Page 79 - Profile's Unit Trusts and Collective Investments 2021 issue 2

The CIS Industry

Chapter 4

The CIS Industry

NQF
The CIS Industry
Relevant to
The main players in the CIS industry are the management companies (or 243135: 3
more correctly CIS managers), the trustees, the asset managers, the agents 243147:1-4
243155: 1, 2
and brokers, and the regulatory authorities. This chapter looks at the
structure of the industry and the roles of each of the main players.
Management Companies

The management company, or “manager” as it is more correctly referred to under CISCA, is
the central coordinating element of a collective investment scheme (CIS). It is usually the company
that launches a CIS, and which maintains overall responsibility for administration, appointing
asset managers, appointing trustees, and the marketing of the fund to investors. While some of
these functions might be outsourced, it is the CIS manager who directs activities.
Most of the older management companies started as insurance companies (Old Mutual,
Sanlam, Liberty) or banks (RMB, Absa, Standard Bank). Changes in legislation also broadened the
participation in the industry, allowing new players, like stock broking firm Fleming Martin and
institutional fund manager Allan Gray, to launch unit trust funds. (Fleming Martin’s funds were
absorbed by NIB – now Nedgroup Investments – in late 2000 following the purchase of Fleming
Martin by J P Morgan Chase.) More recently it has become common for boutique asset managers to
launch their own suites of unit trusts, usually with the help of third-party administrators.
Media coverage of unit trusts in financial magazines and the newspapers is disproportionate to
the size of the unit trust industry. Assets held by the pension fund industry, for example, are
roughly twice those of collective investment schemes, and both are dwarfed by the market
capitalisation of the JSE. But in spite of its smaller size as an industry, collective investments get a
lot of attention online and in the press.
One reason for this is that unit trusts are seen as the “shop window” of the asset management
business. An investment house’s unit trusts are the most visible display of their overall investment
expertise – and sometimes the same asset management team controls the life products and the
unit trust portfolios. Even where this is not the case, the performance of unit trusts, which have
relatively strict disclosure requirements, are used (rightly or wrongly) as a barometer
for the success of the asset management skill of fund managers in other investment
arenas at the same company. There are no equivalent
industry accepted performance league tables for the
Boutique Funds
life insurance industry or the pensions industry.
The term ‘boutique’ is a popular An interesting trend in asset management
prefix, whether affixed to hotels,
banks or vintners. In the financial world it companies has been the use of “outsourcing”.
denotes a small, specialised investment firm. Outsourcing of fund management was probably
Boutique fund managers usually focus on introduced about 10 years ago and has become more
narrow market segments which are not fully popular, for different reasons, since then. The first
serviced by larger companies. Typically, company to outsource fund management was a bank
boutique fund managers are nimble compared with a loyal client base, which realised that they had
to heavyweight funds. They are usually run by a captive market for a range of investment products,
small teams or individual asset managers, and no in-house expertise in this area. Introducing
allowing for quick decision-making and prompt unit trust funds, the management of which was
implementation of portfolio strategies. Often the outsourced, was a neat solution.
investment team are the owners of the
business, and therefore more directly affected One of the more recent drivers in the
by fund performance than their counterparts in outsourcing trend has been the shortage of
larger investment houses. experienced fund managers.

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Profile’s Unit Trusts & Collective Investments — Understanding Unit Trusts