commonly using ESG score cards.
student accommodation. These investments also need • Third-party service providers can also be used
to be financially viable. for ESG analysis. This improves objectivity and is
• Impact investors can use impact goals to guide their beneficial when used to complement their
objectives. The 17 Sustainable Development Goals of own analysis.
the United Nations are designed to drive the move to a • To assist in the comparison of ESG scores across
better and more sustainable future for all. Investment industries, ESG components can be weighted
managers in South Africa have refined impact investment based on the industry or sector characteristics by
objectives to encompass goals of national treasury in identifying the materiality of ESG factors affecting
terms of structural reforms, making impact investing specific sectors. For example, the governance
more relevant for the South African investor, and we factor is regarded as having a more direct effect
have seen an increase in investment products that reflect on risk for the banking sector. If factor weighting is
government initiatives through impact investing. applied in ESG methodology, then, in this example,
• The Risk Mitigation Independent Power Producer it is likely that the governance factor will carry a
Procurement Program (RMIPPP) is an example of higher weighting in the overall ESG score relative to
a programme implemented by government, which the remaining two components. The weighting is
focuses on the expeditious procurement of energy then applied to the governance score of the bank,
into the national grid, addressing the SA electricity similarly for E and S weightings to arrive at a total
power supply crisis, and also reducing the use ESG score. In assessing the E score, the physical
of costly diesel generators. This programme also effect of climate change on a bank’s assets and
serves to reinforce government’s intention to meet the challenges faced by banks in transitioning
international obligations of reducing carbon emissions to a low-carbon economy must be considered.
by decarbonising the energy system through advancing Banks also need to move to financing sustainable
technologies that emit less carbon dioxide. A report companies and investments and, in doing so, need
from the desk of the President (September 2020) to take social implications into account alongside
profitability. Investment managers need to examine
Page 10 of 23 Investments | Insights | 2020how banks engage with their regulatory authorities • State-owned enterprises (SoEs) in South Africa and
to address risks and whether they are being other emerging markets have become a bone of
proactive in identifying solutions. The effect of contention for a number for years. Mismanagement
governance risk, followed by societal risks on credit of SoEs has led to very poor scores on the G factor,
and valuation are material, the failure of African yet their S and, in some instances, their E score, fair
Bank (Abil), for example, highlights these risks. well relative to other companies. Land Bank scores
The G risk: Abil pursued aggressive lending well on a social mandate (funding government growth
practices, led by a board that implemented reckless initiatives), but badly on governance. Depending on
business decisions, dominated by the then CEO, the weightings ascribed to the ESG components,
Leon Kirkinis. The S risk: the bank targeted its Land Bank’s ESG score will differ between investment
lending to individuals in the lower LSM market managers and, from an ESG perspective, will cause
segment, who were already in vulnerable financial weightings in portfolios to differ.
positions and whose dispositions were worsened
• The above discussion highlights methods and the
by the unreasonable interest charges on loans. In
subjectivity brought about in the different ways of
this case, governance and social risks played out,
measuring risks through the ESG lens. ESG risks
to the detriment of the customer and, in the end,
are not always easily quantifiable, which makes
all the stakeholders of this business lost.
measurement a challenge. However, just as any type
Results from the ESG analysis at a company level are of analysis performed on companies by different
incorporated into the investment manager’s investment managers will have varying results and
valuation models: degrees of subjectivity, so too will ESG analysis.
• In the equity asset class, the company’s ESG score can • The interaction of ESG factors are intertwined,
be used to adjust the discount rate in the DCF model influencing one another and hence affecting a
or the value of future cashflows, ultimately feeding business in its entirety
through to valuation. ESG scores may also be used
• Combining the ESG approaches described above is
to upweight or downweight the share at portfolio
more likely to lead to an optimal ESG methodology.
construction level.
