JSE-listed asset manager Sygnia Holdings, which is 67% owned by co-founder Magda Wierzycka, is often in the spotlight for reasons unrelated to investment management.
Over the past few months, coinciding with the return of Wierzycka as CEO, several executives have left. And with no love lost between the asset management sector and Sygnia, the company’s turmoil has featured in plenty of headlines.
Rivals have revelled in tittle-tattle but few have considered the real questions: why is Wierzycka back, and what are her plans? After all, it will be her decisions, as major shareholder, that will determine Sygnia’s future.
Wierzycka is seen as a polarising figure: IM’s April 2021 feature on Sygnia described her as a Marmite figure — you either like her or hate her.
She moves between homes in the UK and her London office in Mayfair, and her Cape Town home and head office. Her stance on the mismanagement of the economy is well documented. And her civil activist’s voice is loud — sometimes too loud for some. Could this be part of the reason for her sudden Norma Desmond-style return to Sygnia?
Over the past months, a steady stream of senior management has left Sygnia, attracting many column centimetres and even more conjecture.
There’s been less interest in the calibre of inbound executives who might add significant gravitas to the overall corporate structure.
Neither has the market recognised that Sygnia’s core investment management, client services and marketing teams, the bedrock of any asset manager, have been stable for years.
It is this group that has guided Sygnia to current assets under management (AUM) of R312.7bn.
First out of the revolving door was chief financial officer Murad Sirkot, who left on the day of the Sygnia AGM on January 31. He had been at the company for four years, having been recruited from Investec.
Three days later, CEO David Hufton announced his departure. After 27 years at sector rival Alexander Forbes, Hufton was recruited to become the deputy CEO of Sygnia in July 2016. Four years later, he became joint CEO alongside Wierzycka, taking over South African operations while the founder looked after the company’s international interests.
Hufton become sole CEO when Wierzycka stepped down in March 2021 and became a nonexecutive director. When he left, Wierzycka moved back into the CEO’s office.
Next, former Denel CFO Carmen le Grange was appointed as Sirkot’s replacement, only to have her appointment retracted in late March.
April brought the departure of Duane Naicker, who had a seven-year stint at Sygnia and was head of its umbrella retirement fund. He rejoined Alexforbes as head of retirement solutions.
While Wierzycka is back as CEO, her 2021 absence from the business lasted only two months. Then she became executive chair, admitting that her unexpected return “ruffled feathers”.
As context, Wierzycka has two children, both overseas and recent graduates. Sygnia, I would argue, is her third child, so cutting the umbilical cord by stepping down as CEO was never going to be easy.
The company’s success has always been intertwined with its high-profile co-founder, but the extremely poor optics of a revolving door spitting out senior managers and Wierzycka galloping back to take the reins perplexed the market, especially as Sygnia’s corporate communication is opaque.
Perhaps that’s why there was little comment when Wierzycka lured back one-time Sygnia lifer Niki Giles from Prescient.
Giles joined Sygnia in 2006 and was chief operating officer from 2009 to 2018. She returns with a wealth of knowledge, not just on Sygnia as one of its original core lieutenants, but also on governance, risk and compliance.
There is a need to soothe institutional nerves when Sens announcements about senior executives’ departures or sudden share sales rattle sentiment.
Much the same is true of Sygnia’s 2023 so far. Events unfolded in a concentrated timeline. But IM has no qualms or concerns about the revolving door. It’s simply noise.
However, it’s intriguing to speculate what Sygnia’s next chapter might hold with its co-founder back at the helm, and guidance can be gleaned from the interim results and Wierzycka’s recent media utterances.
Institutional AUM in South Africa has been a tale of musical chairs, with growth often coming from the loss of a rival asset manager’s mandate or amalgamations. The domestic landscape for retirement funds is flatlining due to nonexistent economic and employment growth, so sector consolidation must be under serious consideration. And if that happens, Sygnia could be a hunter — or more likely prey.
The only key area of growth in the sector has been in the retail segment, thanks to low-cost exchange traded fund (ETF) and index-tracking offerings. Sygnia is that dynamic, low-cost asset manager, but it needs scale and better distribution to reach the next level.
The company has been adept at growing an asset management business to scale, launching innovative products and generating strong returns. So it seems reasonable to speculate that its platform would be of interest to a competitor looking for innovation and AUM to bolster its business.
IM cannot see Wierzycka ever fully forsaking her child. But the apron strings could be loosened. The existential problems plaguing South Africa must make any self-made billionaire entrepreneur fret over their fortune.
With a stake worth R1.6bn, Wierzycka commented in a media article that “virtually all my wealth is tied to Sygnia”. What a quandary! Power and control over preservation of a dynastic fortune.
