More than just numbers
Diversity in Asset Management
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‘Diversification is the only free lunch in investing.’ This line, attributed to Harry Markowitz, must be one of the most well-worn phrases in asset management. Every firm in the industry will have trotted it out in a client presentation, factsheet or investment update at some point. But many do not appreciate how much of a free lunch is available to them by diversifying their investment teams. There is no doubt that the vast majority of asset managers in South Africa are transforming. There are more black and female portfolio managers and analysts than ever before. But one could argue that this transformation is still far too slow. According to Citywire’s 2021 Alpha Female Report, for example, just 10.6% of portfolio managers in South Africa are women. Yet the same study found that diverse investment teams deliver better results. Across the world, funds run by mixed-gender teams delivered better risk-adjusted returns and lower drawdowns. This reality is slowly gaining appreciation. For many years, the primary driver for transformation in the local industry was legislative and regulatory pressure. That stick has undoubtedly made an impact. But asset managers should pay more attention to the carrot. Diversity is not just something to be done to appease the authorities. When done right, it is good for business. In this special Citywire supplement, we explore how well the industry is doing on transformation, celebrate some of the success stories and ask South African fund selectors about how they assess firms’ sincerity on diversity. Enjoy the read!
Editor's note
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chapter two
While there is still plenty of room to improve gender diversity, the South African industry should also celebrate its notable female role models.
CHAPTER ONE
Although there has been an improvement when it comes to diversity, the South African industry still has work to do when it comes to gender
Content by: OLD MUTUAL INVESTMENT GROUP
CONTENTS:
patrick cairns
editor, citywire south africa
The new free lunch?
Content by: PRESCIENT
chapter tHREE
Two local fund selectors share their views on how they assess asset managers’ approach to the diversity journey.
DIVERSITY IN ASSET MANAGEMENT
Although there has been an improvement when it comes to diversity, the South African industry still has work to do when it comes to gender Diversity in the South African asset management industry is improving. However, gender representation is an area still requiring focus, especially at the top echelons of the sector. ‘There is a way to go. However, the trends are quite encouraging. The hard work is not so much racial, but gender,’ the outgoing chief executive of the Association of Savings and Investment South Africa (Asisa), Leon Campher, told Citywire South Africa. Asisa recently released a report covering the period between 2018 and 2020 and the state of transformation in the South African savings and investment industry. ‘The number of black people in the industry at all levels is improving quite a lot,’ Campher said. ‘But the critical thing is to acknowledge that in some elements, we are underperforming.’ One of those is the representation of women in senior positions, although there are some encouraging signs. Prasheen Singh, RisCura director and senior consultant in its investment advisory division, told Citywire South Africa that over the past year there had been progress. ‘A few more institutions and large investors have focused on women in leadership positions. There has been quite a big move there,’ she said. Singh pointed to the Eskom Pension and Provident Fund’s recent appointment of Sonja Saunderson to the position of CIO as an example.
words by Justin Brown
Room for improvement
chapter one
The hard work is not so much racial, but gender
Asief Mohamed, who represents the Association of Black Securities and Investment Professionals on the Financial Sector Transformation Council, said that it had unfortunately taken pressure from legislation for the sector to take meaningful action. ‘Racial and gender diversity in the industry has improved over the last couple of years in that more females and black people are coming into the industry,’ said Mohamed. He is also the CIO of Aeon Investment Management. ‘This improvement is driven by the Broad-Based Black Economic Empowerment [BBBEE] Act more than anything else. ‘Everyone wants to try to get a level-one BBBEE score to get business. Asset managers are moving to meet the low limits set by the BBBEE codes,’ Mohamed said. ‘There has been a lot of progress in the administrative functions in the back office, client services, and the CEO role. But the CEO in the asset management industry does not run the business. The CIOs tend to run the business and have far more influence on the destiny of an investment management firm.’ Campher acknowledged that white staff dominated the front office of asset management firms in the past, while the back office was where black people were better represented.
