OMIGNAM: Success in Alternative Markets Yields Growth for OMIGNAM

Investment and asset management is an industry full of problem solvers; people who offer up solutions that ensure growth. The sector, globally, is laden with innovation. Convergent thinkers come together to deliver prosperity for clients, safeguarding finances and offering up security and progress on hard-earned savings.

In Africa, the industry is strong. Even the Covid-19 pandemic was unable to decimate as it did elsewhere in economies. But adjustment has been required. With resources stretched, investors require more guarantees and certainty than ever before. This is where partnering with the biggest and best is a sensible strategy.

In Namibia, the market leading investment and asset management business is Old Mutual Investment Group Namibia (OMIGNAM). A division of the larger Old Mutual group headquartered in Johannesburg, South Africa, OMIGNAM is responsible for delivering sustainable, long-term investment returns to institutional, corporate and retail clients.

The country’s economy is relatively small, dwarfed by its neighbour South Africa. But Namibia is viewed by many as the African success story following independence in 1990 and a subsequent run of strong economic growth lasting more than two decades, a result of political stability and sound economic management. 2016 saw the country fall into recession, and the struggle has been clear ever since – deepened by the pandemic which was a catastrophe for tourism.

For Tyrone van Wyk, OMIGNAM’s Chief Executive Officer and Chief Investment Officer, the past 18-months have been very unusual but positive.

“As asset managers, all that we need to work together as a group is computers and systems. If you can send people home with access, then life continues. It does introduce a complication around how do you run meetings and interact together. But, because our staff are quite high-level, they are very adaptable, and they have made use of Teams and other programmes to run meetings. Clients have been using various programmes so there has been some technicalities to overcome but internally, we have been successful.”

At the start of 2020, van Wyk told Enterprise Africa that the company had N$40 billion under management – the largest share of the market. Today, that has improved. OMIGNAM commands N$45 billion of a market of around N$181 billion.

The company’s assets include the country’s largest pension funds as well as unit trusts and retail investor capital. By providing consistent returns and, perhaps most important of all, instilling a feeling of trust in clients, OMIGNAM has navigated the pandemic and Namibian economic sloth without a hiccup.

“It has always been the case that certain events or experiences benefit some industries while playing a role negatively in some others,” says van Wyk.

“Because our main client base is pension funds, the bulk of the funding is non-discretionary so an individual cannot decide to stop contributing. In Namibia, the bigger businesses with corporate pension funds have not been exposed to the tourism industry. So, our client base has not been exposed to the sector of the economy that has been impacted the worst. The consequence is that life continued for us.”

In the unit trust market, where savings are more discretionary, individuals have withdrawn money. But this has resulted in an inflow of funds from individuals who were laid off and were able to access some of their savings to place in a discretionary pool to live from. That created a temporary injection of cash into the unit trust market from which OMIGNAM was able to benefit.

“During last year, we managed net client cash flow of around N$2.4 billion positive, so we did attract inflows during this strenuous period. Granted, a component of that has been from Mauritius. As part of our business, we run two Dollar denominated Money Market funds from Mauritius, where we then place those funds predominantly in the UK market. There have been a number of businesses piling cash during the pandemic and they were not allowed to pay dividends so those funds have been beneficiaries of that activity. Furthermore, we were successful in the alternative space – investment into the real Namibian Economy. That has continued unabated because it surrounds long term projects where the project feasibility has been completed and has not stopped. The drawdowns from institutional investors for alternative assets has continued and that has benefitted us. I suspect that helped us to weather the storm quite well.”

At the beginning of the pandemic spread in March 2020, Namibia was placed into a state of emergency and closed all borders while suspending other areas of the economy. Since then, the country’s regions have flitted between various levels of lockdown in an attempt to halt local transmission. In the early stages, the market was impacted. In March 2020, OMIGNAM’s value of total funds under management dropped to N$37 billion before picking up again significantly.

BUILT FOR GROWTH

Far from sitting back and waiting for the bumps in the economy to pass, OMIGNAM went out to the market on the front foot and became a growth catalyst in the industry through 2020 and the start of 2021. New funds, new markets, and client diversification have helped the company to maintain and build on its leading position in the Market.