Much of Wierzycka’s fortune is linked to an ever-weakening rand, a decomposing economy and tighter exchange controls throttling the fat dividends Sygnia pays to its majority shareholder. Having all her eggs in one basket must weigh heavily on Wierzycka.
Sygnia listed in October 2015 at 840c and peaked near R22. The share has drifted in recent years. However, Sygnia has paid 827c a share in total dividends since listing, much of this going to its co-founder and majority shareholder.
Wierzycka is 54 in October. At some stage she will have to decide where she wants to be — the UK or South Africa.
Would she really want the aggravation and stress of agglomerating a major rival asset or multimanager? Or would she prefer to reduce her controlling stake and take cash off the table, possibly extricate herself from a toxic domain and carry on with her life — or perhaps a new endeavour?
Similarly, given the negative press coverage and low interest in the listed company — not to mention the dwindling status of the JSE — does Sygnia even want to remain a listed entity?
Sygnia’s share price of R16.50 is down 7% this year, and was unmoved by credible interim results to March and another fat dividend.
The first half of 2023 saw AUM rise 5.9% from the September 2022 disclosure, leading to a 2.8% rise in revenue to R408.6m. Operating profit declined 6.6% to R173.6m, with profit before tax down 2.2% to R191.6m.
The institutional market in the six months was tough, without the natural industry growth usually driven by employment creation. The key driver to results was revenue growth from investment administration, which rose 12.4% to R64m; and treasury, up 19.8% to R76.6m.
The core investment management division saw a 7% decline in revenue to R232.2m. It appears that about 50% of Sygnia’s book is now offshore, which lends a natural rand hedge.
Expenses in the six months rose 11.1% to R235m, though there was a one-off item which should normalise by the end of the financial year.
Despite solid growth from underlying divisions, the expense cost was the main factor in headline earnings being a touch lower at 91.8c a share, with the dividend up 8.8% to 87c.
Growth for Sygnia can come from existing businesses, and it is these drivers that could also draw interest from suitors.
Sygnia is well-known for its low-cost offering. Its range of index-tracking funds and ETFs have grown its AUM, and they have ample runway for growth — especially in an investment environment where fees are paramount to trustees.
Further low-hanging fruit can be harvested in the retail segment, which saw 13.8% AUM growth to R59.4bn in the interim results. Unlike some of its rivals, Sygnia is growing overall AUM and its latest results showed growth of 5.9% vs 4% for Alexforbes.
After launching dynamic retail offerings such as the 4th Industrial Revolution and OSI funds, Sygnia has had a quiet patch. The company’s innovation and funds should be grabbing headlines, rather than water-cooler talk.
Sygnia’s retail marketing is negligible, yet its growth has been robust. The division could do with a larger marketing budget, a wider distribution model and possibly even an alliance to fully exploit its offering.
Other growth platforms are the Sygnia Umbrella Retirement Fund, which has grown to R13.2bn (+26.9%), with another R2.5bn awaiting transfer. It is now the sixth-largest commercial umbrella fund in South Africa.
Readers might be aware of how accretive good marketing and connections with independent financial advisers can grow AUM. Unlisted sector rival Anchor Group has grown assets from R500m to R103bn in a decade through a mix of performance and aggressive marketing.
However, asset management is fast evolving. A CNBC report recently commented that the rise of artificial intelligence (AI) will mean “one in six US asset managers having to close or be consolidated by 2027”.
AI-driven predictive maintenance is revolutionising asset management by minimising downtime, reducing costs and improving overall efficiency, especially in client interface. Sygnia has an offering in that arena with its robo-adviser.
Within Sygnia are the building blocks for further growth — or a plug-and-play offering for a sector consolidator.
Still, the past 12 months have been difficult for domestic asset managers given stagnant economic growth, a volatile rand and lacklustre JSE returns. Year-to-date gains for the all share index are a modest 2.5%, not a great environment for asset management returns and performance fees.
At R16.50 and a market value of R2.5bn, Sygnia is trading at trailing valuation of 8.6 times and a dividend yield of 12.7%. But if sector consolidation plays out, what speculative valuation can be slapped on the company?
The stock has been in a narrow trading band since 2021. The 52-week high is R19.87 and average premiums paid to acquire companies are 20%-plus. That would suggest a starting buyout price of R23.84 a share.
Would that be enough to tempt Wierzycka to sell part or all of her controlling stake?
IM’s overall view is that Sygnia would be better placed as an unlisted business away from the public eye. Smart sector growth in South Africa can be attained only from consolidation, and Sygnia is one of the few desirable shiny baubles of scale that could be available.
It might help that an individual has the power to decide Sygnia’s destiny. IM reckons it’s not unjustified to place a special situation buy on Sygnia with a target price of R22.