Leon Campher Asisa
'Historically, that was the case. It is changing rapidly. The front office is where your portfolio managers are. There is work to be done there,’ he said. Mohamed questioned whether the change in the industry had a meaningful impact on the key decision-making roles at asset management firms. ‘I don’t think that is happening. Here I’m talking about the investment professionals – analysts and portfolio managers. Diversity in those roles is still way below the targets,’ he said. Campher, however, said diversity was improving slowly in decision-making roles, but that the real shifts were happening in analyst teams. The portion of black analysts had grown from 51% in 2015 to 64% in 2019, according to an internal Asisa study that looks at transformation levels within specific job descriptions. The survey was conducted for the first time in 2015 and again in 2019, and the latest survey reflected data from 23 companies as of 31 March 2019, Campher said. ‘Those analysts with less than five years of experience are 77% black. Your pipeline is starting to look good,’ he added. Singh said the most significant thing was that diversity needed to be more broad-based. ‘We want to see diversity at every level in an organisation, whether it be junior, senior, executive, and not just back-office roles but also decision-making roles. I would hope that diversity is beyond male, female, and race – it is far wider. It is about skill set, experience, education, and a mix of ideas.’ Campher said the statistics from the Asisa transformation report showed that of the 21 chief executives representing Asisa member companies, 52% were black. It also found that 33% of asset management executive directors are black, and 15% of executive directors are black women. ‘Particularly impressive is that 84.4% of executive management among Asisa members was black people [in 2020]. In addition, executive managers who were black women was 25.4%,’ Campher said. Mohamed said asset managers should be thinking beyond legislative or regulatory targets. For example, under the employment equity scorecard of the BBBEE Act’s codes of good practice, companies were required to have black employees make up 60% of senior management, which is way below South African demographics. ‘So those targets are very low relative to the population demographics. The targets should be the population demographics,’ he added. He said the BBBEE Act gave firms points for skills development based on the amount of money spent on skills development, but not the quality of the output from that expenditure. ‘The quality of the skills development is not measured, and as a result, you have these perverse outcomes.’ Singh said that the advantages of more diverse teams should be promoted. ‘I think there have been strides made. We need to beat the drum that diversity is the right way forward. Diversity does count, and it makes for better decision-making,’ she said.
Emma Schuster Just Share
Enormous increases in coal prices have revealed the hollowness of these climate commitments and how the rise in ESG integration is greenwash
Diversity and inclusion beyond the scorecard
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It is widely acknowledged that the financial services industry has been slow to transform. One of my earliest memories when I joined the asset management industry 15 years ago is walking into a meeting where our host shook hands with all attendees except for the only woman in the room – me. Since then, transformation in asset management has progressed to being an important theme with some identifiable wins on black ownership and representation, but the inclusion of women has largely been a neglected part of the story. Women are underrepresented in senior leadership teams and investment teams. The Citywire Alpha Female Report 2021 states that globally, only 11.8% of portfolio managers are women and that it would take over 120 years for the industry to achieve parity. Similarly, our research shows that there’s less than 30% women representation on the boards of the top 100 JSE-listed companies. There is growing pressure within the industry to change these numbers to better represent the demographics of our country. We owe a debt of gratitude to the asset owners that have taken the lead in putting pressure on the industry and holding asset management firms accountable on having diverse teams. Some of the retirement funds that we engage have a deep sense of purpose for the greater good, expressed through their transformation policies and their boldness in asking the hard questions. This has inspired important dialogue on gender transformation such as unconscious biases, the important role of men in gender transformation, sponsorship vs. mentorship, maternity vs. parental leave, the retention of female talent and closing the gender and ethnic pay gaps. The added complexity is that the momentum of gender equality in the workplace seldom translates to homes where women tend to carry the bulk of domestic chores while managing challenging careers. The needed change therefore extends beyond our workplaces, it’s a societal concern that calls on all of us to have honest conversations with ourselves and each other, about our holistic “gender transformation footprint”. At Old Mutual Investment Group, our strategy is to drive a transformation agenda that focuses beyond the B-BBEE scorecard. Our Transformation Committee, an Exco subcommittee, is mandated with ensuring that we embrace a commitment to making a meaningful difference within the investments industry. We believe that diversity strengthens organisations, as it brings in different experiences and perspectives that lead to more creative and innovative thinking. We recruit to increase black and women investment team members, consciously ensuring that it’s not only diversity that we achieve, but