SA’s asset management market tops decade average – report

South Africa’s asset management market grew 14% in 2020, topping regional and global growth rates, according to a Boston Consulting Group (BCG) report released on Tuesday. The growth, which surpasses the 10-year average, was driven by contributions by the institutional sector.

Institutional clients accounted for 59% of South Africa’s assets under management (AUM), according to the report. Retail investors were not lagging far behind as they accounted for 41%, with unit-linked pension plans being the largest client type (74%), followed by mutual funds (24%).

“Insurance continues to be the largest and sole institutional client type, with 15% asset growth during 2019-2020,” BCG MD and senior partner Adam Ikdal said in a statement.

Growth perspectives

The Middle East and Africa region saw overall growth of 12% by year-end 2020, boosted by an increase in sovereign wealth funds resulting from a strong capital markets performance. The Middle East grew by 11% and Morocco by 7%, bringing the regional asset industry to $1.4 trillion.

South Africa’s growth rate was higher than that of North America, the world’s largest asset management region, which saw its growth for 2020 at 12%.

Globally, the asset management industry grew by 11%, surpassing the $100 trillion mark by the end of 2020, up from $93 trillion in 2019.

While South Africa’s asset management market saw good gains in comparison with other regions, it has a long way to go before it can compete with asset management industries in developed markets. In June, local collective investment schemes managed R2.9 trillion in assets.

“The South African industry is therefore not comparable to the US industry,” Sunette Mulder, senior policy advisor at the Association for Savings and Investment South Africa (Asisa), told Moneyweb. “The sheer size of the US asset management industry, which according to the Boston Report is $49 trillion, dwarfs our industry.”

Read: Trends in the world of asset management in the next decade

Although institutional investments accounted for $61 trillion (59%) of the global market, retail portfolios showed the most growth, increasing by 11% and accounting for $42 trillion worth of global assets.

“Investor demand was high,” states the report. “Total global net inflows amounted to $2.8 trillion and accounted for 3.1% of the total AUM at the beginning of the year. The prior decade’s historical average has typically ranged between 1% and 2%, but recent net flows continued closer to 3%.”

Key contributors to global flows

The regions assessed in the report all showed different investment patterns however, but fixed-income products and money market funds were key contributors to aggregate flows globally – aided by additional support from government stimulus programmes.

The report did not indicate who the leading asset managers are, but said asset managers need to adapt to changes brought about by the Covid-19 pandemic to capitalise on the gains of 2020.

“To remain competitive, firms must use advanced data and analytics for every process. On the revenue side, new asset classes, particularly within private markets and alternatives in general, will be crucial to growth during the next several years,” Ikdal said.

“The role of assets managers is to manage assets over the long term in line with the mandates given to them by their clients,” said Mulder. “If they do this well, net inflows will continue to grow.”

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