“We try and diversify our client base, especially in the retail space. Because Namibia has such a concentrated market of institutional investors – Government Institutions Pension Fund (GIPF) is 70% of the pension market – and that places obvious risk on the business if it loses those major clients,” admits van Wyk.

“Our strategy for quite some time has been to try and boost our presence in the alternative markets. It’s a long-term process in Namibia as you need to apply for licenses for registered funds to meet all the requirements for pension fund to be able to invest.

“One of the projects that we started at the end of 2019 and into 2020 was a new alternative equity fund – the Namibia Equity Infrastructure Fund (NEIF). This vehicle got all of its approvals at the end of 2019 and gave us a boost with investment into the real economy. For us, that will continue to be a profitable venture despite the pressures that the general economy has faced.”

At the start of 2021, OMIGNAM acquired on behalf of one of our Funds under management, a majority stake in Aloe Investments Number Twenty-Seven, a project company and owner of the five MWp Rosh Pinah solar power plant in the Karas region in Namibia’s south. Active since 2017, the plant supplies to the grid through PPA with Nampower. For the local market, and for local investors, opportunities like this have become increasingly important.

“This focus on infrastructure in our market and around the world has become much more important and that creates efficiency and growth engines for the future. Solar and wind power are high level examples (exactly what the NIEIF is targeting – equity investments into these projects). That has given us a boost during this time, and I suspect it will continue to be a lucrative area. These are long-term projects that are usually 10-years or more as well as the payoff, so it is a stable income generator,” details van Wyk.

In the unit trust market, a consistently strong sector for OMIGNAM, the company is looking for further growth and this requires a clear and wide-ranging understanding of the market. The type of individuals investing in unit trusts are usually in the upper LSM levels and are possibly less impacted by the economic conditions on the ground. “It also tends to be a form of discretionary long-term savings for those individuals so it does broaden the client base and builds funding. That creates stability for us in the future and gives us a focus area,” explains van Wyk.

Dollar-based money market funds, like the successful assets already run through Mauritius are also key in the company’s growth strategy. Spreading risk and growing this type of business is a target for van Wyk.

“From a growth perspective, the Namibian market is quite concentrated and, similarly to the Mauritius funds we have, we will try and see where we can manage money elsewhere in Africa that relies on the existing types of transactions we already do,” he says. “We are going to try and replicate our Mauritius funds elsewhere in Africa where there are investors with a need for a hard currency parking place. Dollar interest rates are virtually zero so as an institutional investor, if you can promise someone a bit of yield on those hard currency reserves, you are likely to attract that cash.”

NAMIBIAN HEART

Around southern Africa, there is a trend surrounding the movement of funds offshore. It is well-established in South Africa where investors are keen to diversify their portfolio and protect their money from a single risk of the Rand and the rollercoaster SA economy. In Namibia a similar trend is underway. But at institutional level, offshoring is regulated and the process of taking huge funds abroad is not a simple one. For OMIGNAM, its home remains a vital market, and one which will offer opportunities, but diversification remains part of a responsible strategy. 

“While the rhetoric in the local press is reasonably positive, we are struggling to see returns in the form of Foreign Direct Investment (FDI) in the country,” admits van Wyk. “There are ad hoc things that attract cash but on a net basis, the current account and the balance of payments remains under pressure. As an institutional investor, there is a legal limit to the amount that can be invested offshore and that is around 35% of a total pension fund or life company portfolio. As asset managers, we vary our offshore component depending on the outlook for various assets. I don’t think we will see major changes for those types of investors. We are seeing big corporates and high net worth individuals becoming very attracted to investing offshore. We will continue to see those types of investors looking for offshore vehicles with the involvement of local people that they know they can access. This falls into the Dollar money market funds and offshore equity fund that we are hoping to launch before the end of the year for retail investors. There remains growth in the offshore space, most certainly.”

But he says the company will obviously never write off its local market. “It remains an area of activity for us and we will continue to be competitive here, mining around in our local backyard. The economy has been under pressure over the last four years and I don’t foresee that turning around just yet. Namibia, according to Moody’s, was one of the countries with the highest increases in debt during the Covid period. Our government did not borrow for a long period, so there were no government bonds for us to buy into portfolios – that situation has changed dramatically and that is bad from a country perspective.”

