King of cash who also helped build the property asset class
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In the latest in a series of interviews with industry veterans, Stephen Cranston talks to the soon-to-retire Sean Segar, head of cash solutions at Nedgroup Investments.
Nedgroup Investments was a latecomer to money market money funds when Sean Segar and Ian Ferguson launched the cash solutions business in 2012.
Segar already had a track record of setting up new business units within asset managers as Stanlib’s head of strategic product development. The most successful was the Stanlib Property Income fund, launched in 2007.
‘The property sector was a well-developed asset class internationally, but locally the sector was illiquid and not very high quality,’ said Segar.
‘There were a couple of collective investment schemes invested in the sector which did not have much traction.’ Stanlib’s parent companies, Standard Bank and Liberty Life, were among the heavyweights in direct property.
Standard Bank Properties had extensive property investments, which became the Fountainhead Reit. Liberty had the most valuable property portfolio in South Africa, anchored by the giant super-regional centres Sandton City and Eastgate.
‘We hired Mariette Warner from Standard Bank Properties to manage the fund,’ explained Segar.
‘Mariette had great knowledge of the property market but never bought or sold a share. She was quite nervous the first time she put in an order.’
The Stanlib Property Income fund was a success with Stanlib’s extensive distribution channels, which stretch from Liberty’s tied agents to Standard Bank’s financial consultants and all the independent advisers that the group serves.
As there was more demand to invest in the property sector, large businesses such as Growthpoint Properties, Redefine Properties and Resilient Reit listed on the JSE. Stanlib alums also created two listed property specialist managers: Meago Asset Managers and Sesfikile Capital.
‘It is great that we spawned two specialist firms, particularly as they are both black-owned businesses,’ said Segar.
Later Stanlib created an institutional version of the property income fund, a multi-manager property fund, a pioneering emerging markets property fund and a global property fund.
After qualifying as a chartered accountant at Deloitte, Segar was finance director of a subsidiary of giant shipping and tourism group Safren. His unit was a freight forwarding business based in London. His colleagues included David Cleasby, now Bidcorp’s chief financial officer, and David Woollam, who became African Bank managing director.
When Segar returned to South Africa in 1995, he joined Liberty Asset Management.
‘It was a great training ground, and I learnt to be a very thorough investment analyst focusing on coal and media shares,’ he said.
After a year, he accepted an offer to join Standard Corporate & Merchant Bank (SCMB) Asset Management.
‘At Libam, we were expected to watch and learn, and it would have been several years before I got the chance to run money,’ he explained. ‘At SCMB, I was given a chance to manage money from day one, and I soon got to manage Standard Bank’s small cap fund. ’
At the time of the merger of SCMB AM and Libam in 2002 to form Stanlib, Libam (which had the stronger track record then) became the investment team’s dominant partner.
‘Many of us on the SCMB side were retrenched,’ Segar recalled. ‘I had to reinvent myself by moving into product development.’ Segar said there was an opportunity for new products as Stanlib’s performance on its core equity and balanced funds (though not on fixed income) started to slip quite badly. ‘We needed to feed our huge distribution network with different kinds of products that did not rely on the equity or balanced house view,’ he explained. ‘The big hit was property, but it included an Africa fund, quants funds and the money market fund.’
Money market franchise
Stanlib had moved strongly into the money market sector a decade before Nedgroup. Absa was the only other bank-aligned asset manager to build a strong money market franchise.
Segar said banks don’t like seeing money market unit trusts cannibalise their retail deposit bases, but money market funds are usually a better deal for clients.
‘With some bank failures in the news,’ Segar said, ‘who wouldn’t want the benefit of spreading their risk across banks?’ Money funds in South Africa cannot place more than 20% of their paper with any single issuer.
Globally a money fund might spread its assets among 1,000 issuers. Nedgroup has three distinct money market funds: the Nedgroup Investments Corporate Money Market fund for treasurers, the Nedgroup Investments Prime Money Market fund for clients who only want top-grade paper in their funds, and the main Nedgroup Investments Money Market fund. ‘Financial planners looking at long-term investment shouldn’t need same-day access, as they should be able to persuade their clients to wait 24 hours,’ said Segar.
‘The best proxy for cash for advisers is the income fund category, which Asisa now calls the short-term fixed income category,’ he continued.
‘There are very limited drawdowns from income funds. Corporate treasurers can’t tolerate these, but long-term investors should.’ Segar said retail clients who can tolerate the modest drawdowns of income funds would benefit from a yield pick-up. Over three years, the Nedgroup Investments Money Market fund has provided a 4.7% annualised return, while the Nedgroup Investments Core Income fund delivered a 5.4% annualised return.
Taquanta Asset Managers runs the Nedgroup suite of cash and income products. Segar, 57, retires from Nedgroup at the end of May, but with his record of creating new businesses, can this really be the end of the road?
He said asset managers’ next challenge is building the infrastructure asset class, but it must be made investable. Credit is also ripe for development. ‘Like listed property 30 years ago, there is still minimal supply and demand for credit funds and poor liquidity,’ he said. ‘But that all changed for property.’