South Africa's asset management industry has been undergoing steady transformation since the onset of the Covid-19 pandemic, with mergers and acquisitions (M&A) playing a central role in shaping its future. While the initial surge in M&A activity peaked during the pandemic, this trend hasn’t slowed but rather evolved, with ongoing consolidation expected as firms continue to position themselves for long-term competitiveness.
Mothepu Mothae, Head of Local Manager Research at Sanlam Investments Multi-Manager, says the pandemic brought rapid shifts in investor behaviour and market dynamics, pushing asset managers to rethink their strategies. The wave of M&A activity, driven by the need to adapt to a rapidly changing environment, saw firms merging to consolidate expertise, reduce costs, and offer broader, multi-asset investment solutions. Though the pace of these deals has tapered since the height of Covid-19, experts forecast a continued trend toward consolidation as managers seek to strengthen their capabilities in an increasingly competitive landscape.
Mothae says: "The surge in M&A activity during Covid-19 was a natural response to the economic pressures of the time, but the trend of consolidation is far from over. What we're seeing now is a more strategic approach to mergers and partnerships, with firms positioning themselves for sustainable growth and adapting to the evolving needs of their clients."
This shift has also been significantly influenced by the changes to Regulation 28, which now allows South African pension funds to allocate up to 45% of their assets offshore. The regulatory amendment has been a catalyst for local managers to reimagine their strategies and compete on a global scale. Investors are increasingly seeking offshore managers to manage their offshore assets, which puts increasing pressure on local asset management houses.
"Regulation 28 allowing up to 45% offshore exposure has reshaped the competitive landscape," Mothae continues. "Firms now need to find ways to balance their local expertise with global investments. As major incumbents continue to seek global offshore capabilities, we may witness an increase in cross-border collaborations. These partnerships will allow local asset managers to enhance their offerings and integrate global expertise directly into their operations.” Mothae forecasts that regulation may play an increasing role in the landscape to give local players a fair ‘fighting chance’ as offshore incumbents move in.
Compounding the challenges facing local asset managers is the implementation of the two-pot retirement system, which is exacerbating an already shrinking asset pool. As more clients take advantage of the flexible access to their retirement funds, the flow of assets into traditional investment vehicles may diminish. This trend further catalyses consolidation and heightens competition, especially in the equity space, as firms scramble to capture a shrinking pool of assets.
As more assets flow offshore and the local market contracts, local asset management houses have increasingly turned to multi-asset strategies and a solutions architecture approach. Through M&A and strategic collaborations, firms are ensuring that each specialist manager sticks to their core strength — whether focusing on local markets, global assets, or building expertise across both. This structure ensures clients receive the best possible service without firms overstretching their capabilities.
"We’re seeing a shift towards a solutions-driven model where each manager plays to their strengths," says Mothae. "By focusing on either local or global specialisations, or upskilling to manage both, firms are creating the flexibility to offer diverse solutions while maintaining high standards. Sanlam Investments Multi-Manager is spearheading this approach locally and has seen exceptional results. This is beginning to inform our portfolio construction decisions and how capital is allocated to local managers skilled in the South African market as well as those with skillsets across both local and global markets.”
Despite the current lull in M&A activity compared to the pandemic peak, Mothae believes that consolidation is set to continue. The challenges posed by rising operational costs, increased competition, and shrinking asset pools are driving firms to consider merging to stay ahead. This ongoing consolidation will help firms scale up, expand their offerings, and access new markets while remaining profitable in a competitive environment. Transformation is also a key driver, with firms seeking to meet their diversity and inclusion mandates.
The role of talent acquisition and upskilling remains critical. Many asset managers are actively investing in their people, bringing in international expertise and developing their local teams to stay competitive.
"The competition for talent has become fierce. Firms are investing heavily in upskilling their teams to ensure they have the expertise required to navigate both local and global markets," Mothae adds. "Acquiring skilled professionals, whether locally or internationally, is crucial for future success.”
He remains optimistic about the industry's future, citing its intransigence and indomitable nature. "The asset management sector has consistently demonstrated its ability to adapt and innovate, continuously seeking and creating opportunities even in challenging times," he states. "This resilience gives me confidence that we will not only navigate the current landscape but emerge stronger and more capable of meeting the diverse needs of our clients."
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