An investment process, where ESG is not integrated
• In the fixed income asset class, a return is derived from but a separate step (where conclusions are drawn
yield and regular coupon payments over a specified independently from company analysis), can lead to
term, therefore the primary risk lies in the ability of the erosion of the benefits of ESG analysis, because an
issuer to pay debt. This risk is reflected through the investment manager is less likely to adjust investment
credit score of the entity, which incorporates a variety decisions based on information that wasn’t part of the
of risks, including ESG risks. The credit score affects company analysis from the outset.
the spread required to compensate the investor for
additional risk.
Page 11 of 23 Investments | Insights | 2020We get it!
The integration of ESG principles into investment behaviour combines beautifully with our outcome-based
investing philosophy, making sure we deliver on our investment goals in a sustainable and responsible way.
Our ESG team
Jana van Rooijen Piet van der Merwe
Responsible investment specialist ESG Analyst
BCom (Investment Management) BCom (Hons) Economics, BCompt (Hons)
Industry experience: 14 years Industry experience: 26 years
• Our responsible investment team consists of ESG • There are a number of national and international
specialists, who make sure we achieve the goals networks or platforms that are proponents of
outlined in our RI policy and assist in the integration of responsible investing and formulate guidelines and
ESG into investment decision making, so we live and requirements that members or signatories are required
breathe responsible investment principles in our roles to fulfill, to make sure we incorporate and implement
as investment professionals. We include responsible ESG factors into our investment processes and
investment practices in our key performance indicators. ownership decisions. Responsible investment principles
and compliance advocated by these networks or
• Jana van Rooijen and Piet van der Merwe are members
platforms have been incorporated into our responsible
of our responsible investment committee and are
investment policy and we have built our responsible
instrumental in managing overall accountability and
investment approach by setting goals, which assist in
overseeing the practical implementation of responsible
effective implementation of responsible investing.
investing by our investment team. Their continual
The main principles of our responsible investment
engagement with our investment capabilities assist in the
policy are as follows:
enhancement and formulation of strategies to integrate
ESG into the investment processes, keeping abreast of • Advocating acceptance and implementation of
industry developments in the ESG space, and distilling ESG into investment decision making
these in a manner bespoke to our investment capabilities. • Reporting on activities and progress to show our
commitment to acting in the best interest of
Responsible investment policy our stakeholders
• Our responsible investment policy is approved by • Encouragement of transparency through disclosure
the Momentum Metropolitan Holdings executive of our responsible practices
committee and practically implemented and • Integration of ESG overseen by our investment
maintained by the relevant business areas. committee and ESG specialists
The executive committee reviews this policy and it will
• Participation in active ownership through
be revised when appropriate to do so. Our responsible
engagement and proxy voting and compliance to
investment committee oversees the integration of
rules and regulations.
responsible investing across the business, driving
responsible investment initiatives. Please click here to view our responsible investment policy.
Page 12 of 23 Investments | Insights | 2020The following are regulations and codes of practice to which professionals alone, having had to strengthen our own
we comply: investment frameworks. As fixed income investors,
we may not be voting members on company boards,
• United Nations Principles for Responsible Investment
but we do have an influence on the cost and ability
(UN PRI)
of corporates to be able to borrow in the debt capital
• Code for Responsible Investing in South Africa (Crisa)
markets and, as such, we have made enhancements to
• International Corporate Governance Network (ICGN) our process for the benefit of our investors.”
We support the following:
Loftie Botha, portfolio manager of our indexation and smart
• Task Force on Climate-related Financial Disclosures
beta portfolios:
(TCFD)
• CDP (previously the Carbon Disclosure Project) • “Systematic portfolios and especially index-tracker
portfolios invest in a large number of companies, and
• Paris Agreement of 2015
these strategies often have a wider scope for corporate
• Just Transition on Climate Change
governance activism than what investment managers
We are a member of: of more traditional portfolios have. This is also the most
• The Association of Savings and Investments South effective lever we have for improving the governance of
Africa (Asisa) responsible investment committee the companies in which we are invested. The maximum
use of proxy voting and company management
ESG affects the sustainability of companies and it engagement strategies influences corporates to
is therefore imperative that we integrate it into the improve their governance. Because there is a correlation
investment processes of our investment capabilities. between good governance on the one hand and profits
This is what our team has to say about ESG integration: and longevity of a company on the other, corporate
activism plays a risk-mitigation role in the portfolios.
