112 Sanlam Investments

Transcription

1 Sanlam Annual Report Business review Contribution to net result from financial services % Rest of Group Contribution to new business volumes % Rest of Group The larger businesses within our cluster with wider product sets and more diversified asset bases were better positioned to deal with the volatile 2008 economic and market environment, while some of the smaller businesses found it more challenging to meet operating targets.

2 Sanlam Annual Report R million 2008 % Net operating profi t 589 (32) New business fl ows* (9) SA: Segregated SA: Other (13) Non-SA (37) Net fl ows* Funds under management (R billion) 409 (10) ROGEV (8,2%) Adjusted ROGEV 5,9% *Excludes white label. Profile of Sanlam Investment Management (SIM) Sanlam Collective Investments (SCI) Sanlam Employee Benefi ts (SEB) Sanlam Multi Manager International (SMMI) Sanlam Private Investments (SPI) Sanlam Capital Markets (SCM) SIM Emerging Markets (SIM-EM) Sanlam International Investment Partners (SIIP) Sanlam Properties (SP) Sanlam Asset Management Ireland (SAMI) Sanlam Private Equity (SPE) SIM Global Octane Sanlam Structured Solutions (SSS) Simeka One of the largest investment managers in South Africa as measured by assets under management, SIM manages financial assets for individual, institutional, retail and corporate clients and offers investment strategies in vehicles ranging from collective investments to institutional portfolios. SIM is grouped into six boutiques that share a common research platform. The boutiques are Equities, Fixed Interest, Absolute Return, Liability Driven, Active Quants and Balanced Mandates. Our structure ensures focus, a small-team culture and speedy decision-making so our clients get access to our best thinking at all times. The third largest manager of collective investment portfolios in South Africa, SCI offers a wide range of retail, multi-managed, institutional and third-party collective investment funds. Sanlam Employee Benefits specialises in the provision of risk, investment and fund administration services to institutions and retirement funds. An investment management advisory business, SMMI is dedicated to active multi-management. SPI is a private client portfolio management and stockbroking business, serving high net worth individuals, charitable trusts and smaller institutions. SCM is a provider of risk management and structured product solutions. A fund and investment management business, SIM-EM focuses on emerging markets, particularly in Africa and Asia. SIM-EM has offices in Namibia, Botswana, Nigeria, Kenya, Zambia and India. SIIP actively seeks to form partnerships with investment teams in developed markets such as the US, UK, Europe and Australasia and to work with them to build businesses which can capably service their unique markets. Sanlam Properties specialises in strategic property services, including portfolio management, development, sales and listings. SAMI is an international investment management business based in Dublin, and manages funds domiciled in Ireland for the Sanlam Group. One of the largest private equity fund managers in South Africa, SPE offers both a direct and fund-of-funds investment programme. SPE also drives the Group s BEE investment programme. SIM Global actively manages long-only international funds from South Africa for local and international clients. A specialist alternative investment provider, focusing on hedge fund-of-funds, Octane is based in Switzerland with a research office in New York and offices in South Africa. Octane also incorporates Blue Ink, which specialises in alternative investment strategies. SSS offers derivative-based skills to the Investments cluster to enhance returns on portfolios and to improve the product offering to clients, such as derivative, tax and legal-based structured products. Wholly owned by, Simeka is an employee benefits consulting company operating independently within the larger Investments cluster.

3 Sanlam Annual Report Business review continued Who we are is one of the core clusters within the Sanlam Group and consists of 15 businesses working collaboratively to offer individual and institutional clients access to a comprehensive range of specialised investment and risk management expertise spanning local and international asset management, private equity, hedge funds, employee benefi ts, property investments and more. Each business within the cluster functions as an entrepreneurial entity with a shared focus on delivering leading performance and exceptional client service. We achieve this by instilling passionate ownership as an intrinsic value among our employees. We are based in South Africa, with a strong presence in sub-saharan Africa and footprints in the United Kingdom, Europe, the United States, Australia and India. Our diverse client base includes retirement funds, corporations, fi nancial institutions, individual investors, trade unions, non-governmental organisations, governments and their agencies. competitive advantage lies in its ability to cultivate a unique entrepreneurial culture within the stability and structures of a big group. For this reason, we are able to attract talented and innovative individuals to establish investment-related businesses within the cluster. Our core value of passionate ownership encourages people to run their business as if it is their own, while we offer support in the form of essential shared services such as fi nance, HR, IT, marketing, compliance and legal services. Moreover, being within the cluster gives the business access to capital for innovative ideas as well as a ready support network and the advantages of cross-selling in perspective The period under review was a turbulent one for, with the crisis in global fi nancial markets causing major swings in the performance of our portfolios. In general the larger businesses within our cluster with wider product sets and more diversifi ed asset bases were better positioned to deal with the volatile 2008 economic and market environment, while some of the smaller businesses found it more challenging to meet operating targets. The tough operating environment placed pressure on Sanlam Investment Management s (SIM s) operating profi t, particularly performance fees.

