Chief Executive Officer's review - Coronation
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Chief Executive
Officer’s review
ANTON PILLAY
BBUSSC, CA(SA), CFA, AMP (HARVARD)
In my 2018 review, I noted some hard truths and, more importantly, implementation.
emerging from the South African economic
We eagerly await further details on the
and political landscape. The Zondo Commission
implementation of turnaround plans for SOEs
threw into stark focus the true extent and cost
and the announcement of the National Budget
of years of state capture and corruption. These
in February to ascertain the extent of the fiscal
revelations continued into 2019 and, while
restraint and possible new taxes. Positively, we
increasingly difficult to hear, are necessary to
believe the South African Reserve Bank has
restoring consumer and investor trust.
“Coronation remains scope to cut rates more aggressively, and we
Promising moves in 2019 included a reconstituted expect at least two rate cuts in the coming year.
committed to the role Cabinet, signalling a welcome phasing out of
Notwithstanding the above headwinds and
that we play in the the old guard, the appointment of a new
uncertainties, Coronation continues to focus
National Director of Public Prosecutions,
national dialogue.” Minister Tito Mboweni’s widely lauded paper
on the long term, both from a business and
investment perspective. While 2019 has, overall,
on microeconomic reforms, and a new Eskom
been a much better year than 2018, we are
Chairperson. Also encouraging were a number
mindful that our long-term performance remains
of high-profile arrests made by the Hawks as
the true measure of our ultimate success on
2019 drew to a close.
behalf of our clients and stakeholders.
However, with a grim 2019 Medium-Term Budget
I would like to thank John Snalam, who has
Policy Statement laying bare the woeful state
headed up our finance department since
of the South African economy, it is apparent
inception. His input and advice have been
that policy action is now urgently required to
invaluable, and I wish him all the best for the
quell legitimate investment concerns and boost
next phase. I would also like to formally welcome
confidence, not only among South Africans,
incoming CFO and fellow executive director
but also with respect to the international
Mary-Anne Musekiwa, who is excellently
community of ratings agencies and asset
positioned to assume the role and has benefited
holders. While this will take time, we urgently
from a thorough handover from John. I am
need to start. Coronation remains committed
confident that she will build on this critical role
to the role that we play in the national dialogue
going forward.
TRUST IS E ARNED™ 12
Global operating environment the volatility in the market, companies such as
ourselves, who use bottom-up fundamental
The global context in which we operate today analysis, have the ability to find opportunities
is highly unpredictable and disruptive. Global in the market and deliver benefit in the long
events and trends appear to have protracted run. While we continuously emphasise that
timeframes – their impacts are significant and performance should be measured over the long
drawn out over long periods of time with little term, it is worth noting that, during 2019, our
resolution, resulting in prolonged market short-term performance has been exceptional,
uncertainty. One simply has to look to Brexit, given the tough operating environment.
the US-China trade war, instability in the Middle
East, the emergence of nationalist global
Compliance
“We continue to deepen leaders and fundamentalism for examples.
Given corporate failures of the past, we remain
our focus on social and These factors have deeply affected the asset
very active owners of every single company we
management industry in South Africa and
environmental factors in abroad, not only from a returns perspective
hold on our clients’ behalf, regardless of whether
our portfolios own 30% or 0.1% of a business.
our company analysis but also from an asset flow perspective. As an
We vote at company AGMs and ensure that we
industry, the share prices and performance of
through our proprietary active fund managers are under pressure. As
have assessed ever y single resolution.
Governance has always been a key focus for
research.” a manager of global assets, we are profoundly
us, and we ensure that we hold management
impacted by global market trends. Across the
teams of investee companies accountable. We
globe, active asset managers, who were top
are also placing greater focus on the agents
performers only a few years ago, have
who represent shareholders, such as board
experienced a reversal of fortunes, as passive
directors, to ensure quality oversight and
fund managers continue to drive down fees
independence. Auditing firms are also under
and attract a greater share of global assets.
greater scrutiny and we vote against the
appointment of those that have audited the
Local operating environment same company for more than 10 years.
Domestically, South Africa’s fiscal position has This action helps re-establish the link between
deteriorated rapidly, as expenditure growth auditors and shareholders and serves as a
has consistently exceeded revenue and reminder that auditors do not report to
government has accumulated more debt to management. Our process continues to seek
meet the shortfall. This seems set to continue. out engagements with external parties such
The JSE has failed to deliver the level of returns as suppliers, customers, and regulators to verify
expected, and the South African consumer management information.
remains under financial pressure, which has
impacted the levels of savings and flows into This year, we have informed all companies
the industry. This is largely the result of a decline listed on the JSE that we will vote against their
in the number of employed people due to remuneration policies unless they include malus
retrenchments, and a weak domestic economic and clawback provisions. This allows us to hold
environment in which many South Africans are individual members of management teams
being forced to live off their saved capital. accountable, even after they have left the
employ of the company, and we will use these
As we are a South African asset manager of learnings to optimise our processes.
significant size, our assets under management
will naturally reflect the flows of the industry, Stewardship
which are currently negative. We expect flows
to continue to be negative for the medium term As the stewards of our clients’ capital, we
until we see a restoration of South Africa’s recognise that we have a responsibility to focus
savings markets and an improvement in the on the sustainability of our society and
state of the South African economy. The timing environment. We continue to deepen our focus
of this is difficult to predict. on social and environmental factors in our
company analysis through our proprietary
As an investment-led business, our focus is to
research, which informs our engagement
grow the value of the client assets entrusted to
activities with investee company management
us over the long term, rather than growing the
teams relating to best practice in these arenas.