Ian Scott, our head of fixed income: This extends not only to the specific portfolios but
• “We believe, as fixed income investors, that we have an (due to the large numbers of shares that are held),
integral role to play on the road to a more sustainable implicitly also to the entire equity market.
future. We do invest in carbon producing entities like • Our smart beta and index-tracker portfolios have strict
Sasol and Eskom, due to the principle of a phased mandates to follow rules-based investment processes.
energy transition in SA. However, we seek to invest in In index-tracker portfolios, there is almost no discretion
cleaner carbon and environmentally friendly projects. to deviate from the benchmark index; smart beta
We support renewable energy projects, where the portfolios will deviate from their benchmarks, because
investment case makes sense on a risk-adjusted basis they are active investment strategies implemented
and also support green bonds, but not at a higher using a systematic approach. However, these deviations
price relative to ordinary bonds or where there are no are strictly in line with the investment style we target
additional benefits to clients. We see environmental in each smart beta portfolio. This means that one of
funding as part of our investment universe in the long the tools of sustainable investing, inclusion and/or
term, and ESG factors growing in importance in the exclusion strategies (either including good companies
investment allocation decision making process. or excluding ESG non-performers) aren’t used in
We accept that we, as investors, are part of society, and systematic portfolios.
the need for clients’ money to be sustainably invested.
• The responsible investment team votes at every
Currently, there are no bonds in SA that have a direct
shareholder meeting of companies held in the smart beta
effect on the betterment of society. However, our door
and index tracking portfolios. The ESG specialists also
is always open to look at new opportunities.
attend the weekly meetings of the portfolio management
We may find that we have to partner with other
team and there is constant communication between the
financial institutions, like banks, to play a role in helping
two teams to ensure proper integration of ESG concepts
societal funding, such as student accommodation
into these portfolios.”
projects. Governance is the one ESG factor where we
have seen the most development in the fixed income
Pelo Manyeneng, head of listed property:
space in the past few years. Given the corporate
governance failures of Steinhoff, SoEs, auditing firms • “During the past few years, the property sector has
etc., we could not rely on the judgment of external shown the investment industry what poor governance
Page 13 of 23 Investments | Insights | 2020does to financial profits. Our property team seeks to Eugene Botha, joint deputy CIO and custodian of our
identify the potential effect of ESG issues that could outcome-based investing philosophy:
manifest into significant financial implications for
• “Our Portfolio Solutions team, in the construction of
an entity. As part of the continual ESG monitoring,
multi-strategy portfolios using traditional asset classes,
assessing the quality of company management is
are innovative in the use of investment strategies and
vital to our process. ESG risks are addressed primarily
appropriate underlying investment managers to best
through the bottom-up qualitative analysis part of
execute chosen strategies that holistically bring our
our process, also looking at the risks to the property
clients closer to their investment goals and keep them
industry through the ESG lens. In conjunction with
invested. ESG is an integral part of our risk management
our dedicated ESG specialists, we engage with
framework, which we use to assess underlying
management to raise concerns, such as lack of
investment managers in our investment manager
transparency in reporting of earnings and unclear
selection process. Our ESG specialists (with input
remuneration policies, voting against company
from our investment manager research team) have
decisions that are not in the best interest of our
developed an RI rating model* to bring our appointed
investors. We examine how companies reduce costs
investment managers along with us on our responsible
through green energy sources and their approach to
investments journey, enabling meaningful engagements
electricity and water initiatives, and we also look at
that improve and ensure responsible investment
continuity of skill and talent within teams considering
through ESG.”