that the actual decision makers reflect our commitment to transformation. Growing the pool of black and women decision makers in our investment teams is possible through the strategic guidance of a diverse and representative leadership team at the helm of our business. One of the potential blind spots of leadership is that people tend to treat you differently which makes one susceptible to losing touch with the real experiences of employees. It is therefore essential for leaders in asset management to possess the humility of understanding that for genuine inclusion to happen, they need to be open to learning and listening. Tackling diversity and inclusion should not just be limited to our own organisations, there’s an opportunity for us to influence other spaces for broader impact. Asset managers have a critical role to play in driving change when it comes to gender parity within the companies they invest in. Old Mutual Investment Group’s Responsible Investment approach includes actively engaging investee companies on gender diversity not only as a social imperative, but to realise its proven impact on performance as we seek to grow our clients’ capital. Looking at transformation beyond our own organisations is paying it forward and as an asset manager of scale, doubling our allocation to black owned stockbroking firms over the past 5 years is making a positive impact on transforming the value chain. I believe it is our holistic and multi-faceted approach to transformation that has resulted in the progress we have made in improving our diversity and overall transformation. My experience of being “invisible” in a meeting 15 years ago made me realise that before someone can decide on how they are going to treat you, they must first see you. Not being seen is more unpleasant than being discriminated against and the asset management industry has a collective responsibility to truly see and acknowledge women and to not simply track the statistics. We have a way to go to become a truly demographically representative industry and women are ready to not only be seen, but to work within cultures that affirm this. As this journey unfolds, I am full of hope and I look forward to the day when a woman thriving and excelling in our industry is not remarkable. Learn more about Old Mutual Investment Groups Transformation story here.
About Sinenhlanhla (Sne) Dlamini Sne is Head of Institutional Client Management and the Chairperson of the Transformation Committee at Old Mutual Investment Group. She has over a decade’s experience in building strategic long-term partnerships with institutional clients within the asset management industry. Disclaimer Old Mutual Investment Group (Pty) Ltd (Reg No 1993/003023/07) (FSP 604) and Old Mutual Customised Solutions (Pty) Ltd (Reg No 2000/028675/07) (FSP721), jointly referred to as the Investment Manager, are licensed financial services providers, approved by the Financial Sector Conduct Authority (www.fsca.co.za) to provide advisory and/or intermediary services in terms of the Financial Advisory and Intermediary Services Act 37, 2002. The above entities are wholly owned subsidiaries of Old Mutual Investments (Pty) Ltd.
Sinenhlanhla (Sne) Dlamini Head of Institutional Client Management
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Cheree Dyers Chief Executive Officer at Prescient Investment Management
The terms ‘diversity and inclusion’ are commonplace in today’s work environment, frequently linked to increased productivity and performance, as well as employee engagement and retention. External research supports this, suggesting that firms with a more diverse and inclusive workforce are more likely to outperform their competitors by as much as 35% (1), with millennials 83% more likely to be engaged at work at inclusive companies.(2) Within the investment industry, the merits of building a diverse and inclusive work environment are plentiful. From the perspective of group decision-making, biases can limit effectiveness, and therefore unsurprisingly, a diverse but focused group has been shown to be more committed, possess higher combined intelligence, and be better at making decisions and solving problems than a homogenous one.(3) Diversity also encourages exploration and experimentation, with different perspectives and backgrounds proving essential to enhancing the investment process as a whole. Deloitte’s ‘The Diversity and Inclusion Revolution’ report suggests that diversity of thinking can boost innovation by around 20% and allows teams to identify and therefore reduce risks by as much as 30% while facilitating the implementation of decisions through added buy-in and trust. A report by BCG claims that companies with diverse senior management teams report profit from innovation that is 19% higher than average.(4) A diverse investment team similarly deepens the range and adaptiveness of professionals’ skills. Individual team members bring their own set of expectations, skills, talents, abilities and values with them to the table, enriching the overall knowledge and information and, notably, enabling non-consensus views to be aired. DIVERSITY IS BROADLY DEFINED Diversity comes in many different forms and includes not only how individuals identify themselves but also how others perceive them. We have thus identified three broader areas of diversity to be embraced by the investment manager of the future. Neurodiversity The notion that all people experience and engage with the world around them in different ways is known as neurodiversity. Discarding the idea of one ‘right way’ of operating, neurodiversity celebrates the fact that everyone’s unique behaviour can lead to heightened productivity in the workplace and result in a competitive advantage for a business.