South Africa investment management: Trend followers or trend setters?
The African Investment Management Forum is relatively new to the Advent conference line, but it is fast becoming something of a tradition in the region. This year the conference took place at Johannesburg’s Saxon Hotel and the Twelve Apostles in Cape Town, and many of the industry’s key decision-makers and influencers attended.
It is fair to say that Advent is in a privileged position; we are well-established in the region, and being at the hub of the global investment management industry we also have a unique understanding of the key challenges that managers face at a regional level and internationally.
Salubrious surroundings and a good lunch prompted some lively debates among the delegates, and in conclusion we found that four main themes emerged:
1. Transparency is a key driver in the South African investment management industry
As international regulations go into effect the onus is on the investment manager to offer more value to their clients in terms of reporting. More specifically, South Africa’s Regulation 28 is creating a requirement for firms to be able to not only manage their portfolios more accurately but track exposure down to the individual investment level. Going forward, risk metrics, accurate and timely performance, and complex and segmented reporting are going to be key areas of focus.
International vendors need to be able to cater for the way that South Africa deals with instruments, tax, and valuation. Interest withholding tax, daily cash settled futures, margin requirements, and regulation are unique to South Africa and we find firms in the region are less open to workarounds.
2. It may be counterintuitive to think of South Africa as a trend setter in cloud solutions for investment management, but it is
With a relatively modern and reliable internet, 3G, and a growing 4G LTE network, connectivity has never been better in South Africa. Modern data centres are growing in both capacity and demand as firms seek to offload the IT overhead and focus on revenue generating activities. Local investment management solution providers either offer a full cloud solution or at least the option to deploy to cloud for their clients. The standard has already been set that cloud deployment is an option if not the solution. We know that firms that aim to streamline the back office processes enabling exception-based issue resolution on a fully outsourced technology platform will be the front-runners.
Cloud, specifically private cloud is preferred in a lot of firms in the South African investment management industry currently, as clients do not want to carry the IT burden and the associated costs of expertise. We have noticed that providers unable to offer Software as a Service (SaaS) will lose out as the trend takes hold in 2015.
3. And what about privacy and protection of data?
The onus is certainly on the investment manager to ensure that client data is protected, private and encrypted. Outsourced technology providers must ensure that their systems meet international standards for data protection while in storage and in transit. Looking ahead, the growth of private cloud solutions is going to shift more of the burden of data protection to the technology provider, but the investment manager must be savvy enough to select providers that are adhering to international standards.
Right now, the African continent lacks on-site data storage from major cloud providers but as the appetite for outsourced technology in Africa grows, we believe that the major providers are no more than two years away from understanding greater Africa as a real and lucrative market.
4. Consumer technology trends are driving incremental shifts for investment managers
Major paradigm shifts in consumer technology have changed our personal lives and have already made significant disruptions in some industries. And while the financial services space takes a more conservative approach to adopting emerging technologies for obvious reasons, tech-driven disruptions are emerging in retail financial services with trends like peer to peer lending and the emergence of robo-advisors. All this is having an effect on the investment management industry with firms looking for more collaborative social solutions in order to share information.
We are finding that it is the clients’ demands for accurate information that are driving the changes; online access is now a basic requirement in order to deliver rich graphical and data-based information.
In my mind, our South African clients have a strong drive to use locally entrenched and regionally committed vendors. South Africa is in a position to be a global player in the investment management industry but there are significant nuances to the South African market that are a prerequisite to any firm considering doing business there.
Any comments? I’d love to hear your thoughts. Feel free to contact me at Marius.Esterhuysen@advent.com.
Marius Esterhuysen joined Advent in 2011 and is Senior Regional Sales Manager for Sub-Saharan Africa.