Old Mutual targeting cash-flush corporates

Old Mutual is targeting corporates who are sitting on a lot of cash and are hesitant to deploy it into new projects, offering them higher yields in its ‘cash and liquidity’ investments. 

The insurer recently revealed that its Money Market fund and the institutional version of it have been given AA+ ratings by GCR Ratings – the highest ratings they can achieve under their mandates. 

Old Mutual is a recent entrant to this market segment that garners more attention from asset managers as local companies are sitting on significant sums of cash. 

Many of these companies are hesitant to invest this cash in new capex projects due to South Africa’s poor economic performance over the past decade and uncertainty surrounding its future. 

Towards the end of last year, Stanlib launched a fund specifically aimed at corporate treasuries sitting on piles of cash and seeking higher yields.

South Africa’s largest asset managers, faced with many headwinds, have been bringing new products to the market in search of returns for clients.

Old Mutual has been late to the party but believes it has a competitive edge due to its operational efficiencies and product structure. 

Sean Segar, co-head of Old Mutual cash and liquidity solutions, explained that the insurer aims to offer corporates the liquidity of call accounts with fixed deposit yields.  

All four Old Mutual Cash and Liquidity funds are managed by its subsidiary, Futuregrowth Asset Management, with R200 billion under management.

“After decades in service to corporates, liquidity is a top priority, with corporates expecting to access their investment as easily as withdrawing against a call account,” the other co-head, Ian Ferguson, said. 

Ferguson explained that managing such a fund in South Africa is extremely difficult given the lack of viable investments in this area. 

This also makes outperformance very rare as most debt is issued by the government or guaranteed by the state, with slim pickings with regard to corporate debt. 

“There are only four or five domestic banks that can be included in the solution – and considering that yield ‘sweeteners’ such as corporate debt make up a tiny percentage of these funds, if at all,” Ferguson said. 

Despite this, there is a significant opportunity in this space for South African asset managers. 

The insurer estimated that these kinds of products generate an extra R4 billion per annum in yield for large corporates and other institutional clients.