(5) Ethnic and cultural diversity While race is one component of ethnic diversity, other commonalities include nationality, tribal heritage, religion, language and culture. An individual’s ethnicity and culture can greatly influence their approach to their work due to their different backgrounds and/or upbringing. An investment team with rich ethnic diversity can deploy greater cultural sensitivities and insight when dealing with clients and benefit from greater local market knowledge, which can make a business more profitable and competitive. Ethnic and cultural diversity also inspires creativity and drives innovation while helping an organisation attract and retain the best talent. Employees who feel seen and respected for their unique contribution are more likely to be satisfied at work, leading to lower turnover. Demographic diversity Along with race and gender, demographic diversity includes age and generational diversity, sexual orientation, education, and functional background (e.g. a civil engineer or chartered accountant.) As with ethnic and cultural diversity, organisations that embrace demographic diversity are likely to experience a positive impact at both an individual and group level, as it reinforces a more creative and rewarding work environment for their team members while inspiring creativity and productivity for the business. HOW CAN A COMPANY HARNESS DIVERSITY? For diversity in its many forms to be successfully employed in a business, a team-based approach is critical, as it fosters fresh thinking, great investment ideas and empowers the less experienced investment professionals to contribute to overall investment success. At Prescient, people’s differences have always been valued. For over two decades, our flat organisational structure and team culture have enabled us to recruit and retain a strong and diverse group of individuals with varying skillsets - from data scientists to quantitative analysts - who work alongside and learn from each other, at the same time as challenging boundaries and stretching themselves. One must not forget the inherent risks of embracing diversity and non-conformity in a business, which is why it is equally important that the process is managed correctly. In theory, a team of diverse individuals with different experiences coming together to share new ideas may sound ideal. However, in reality, it could lead to chaos if not managed effectively. This is where a supportive corporate culture plays an integral role. Prescient’s values serve as a launch pad for collaboration, and by acknowledging our differences, we can build a stronger sense of purpose, closer integration and higher levels of empowerment in our teams, whose primary focus remains fixed on a singular outcome of superior investment performance. In addition, we employ a ‘farming for dissent’ approach, where all individuals are encouraged to speak up, put forward their ideas and be candidly challenged by their peers. Our experimental culture, where it is okay to make mistakes, fosters entrepreneurship and serves as a catalyst for innovation. The benefits of such a diverse and inclusive corporate culture are creating and strengthening an investment team that will be most resilient through times of turbulence and unprecedented change. At Prescient, we have consistently worked towards this, evolving as the markets evolve, committed to transformation and empowerment and ensuring that we continue to make tangible progress in building up a dynamic and exceptional investment team that represents a rich diversity of stakeholders.
While there is still plenty of room to improve gender diversity, the South African industry should also celebrate its notable female role models. It was estimated in Citywire’s 2021 Alpha Female Report that, on current trends, it would take 127 years for the global fund management industry to reach gender parity. South Africa’s numbers were not much better. There are currently just five women among the 42 rated South African equity managers and just one among the 12 rated bond managers. This is obviously not where it should be, but there is also reason to consider the strength of some of the women in this list and how they are breaking down the perception of a male-dominated industry. Citywire A-rated Ursula Maritz was named as the best fund manager in the Mixed Assets – Balanced ZAR category at the Citywire manager awards last year, together with her co-manager Mark Thompson. The AA-rated duo of Nicole Agar and Sophié-Marié van Garderen are part of the Truffle Asset Management team named as the best equity fund managers in the country at the same awards. They were also nominated in the Mixed Assets – Aggressive ZAR category.
words by Stephen Cranston
Local industry should celebrate its success stories
chapter tWO
The long-term nature of fund management makes it more suitable to planning a balanced lifestyle than a more transactional short-term business such as investment banking
Other notable names on the list include AA-rated Meryl Pick from the Old Mutual Investment Group; + rated Sarah-Jane Alexander of the Coronation Equity fund; and A-rated Elke Zeki, a wealth manager who runs the Foundation BCI Equity fund. Alexander said in an interview with Citywire South Africa that she had not experienced any ‘boy’s club’-style discrimination in her career at Coronation Fund Managers. This is despite the allegations in Magda Wierzycka’s bestselling autobiography that Coronation has a toxic, high-testosterone atmosphere. ‘Kirshni Totaram, the current head of the institutional business, was already there when I joined, and we had Melanie Stockigt as head of fixed income, Chantal Valentine was our economist and Tania Miglietta ran our money market fund,’ Alexander said. ‘The long-term nature of fund management – and company analysis in particular – makes it more suitable to planning a balanced lifestyle than a more transactional short-term business such as investment banking.’