4 Sanlam Annual Report The financial performance of Sanlam Employee Benefi ts (SEB) has grown from strength to strength since its incorporation into the cluster in 2007 and subsequent restructuring. Overall SEB and its underlying divisions have performed well, setting a strong foundation for continued growth and increasing operating profi ts in the future. Sanlam Private Investments (SPI) on the other hand was materially affected by the negative markets since this business has a very high exposure to the equity markets. Although operating profi ts came under pressure, they were still higher than in 2007, and the majority of portfolios also performed well for clients. The 2008 financial year, the latter part of which was characterised by markets not seen since the Great Depression, was the most challenging year for Sanlam Capital Markets (SCM) since its inception. Despite this, SCM reported a loss of only R35 million (equal to a negative return on equity of 8,8%), a result which is highly commendable in the prevailing environment. The year 2009 is expected to be as challenging as 2008, if not more so, and against this background SCM will prudently take opportunities as they present themselves, while focusing on the preservation of capital. Despite the turbulence in the local property market, Sanlam Properties (SP) reported solid results. Both the operating profit before tax and the attributable earnings for SP exceeded the comparable fi gures for 2007 by 126,7% and 35,0% respectively. This is mainly attributable to revenue SP earned from several property development projects, growth of the fair value of investment properties and performance fees earned on redevelopment and refurbishment. The performance for SP and the property portfolio under management was well balanced, meeting all strategic objectives for 2008 and in most cases exceeding targets. SIM Emerging Markets had a satisfying year operationally with its established businesses producing solid results under fairly difficult conditions. The general economic and fi nancial malaise that affected corporates and governments alike in the past year adversely impacted on the timelines for implementation of some of the Pan- African initiatives. The highlight for SIM Emerging Markets was by far the successful closure of the much-awaited joint-venture agreement with India s fourth largest stockbroking house SMC, which now paves the way for to roll out its plans for a mutual fund and wealth management business in the large Indian market. Internationally, the investment performance of both SIM Global and Octane suffered as a result of their more direct exposure to events in the international fi nancial markets. For this reason, performance fees from these two businesses were lower than expected. Investment climate The year under review will be remembered as the year in which the credit crisis really exploded and bludgeoned all markets globally. What started off as a tug-of-war between credit-related losses and the US Federal Reserve policy response, turned into a full-blown international battle between a potentially severe negative economic spiral and extraordinary rescue efforts from global central banks and governments. It was a year in which infl ation concerns made way for severe growth concerns and eventually turned into defl ation concerns. It was a year that saw the unthinkable collapse of blue chip fi nancial organisations, leading to a co-ordinated global policy response on a scale rarely, if ever, seen before. Last year will also be remembered as a year characterised by massive market movements. For most equity markets, 2008 was one of the worst years in history, as refl ected by the 42% decline in the MSCI World Index. Volatility was rampant and the VIX volatility index jumped from a level between 20 and 30 (previously deemed high) to well over 70. On the fi xed-interest side US long-bond yields dropped from their already low range of 4% to 5% to merely 2% well below the