BEE initiatives.”
*We appoint investment managers that apply responsible
Sudesh Moodley, head of property asset management at investments practices and, through our due-diligence
Eris Property Group (a subsidiary of processes, assess how ESG integration is applied.
Momentum Metropolitan holdings, our property developer The investment manager responsible investments
and services group): (RI) rating model was created to assess the level of
responsible investments practices applied by the various
• “We create spaces for people to live, work and relax;
investment managers. This model complements the
using bricks, mortar and ESG integration.
appointment, monitoring and reviewing process of the
ESG benefits derived from our investment assets are
investment managers. We engage with the participating
widespread, extending across green building initiatives,
managers during our assessment; and recommend three
infrastructure development, water and sanitation
considerations specific to each investment manager, which
solutions, community empowerment as well as
should improve their responsible investments approach and
enterprise, supplier development and solar solutions.
align our principles closer to one another.
These initiatives are in line with our responsible
investing policies and applied mostly across our rural
The benefits of ‘getting it’!
retail centres.”
• The interaction of ESG factors is intertwined,
Motlatsi Motlanyane, head of alternative investments: influencing one another, affecting a business in its
entirety. Meaningfully incorporating ESG into an
• “Each of our teams has its core offerings, which
investment process leads to a more robust and holistic
focuses on the construct of multi-strategy portfolios
approach to risk management.
in the hedge, private equity, high yield credit and
real assets space. Of all the investment strategies, • The ESG approach to responsible investing
alternative strategies have the most direct effect on qualifies risks related to ESG factors and guides the
ESG. We invest in student accommodation to keep our implementation of risk mitigating approaches in the
society educated, and we invest in renewable energy investment process. Formally incorporating ESG into
to support our government’s integrated resource plan the investment process ensures the improvement and
and our country’s commitment to reduce carbon continuity of responsible investing through time and
emissions. Each of our investment processes embraces assists in making the reporting of ESG systematic and
ESG through the incorporation of ESG assessment in repeatable. Comprehensive ESG reporting enhances
due-diligence processes when selecting investment transparency which enables more efficient and effective
managers. We engage with our underlying investment decision making by investors.
managers on ESG issues, and they are obliged to keep • It assists government in achieving goals for economic
us updated on ESG risks in their report back to us.” growth in the long term – mainly through impact
Page 14 of 23 Investments | Insights | 2020investing. Investment managers in South Africa ESG lends itself to a long-term mindset because it is
have refined their impact investment objectives to forward looking. Its implementation may lead to additional
encompass national treasury’s goals in terms of spend (through the enhancement of processes or affecting
structural reforms, making impact investing more structural changes), which should be seen as capital
relevant for the South African investor. expenditure towards a long-term benefit and not as a
compliance cost, because this type of spend will not lead
• Responsible investing through ESG principles creates an
to once-off benefits but instead, long-term sustainable
investment environment favourable to foreign investors,
benefits. If applied mindfully and judiciously, with practices
as investors and businesses in developed markets
being put in place to give effect to each principle, it will lead
have moved to responsible investing and are focusing
to identification and penetration of risk barriers, clearing
their investment decisions to positively influence ESG
passages for opportunities to be captured and absorbed,
risks. Therefore, when looking to extend investments
resulting in an organisation that flourishes.
into emerging markets, foreign investors will likely
favour companies that have incorporated ESG into their
investment behaviour.
• Transforming economies to reduce their carbon
footprint and climate risks through structural change
can lead to innovation, employment, new industries and
growth in the longer term.
ESG... just get it!
Page 15 of 23 Investments | Insights | 2020Industry dynamics
Tatjana Raunich | Investment manager research analyst
An overview of industry changes (from 1 January 2020 to 15 November 2020)
within the investment management landscape is discussed below, relating to
business /human capital.
In memoriam
We would like to remember all those in our industry who have passed away during this period. Our thoughts and prayers go
out to their families, colleagues and friends.
