DiGAME acquires a stake in SA local asset manager 10X

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A subsidiary of London-based Zouk Capital has acquired a stake in local asset manager 10X. Known as Digital Growth Africa Middle East Investment Company, or DiGAME, the private equity subsidiary has invested $6 million into 10X, alongside existing shareholder Old Mutual Private Equity, which owns just over 30% of the company.

The funds will be used to grow the business locally, with an eye on future offshore and fintech opportunities. “DiGAME is the fund that helped online education company GetSmarter go global,” says 10X CEO Steven Nathan. “They bring global perspective, which is important in an industry that is changing rapidly thanks to technology.

“Our eyes were opened at Money20/20 in Las Vegas, the world’s biggest fintech conference,” he says. “With more than 10 000 delegates it’s where financial sector players – from Citi and HSBC to Google, Samsung and Apple come to seize new business opportunities, strengthen partnerships and discover the latest disruptions. It opens your mind to the possibilities. Those trends are totally relevant.”

10X – which manages more than R8 billion for individuals and clients such as Virgin Active, General Motors and EOH – is shaking up the sector in South Africa.

It offers clients a simple, low-cost index tracking model to save for retirement. There are no confusing fund choices – the 10X High Equity portfolio is the only investment choice available, accessed through different vehicles – a retirement annuity, living annuity or unit trust, for instance. Asset allocation is managed according to 10X’s life stages model, which adjusts the asset allocation in a portfolio as an individual approaches retirement.

In an industry not known for its innovation or ability to change, 10X is a success story – but it needs to accelerate growth. “Distribution is our challenge,” says Nathan. “How do you grow when you offer a direct model [without middlemen] to keep costs down, but the rest of the industry is driven by direct agents?”

Thus 10X has invested in marketing and branding. It has also added a retail capability with six financial consultants who are employed to help individuals with their retirement planning. This does not constitute advice, according to Nathan. “The Fais Act says that if you are a direct marketer of your product and you only provide factual information, that does not constitute advice.”

This investment is the next step in 10X’s growth story. “We are building a low-cost business model against competitors with revenue margins that are high and which use third parties to sell their product. So you can’t take them on immediately. We had to build our business slowly and establish credibility. We believe our brand is getting stronger.”

Technology and the possibilities this affords the financial sector is something Nathan is keenly aware of. Wealth managers have historically operated in a relatively low-tech environment, but millennial customer expectations, growing market competition and more stringent reporting requirements have compelled them to rethink their businesses using technology. In the US alone, the wealth tech sector will have an estimated market size of $2.2 trillion by 2020, according to FT Partners Research Wealth Tech Report.

In South Africa, assets managed by index trackers remain a fraction of total assets under management, mainly due to a lack of awareness.

Samer Salty, a DiGAME board member, said: “10X is already a major player in the South African market, and the opportunity to scale the business, which has proven investment returns, is substantial.

“Advanced analytical capabilities, quicker response times and improved customisation, all at significantly lower costs than traditional asset managers, means 10X plays to our expertise in technology growth investing as well as demonstrating a clear social benefit,” he added. Source: Money Web

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