Sarah-Jane Alexander Coronation
All three of those Alexander mentioned have since left, but the ranks have been strengthened by global equity manager Humaira Survé. At the same time, Pallavi Ambekar has been groomed to take over the crucial low equity multi-asset range on the impending retirement of Charles de Kock. Ninety One has a notable role model in Gail Daniel, who is one of the longest-standing portfolio managers in the country. Many consider her to be the best portfolio manager in South Africa in terms of her ability to combine top-down and bottom-up analysis. The next generation of fund managers at Ninety One’s core South African equity team includes three black women in the 35-to-45 age bracket: Samantha Hartard, Rehana Khan and Unathi Loos. As the resources analyst, Loos takes the lead on Ninety One’s views on carbon emissions, giving her a high profile on the conference circuit. Hartard was certainly no token appointment, earning her spurs as a rated sell-side resources analyst at JP Morgan and Credit Suisse. ‘But it helps that our group chief financial officer Kim McFarland [a former South African businesswoman of the year] is driving the gender parity targets aggressively as part of our culture of meritocracy,’ Hartard said. She added that investment becomes a passion, and it isn’t a nine-to-five job. ‘It can take its toll on relationships, but that would be true for male and female investment professionals. We have made a choice.’ Not that it is necessarily a binary choice. Nancy Hossack, for example, has climbed the ladder to become an equity portfolio manager at Foord Asset Management over the past seven years and has also given birth to three daughters – taking full maternity leave along the way. ‘Foord has given me the flexibility I need. With Teams and Zoom, it is much easier to combine career and family, so long as there is an enabling environment,’ she told Citywire South Africa. There is no shortage of successful women in fund management to act as role models in South Africa. Anet Ahern became the first CEO of a large portfolio manager (then BOE Asset Management) more than 20 years ago, after she had served as its chief investment officer. Delphine Govender runs arguably the most high-profile black female-led fund manager in Perpetua Investment Managers. And she has also been a prominent spokesperson for the Association of Black Securities and Investment Professionals. Helena Conradie, who stepped down as head of Satrix Investments last year, said it was important for women to continue to build networks such as 100 Women in Finance because men still have an advantage in building networks through common interests such as golf. But there has been progress from the days when Sanlam, for example, would organise hunting trips as bonding weekends. Sexism in South Africa isn’t quite as brazen as in some other countries. Laure Negiar, the co-manager of the Comgest Global Growth EAFE strategy, recounted to Citywire last year that when she was in front of a Japanese corporate CEO he assumed she was there to serve the tea. In his world, it was unthinkable that a young woman would be asking him serious questions about his company. But Victoire de Trogoff, an AA-rated manager at Fidelity, said she had never experienced any sexism in the industry. It is quite simple: in a results-driven business, gender should become irrelevant.