pool of assets under our management. Despite
As committed to in our last integrated annual
13report, we published our first annual stewardship trust funds rank first or second in their respective
report in the first quarter of 2019, which outlined ASISA categories since inception.
our approach to responsible investing. It also
disclosed our corporate engagements and Investment in our business
proxy voting activity and provided insight into
We continue to look after our clients, not only
the nature of these engagements through case
from an investment perspective, but also from
studies, with both positive and negative
a service perspective. We are now starting to
outcomes. Our second annual stewardship
see the efficiency benefits resulting from the
report will be published on our website in the
successful implementation of our new fund
first quarter of 2020.
a d mini strat io n m o d el in 2 018 , w hich
consolidated our asset administration service
Business review across local and offshore portfolios. We are
Notwithstanding the enviable performance also pleased with the outcome of our decision
recover y of our por tfolios in 2019, the to migrate our unit trust client administration
overwhelming impact of a tough global market to Intembeko Investment Administrators, a
in 2019 affected both market returns and the b la ck- ow n e d b us i n e s s . B oth of th e s e
formal savings sector. implementations were undertaken with no
impact on our clients or on our service levels.
Our institutional business now manages
R331 billion on behalf of our South African and We e x p e c t th e f u ll b e n ef it s of th e s e
global institutional clients. In the personal implementations to be delivered over the next
investment space, we continue to manage a two years and that they will not only deliver
meaningful share of South Africa’s retirement a higher level of service to our clients, but will
and savings assets, representing a total AUM also enhance the protection of client data.
of R240 billion, making us one of the largest
Despite the difficult market environment and
independent managers of pension assets in
weak returns, our service ratings remain
the country.
exceptional, with a recent client survey
In spite of a difficult five years, our success in reflecting positive feedback. We will continue
building our clients’ wealth over the long term to invest in our businesses and people and
is evident in the fact that local clients extract synergies and benefits from system
representing more than 50% of our total implementations in our quest to remain a
institutional assets have been invested with world-class asset management company.
“We expect the full Coronation for more than 10 years. Of these
benefits of these client assets, 97.5% have outperformed their Corporate citizenship
benchmarks since inception on an asset-
implementations to weighted basis. We recognise that, as managers of the long-term
savings of millions of South Africans, as well as
be delivered over the We manage a total of R66 billion in our global several leading international retirement funds,
next two years.” strategies on behalf of several leading endowments and family offices, we are a
international retirement funds, endowments significant corporate citizen and are responsible
and family offices, which is R5 billion up from for being part of the solution to South Africa’s
the 2018 reporting period. And, while we saw pressing challenges. In this light, we continuously
net outflows representing 11.4% of our opening engage with our shareholders, regulators, civil
AUM, this is a reasonable outcome, given the society groups and the communities in which
ongoing material shift from active to passive we operate to promote and sustain economic
strategies. That said, we remain confident in growth, pursue transformation and deliver
the long-term outlook for our global strategies long-term value to our stakeholders.
as well as our value proposition to clients through
active management. As noted by our Chairman, Coronation has
played an integral role in transforming the South
All of our global strategies with a track record African financial services sector over the past
of more than a decade have delivered two decades. From a business transformation
meaningful alpha since inception. perspective, we are a Level 2 contributor to
Our success in building our retail clients' wealth broad-based black economic empowerment,
over the long term is evident in the fact that and we continue to focus on transforming our
all of our domestic and global flagship unit business, as well as the industry.
TRUST IS E ARNED™ 14With respect to our peers in the financial services standards applied by the International Monetary
sector and our staff complement, a respectable Fund. The stock of gross government debt is
percentage of our senior leadership team is expected to hit 60% of GDP this fiscal year,
black, including our CEO, CFO, COO, Head of but this is not yet alarming, even by emerging
Institutional Business, Head of Fixed Income market standards. In addition, government
and Head of SA Equity Research, and, of our remains able to raise funds in the open market
Board of Directors, 78% are black. However, and the proportion of debt that is denominated
we will continue to boost transformation via in foreign currency is relatively small, while
our training and recruitment initiatives. As a local currency-denominated debt has a relatively
signal of our commitment and intent, and to long redemption lead time. While our current
make sure that we are accountable and account deficit is relatively large, it has also
measurable, we will be adding an annual been relatively steadily funded.
Transformation Report to our reporting suite,
Despite the existing uncertainty, our investment
which will be published on our website during
philosophy remains focused on the long term.
the first quarter of 2020.
In a volatile environment, our aim remains to
understand the true earnings power and cash-
78%
Looking forward generation ability of the businesses in our
The exhilarating Springbok win over England universe and to own those that trade at a
of our Board of at the 2019 Rugby World Cup final reminded significant discount to their underlying value.
Directors are black South Africa of what can be achieved when While conditions have been tough over the
diverse players come together around a common past five years, this has resulted in many
goal and purpose. attractively priced opportunities from which
we, as active managers, can construct our client
As a company with a long-term focus, we are
portfolios. In this regard, we are optimistic
aware that nothing will change overnight. And,
about the opportunities that key markets present
while the private sector is committed to playing
and believe that clients should see better returns
its role in the issues that hold us back as a
in the next five years.
country, a certain level of action from other
influencers and decision makers, including
government and regulators, is needed.
Encouragingly, South Africa does not fit the
profile of an economy in crisis, according to
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