• Anwah Nagia, chairman of Element Investments
• Rahima Cassim, senior research analyst of Mazi Asset Management
Momentum Investments Mish-al Emeran joined Abax from Electus earlier in the
Theo Terblanche was appointed to the new role of executive year and covers the resource shares previously covered by
head of investment management at the beginning of Parry. He has 15 years of investment experience and has a
September this year. He was previously chief financial Bachelor of Business Science and is a CFA charter holder.
officer (CFO) at Momentum (2015) and, more recently, joint
Aeon Investment Management
executive head of retail investments with Martin Riekert.
Another independent non-executive director was appointed
He is supported by a strong leadership team, including
to the board of directors, namely Thulani Madinginye.
Sonja Saunderson, Letshego Rankin, Wayne Dennehy,
He has a Masters in Applied Economics and is an alumnus
Jannie Du Randt, Korousha Chetty and Friedrich Rappard.
of UCT. His background includes private equity, corporate
Martin Riekert assumed full responsibility for the retail finance, consulting and project management.
investment business as executive head of retail investments.
Riekert joined Momentum Wealth in 2008 and his Allan Gray
previous role was head of product solutions for Momentum Chief investment officer (CIO) Andrew Lapping will leave
Investments in 2016. The leadership team that supports Allan Gray towards the end of this year. After 20 years with
the retail investments business remains unchanged and Allan Gray, he will be exploring opportunities outside of
continues to be supported by Hymne Landman, Florbela investment management.
Yates, Kapil Joshi, Fareeya Adam, Aldert Brink, Marisa
Duncan Artus was chosen as CIO, successor to
Meyer, Jacques van Schalkwyk and Friedrich Rappard.
Andrew Lapping, and the change was effective in
Lawrence Koikoi joined Momentum Investments in February, September 2020. Artus joined the firm in March 2001 and
as listed property portfolio manager in the property team, managed a portion of client equity and balanced portfolios
where he has joint accountability in managing listed property since January 2005. He has spent 15 of his 20-year industry
portfolios with Pelo Manyeneng, head of property. Previous experience at Allan Gray.
positions include portfolio manager and analyst in STANLIB’s
Mark Dunley-Owen, who managed a portion of the stable
listed property franchise, covering local and global real estate
and fixed interest portfolios, handed over his responsibilities,
investment trusts (Reits).
as he has since joined the team that manages the
36ONE Asset Management Orbis Global Balanced Strategy at their sister company, Orbis.
Nhlakanipho (Nipho) Mncwabe was appointed as an equity Leonard Krüger, who managed a portion of the stable
investment analyst in February. His previous experience portfolios, left Allan Gray to pursue an opportunity at
includes a position at Merrill Lynch (Johannesburg and Prudential Investment Managers.
Cape Town).
Nick Ndiritu, one of the portfolio managers of the
Abax Investments Allan Gray Africa ex-SA Equity Fund and the Allan Gray
Campbell Parry left Abax during the year. He was an Africa ex-SA Bond Fund, resigned to pursue opportunities
independent research consultant, who worked exclusively outside of Allan Gray.
for Abax, covering mainly local resource companies.
Page 16 of 23 Investments | Insights | 2020Allan Gray expanded the portfolio management institutional space. He is also the chief executive officer
responsibilities of other team members. In the equity, (CEO) of Crede Capital. His previous experience includes
balanced and stable portfolios, three new portfolio head of business development at Afena Capital and
managers, who have all worked at Allan Gray for several experience at Investec.
years, were appointed, namely Rory Kutisker-Jacobson,
Duzi Ndlovu became a partner and shareholder of
Tim Acker and Sean Munsie.