David Le Page Fossil Free South Africa
The answers should reflect that both general common sense and the Global Risks Report of the World Economic Forum identify the following general key areas as being of major concern: climate action failure and environmental destruction, and the erosion of social cohesion
Asief Mohamed, who represents the Association of Black Securities and Investment Professionals on the Financial Sector Transformation Council, said that it had unfortunately taken pressure from legislation for the sector to take meaningful action. ‘Racial and gender diversity in the industry has improved over the last couple of years in that more females and black people are coming into the industry,’ said Mohamed. He is also the CIO of Aeon Investment Management. ‘This improvement is driven by the Broad-Based Black Economic Empowerment [BBBEE] Act more than anything else. ‘Everyone wants to try to get a level-one BBBEE score to get business. Asset managers are moving to meet the low limits set by the BBBEE codes,’ Mohamed said. ‘There has been a lot of progress in the administrative functions in the back office, client services, and the CEO role. But the CEO in the asset management industry does not run the business. The CIOs tend to run the business and have far more influence on the destiny of an investment management firm.’ Campher acknowledged that white staff dominated the front office of asset management firms in the past, while the back office was where black people were better represented. 'Historically, that was the case. It is changing rapidly. The front office is where your portfolio managers are. There is work to be done there,’ he said. Mohamed questioned whether the change in the industry had a meaningful impact on the key decision-making roles at asset management firms. ‘I don’t think that is happening. Here I’m talking about the investment professionals – analysts and portfolio managers. Diversity in those roles is still way below the targets,’ he said. Campher, however, said diversity was improving slowly in decision-making roles, but that the real shifts were happening in analyst teams. The portion of black analysts had grown from 51% in 2015 to 64% in 2019, according to an internal Asisa study that looks at transformation levels within specific job descriptions. The survey was conducted for the first time in 2015 and again in 2019, and the latest survey reflected data from 23 companies as of 31 March 2019, Campher said. ‘Those analysts with less than five years of experience are 77% black. Your pipeline is starting to look good,’ he added. Singh said the most significant thing was that diversity needed to be more broad-based. ‘We want to see diversity at every level in an organisation, whether it be junior, senior, executive, and not just back-office roles but also decision-making roles. I would hope that diversity is beyond male, female, and race – it is far wider. It is about skill set, experience, education, and a mix of ideas.’ Campher said the statistics from the Asisa transformation report showed that of the 21 chief executives representing Asisa member companies, 52% were black. It also found that 33% of asset management executive directors are black, and 15% of executive directors are black women. ‘Particularly impressive is that 84.4% of executive management among Asisa members was black people [in 2020]. In addition, executive managers who were black women was 25.4%,’ Campher said. Mohamed said asset managers should be thinking beyond legislative or regulatory targets. For example, under the employment equity scorecard of the BBBEE Act’s codes of good practice, companies were required to have black employees make up 60% of senior management, which is way below South African demographics. ‘So those targets are very low relative to the population demographics. The targets should be the population demographics,’ he added. He said the BBBEE Act gave firms points for skills development based on the amount of money spent on skills development, but not the quality of the output from that expenditure. ‘The quality of the skills development is not measured, and as a result, you have these perverse outcomes.’ Singh said that the advantages of more diverse teams should be promoted. ‘I think there have been strides made. We need to beat the drum that diversity is the right way forward. Diversity does count, and it makes for better decision-making,’ she said.
Thinking diversity: Harnessing the power of differences to create the investment team of the future
Disclaimer • Prescient Investment Management (Pty) Ltd is an authorised financial services provider (FSP 612). • The value of investments may go up as well as down, and past performance is not necessarily a guide to future performance. • There are risks involved in buying or selling a financial product. • 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. Sources 1. https://www.mckinsey.com/business-functions/people-and-organizational-performance/our-insights/why-diversity-matters 2. https://www2.deloitte.com/content/dam/Deloitte/us/Documents/about-deloitte/us-inclus-millennial-influence-120215.pdf 3. https://hbr.org/2019/11/how-the-best-bosses-interrupt-bias-on-their-teams 4. https://www.bcg.com/publications/2018/how-diverse-leadership-teams-boost-innovation 5. https://www.forbes.com/sites/onemind/2022/04/06/supporting-a-neurodiverse-workforce/?sh=157e2319a170
Morningstar Global Sustainable Fund Flows - Q2 2020
A forward-looking ESG momentum strategy focused on the improvements of material ESG factors at an industry level appears to be a promising approach to create alpha
Russell 3000: Average Annual Active Return
PRESCIENT’S APPROACH At Prescient, we have adopted a systematic approach to ensure unbiased ESG screening through our in-house ESG-scoring tool. The “Prescient ESG scorecard” is quantitative and data-driven, with data dating back to 2008. This process is integrated across our entire investment process by providing an in-depth measure of each ESG pillar when considering investment opportunities. Given our integrative investment approach to ESG, it enables us to value investment opportunities on a risk-adjusted basis. When assessing Diversity, Equity and Inclusion, we incorporate metrics in both the “S” and the “G” components of ESG. Board structure, Independence and Diversity are some of the key factors in the “Governance” pillar. These factors consider (among others), the percentage of non-executive directors, whether there is ESG-linked compensation for the Board, the percentage of women and female executives on the board. Vital to this is Diversity at the workforce level, which falls under the “Social” pillar. Here, we consider the make-up of the Employee base. We consider (among others) the ratio of women relative to the workforce, as well as the percentage of women and minorities in management and senior positions. This process, along with targets set by companies, allows us to assess the progress being made and ensures the potential for greenwashing is diminished. Importantly, our corporate DNA embraces the mutually reinforcing values of commercial success, long-term sustainability, and investing for positive change. Notably, we do not believe in exclusionary practices and make it clear to our investee companies that we positively view sustainable practices. Companies who embrace and meet sustainable targets are thus more likely to improve their cost of funding and/or garner further support from us. THE WAY FORWARD With the increased focus to enhance corporate governance, ESG strategies and high-quality disclosures, key considerations in any boardroom discussion today should also centre around closing the gap on gender equity. To date that shift towards gender diversity has not been sufficiently significant even though the benefits are clear. Thus, companies should be doing more to promote and implement transformation in order to close the gap for gender and racial diversity on boards.
