Insurance provider Sanlam and financial services provider Absa have decided to combine their investment management businesses, and form a new asset management company, with more than R1-trillion worth of assets under management, administration and advice.

The deal involves Absa exchanging its investment management business Absa Investments for a stake of about 17.5% in Sanlam Investment Holdings (SIH).

Absa Investments comprises Absa Asset Management, Absa Alternative Asset Management, Absa Fund Managers, excluding the Absa Prudential Money Market Fund, and Absa Multi Management.

In turn, SIH is Sanlam’s third-party asset management business in which African Rainbow Capital Financial Services Investments (ARCFS) is a shareholder. 

ARCFS has a 25% effective interest in SIH through its 25% shareholding in SIH’s holding company, with Sanlam owning the remaining 75%.

The combination of SIH with Absa Investments will further strengthen SIH’s position as one of South Africa’s largest black-owned asset managers.

Clients of the combined SIH business will benefit from access to a wider range of investment solutions to meet their financial needs.

Additionally, increased investment in research and technology will equip SIH with the data and systems to strengthen its industry leadership.

As part of the transaction, Satrix, a subsidiary of SIH, will acquire the exchange-traded funds business of Absa’s NewFunds; and the intention is that Absa will enter into agreements to dispose of its market Linked Investment Services Provider (LISP) business to Glacier by Sanlam.

The conclusion of agreements to give effect to the LISP transaction is a suspensive condition to the investment management transaction.

Absa will also enter into a ten-year distribution agreement with SIH, meaning the expanded operations will use the distribution networks of both Sanlam and Absa, which significantly broadens market reach for the enlarged SIH.

Sanlam Group CEO Paul Hanratty says Sanlam prides itself on having a leading investment business at its core to ensure it can deliver superb returns to all customers.

“We are confident this transaction will strengthen our ability to deliver investment excellence for customers through our ability to further invest in the business.”

Absa interim group CE Jason Quinn adds that, for Absa, the transaction delivers improved scale, capabilities, customer propositions and transformation, all of which it views as essential to achieving growth in the investment management sector.  

“There is an exciting complementary nature to the relationship, which we believe will realise value for all of our stakeholders. For our staff, there will be an opportunity to work for a larger world-class, multi-capability investment business,” Quinn notes. 

Pending regulatory approvals, the deal is expected to close in the first half of next year.