Sygnia has established the criteria it uses to select active managers in its R906 million Sygnia Equity fund.
The fund uses a core and satellite portfolio construction approach, with 60% liabilities and 40% assets. Four active managers are each assigned 10% of the portfolio. Currently, these are Abax Investments, Coronation Fund Managers, Ninety One and Visio Fund Management.
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“What this gives you is a combined approach that can help outperform the benchmark, so that’s where active managers come in, but we’re still cost conscious,” said Sygnia’s chief investment consultant, Iva Madjarova, during a webinar.
“Sygnia conducts both quantitative and qualitative research, which involves meeting with as many team members as possible,” he added. “We have meetings with key people like CIOs, portfolio managers and analysts, the key decision makers. They take us through their processes and philosophies.
“We try to get an idea of what they can bring to the portfolio: their passion for investing. We try to understand their background, history and experience from an investment perspective, ”said Madjarova.
Based on the meetings and data analysis, Sygnia then creates a short list of asset managers who are vetted with operational and risk management due diligence.
“We would analyze their assets under management, their black economic empowerment [BEE] level, how long the company has existed. How big is the investment team and do you have the necessary resources? Do you do ESG? [environmental, social and governance] screening and ESG analysts? We observe your performance throughout the market cycle.
Read: Why All The Fuss About ESG?
“Then the negotiations take place, including the important tariff negotiations. The lower the asset management fees, the lower the cost we can provide for the overall product. Being a great multi-manager, we have a lot of scale. We can negotiate competitive rates with these active managers, resulting in lower costs for the overall product.
“The proposal for a new manager is taken to an investment committee chaired by our chief investment officer. There is a representative from each asset class. This is where we finally decide who will be the new coach, ”Madjarova said.
Once Sygnia has decided to invest with an asset manager, it will include the new manager in its monthly in-depth coverage and analysis of all its managers.
“If something is not clear to us, we immediately pick up the phone and clarify the positions with the asset manager. In addition, there is an in-depth analysis and follow-up after we invest, ”he added.
Sygnia changes its asset manager lineup if it believes the portfolio can benefit from a manager change or an additional active manager.
“The manager search process is not something we only undertake when we want to change portfolios. We are constantly meeting with several active managers, so we have regular reports and presentations from managers. These presentations are not just with an asset manager that we invested in, but with others that we have never invested with.
“Keeping up with developments in the asset management industry is critical. We often see key people moving from one business to another. That’s key when considering who would like to manage portfolios, ”Madjarova said.
Speaking specifically about the Sygnia Equity fund, he said that the fund manager’s vetting process indicated that a boutique manager would add value to the portfolio.
“Boutique managers, due to their size, are more agile. They can change position relatively quickly. Our research led us to believe that this manager would complement the other asset managers in the portfolio and diversify the portfolio, ”he added.
The Sygnia Equity fund returned 24.4% for the year ending September, compared with 22.9% for its benchmark. The fund’s benchmark was changed to the FTSE / JSE Capped Shareholder Weighted Index on July 1.
Since the fund’s inception in May 2013, it has returned 6.8% annualized compared to an annualized benchmark return of 8.1%.
Justin Brown is a journalist at Citywire, providing knowledge and information for professional investors globally.
This article was first published on Citywire South Africa hereand republished with permission.