become a bigger player in the UK’s private wealth management market
with an acquisition aimed at replicating its success in its South
African home market. The deal is timely, for South African clients
are scrambling to move offshore as the rand declines.
Stafford Thomas reports.
Built on the foundation of two stockbroking firms acquired shortly
after its launch in 1999, Sanlam Private Investments (SPI) has
proved to be a success story that the company is determined to take
abroad. The core strategy at SPI’s parent, Sanlam, South Africa’s
second-largest life insurer, is to transform itself into a
broad-based financial services group.
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Second in size only to banking group Investec in South Africa’s
private wealth management sector, SPI is now broadening its horizon
with the acquisition of an 86 percent stake in UK private client
investment firm Principal Investment Holdings (PIH) for £35 million
($69 million).
Acquisition of PIH ends a two-year search for a UK acquisition, SPI
chief executive Daniël Kriel told PBI. “It is a business that
provides us with a base to expand in a market where we see a huge
growth opportunity,” said Kriel. PIH adds assets under management
of £1.1 billion to SPI’s existing ZAR50 billion ($6.3
billion).
Offshore investment service
PIH also gives SPI the opportunity to offer its domestic client
base of about 14,000 high net worth (HNW) individuals a direct
offshore investment service. “The investment needs of South African
investors have become more sophisticated and they are increasingly
looking for a global spread of risk,” said Kriel.
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By GlobalDataIndeed, a slump in the rand – which has lost one-quarter of its
value against the euro over the past four months – has sparked what
Kriel termed “a scramble offshore”.
The scramble follows a period during which South Africa enjoyed
rapid accumulation of private wealth. According to the World Wealth
Report from Merrill Lynch and consultancy Capgemini, the number of
HNW individuals in South Africa with financial assets of over $1
million grew from 25,000 to 48,000 between 2002 and 2006.
“SPI is still seeing major inflows,” said Kriel, adding to its
diverse client mix that began with Afrikaans-speaking and
English-speaking clients inherited from stockbrokers Huysamer Stals
and Smith Borkum Hare, respectively, and has expanded to include
senior public sector officials and black HNW individuals.
Entrepreneurs, many of whom left the corporate world in recent
years to start their own businesses, are also a big growth area for
SPI, he added. In 2007 SPI reported net inflows of ZAR3.67 billion,
down from ZAR4.92 billion in 2006.
In common with most players in South Africa’s wealth management
arena, SPI’s criteria for new clients is fairly low. Even SPI’s
minimum ZAR1 million in assets for bespoke portfolios is flexible,
said Kriel.
Low asset hurdles reflect intense competition in a market that is
contested by major domestic players Investec, SPI, RMB Private
Bank, BoE Private Clients (a joint venture between the country’s
biggest insurer Old Mutual and local bank Nedbank), Standard Bank
and Absa, a unit of the UK’s Barclays. Adding to competition are
financial advisers, stockbrokers, boutique asset managers and
foreign private banks.
Attractive market
South Africa is thus a crowded market, but one made attractive by
the fast pace of wealth creation underpinned by its longest period
of sustained GDP growth and booming investment markets. However,
signs are rapidly emerging that the easy wealth creation cycle is
ending. Economists such as Richard Downing of the South African
Chamber of Commerce and Industry have warned the danger of a
recession is very real. Given this, SPI’s acquisition of PIH
appears well timed.
“I believe we offer Sanlam an attractive way to grow in the UK,”
said PIH’s managing director and founder, Anne Gilbert. She said
the firm had a tradition of employee ownership and it was important
that Sanlam’s business philosophy was based on encouraging an
entrepreneurial culture. Management will hold a 14 percent stake in
PIH, which is to retain its name.
“Principal’s strategy and culture perfectly complement our own,”
said Kriel. “It has a well respected management team, proven
investment track record, solid client base and reputation for
excellence developed over the past 20 years.” He added that SPI
will expand PIH’s reach, which is now limited to three branches,
and add products such as asset-backed credit facilities.
“We have the infrastructure to take the business forward
substantially,” said Gilbert, who explained that the firm has been
built as a fully integrated asset management firm encompassing
administration, custody and marketing. “We have always felt a buyer
would value and build on this.”
PIH is focused on the HNW market and obtains 70 percent of its new
business from independent financial advisers (IFAs), said Gilbert.
Self-invested personal pension schemes (SIPPS) have been a
particularly strong source of new business, while PIH’s bespoke
client portfolio has assets averaging about £500,000. SIPPS
portfolios are between £750,000 and £1 million, she said.
Gilbert is also optimistic that the UK investment market is moving
in favour of firms such as PIH which have been in the shadow of
property investment for several years. With a question mark now
hanging over UK property values, she believes investor attention
will swing to absolute return funds. “That’s in our favour,” she
stressed.
Growing UK presence
Though PIH is SPI’s first big step into the UK, Sanlam has been
growing its presence in the UK wealth management space for some
years. Its first real move was in 2003 when it acquired 100 percent
of Merchant Investors (MI), a specialist provider of unit-linked
individual pensions and life products. Under Sanlam’s tenure, MI’s
assets under administration have grown from £1.1 billion to £1.7
billion.
In the UK, Sanlam also has a 29 percent stake in stockbroking firm
Hichens, Harrison and a 27 percent stake in Punter Southall, a
specialist financial advisory services firm. More recently Sanlam
acquired stakes in investment management administration platform
Nucleus (43 percent) and IFA-focused distribution firm Intrinsic
(29 percent).
Though Sanlam’s approach is one of retaining the independent
identity of its units, the potential for cross-selling is
significant. Nucleus and Intrinsic could, for example, be used to
offer products manufactured by PIH, said Kriel.