BlueAlpha in January and is involved in portfolio
Varshan Maharaj, Rami Hajjar and Kamal Govan were management, predominantly in the multi-asset-class space.
promoted to portfolio managers, focusing on African and He is also a principal at Crede Capital. Previous positions
frontier market equities. include founder, CIO and executive director of Argon Asset
Management until 2013. Sokhela and Ndlovu’s partnership
Lapping and Dunley-Owen’s South African fixed interest
and shareholding in BlueAlpha results from the BEE
portion of the balanced portfolios were split between
transaction concluded between BlueAlpha and
existing bond and money market portfolio managers,
Crede Capital Partners.
Londa Nxumalo and Thalia Petousis. Nxumalo and Petousis
assumed full responsibility for the Allan Gray Bond Fund Richard Pitt, founding partner and director of BlueAlpha,
and the Allan Gray Money Market Fund, respectively, having stepped into the role of CEO, previously held by Uys Meyer.
co-managed with Dunley-Owen. Sandy McGregor retained Meyer took on an advisory role within the business.
his existing responsibilities.
Kirsty Minor, chief operating officer (COO) and compliance
ALUWANI Capital Partners officer of BlueAlpha, in addition to her current roles, took on
a directorship position in March.
In February, Renda Rundle was appointed to ALUWANI’s
new portfolio analytics team. Rundle’s previous Coronation Fund Managers
experience includes the role of managing director (MD) of
Henk Groenewald took the position of global developed
Quantessential Services Limited, based in the UK.
markets investment analyst in October. Groenewald has
Rundle has 19 years’ industry experience.
18 years’ industry experience.
E’louise van Tonder, the risk manager for the ALUWANI
Wilna Marais was promoted to the head of implementation
fixed come team, with 15 years’ industry experience, will
in July. Her responsibilities include implementation and
also form part of the analytics team. The analytics team
oversight of trades and monitoring compliance and portfolio
is responsible for portfolio analytics and risk and return
mandates. She has 10 years of industry experience.
attribution for portfolios across the fixed income and
equity capabilities. Mark le Roux, former head of fixed income who joined
Coronation in 2005, retired in February 2020.
Thando Mtshali was appointed as a credit analyst and has
eight years’ industry experience. Simphamandla Shozi, a portfolio manager within the
South African-focused investment team, resigned in
Ashburton Investments September. He joined Coronation in 2005.
In November, Arno Lawrenz resigned from his position as
Electus Fund Managers
global investment strategist, where he was also previously
head of fixed income. At the end of March, Electus announced its intention to cease
management of all client portfolios on 30 June 2020, the
Aylett & CO date of the company’s closure. As a pure equity investment
In June, Ryann Dean was appointed as a global equity manager, low beta returns from the equity asset class, portfolio
analyst. His previous role was as an investment analyst at outflows off a low assets under management base, combined
Coronation Fund Managers, where he worked for five and a with short-term underperformance for nine months, led to
half years in the global equity team. the company’s decision to close. This was despite its returns
above benchmark delivered for the past 19 years ending 2018.
BlueAlpha Investment Management
Electus saw this as the best decision for all stakeholders under
Sandile Sokhela became a partner and shareholder of the circumstances. The company continued to manage client
BlueAlpha in January and was appointed as director and portfolios with a full staff complement until 30 June 2020 and
business development manager, where he is involved was well capitalised from a regulatory perspective, enabling a
in growing the business development function in the smooth wind-down process.
Page 17 of 23 Investments | Insights | 2020Element Investment Managers Abdul Basit Oldey was promoted to head of dealing
Jeleze Hattingh, a director and fixed income portfolio and assumed responsibility for trading, return analysis
manager at Element, decided to pursue opportunities and quantitative research.
outside of Element, after she returned from her year-long • Mohamed Mitha was appointed as investment
sabbatical. Her responsibilities were divided among the analyst and is responsible for equity research. Previous
team before she left for her sabbatical. employment includes Mergence Investment Managers
and Tantalum Capital.
