Stanlib’s Sh135bn advisory business on sale

The Liberty Group, a South African insurance firm, has put on sale its Kenyan investment advisory business, Stanlib, which has Sh135 billion worth of assets under its management.

The Johannesburg-based firms says the divestiture is part of an extensive review of its Pan-African operations that will also result in the sale of the multinational’s insurance and asset management businesses in five other markets, including Uganda and Tanzania.

The transaction could fetch it up to Sh2.7 billion.

Liberty says the exits are informed by several factors, including the subsidiaries’ historical returns, capital requirements, competition and political risks in their respective markets.

“Asset management operations in Kenya and Botswana will be sold or closed,” Liberty says in its latest annual report.

Sources at Stanlib Kenya told the Business Daily that the entire company could be sold or a majority stake may be ceded to another party, who will help it build economies of scale.

Besides the sale of Stanlib Kenya, Liberty is exiting its insurance operations in Malawi, Tanzania and Uganda.

Stanlib Ghana, an asset manager described as profitable, will also be sold to Liberty’s parent company, Standard Bank Group, this year.

“Results in the individual countries have been mixed over the years, impacted by sub-optimal scale across most product offerings,” says Liberty.

Potential returns

“Operational risk remains high relative to potential returns, requiring ongoing investment in oversight and support. Market challenges include competitor practices and immature product categories.”

The conglomerate says it will in the future invest more in Southern African Development Community (SADC) countries, excluding Zimbabwe and Madagascar.

Kenya, in which the multinational has insurance operations housed under its local subsidiary, Liberty Kenya Holdings, will also receive new capital investments.

The new funds to be deployed include R145 million (Sh1 billion) that the multinational is set to receive from the sale of its short-term insurance technology platform to Standard Bank Group.

Selling the entire Stanlib Kenya business could fetch Liberty between Sh1.3 billion and Sh2.7 billion, according to estimates from players in the industry.

A source familiar with takeovers of asset managers told Business Daily that these firms typically command an enterprise value of one to two per cent of their assets under management (AUM).

Stanlib Kenya managed assets worth Sh135 billion as of December, placing the top range of its valuation at about Sh2.7 billion.

The asset manager has net assets of about Sh1 billion, according to previous disclosures.

Its earnings have gyrated in line with swings in its fixed and variable expenses.

Management fees

The company’s revenue tops the Sh700 million mark, nearly all of it in the form of management fees charged to the South Sudan government which has been its single largest client.

It has been managing portfolios for South Sudan government and its central bank, Bank of South Sudan. Stanlib invests clients’ funds in various asset classes such as property and marketable securities, including stocks and bonds.

The company also manages Fahari I-Reit – Kenya’s first real estate investment trust to be listed on the Nairobi Securities Exchange (NSE) and which it helped to launch in 2015.

The impending sale of Stanlib marks increased deal-making in the asset management business as acquirers seek to enter new markets and build scale, which is critical in reducing expenses.

Centum Investment last year sold its 73.4 per cent stake in GenAfrica to private equity firm Kuramo Capital for Sh2.3 billion, earning a gain of Sh1.3 billion in the divestiture.

GenAfrica is estimated to manage assets of more than Sh140 billion drawn from local and foreign clients.

South Africa’s insurance group Sanlam in 2017 acquired a 75 per cent stake in asset manager PineBridge Investments East Africa which it later rebranded to Sanlam Investments East Africa Limited (SIEAL).

SIEAL is estimated to run a portfolio of about Sh200 billion, generating more than Sh100 million in fees annually.

Sanlam earlier announced that asset management units run by its regional insurance subsidiaries would be merged with SIEAL to create an outfit operating on a larger scale.

Players in the asset management business say increased competition has driven down fees, leaving companies with larger assets relatively better off.

Firms in the industry earn their fees by taking a fraction of assets and/or part of the profits generated beyond a set return threshold.