Sanlam bets on aggressive passive-investment drive

26 July 2015 - 02:00 By BRENDAN PEACOCK

Whereas Sanlam's investment arm contributed 10% of earnings to the broader group a decade ago, the reorganised unit now accounts for a quarter of the company's business and is banking on the Satrix platform boosting it further. Johan van der Merwe, the CEO of Sanlam Investments, says the business unit has a successful UK outpost, which will co-ordinate its global investment strategy, but it is the business Sanlam Investments can drum up in Africa that will form a crucial input."I believe we can grow our African business tenfold in the next five years. It can become as big as our South African business," he says.story_article_left1That's a bold claim, but Van der Merwe says the unit has established a lot of goodwill in the 14 African countries in which it already operates.Ultimately, he thinks, African investors will route investments not only through emerging markets but also through the UK office into developed markets for diversification."Our future global strategy will be driven through that business, in the regions and globally. We still have the others but they're smaller, more niche."Back home, Van der Merwe says, it has taken a while for institutional and retail clients to see the group as a diversified financial product provider. But a Sanlam Investments strategy that includes presenting a unified face - instead of allowing each of its product divisions to consult with clients - and buying the highly recognisable Satrix brand is growing awareness."Years ago we started Satrix with the JSE and Deutsche Bank - we all had a third stake. Then we and Deutsche bought out the JSE, and then both companies though they'd like 100% of the business. We sat across the table from Herman Bosman, the then CEO of Deutsche Bank SA, and had a Texas auction.story_article_right2"We handed each other envelopes and we won the bid. It's never a nice feeling to think you've overpaid, but strategically it was such an important space for us because passive [investment] is growing so fast around the world.He says passive investments will form an important part of portfolio construction at Sanlam. "The proportion of passive and active is in flux. In South Africa, we make use of much less passive than worldwide. In terms of total assets under management it accounts for 1%, while internationally it's 5%."This made Van der Merwe and Sanlam group CEO Johan van Zyl believe Satrix was a must-win. "In the passive space - and it's more than passive with smart beta - there are lots of products you can build around it, so we're investing time, effort and money in this growing market. From November last year to May this year, we've had R11-billion in inflows into our passive products."It was a strategic decision. I sat with Johan when we had to decide on the figure to put in the envelope, and we'd done all our numbers but we were scared, and Johan said: 'Add R50-million to it. We cannot afford to lose this one.' There will be only one or two winners in the passive space and you need the brand name and scale."..

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