According to the World Bank, Namibia’s GDP contracted more than 7.3% in 2020 and structural policy reforms will be required in order to raise Namibia’s growth potential. The pandemic has impacted significantly on the country’s economy and, with the hospitality industry slumping by almost half, there is much work to do to bring large groups across the poverty line.

NEW CONNECTIONS

In finance, banking, insurance and investments, there has always been an assumed level of digitisation. A naturally growing phenomenon, the IT delivery systems in the sector have become more intelligent and more complex, and OMIGNAM has noted the increased use of digital tech during the pandemic. Previously on a slow transition towards a more digital future, 2020 accelerated certain elements of uptake, especially in communications.

“Digital is impacting us in operational efficiency. We benefit from the digital revolution that we see globally,” confirms van Wyk. “One of the advantages for us as a country, because of how our settlement system and the whole process works, we probably operate on a similar level to how a fund manger in the UK would work. We can buy in or incorporate all of the same benefits in terms of automation in our space. A good example is a change we made to administrators of our unit trust liability book to an entity called Jersey Trust Company. As an outsourced agreement, there is a focus from them for profitability as we pay them a flat fee per client, depending on the type of client, to enhance efficiency in the process. They give the unit trust customer the ability to contact via the web, and that focus on digital is there. In our world, we see that there are people with difficulty adapting to this.”

Clearly, the digital approach is proven and has benefits, but for many there is still much comfort to be found in dealing directly with a recognised face. Pre-Covid, many of the conversations OMIGNAM’s senior management would have with clients would take place in a face-to-face environment. According to van Wyk, this will certainly return and continue for some time.

“The bulk of our clients are large institutional clients and they operate with a board of trustees who care for the pension fund. That is still the case, and while there is digital interaction, they still want to interact in person. Even this week, we have had to give feedback to one of the bigger pension funds who indicated that they would prefer a personal meeting rather than online. For us, as an investment house, the personal touch will continue to be important on the institutional side, while on the retail side, digital plays a role in efficiency.”

Trading large sums of money comes with an underlying need for ubiquitous trust. For most, even in the biggest of global businesses, this is still far easier to build in a personal environment. In Namibia, where around 40% of people are internet-active, direct communication – especially surrounding high-value transactions – is the key to building trust.

“I work with a number of intermediaries who stay in small towns in the south of Namibia and they have a number of wealthy farming clients but they have zero ability to access client portfolios online,” says van Wyk. “They do not use email all that often so we have to physically mail statements and proof of deposits. I think we will continue to face a challenge with those types of people for some time. We find that high net worth individuals that are older in this part of the world still want to interact personally with someone if it constitutes rather larger amounts of money. This is common across the world.”

But some market segments are more open and willing to adopt digital solutions, and OMIGNAM has broadened its approach to tackle communication with clients through an omnichannel method.

“As part of our transition, there is a focus on enhancing digital interaction with the clients. Also, from a communications perspective, especially in the retail space, there is much more focus on communicating digitally. Old Mutual has defined a digital customer as someone on the book for whom we have a mobile phone number or email address. Interestingly, after cleaning up data for KYC purposes, we have the ability to interact with more than 80% of our clients via text message or email. Three years ago, that number was as low as 20%. From that perspective, there has been a jump forward in digital interaction but we are not yet at the level where the client interacts with the system completely without an intermediary being part of the solution,” says van Wyk.

EXCITING? ABSOLUTELY

Balancing success in 2020 with the clear and obvious challenges was difficult for most. Fatigue is perhaps the common sentiment felt amongst business leaders who have managed to drag and push companies through the storm. But the asset management space has been resilient, and OMIGNAM has thrived thanks to a proactive mentality.

“Challenges are everywhere in the world, at all times. It’s about turning them into opportunities and that is the main goal. Every market goes through cycles. The big thing for us is that we are in a very open market,” says van Wyk.

“As a country, there is a focus on involving private-public partnerships in infrastructure development and as an asset manager we are looking to tap into that through our new funds. We now have five alternative investment vehicles in total and it is an area of growth. Managed correctly, it is what is needed to revive the economy.”

The CEO is confident about the future, and it is clear that OMIGNAM has delivered the type of innovation needed to remain dependable despite many new hurdles. 

“As a business, is it still exciting? Absolutely. The world is open and available to us, which brings challenges and above all great opportunities,” he concludes.