Kagiso Asset Management (KAM) is a specialist investment management company. Its aim is to deliver superior investment to its clients through a unique investment process. It offers a narrow range of products to sophisticated institutional clients and private investors, mainly targeting specialist core and satellite mandates within institutional portfolios. KAM is registered as an investment manager with the Financial Services Board and manages R12.5 billion in assets for various clients.

Its highly skilled investment team optimally combines quantitative processes and fundamental judgement to exploit inefficiencies in the South African markets. Its impressive track record in giving clients an excellent service and making intelligent investment decisions positions it very well for excellent growth.

KTI is the majority shareholder of KAM, with 70 percent, and staff own the remaining 30 percent.

History

KAM was established in 2001 as a (51percent:49percent) joint venture between KTI and Coronation Fund Managers (CFM). The initial years were spent building its investment capacity, gaining clients from a zero base and establishing its investment track record.

In early 2005, when KAM started to reach critical mass, a staff equity transaction saw CFM exit the business and the current ownership structure emerge. This resulted in the KTI owning 70 percent of the company, and management and staff owning the remaining 30 percent – effectively ensuring 85 percent direct black ownership and control.

KAM’s investment philosophy and approach

KAM manages general equity portfolios according to the same investment philosophy and stock selection process. It does, however, vary the level of aggression between its more conservatively managed core equity funds and its more aggressive managed equity funds.

KAM’s “bottom-up” approach to capturing specific information on a company enables it to collect a wide variety of data on each company. This allows it to reduce its reliance on any single item of data. By contrast, the “top-down” approach relies on a small number of variables, which increases the error margin.

In managing equity portfolios, KAM focuses on three important areas:

• Quantitative research – which provides breadth of coverage of the entire stock market, for which there is data available
• Fundamental research – which provides depth of coverage in particular focus areas, and where KAM believes there is an opportunity to add value
• Portfolio construction – where the investment team debates ideas and combines the quantitative and fundamental research inputs, to arrive at the final stock selections.

Alignment with KTI’s new corporate strategy

The consolidation of KTI’s financial services businesses into a single pillar, based on the investment banking model, gives KAM the opportunity to exploit any synergies that naturally arise from the more coordinated approach. KAM will continue with its current focus, providing a crucial service within the financial services pillar, which complements the others.

Overall, benefits of the new strategy for KAM are the deepening of the basic ethos rooted in Kagiso Trust, the corporate DNA running through all KTI’s companies, and the leadership and guidance that KTI management offers.

Products and target market services

Large pension funds and corporates form KAM’s core client base. KAM manages their pension fund assets, and also aims to attract some “on-balance-sheet” assets of a number of institutions. As institutional investors are its main target market, it has built a significant client base on the institutional side. It has already attracted four of the top ten retirement funds in the country. And for the last three years it has doubled its client base every year. This trend is set to continue, as opportunities to attract more large institutional clients will be vigorously pursued.

It is now well positioned to start focusing on building up a client base on the retail side, the target market being sophisticated high-net-worth individuals. KAM has three retail funds with superior track records. One fund in particular is the number one general equity unit trust fund over a three-year period, ending in October 2007. KAM has outperformed the Fund’s benchmark (the average of other manager performances) by 9.76 percent a year since inception – a significant level of outperformance.

A recently launched initiative with Metropolitan’s employee benefits business (Metlife Employee Benefits) enables KAM to use Metropolitan’s life insurance licence to create pooled investment vehicles for small clients. KAM can thus penetrate the small- and medium-size retirement fund market further.