Two local fund selectors share their views on how they assess asset managers’ approach to the diversity journey. For Hollard Investments, diversity is not just an externality. ‘As a multi-manager, we want to make sure we have multiple sources of returns in each sector or asset class,’ senior investment manager Conlias Mancuveni told Citywire South Africa. ‘We want diverse sources of returns represented by each manager. So we want teams that have multiple skill sets.’ This is a much broader understanding of diversity than is perhaps more often used – where it refers simply to demographics. ‘The legal part that is regulated from a BBBEE [Broad-based Black Economic Empowerment] perspective is what the industry has latched on to,’ Mancuveni said. ‘That has been understood. But if you look at some of the global studies from the likes of the CFA Institute, Boston Consulting Group and PwC, there is clear statistical evidence that diversity of teams adds value in a range of ways.’ Diverse teams not only encourage more robust decision-making but are also likely to have a better understanding of a diverse client base.
words by Patrick Cairns
Diversity is not just about numbers
Diversification makes for a far more robust portfolio, and diversity in investment teams makes for better decision-making’ – Carla de Waal, FNB Wealth and Investments
However, diversity in and of itself is not enough. As Mancuveni said, the right culture has to be in place to allow multiple voices to be heard. ‘Some businesses do transactions to improve BBBEE scores, for example, but when you look under the hood, there is no representation of some of these diverse factors at a decision-making and executive level.’ It is therefore important, in his view, not to take BBBEE scores or representation figures at face value. ‘You want to test the level of seriousness as opposed to just producing a score,’ Mancuveni said. ‘We want to see, for example, who sits on the investment committee and what is their degree of involvement. When we think we don’t have enough information, we will request to sit with an individual to understand what they do, and how involved they are.’ For Carla de Waal, head of multi-management at FNB Wealth and Investments, there are two parts to assessing how seriously an asset manager is taking diversity.
‘Every company is on its own journey, and you have to take the trajectory of every particular asset manager into account and then assess how they are making themselves robust for the future,’ she told Citywire South Africa. ‘But the first thing we focus on is how they build their investment team: how they attract and retain talent, and whether they are purposeful in looking for that talent in a broad way. We also want to see that they embrace the fact that different views could enhance their investment views and how they ultimately build a portfolio.’ She’s seen cases where asset managers have hired investigative journalists into the investment team to bring in new ways of looking at the investible universe and scrutinise what companies are doing. Secondly, De Waal wants to assess how the team operates. ‘Globally, there seems to be a shift from the star portfolio manager to more investment-team-driven approaches. That speaks to this understanding of the benefit that can come from more diverse views around the investment debate. ‘But we need to assess the culture of a company and how inclusive it is, because it doesn’t really help if they have a diverse team if people cannot speak up and voice different views. So we need to spend time with the people who look after the team of analysts and see how they encourage debate and how they deal with analysts who have minority views. How are those considered against the views of more experienced investment professionals?’ One way is to ask for examples where members of the investment team had different views on a company and to go through the process of how those views were debated. ‘We also want to know what ultimately happened in the portfolio,’ De Waal said. ‘Did one view overrule the rest, for example, or was the disagreement built into the conviction levels that were taken in the portfolio? It’s a case-by-case basis, but we do try to understand how different teams incorporate those views.’ Recognising the value of diversity, in her view, is about building a more robust business. ‘I like to think about this as very similar to putting a diversified portfolio together,’ De Waal said. ‘Diversification makes for a far more robust portfolio, and diversity in investment teams is something we believe makes for better decision-making.’ Although this is becoming better understood in the industry, there is much more to do. As Mancuveni highlighted, this is something for which asset managers and asset allocators must take responsibility. ‘Inasmuch as it relies on asset managers, it also relies on asset allocators to do our part,’ he said. ‘It’s not something that can be done by one individual or one company. It’s a long journey, and a journey for the entire ecosystem.’