5 Sanlam Annual Report Business review continued long-term level of US infl ation, while the EMBI (emerging market bond) spread jumped from 2,5% to 7,5%. In the US, monetary policy was pushed to its limit as interest rates were cut from 4,25% to an unprecedented low of 0,25%. Commodities also tumbled oil for example fi rst rocketed to $144/bbl before falling to below $40/bbl. In this turmoil there was nowhere to hide and local markets were no exception. The JSE All Share Index declined by 26% for the year, fl attered to a large extent by a rapidly weakening rand which tumbled from R6,83/$ at the start of the year to R9,24/$ at year-end (after reaching almost R12/$). In US$ terms the All Share Index fell by 47%. Local long-bond yields rose from 8,35% to almost 11%, before falling back to 7,30% by year-end. Investment performance The third quarter of 2008 produced some of the most volatile fi nancial markets ever recorded. But while SIM s underweight resources position paid off in the third quarter last year, this position tempered performance in 2007 and for the earlier part of last year. Nevertheless, a few of our unit trust funds delivered award-winning performances, which earned us a number of Raging Bull Awards at the beginning of last year. This year two of our funds received recognition at the Raging Bull Awards. The SIM Growth Fund received the Top Performance Certifi cate for the Best Performing Domestic Equity Growth Fund over three years and The Coris Capital International Bond Fund received the Top Performance Certifi cate for the Best Performing Foreign Fixed Interest Bond Fund over three years. had another successful year of attracting new business from both institutional as well as retail investors. Net fund infl ows of R3,6 billion were recorded compared to R4 billion in When SIM created their boutique model, there was a strong argument that the heads of the six boutiques in collaboration with SIM s managing director could collectively fulfi l the functions of a Chief Investment Offi cer (CIO). As a result this position was left vacant for some 18 months. We came to realise, however, that a sizeable operation like SIM would still benefi t from strong investment leadership and this led to the appointment of Gerhard Cruywagen as CIO in August In the fi rst few months in his new role, Gerhard has made enhancements to our investment process which we believe will ultimately improve SIM s long-term investment performance.

6 Sanlam Annual Report In an effort to improve SIM s retail market share, we further optimised and refocused our existing unit trust fund offering, a process that started in All collective investment schemes were rebranded from Sanlam to SIM in order to showcase SIM s asset management skills in the retail arena. In addition, we dedicated a signifi cant amount of attention to completely redesigning our collective investment scheme fee structures to make our offering more competitive. Consequently our initial fees were substantially reduced in line with industry trends. SPI once again produced solid performances for its high net worth client base across its discretionary portfolios. Despite 2008 having been a diffi cult year in which to attract and maintain investments, as a tough economic environment put pressure on individual discretionary savings, SPI received strong infl ows. SPI s attractive and evolving range of investment solutions and products, coupled with consistent performance, will continue to support growth in its client base and the assets under management in the longer term. Sanlam Multi Manager International (SMMI) once again produced consistent performance with good results in the Alexander Forbes Large Manager Watch for the majority of its portfolios throughout the year. Direct exposure to the severe volatility across international investment markets resulted in marked underperformance of the SIM Global funds. However, given the stellar and consistent performance track record of the SIM Global funds over the past fi ve years, we believe that the talented SIM Global team has the ability to substantially improve its performance during As international markets took a tumble, the performance of our international hedge fund-of-funds business, Octane, also came under pressure. However, compared to its competitors, Octane performed well, outperforming the Hedge Fund Research Index (HFRI). The HFRI is a benchmark reflecting the hedge fund industry s performance and is based on the performance results of over hedge funds. International developments We remain acutely aware of the importance of diversifi cation, and in 2008 we continued to seek new opportunities that will manifest Sanlam as a business with global reach and geographic diversity. One of our strategic objectives was to expand our business into selected international markets, with special focus on India, Africa and the Asia-Pacifi c region. Although we also consider investments in selected areas in developed markets, we believe our competitive advantage lies in doing business in the developing world. Within, a new business was formed last year Sanlam International Investment Partners (SIIP). Through SIIP, will actively seek to form partnerships with investment teams in developed markets, such as the US, UK, Europe and Australasia, and work with them to build businesses which can capably service their unique markets. The current economic environment places Sanlam Investments in a strong position to look abroad for opportunities. The international strategy encompassed by SIIP in the fi rst-world markets and SIM Emerging Markets in developing markets will ensure that Sanlam Investments can protect and grow its future asset base. India India is an attractive market for, not only because it offers huge growth potential, but also because it is an English-speaking democracy with an understandable and functional legal system. The cluster made its fi rst foray into the Indian investment markets in the third quarter last year with the announcement of a joint venture with SMC, India s fourth largest securities broking house. This joint venture will see the creation of two new businesses, a wealth management company and an asset management company.

