Sygnia, a multimanager and administration business, will be listing on October 14. CE Magda Wierzycka says the firm aims to raise R300m of capital, 90% in new capital and 10% from the sale by founding shareholders.
Asset management is not a capital-intensive business, so listings in the sector are quite rare. The big exception was Coronation Fund Managers, but the management team did not choose to list; they were unbundled from the more diversified Coronation Holdings. Alexander Forbes, the consulting group which owns the multi-manager Investment Solutions, listed last year when its private equity shareholders pulled out. Both these companies are highly rated by the market — Coronation has a market cap of R26bn, Forbes of R11,5bn.
Sygnia, a multi-manager and administration business, will be listing on October 14. CE Magda Wierzycka says the firm aims to raise R300m of capital, 90% in new capital and 10% from the sale by founding shareholders.
The founding shareholders, Wierzycka and investments director Simon Peile (who is also her husband) will retain control of the business after listing with more than two-thirds of the shares. The listing will ensure Sygnia’s statutory capital remains sufficient as it grows: it needs to hold capital equivalent to 0,3% of assets under management.
“But this is not the main aim, which is to raise our profile and to be treated as a significant business in our own right,” says Wierzycka.
“Our track record stands up well against market leader in multi-management Investment Solutions. Over three years our Signature 70 fund has given an annualised return of 20,5% compared with 18,7% from Investment Solutions Performer and 17,4% for IS High Equity.”
Sygnia Signature 70 also outperformed all the funds in the global large manager watch, even coming in ahead of Investec and Coronation.
Sygnia has more often favoured niche managers such as Visio and 36One to run its money — and very often appoints managers it got to know through their hedge funds.
Over five years the conservative Sygnia Signature 40 fund is top with a 16,2%/year return and even the passive Sygnia Skeleton 40 beat all its competitors with a 15% return.
Wierzycka says that with this track record it will be hard for Alexander Forbes consultants to justify keeping business with IS, except out of loyalty to its sister business. “They can no longer dismiss us as a small, insignificant business.”
Sygnia has a staff of 120 and is now the second-largest multi-manager in SA, she says.
Multi-management, which includes the fund of hedge funds business, accounts for three-quarters of Sygnia’s revenue, administration services 18% and other services 8%.
A listing also gives access to capital for faster organic growth or acquisitions. A core of the business is its systems development, which can be accelerated.
And there will be an active campaign to build Sygnia’s brand and especially the index tracking funds known as the Skeleton range.
Skeleton funds are the cheapest on the market at an annual fee of 0,4% including the wrapper fees. Companies can invest a minimum of R500/head in these skeleton funds through the group retirement annuity. Wierzycka says that demand for passive assets is bound to increase as a result of the proposed pension default regulations. “Boards of trustees will be required to look at passive funds before they consider any of the usual active managers. Passive will be the riskless choice from a reputational point of view.”
The hedge fund business has not been a fast grower but Peile says the hedge funds’ virtues of capital preservation will come into their own as the bull market runs out of steam. And hedge funds will gain more recognition as they are repackaged as regulated collective investment schemes.
Peile and his colleague Willem van der Merwe have a 12-year track record (initially at African Harvest) of running funds of hedge funds. Over five years the Sygnia Absolute Fund of Hedge Funds is top of the low-risk category with an 11,4% return and the Sygnia All Star Fund of Hedge Funds had a 15,8% return.
Sygnia has not yet made an acquisition but arguably the multi-manager and fund of hedge funds sectors are over-traded and some businesses could come onto the market.
“We also intend to retain staff via a share option scheme,” says Wierzycka.”
Sygnia is predominantly an institutionally focused business. Wierzycka’s background is in wholesale clients such as pension funds and Peile was head of asset consulting strategy at Alexander Forbes.
But Sygnia’s products are available directly as unit trusts and through savings wrappers such as retirement annuities, living annuities, preservation funds and endowment policies.
Wierzycka says some of the institutional clients opt for administration services rather than buying into Sygnia funds. Sygnia is the dominant player in the investment administration field. This offers multi-tier unitisation, optimised cash flow management, performance and risk analysis as well as compliance monitoring and transition management. “This is well suited to funds which wish to retain control of manager selection or asset allocation.” One of Sygnia’s oldest investment administration clients is the international multi-manager SEI, and Sygnia is looking for more international clients without setting up an international office quite yet.
In the six months to March 2015, Sygnia earned R29,3m after tax so, on an annualised basis, its expected market cap of R1,2bn will give it a p:e of about 20. According to Nedbank Capital the peer group — everything from Anchor and PSG Konsult to MMI Liberty and Sanlam — trades on a mean multiple of 17,2. Sygnia probably deserves a premium as there has been a 16,4% compound annual growth rate in institutional assets and 26,9% in retail assets. More than R1bn has flowed into the direct unit trusts since February and a lot more is expected from section 27 transfers between living annuities. Sygnia has strong active legacy businesses but its passive business has the potential to show explosive growth, Sygnia will be the listed company that will benefit most from a move to index tracking funds.