Investing

Africa’s biggest bank coming for South Africa’s richest

Standard Bank has ambitions to become South Africa’s largest asset manager, and its niche, high-net-worth offering managed by Melville Douglas is targeting the country’s richest individuals, endowments, and charities.

Founded in 1987 by Christopher Melville and Harvey Douglas to provide a highly personalised investment management service. 

In 2001, the company was acquired by Standard Bank to give its private banking clients access to personalised investments. 

Today, it has become a boutique asset manager with R60 billion in AUM and invests money on behalf of endowments, charities, and high-net-worth individuals and their families. 

Melville Douglas Managing Director Mike Laws explained at the company’s investment conference that R60 billion in AUM appears to be the asset manager’s sweet spot. 

Laws said that this enables the asset manager to leverage its scale on behalf of its clients while offering personalised investment advice and portfolios. 

That is the key differentiator for Melville Douglas – its ability to customise its services to suit each client’s needs. 

Laws explained that this does not mean it does not face challenges similar to those faced by larger asset managers or advisory firms. 

Its number one challenge is convincing clients to stick to their investment goals and remain invested during periods of high volatility and uncertainty. 

CIO Bernard Drotschie said that there will always be uncertainty and volatility when investing. The key is managing emotions in response to swings in value. 

In this environment, though uncertainty and volatility are heightened, one cannot stop investing as it will significantly impact financial outcomes later on. 

For example, Drotschie said that if you had remained invested in global equities since 2019, during COVID-19, pandemic-era lockdowns, and the 2020 US election, your portfolio would have returned 70% in five years. 

Since the Federal Reserve began hiking interest rates three years ago, global equities have returned 28%. 

During periods of elevated uncertainty and volatility, active managers such as Melville Douglas come into their own, Laws argued. 

Volatility and uncertainty create clear winners and losers, which are extremely difficult to pick. 

Managing director of Melville Douglas, Mike Laws

With Standard Bank buying out the minority shareholders of Liberty in 2022, it is amassing a formidable asset management business. 

“We are creating a more united group that will bring our banking, insurance and asset management businesses much closer together to create something really special,” Standard Bank CEO Sim Tshbalala said at the time. 

“This will be a whole that will be much greater than the sum of its parts.”

Liberty’s investment management business, combined with Melville Douglas and Stanlib, has resulted in Africa’s biggest bank having R1.4 trillion in AUM. 

The majority is housed in Stanlib, which is the country’s largest fixed-income and property investor. 

Standard Bank South Africa’s head of investment solutions, Duncan Wattam, said this is vital, as asset managers can no longer stand alone as businesses due to the rise of low-cost index funds.

This forces them to find new distribution channels and, ultimately, be profitable as part of a full-service financial institution. 

Wattam also explained that Standard Bank wants to align its business with its global peers, which generate more than 20% of its earnings from asset and wealth management. 

Asset management is very attractive for banks. It enables them to reduce their reliance on net interest income from loans and increases their return on equity, making their businesses more capital efficient. 

Wattam emphasised that Standard Bank is making substantial investments in its investment platforms to compete with other asset managers and better integrate its products. 

As part of this, Melville Douglas offers key services that other parts of the bank’s asset management business do not provide. 

Chief among these are is offshore investment offices in Jersey, which enables wealthier clients to invest outside of South Africa in hard currency and in an advantageous tax jurisdiction. 

Crucially, the integration of all these asset management businesses enables the bank to have control of the entire value chain and cross-sell its products. 

Wattam said this will ultimately enable Standard Bank to offer more competitive pricing for its products and offer more value-added services through existing distribution channels. 

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