Asset management in South Africa
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Asset management in South Africa has exploded in recent years.
According to the Association for Savings and Investment South Africa (ASISA), the industry hit a record high last year.
The findings showed assets under management (AUM) in South Africa's Collective Investment Schemes (CIS) hit R3.5 trillion at the end of 2023. AUM is set to rise to over $145 trillion by 2025 globally.
South Africa has a mix of local and global market influences. Professional asset management can help you unlock your money's potential to reach your financial goals.
Our guide provides insight into various aspects of asset management in South Africa. Read on to learn more.
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What is asset management?
Asset management is all about handling investments on behalf of clients to help them reach their financial goals.
In South Africa, asset management can mean handling a mix of different assets, including:
- Stocks and shares
- Bonds
- Real estate
- Commodities like gold
Asset managers take the lead in choosing the right assets and making decisions on buying or selling. Their goal is simple — to grow the value of a portfolio over time and manage risks.
They create strategies based on what their clients need, whether that's growing wealth, earning income, or both.
What is portfolio management?
Portfolio management involves deciding how to invest a client's money to achieve the best returns. It takes into account their goals, time horizons and risk tolerance. There are different types of portfolio management, including:
Active management
With active portfolio management, the goal is to outperform a specific index. For example, this could be the Johannesburg Stock Exchange (JSE) or the S&P 500. This is called generating alpha.
The fund manager will actively buy and sell stocks and shares to beat the market. They will also use strategies like tactical asset allocation to spread the risk and increase returns.
Things to consider:
- There is more market risk when trying to beat the market
- Active portfolio management is more costly
Passive management
As the name suggests, passive portfolio management is the opposite of active. Here, the aim is not to outperform the market but to mirror the performance of a specific index.
Passive options include ETFs, mutual funds and unit trusts. Once set up, the portfolio will track the index's performance without making frequent changes.
Things to consider:
- Lower costs compared to actively managed options
- Less risk than active portfolio management but lower potential returns
These types of portfolio management can be further broken down into two sub-categories — discretionary and non-discretionary management.
Discretionary vs. non-discretionary
In discretionary portfolio management, the asset manager makes decisions without needing approval. Client approval is required for every change in non-discretionary management.
Risk management
All investments carry some risk. A general rule of thumb is that the higher the potential return on investment (ROI), the higher the risk. For example, stocks may offer high returns but come with more volatility.
Good portfolio management helps balance these risks with potential returns and time horizons.
One way to manage risk is by building a diverse portfolio. By spreading investments across different asset classes—such as stocks, bonds, and real estate—you reduce the chance that any single investment will hurt the portfolio.
Asset and portfolio management strategies
Once the client's risk tolerance and goals are clear, it's time to build the portfolio. There are several strategies for doing this:
Asset allocation
One of the key ingredients of a strong portfolio is having the right mix of assets. This strategy is called asset allocation and can be broken down into two types:
Strategic asset allocation
This is a long-term strategy. Target allocations are set for asset classes like equities, bonds and commodities. These are based on a client's goals and risk profile. It's reviewed periodically but doesn't change often.
Tactical asset allocation
This approach involves making short-term changes in response to market trends. Tactical asset allocation allows flexibility. It lets the manager take advantage of market opportunities without losing sight of long-term goals.
Diversity
The only thing certain about investing is there are no certainties. While you can't always pick the winning horse in a race, you can hedge your bets and reduce the risk.
One of the most common investment strategies is to build a diverse portfolio. This gives you exposure to a broad range of assets. Doing so can help protect you from losses if one asset underperforms.
You can diversify by asset class, location or sector. In South Africa, asset management may involve creating a mix of local and international investments. Think of it as not putting all of your eggs in one basket.
Measure and analyse performance
Monitoring the performance of a portfolio is crucial. Doing so ensures it continues to meet the investor's goals and aligns with their time horizons and risk profile.
The key performance indicators (KPIs) typically used include:
- Return on investment (ROI): the percentage gain or loss on the portfolio.
- Sharpe ratio: a measure of risk-adjusted returns.
- Alpha: a measure of the portfolio's performance relative to a benchmark index or expected return.
- Risk-adjusted returns: accounts for the level of risk taken to achieve a given return.
Rebalancing ensures that the portfolio maintains the desired asset allocation. This is important, especially after periods when the market is volatile.
For example, let's say equities outperform bonds in a portfolio. In that case, the investment manager might sell off some of the equity holdings to maintain the target allocation.
Asset management in South Africa with Holborn Assets
Asset management is a professional service. It helps clients build wealth and manage risk.
As the financial markets evolve in South Africa, asset management plays an increasingly important role. With the right strategy, you can take advantage of local and global markets to build long-term wealth.
And when it comes to achieving financial success, having the right partner can make all the difference.
Whether you're an individual investor or an institution, our tailored approach to asset management in South Africa is designed to meet your unique needs.
Since 1998, Holborn Assets has been committed to providing transparent, client-focused financial advice. We offer a broad range of financial services and wealth management solutions to help you reach your goals.
Get the expert advice you need. Book a free, no-obligation meeting to learn how we can help you.
Frequently Asked Questions
There are several factors to consider, such as:
- Track record: look at the asset manager's historical performance and ability to navigate market ups and downs.
- Fees and costs: understand their fee structure, including management and performance fees.
- Experience and expertise: their market experience and specific asset classes that match your investment goals.
- Regulated: ensure they are licensed and compliant with the Financial Sector Conduct Authority (FSCA).
