Absa Bank and Sanlam, both headquartered in South Africa, have announced plans to merge their investment management businesses. The merger could finalize in the first half of 2022 once suspensive conditions have been met and approvals received, including from the Competition Commission.
The new company will have ZAR 1 trillion ($67 billion) of assets under management, administration and advice. Absa will enter a 10-year distribution deal with SIH, adding to Sanlam’s formidable distribution network.
Although the numbers are not strictly comparable, South Africa’s Public Investment Corporation manages ZAR 2.3 trn, Ninety One has assets of £130.9 bn (ZAR 2.6 trn). Meanwhile Old Mutual Investment Group manages ZAR 650 bn in assets, Coronation ZAR 630 bn and Allan Gray ZAR 297 bn, according to this news story by Sasha Planting in the Daily Maverick.
Absa will exchange its business Absa Investments for a 17.5% stake in Sanlam Investment Holdings (SIH). This effectively values the Absa arm at $47m, according to analysts.
The asset manager will count as “black-owned” in terms of South Africa’s black economic empowerment (BEE) legislation after ARC Financial Services Investments, part of Patrice Motsepe’s African Rainbow Capital, bought a 25% stake in SIH in December 2020 for ZAR 817m ($55m), valuing SIH at ZAR3.3bn ($221m) according to Justin Brown’s report in Moneyweb. This year the SIH valuation has increased considerably.
Sanlam Group CEO Paul Hanratty said it will strengthen Sanlam’s ability to deliver investment excellence.
Jason Quinn, Interim Group chief executive of Absa, said: “It will mean that our investment unit will become part of one of the largest black-owned asset management companies in South Africa. Importantly, we believe the deal will enable us to offer a deeper and broader range of investment solutions to our clients.
“For Absa, the transaction delivers improved scale, capabilities, customer propositions and transformation, all of which we view as essential to achieving growth in the investment management sector.”
SIH subsidiary Satrix will acquire Absa’s NewFunds business which focuses on exchange-traded funds (ETFs), adding the 15 NewFunds ETFs to SIH’s 22 ETFs. The deal will not include NewFunds 3 commodity ETFs covering gold, platinum and palladium with $1.8bn in assets or the Absa Prudential Money Market fund.
Absa will also sell its investment-services provider business to administration firm Glacier by Sanlam. The conclusion of this deal is a suspensive condition to the investment management transaction.
Fatima Vawda, CEO of 27four, a solutions provider to the retirement industry, said the Sanlam and Absa deal sees the creation will of a new “distribution powerhouse”, according to the Daily Maverick. Although some commentators see this as competition for BEE fund managers who had been taking market share, Vawda says there is still room for competition:
She says the combined asset manager “..will attract retail clients and a certain amount of institutional investment. But investors who want customised solutions and are chasing alpha, which is the excess return of an investment relative to the return of a benchmark index, won’t go to a beta factory like this. This is how asset management is moving – you cannot be all things to all people.”