chapter three
Diversification makes for a far more robust portfolio, and diversity in investment teams makes for better decision- making’ – Carla de Waal, FNB Wealth and Investments
Other notable names on the list include AA-rated Meryl Pick from the Old Mutual Investment Group; + rated Sarah-Jane Alexander of the Coronation Equity fund; and A-rated Elke Zeki, a wealth manager who runs the Foundation BCI Equity fund. Alexander said in an interview with Citywire South Africa that she had not experienced any ‘boy’s club’-style discrimination in her career at Coronation Fund Managers. This is despite the allegations in Magda Wierzycka’s bestselling autobiography that Coronation has a toxic, high-testosterone atmosphere. ‘Kirshni Totaram, the current head of the institutional business, was already there when I joined, and we had Melanie Stockigt as head of fixed income, Chantal Valentine was our economist and Tania Miglietta ran our money market fund,’ Alexander said. ‘The long-term nature of fund management – and company analysis in particular – makes it more suitable to planning a balanced lifestyle than a more transactional short-term business such as investment banking.’ All three of those Alexander mentioned have since left, but the ranks have been strengthened by global equity manager Humaira Survé. At the same time, Pallavi Ambekar has been groomed to take over the crucial low equity multi-asset range on the impending retirement of Charles de Kock. Ninety One has a notable role model in Gail Daniel, who is one of the longest-standing portfolio managers in the country. Many consider her to be the best portfolio manager in South Africa in terms of her ability to combine top-down and bottom-up analysis. The next generation of fund managers at Ninety One’s core South African equity team includes three black women in the 35-to-45 age bracket: Samantha Hartard, Rehana Khan and Unathi Loos. As the resources analyst, Loos takes the lead on Ninety One’s views on carbon emissions, giving her a high profile on the conference circuit. Hartard was certainly no token appointment, earning her spurs as a rated sell-side resources analyst at JP Morgan and Credit Suisse. ‘But it helps that our group chief financial officer Kim McFarland [a former South African businesswoman of the year] is driving the gender parity targets aggressively as part of our culture of meritocracy,’ Hartard said. She added that investment becomes a passion, and it isn’t a nine-to-five job. ‘It can take its toll on relationships, but that would be true for male and female investment professionals. We have made a choice.’ Not that it is necessarily a binary choice. Nancy Hossack, for example, has climbed the ladder to become an equity portfolio manager at Foord Asset Management over the past seven years and has also given birth to three daughters – taking full maternity leave along the way. ‘Foord has given me the flexibility I need. With Teams and Zoom, it is much easier to combine career and family, so long as there is an enabling environment,’ she told Citywire South Africa. There is no shortage of successful women in fund management to act as role models in South Africa. Anet Ahern became the first CEO of a large portfolio manager (then BOE Asset Management) more than 20 years ago, after she had served as its chief investment officer. Delphine Govender runs arguably the most high-profile black female-led fund manager in Perpetua Investment Managers. And she has also been a prominent spokesperson for the Association of Black Securities and Investment Professionals. Helena Conradie, who stepped down as head of Satrix Investments last year, said it was important for women to continue to build networks such as 100 Women in Finance because men still have an advantage in building networks through common interests such as golf. But there has been progress from the days when Sanlam, for example, would organise hunting trips as bonding weekends. Sexism in South Africa isn’t quite as brazen as in some other countries. Laure Negiar, the co-manager of the Comgest Global Growth EAFE strategy, recounted to Citywire last year that when she was in front of a Japanese corporate CEO he assumed she was there to serve the tea. In his world, it was unthinkable that a young woman would be asking him serious questions about his company. But Victoire Trogoff, an AA-rated manager at Fidelity said she had never experienced any sexism in the industry. It is quite simple: in a results-driven business, gender should become irrelevant.
