Change in store as 10X switches focus to clients rather than costs

• New CEO believes the future lies in a mix of a passive core and client-driven active funds

Taren obe ’Hooper t expecting directed the Texas Chainsaw Massacre, though the shareholders of 10X drama on this scale from their new CEO, Tobie van Heerden.

But there is a significant change in the business model. Under founder Steven Nathan, 10X was all about being the cheapest. Nathan was a purist follower of his hero, Jack Bogle of Vanguard, who started the first index fund. He believed that by cutting out costs — the largest of which was the 100 basis points usually paid to intermediaries — clients could end up with a 40% larger pot when they retire. Yet as the SA market is dominated by intermediaries, 10X has accumulated a relatively modest R17bn. It is profitable but only just.

It was no surprise that on Van Heerden’s appointment he would start to reach out to intermediaries. He was trained by the ultimate schmoozer in the investment world, Magda Wierzycka, during his three years at African Harvest and then entertained brokers from Singapore to Saudi Arabia on behalf of Investec Asset Management, which is now called Ninety One.

UMBRELLA FUNDS

Van Heerden says that 10X has a lot of runway, not only in the retail market but in its umbrella fund. This has attracted 150 employers but still has less than R2.5bn under management. By starting to give consultants what they want — and no longer seeing them as the enemy — there is scope to disrupt the umbrella fund world. This is highly conservative as it is still dominated by employee benefits giant Alexander Forbes and large life offices such as Old Mutual and Sanlam.

Van Heerden says that even though 10X’s anchor shareholder is one of Old Mutual’s private equity funds, 10X can claim to be a pure play independent. And he says that low-cost passive funds will remain its DNA. It has already expanded from its original two balanced funds — high equity and low equity — by launching a Top 60 fund, an MSCI World fund and a money market fund.

He argues that it is a mistake for an independent to position itself entirely on price, because a much deeper-pocketed competitor can bring in a loss leader to compete, sometimes at zero fees. But, unlike Nathan, Van Heerden intends to compete head-on in the exchange traded funds (ETF) market, where he says some of the more gimmicky ETFs are charging up to 0.8%, when 0.2% should be high enough.

He sees the future of 10X as being the provider of a passive core — which could be a traditional index fund or a factorbased smart beta fund — and letting the clients decide on which active funds they prefer to provide. The 10X product set will be increasingly client driven. He says that with a 10X passive core, retail solutions which cost 2.2% could easily fall to 1.4%.

His main concern is that if index funds become too successful

in SA, the global gorillas such as BlackRock and State Street will move in, undercut his prices and dominate the market.

Van Heerden has promised not to add gimmicky products to the ETF market. But given the success of products such as Sygnia’s 4th Industrial Revolution (4IR) fund he might be tempted. 4IR’s asset base is now about half the size of 10X’s entire book. And Sygnia is run by Van Heerden’s mentor, Wierzycka. She brought another marketingled ETF onto the market in the September quarter. The Sygnia Itrix Solactive Healthcare 150 ETF tracks 150 innovative businesses in the sector and this is considered to be a mega trend.

Not to be outdone, Satrix’s outgoing CEO, Helena Conradie, has introduced a Global Infrastructure ETF that tracks companies around the world that derive at least 65% of their revenue from infrastructural projects. It would be difficult to launch a local version of this fund, because only about half a dozen of the shares on the JSE would qualify.

Satrix has launched an Inclusion and Diversity ETF,

exploiting a popular theme. It tracks 30 JSE listed companies that best demonstrate diversity and inclusion in the workplace, looking at gender, race, physical ability and background.

Sygnia still leads in so-called thematic ETFs, but Satrix is the market leader with R32.8bn under management (excluding its traditional unit trusts).

It will add a further R4.8bn after it takes over Absa’s noncommodity funds next year.

10X should be a serious contender in the ETF leader board if it can persuade more financial advisers and institutions to use them as building blocks for retirement savings.

NATHAN WAS A PURIST FOLLOWER OF HIS HERO, JACK BOGLE OF VANGUARD, WHO STARTED THE FIRST INDEX FUND

HIS MAIN CONCERN IS THAT IF INDEX FUNDS BECOME TOO SUCCESSFUL IN SA, THE GLOBAL GORILLAS WILL MOVE IN