7 Sanlam Annual Report Business review continued SMC has been rated as the fastest-growing retail brokerage house in India with its corporate offi ce in New Delhi, regional offi ces in Mumbai and Kolkata, and a national network of more than offi ces across India. SIM Emerging Markets has been tasked with setting up the new Indian businesses. At the end of last year the wealth management and the asset management companies were being operationalised and we expect the wealth management business to start generating revenues during While this was our fi rst step in establishing ourselves in the growing Indian market, it provides a springboard for further exploring synergies with Sanlam s other business interests in India and further expansion into the subcontinent. Africa Through SIM Emerging Markets, boasts solid representation across Africa, supported by strong investment teams in each of the hubs. We are currently represented in Namibia, Botswana, Zambia, Kenya and Nigeria. The strength of these operations has made it possible for us to explore further opportunities in Africa from these existing offi ces. We have identifi ed our operation in Botswana, Botswana Insurance Fund Management, as the one to take the lead in Southern Africa. East African expansion will be headed by SIM Emerging Markets in Kenya. SIM Emerging Markets in Nigeria will enter other West African markets once it has reached a suffi cient size. During 2009, we will explore further pan-african initiatives in the form of property, private equity and equity funds. Our business in Zambia deserves a special mention the strong results from our Zambian operation contributed signifi cantly to the operating profi ts reported by SIM Emerging Markets for Australia acquired a majority stake (67%) in an Australian investment management business, Atom Funds Management, during the third quarter of last year through its wholly-owned subsidiary SIIP Australia.

8 Sanlam Annual Report We consider the Asia-Pacifi c region a long-term strategic focus area. The Australian asset management industry is the fourth largest in the world with over $1 trillion under management. This is driven by the country s very successful compulsory savings initiative. Atom is a specialist asset management boutique with an experienced investment team. Atom has offi ces in Sydney, Australia, as well as Bangalore, India. Atom s research hub in Bangalore enables us to offer a valuable research facility to our other ventures in India and elsewhere in the world. These acquisitions are the fi rst step in our Asia-Pacifi c investment strategy as they offer a springboard for further expansion in line with our international expansion strategy aimed at developing competitive investment management capabilities that will boost our growth internationally and in South Africa. Transforming our culture The transformation of the cluster remained a key focus for 2008, with a commitment at senior level to achieve and exceed the 2008 Financial Sector Charter (FSC) targets. We are pleased to report that there has been sustained movement and further closing of the gap each year toward achieving the FSC targets and that in many but unfortunately not all respects they have been achieved. The sustained movement towards stretch targets remains a focus into the future. We also launched a number of initiatives aimed at attracting and retaining talented black employees by creating an inclusive culture for all. These include: Leading Edge, an executive development programme. The CEO invited 11 senior employees, selected for their potential and high performance delivery, into this exclusive programme. Eight of the delegates were black South Africans. The aim of the programme is to develop the next generation of senior business leaders. Recognising that leaders need to fi rst transform before they can guide their staff through this journey, eight white and eight black managers from the SIM team have attended transformation sessions. This team of managers is driving the SIM transformation initiative. A broad base of SIM staff members have also attended transformation sessions. We also renewed our commitment last year to growing our own investment professionals by offering upcoming investment professionals a place on the 2009 Investment Management Professionals Induction Programme (IMPI) run by the Association for Savings and Investment SA (ASISA). The programme aims to enable investment management professionals to engage competently at any point in the investment process. In 2008, we enhanced our recruitment process to help identify and recruit top talent at every level and to ensure that we continue to meet our transformation targets. Line-up for 2009 All indications are that 2009 will be another diffi cult year, with the full effect of the fi nancial crisis remaining unclear. At we are bracing ourselves for an extended economic downturn accompanied by ongoing market volatility. We therefore believe it prudent to use 2009 to bed down the new ventures entered into last year and to focus on improving long-term investment performance. Initiatives for 2009 include: Complete the setting-up of the Indian operations and appoint a competent and experienced investment team. Further diversify our product range and broaden our sources of revenue across all our businesses. Take existing products into new markets via other Sanlam business units. Launch our range of pan-african funds early in 2009.