Magda Wierzycka, the chief executive of Sygnia Group, has shaken the traditional asset management industry in South Africa and is a force to be reckoned with.
Magda Wierzycka, the chief executive of Sygnia Group, has shaken the traditional asset management industry in South Africa and is a force to be reckoned with.
Since listing on the JSE last October, Sygnia is worth about R2 billion, while its total assets under management and administration as at June 30 were R154bn. Wierzycka has challenged established industry giants such as Allan Gray, Sanlam and Old Mutual by changing the business model and radically cutting fees across different investment and savings products.
Philippa Larkin (PL): How did you come up with the idea to lower fee margins?
Magda Wierzycka (MG): We started Sygnia in 2006. So it has been a 10-year journey. Right from the beginning, and coming from the active asset management side of the industry as I did, I had a major problem with the inequity of the business model where a handful of people earn millions of rands in bonuses for doing very little. Those millions come from the savings of average South Africans. When we launched Sygnia we were determined to do things differently, more simply, more transparently and more cost-effectively. We started with the institutional market and have now expanded into retail.
The significance of lower management fees cannot be underestimated. Consider the following quote from a National Treasury report published in 2013: “A regular saver who reduces the charges in his retirement account from 2.5 percent of assets each year to 0.5 percent of assets would receive a benefit of 60 percent or greater at retirement after 40 years.”
This quote is a guiding philosophy behind all that we are doing at Sygnia.
PL: Please explain to Business Report’s readers the concept of how Sygnia’s strategy came about.
MG: It is important to understand that Sygnia is a financial technology (fintech) company - we place an equal focus on the financial products side of things as we do on the proprietary technology and systems we develop. From inception we have targeted many industries that fall under the broad label of “financial services”.
On the multi-management front, we offered customised multi-manager products and open-architecture investment administration services, bringing transparency to an opaque off-the-shelf-product multi-management industry dominated by Alexander Forbes and Momentum. We were able to do that because of our strong focus on in-house systems development. Our administration platforms are unique and allowed us to very quickly attract large domestic and international clients.
On the asset management front, we launched index-tracking funds at less than half the cost of an actively managed alternative - challenging active asset managers, who typically struggle to outperform market indices on a consistent basis, but who are not embarrassed to charge investors for “trying”.
In 2012, when we entered the retail market with our unit trusts and savings products, we decided to do so at the lowest cost possible. To date no one in South Africa has tried to match our 0.4 percent per annum management fee proposition.
We then looked at younger savers who do not have a lot of money but want to save. The financial advisory market has little interest in helping them. So we decided to develop the Sygnia RoboAdvisor, a digital, internet-based financial planning tool that offers free investment advice.
And finally we looked at what is happening to retirement funds collapsing into umbrella funds, another opaque overcharging segment of the market. We discovered layers and layers of fees. So we decided to launch an umbrella fund of our own at a 70 percent discount to what the large umbrella funds are charging.
PL: You are called a”financial services disruptor”. What does that mean?
MG: The theory of “disruptive innovation” was formulated by a Harvard Business School professor, Clayton Christensen, in the 1990s. The theory explains the phenomenon whereby an innovation, whether it is a service, a strategy, a new technology or a product, transforms an existing market characterised by complexity and high costs by introducing simplicity, convenience, accessibility and affordability. Uber, Airbnb and Amazon are the most often quoted examples of disruption. All three have essentially displaced an existing market by providing a service that is more efficient and cost-effective.
The complexity, high cost and low transparency of the financial services industry in South Africa has created an opportunity for Sygnia to enter the market and offer the same products, in a simplified form and at a lower cost. Everything I have described above in terms of Sygnia’s business strategy represents that disruption.
PL: You recently launched a new unit trust, the Sygnia 4th Industrial Revolution Global Equity Fund, which will invest in firms that have exposure to developing and using new technologies. How well has that been received by the market?
MG: The fund is opening to investors on November 1, but we have already held a launch function for our existing investors in Cape Town, and have one planned in Johannesburg at the end of this month.
The response has been absurdly overwhelming. Our call centre has been inundated with requests for information and for further presentation functions. Everyone wants to know about the trends that will shape the world in future. At the core of the 4th Industrial Revolution lies the concept of billions of people connected together by mobile devices with large processing power and storage capacity.
Amplified by developments in artificial intelligence, robotics, drones, autonomous vehicles, 3-D printing, nanotechnology and biotechnology, among others, almost anything is possible. We want to enable the man in the street to benefit from these developments by being able to invest in companies that concentrate on these technologies. If nothing else, it will make you a much more interesting dinner guest.
PL: I’m interested to find out how you come up with such innovative concepts...
MG: I generate most of Sygnia’s crazy ideas. I have had a very non-linear childhood, coming to South Africa as a refugee from Poland. As a consequence I have had to support myself financially since the age of 18. Thereafter, I was fortunate to have a very rich career full of many different experiences. And finally, I have travelled very widely. I believe that those three forces have made me someone who has a business idea a minute - my only problem is speed of implementation. I must add, though, that not all my ideas are good!
PL: If a young entrepreneur has a business concept and they want to make it a reality, what is the single most important thing they must do to realise their dream?
MG: The most important realisation for me has been that starting your own business is a long journey. And it is not an easy one. If starting your own business is a dream, you must begin early in your career by learning as much as you can about different aspects of running a business. You must also focus on gaining as much experience as you can in your field of expertise. You must network and build up contacts. Then you must realise that you cannot be an entrepreneur without taking financial risk. I mortgaged my house repeatedly to finance businesses. I also worked for no salary for a prolonged period of time when I started Sygnia. And you need to realise that you will have to work much harder than you have ever worked before, to make your business a success.
If you have no capital, you can approach a venture capitalist or a venture capital firm. But you must appreciate that they will take a chunk of the upside if your business is successful.