Foord Asset Management
Darryl Owen, the deputy CIO of Foord, will be retiring Rahgib Davids, an equity research analyst that started with
in the second quarter of next year. Because of improved Kagiso in 2016, resigned and took a position at
capacity within the South African business, the deputy CIO Prudential Investment Managers. Simon Anderssen, a portfolio
role is not expected to be replaced. Portfolio management manager who started with Kagiso in 2011, also resigned.
responsibilities will be re-assigned to Foord’s five senior
Laurium Capital
analysts with tenure at the firm of between five to 10 years.
Craig Sorour decided to emigrate and left Laurium Capital
Environmental, social and governance (ESG) responsibilities
at the end of October. His recent focus was on global
will be taken on by Pravarshan Murugasen.
equities and he was also responsible for coordinating
Pravarshan Murugasen, a senior analyst, was promoted to South African equity research alongside senior investment
the newly created role of head of equity in the investment team members. His departure did not materially affect
team. The role incorporates some of the key functions of head equity portfolios nor the investment process. Sorour will
of research (a position that was relinquished by Nick Balkin). remain a shareholder and investor in Laurium portfolios.
Murugasen has been at Foord since 2012. Responsibilities
Junaid Bray took over the co-ordination of the research
of this position will include the management of the
responsibility. Bray has been employed at Laurium Capital
equity research process, resources and team recruitment,
since November 2019. His previous positions include head of
development and training of analysts, brokerage management
equities at Argon Asset Management, senior analyst abroad
and communication of ESG investments.
(Abu Dhabi) and analyst at Oasis Asset Management.
Nick Balkin relinquished the head of research role to focus
Laurium Capital introduced a multi-counsellor approach to
principally on portfolio management and all its related
its equity portfolio. Junaid Bray and Dwayne Dippenaar each
demands.
manage a 10% portion of the portfolio, while Murray Winckler
Nancy Hossack was promoted to multi-counsellor portfolio and Gavin Vorwerg remain the lead portfolio managers on
manager on SA equity effective from the beginning of 2021. the equity portfolio. Dippenaar joined Laurium in 2015, and
previous experience includes being a research analyst for global
Futuregrowth Asset Management
emerging markets and South Africa equity portfolios at Electus
During January, Gianapaolo Gazilli, head of finance, became
Asset Management. He also worked at Berman Capital – a
a formal employee of Futuregrowth. He was previously an
US-based investment manager.
Old Mutual employee seconded to Futuregrowth.
Laurium Capital signed an agreement in November for the
Rhandzo Mukansi, a fixed interest portfolio manager, left
acquisition of 100% of the equity of Tantalum Capital, as
Futuregrowth during July to join his family outside of
held by the Tantalum management team and
South Africa.
RMI Investment Managers. The Laurium and Tantalum
Tarryn Sankar, head of listed credit, left Futuregrowth in teams have built strong personal and professional
October to pursue a career at STANLIB. relationships over many years, based on similar value
systems and investment DNA.
Kagiso Asset Management
In November, Kagiso affected the following The four members of the Tantalum management team,
internal promotions: Rob Oellermann, Mike Lawrenson, Melanie Stockigt
and Simone Blanckenberg, will join Laurium permanently
• Dirk van Vlaanderen, an analyst, was promoted to
following the formal implementation of the transaction.
portfolio manager, where he manages the
Protector Fund and continues to perform equity The Tantalum team has been building its global equity
research. Satish Gosai, head of dealing, responsible for capability, which will complement Laurium’s efforts in this area
trade execution and derivative research and execution, and assist in the development of a dedicated global capability.
was promoted to head of fixed income and derivatives. Oellermann will focus on global equity investing, with
Page 18 of 23 Investments | Insights | 2020support from the rest of the combined team and continues to Prescient, STANLIB and Old Mutual.
manage the existing multi-asset-class mandates. Lawrenson
Mark van Wyk is head of infrastructure and development
will continue coverage of the resources sector across all
(SA) with 20 years of industry experience. He joined
geographies. Stockigt will take over the responsibilities of
Mergence in 2011.
