Why asset consultants must drive fund management transformation

By Ola Leepile

For financial services firms, ticking boxes to achieve top Broad-Based Black Economic Empowerment (BBBEE) status is not the same as genuine transformation. 

This is especially evident in the asset management industry, where companies are falling short in advancing black professionals. 

• Click here to learn more about Novare and its asset consulting services.

There is one way to address this issue.

Sitting between the custodians of trillions of rands in pension funds, and those responsible for managing these assets, are asset consultants – the gatekeepers of capital allocation.

Asset consultants provide institutional investors, such as retirement funds, with investment advice, including the vetting, selection and recommendation of asset managers. 

Their role is to research the market, evaluate the best asset managers, and present a shortlist to trustees, who then decide who will oversee their members’ savings.

These asset consultants should do the above while taking into account the importance of true transformation. 

However, for most financial services firms, transformation remains an immense challenge.

According to a report released last year by the Association for Savings and Investment South Africa (Asisa), asset managers missed all their employment equity targets in 2022, with roles still dominated by white men. 

While black managers accounted for 41% of senior roles in 2022, when broken down, black Africans only made up 13% of those, against a target of 52%. 

In middle management, they accounted for 18% of the total, short of the 65% target. 

Black Africans and overall black women in junior roles fell.

Within this context, a responsible asset consultant must present trustees with at least two or three viable options rather than a single pre-determined choice (which we at Novare have often encountered among some competitors in the marketplace). 

Trustees, in turn, must ensure they are comfortable that their consultant has conducted a rigorous due diligence process.

More than just facilitating the selection of a manager, asset consultants should guide trustees in asking the right questions and making informed decisions. 

While the final accountability lies with the trustees, asset consultants must ensure they equip their clients with the knowledge necessary to make sound investment choices.

Prioritising transformation

Transformation in the asset management industry is often deprioritised unless it is explicitly included in a fund’s mandate. 

Performance should be a non-negotiable for retirement funds, but trustees should also give consideration to how their investment decisions could drive broader economic change.

Of course, risk and returns remain paramount – this is pension money, after all. 

But once those criteria are met, transformation should be integrated as a core component of the asset manager selection process. 

Asset consultants and multi-managers are uniquely positioned to influence this shift. 

Consultants make the recommendations, while multi-managers – who operate with discretionary mandates – make allocation decisions by determining which money manager funds will flow to. 

Without asset consultants putting transformed managers in front of trustees, these firms stand little chance of securing mandates.

How Novare approaches transformation

At Novare, when onboarding an institutional client, our first step is to review the fund’s investment strategy to assess its appropriateness. 

This includes analysing the fund’s demographics, helping trustees set objectives, and quantifying each goal with specific targets.

From there, we develop an asset allocation strategy, which informs our selection of asset managers. 

Our criteria for assessment, honed through years of asset consulting and multi-management experience, prioritises risk-adjusted performance. 

However, we go further by integrating transformation as another consideration.

By the time we present our recommendations to clients, we ensure that selected asset managers meet both traditional investment criteria and meaningful transformation benchmarks. 

When clients prioritise transformation or actively drive the agenda, we integrate it into our screening and selection process, applying additional layers of assessment to identify truly transformed managers.

Transformation is not just about ownership; we also assess the diversity of management teams, gender representation, and the firm’s commitment to developing young professionals.

While pension funds rightfully prioritise risk-adjusted returns, there is a persistent misconception that transformation and performance are mutually exclusive. 

A diverse investment team brings a broader range of perspectives, enhances decision-making, and reduces cognitive biases, ultimately leading to better long-term results. 

Besides, it must be remembered that one year of outperformance doesn’t make for a trend.

Asset consultants should not view transformation as an add-on but as a critical component of a well-rounded investment strategy. 

By systematically including transformed managers in selection processes, consultants help trustees access a broader talent pool while maintaining high-performance standards. 

The role of consultants is to challenge outdated assumptions and ensure that the best managers are given a fair opportunity to compete.

Novare – a transformed asset consultancy

For asset consultants to credibly drive transformation, they must first embody the change they advocate. 

A consultancy that remains untransformed cannot credibly advise clients on diversity and inclusion while failing to reflect these principles internally. 

We take our internal transformation and that of the industry very seriously. 

Recently, Novare won the Association of Black Securities and Investment Professionals’ (ABSIP) Best Multi-Manager or Asset Consultant of 2024 award.

The award recognised Novare’s reach into sub-Saharan Africa, our richness of decision-making and experience, and the technology supporting these outcomes. 

In evaluating the entries, ABSIP also considered how Novare is investing in its own capabilities to benefit others and the proportion of funds we allocate to Black managers.

We are proud of this achievement because, in reality, if asset consultants and multi-managers uphold the status quo, the rest of the industry will remain unchanged. 

We should all walk the talk by selecting and recommending performing managers who are pro-transformation, to ensure we are investing in the future of pension fund members and our country.

Asset consultants, however, hold the keys to the wider industry. 

They are the bridge between pension fund capital and the future of South Africa’s asset management industry.

By integrating transformation into their selection process, they have the power to reshape the industry’s leadership landscape. 

The question is: will they step up or continue to reinforce the status quo?

Click here to learn more about Novare and its asset consulting services.

Ola Leepile is the CEO of Novare Holdings.