Umbono Capital has announced that it has consummated a deal with Old Mutual to build the largest index tracking asset manager in Africa.

Old Mutual has had a relationship with Umbono Capital, the holding company of Umbono Fund Managers (UFM), since its inception in 2001. The purchase of the additional 37% takes Old Mutual’s stake to 67%. UFM have excellent black economic empowerment (BEE) credentials – even post the transaction, and will continue to be one of the most progressive in the industry. This is as a result of Umbono Capital, which is majority black owned, continuing to hold a one third stake in the business.

Tendai Musikavanhu, CEO of UFM and a founding member of UFM is excited to be a part of the OMIGSA boutique structure. “We have worked closely with Old Mutual since inception. This is the natural maturing of our relationship with Old Mutual – we get to maintain our entrepreneurial position combined with the benefits that OMIGSA offers to all of their boutiques. We see distribution as one of the key benefits. With economies of scale, we can make a more significant impact on the industry both locally and globally. Africa needs a leading core and enhanced tracker.”

Old Mutual Investment Group (OMIGSA) CEO Thabo Dloti says that they acquired UFM to complete their range of client offerings. “We’d like to partner with UFM to build the largest and most efficient tracker management business in South Africa. We see this as an important component of our overall client offering, which gives clients access to all of the key investment styles, asset classes and unlisted investment vehicles. We offer actively managed and now passively managed funds, so that clients can come to us to fulfil their investment needs, whatever they may be.”

As people separate alpha and beta, the role for index trackers will become even more important, says Dloti. He says: “The reason we are doing this deal is that we see huge opportunities in the index tracking industry and we can see this business in Umbono growing to more than R100 billion.”

Musikavanhu says for stakeholders, this is a compelling deal because they will go from owning two-thirds of an R9 billion operation to one-third of a business that is many times that size. He adds that this is a story of genuine grassroots empowerment success. “The plans that Old Mutual has to grow this business are in line with our vision to be the most successful tracker manager in South Africa, or even on the African continent. The one third share of UFM that we retain, as part of a larger organisation is a very attractive proposition.”

UFM have developed an excellent track record, as well as earning recognition from the industry in the form of two awards from the Association of Black Securities and Investment Professionals - Best Portfolio Manager (2004) and Most Progressive Company (2005). Most importantly, Umbono has not lost a single client in the nearly six years since inception.

Part of the UFM vision is to make low cost index products available to the man in the street. Musikavanhu says, “More Africans need to save and invest. We will now have much more clout in providing cost effective access to markets and fund transformation.”

The deal will also have a significant empowerment element in the BEE procurement opportunities in stock broking it generates.

UFM will be a boutique in OMIGSA but it will carry its own branding. In addition, as part of the OMIGSA structure, UFM will have access to the full array of infrastructure, distribution and support services.