JP du Plessis (the fixed income portfolio manager who
resigned) as portfolio manager of all the fixed income Kasief Isaacs is head of unlisted investments (SADC).
portfolios, as well as contribute to the asset allocation process He joined Mergence in 2015 and has 26 years of
of the multi-asset-class portfolios. Blanckenberg will join the industry experience.
business and operations team and continue to service clients. Bulelwa Ntshingwa was appointed as investment principal
RMI Investment Managers has been a supportive in the unlisted division. He has 17 years of industry
shareholder of Tantalum since 2015 and will continue to experience and was managing partner and founder of
hold an economic interest in the combined entity for the Stem Investments.
time being. Although this transaction brings an end to the Grace Debeila, a senior investment analyst, who joined
partnership journey with Tantalum, RMI is fully supportive Mergence in 2019, resigned to pursue a career outside
of this transaction and believes it’s a beneficial outcome for of Mergence.
both parties.
Dirk Steyn, head of multi-asset- class, who joined Mergence
From a business perspective, the management of Laurium in 2017, resigned.
remains business as usual, with no material change to its
shareholdings or decision-making structures. Ninety One
Rüdiger Naumann, co-portfolio manager within the portfolio
Matrix Fund Managers
management team of the company’s multi-strategy
In June, Craig Le Riche, one of the portfolio managers in the capability, headed by Chris Freund and Hannes van den
fixed income alternative investment space, left the business. Berg, indicated his intention to leave Ninety One by the end
of this year in pursuit of opportunities outside the industry.
Mergence Investment Managers
Esther Chan, who joined Ninety One’s emerging market
Fabian de Beer was named director of investments with
credit team in 2019 (previous roles include emerging market
oversight over listed and unlisted investments. He joined
portfolio manager and senior portfolio manager at Ashmore
Mergence in 2006. Previous senior roles at Mergence
and Aberdeen Asset Management respectively) will take
include investment strategist and CIO.
over the global top-down macro research responsibilities and
Bradley Preston is joint MD of Mergence. He joined Mergence also the fixed income part of the portfolio, which plays to her
in 2005 and led and mentored the listed investment team. strengths in emerging market credit and government bonds.
He also managed all the equity mandates and was the portfolio Rehana Khan, co-portfolio manager within the portfolio
manager of the Mergence ESG Equity Fund. management team of the multi-asset-class capability
(previous roles include portfolio manager and equity analyst
Yoza Jekwa was appointed as joint managing director of
at Prudential Investment Management), in addition to
Mergence. He was previously an independent advisor on
local equity selection, will assist in global share selection
mergers and acquisitions in Johannesburg.
responsibilities in conjunction with its London team.
Peter Takaendesa was appointed as head of equities.
Lorenzo Dicorrado joined Ninety One’s value capability as
Takaendesa joined Mergence in 2014. He was previously
an assistant portfolio manager for the UK Special Situations
a senior equity investment analyst and has 13 years of
Fund and Strategy within the value (ex- SA) team.
industry experience.
He previously worked at Sanlam Investments and Four
Izak van Niekerk was made co-portfolio manager of listed Capital Partners as a portfolio manager in global equities
investments. Van Niekerk has 14 years’ industry experience within value teams.
and joined Mergence in 2011. His focus is on equity research
Amine Allam joined Ninety One as an associate principal
and portfolio monitoring, and he also shares his skills with
in Ninety One’s alternative investments team, focusing on
the unlisted investments team, as well as being a member
Africa private equity investments. Before joining the firm,
of the investment committee.
he was a director at QInvest, where he was responsible for
Fazila Manjoo joined Mergence as portfolio manager in private equity investments and co-investments.
the multi-asset-class division. She has 16 years’ industry
Peter Baird and Mike Hugman left Ninety One to pursue
experience, and previous experience includes positions at
Page 19 of 23 Investments | Insights | 2020You can also read
