Insights

• The high growth rates for rules-based funds versus traditional active funds in South Africa is in line with  global trends. 
• The growth rates in rules-based funds in South African are higher than the global averages, mainly due to the SA market growing off a much lower base.
• Multi-asset strategies have seen the highest growth rates within the rules-based CIS industry, in part due to it providing the largest opportunity set. 

The global landscape

After a horrific 2022, markets posted a strong recovery during 2023 with the proverbial “tide that lifted all boats”. The global asset management industry grew by 12% during the year, which was nearly double its annual long-term growth rate of just under 7% (2005 to 2023). The rules-based market continued the trend of growing faster than the industry, up by 18% for the year. Over the past 18 years it has grown at nearly 11% per annum to increase market share from 10% to 22%. Traditional actively managed assets grew by a mere 4% per annum over this period, going from a market share of 71% to 45%.

While rules-based assets have seen robust growth, it still only makes up 4% of global asset management revenues. Alternatives however now make up over 50% of industry revenues which was $421 billion for the year in 2023. Over the past 18 years, industry revenues have grown in line with assets at around 6.4% per annum, while rules-based revenues have grown by 9.4% per annum. The demand for lower cost investment products by investors is well documented and one of the major drivers behind the growth in rules-based funds. The growth in alternatives may very well be explained by the old saying “financial products are sold, not bought” given the higher margin incentives.

Source: BCG, Global Asset Management Report 2024

The South African rules-based industry

The South African industry also benefited from the global market recovery, as total rules-based assets grew by 14% to end the year at R525 billion. Collective Investment Schemes (CIS), which includes unit trusts and Exchanged Traded Funds (ETF), grew by 19% over the year to an AUM of R320 billion. The CIS part of the rules-based market has seen the strongest growth over the past 9 years, growing at an annual rate of 26% compared to 17% for the total rules-based industry.