LIFESTYLE | August 31, 2017 06:25
From a tweet to a R100m deal: How Sanlam acquired 30% of EasyEquities
JOHANNESBURG -- Sanlam’s recent deal to acquire a 30% stake in EasyEquities for R100m sparked a lot of interest in the market. However, Sanlam-owned Satrix and EasyEquities have struck up partnerships prior to this deal with the advent of SatrixNOW, an offering that taps a white-labeled EasyEquities service. CEO of Satrix, Helena Conradie, took some time out earlier this week to chat to BizNews about the Sanlam-EasyEquities deal and the backstory to how a tweet of all things kick-started the relationship between the two businesses… – Gareth van Zyl
Earlier this month a big announcement was made around Sanlam moving to acquire 30% of FinTech EasyEquities. Now, I've got Helena Conradie, the CEO of Satrix on the line with me from Cape Town. Helena, you were involved with the deal. Now obviously, Satrix is owned by Sanlam so, why did Sanlam decide to acquire this stake in EasyEquities for R100m?
I think if we take it back to almost two years ago when we met EasyEquities and we learnt about this FinTech company. It was mainly from Satrix's side and not from Sanlam's side that as you will know our ethos and our drive is really to democratise the market. Soon we found out that EasyEquities are on the same page so, it was a very natural relationship that developed and we built a whole online system based this partnership so, Satrix partnered with EasyEquities. I think if you want to talk about disruption particularly -- at that stage we were the only online platform with no minimums and it's still the case. EasyEquities and Satrix are the only platforms with no minimum so that was really where the relationship started. It was an agreement to build an online platform, an online investment platform that; firstly, the man in the street could benefit from. The next step was to cement this relationship with Sanlam acquiring a stake in the business. I think for EasyEquities, it gives them a huge capital injection. It's a fast-growing business. It's a fabulous business, award-winning in all senses, and now they've got some capital to implement more ideas. For us, as a FinTech partner, I think FinTech is a ticket to the game, at this stage. For Satrix and for Sanlam, this is a huge plus.
It sounds like your initial partnership with EasyEquities on SatrixNOW was the door that opened this deal. Do you think that that's a fair thing to say? You had this partnership previously and things have blossomed from there?
Yes, I think it all started with a Tweet that we picked up on social media. They just started their online platform, EasyEquities, and somebody tweeted something to the effect of, "I've just bought Satrix 40 through EasyEquities and it's that much easier." That's how we knew about EasyEquities or got to know them and we approached them. At that stage, we took it further and said, "We've got the same goal here. Let's work together" (and that's how SatrixNOW was born). I think we've proved that it's a very productive and a very successful relationship. For that reason, other parts of the business, within Sanlam, saw the benefit of working together in a more formalised way. This was almost a natural second step.
For some of our listeners and readers out there can you give them maybe a brief overview of how SatrixNOW operates? What kind of product offerings it has? What it's differentiating factor is in the market?
Yes, I think if we go back to 2006/2007, when the Satrix investment plan was the first investment plan to readily give access to the investor to invest in ETFs -- previously you could only do that through a stockbroker. Now, since 2007, with the introduction of Satrix investment plan you could also own it by subscribing to this plan. It was 2007; though, so I think the industry has evolved a lot since then. That was quite costly at that stage as well and very much your paper format as well. We've moved to the paperless environment and I think there's many more online investment and online platforms now and that's exactly what EasyEquities is about. In addition, EasyEquities have also patented something called fractional shares and that enables you to invest in a fraction of a share. An Exchange Traded Fund (ETF) is a share as well so, you can also invest in a fraction of ETFs and that's where we removed a huge barrier to entry. Today, you have a no minimum on this platform. We've just wide labelled the EasyEquities platform as SatrixNOW so, it's exactly the same platform, underlying platform. We've got the same functionalities, we've added a bit as well, that they have developed and you have all your Satrix products, the exchange traded fund, available on this platform. You will also, see within the next month or two, all the unit trusts will have been added to that as well. Then you can access any Satrix investment through this. It's very easy, affordable, and no minimum platform.
I'd imagine that moving forward there's going to be a lot more collaboration with EasyEquities from your side? You've mentioned the unit trust aspect as well so, there's going to be a lot more partnerships moving forward obviously?
For sure, definitely. I think that's where Sanlam also saw the opportunity. I think that if there's any concerns that Sanlam, as an insurance company, will result in fees going up, they can rest assured this won't happen. It was Satrix that actually saw this as a huge opportunity, all about lower fees and Sanlam supports that 100%. So, credit to Sanlam as well, in terms of seeing this as a huge opportunity and almost recognising the importance of FinTech in growing the business and staying relevant as a business. So, I think for Sanlam that's a huge plus that they entered into this partnership as well.
Obviously, Sanlam has acquired the stake but I'd imagine that you were very involved in the backroom dealings around this. Can you maybe give us an idea of how involved you were in putting together this deal?
I think the involvement was really at the start when we identified this as a partner. Also, the classification of the deal, why should we do it and the men with their cheque books, they got involved in a big sense. There's quite a few people that worked on the deal. It took us quite a while but I think it's a very well thought through deal and beneficial for both parties.
Now, Sanlam has acquired a 30% stake in particular. That 30% number is interesting because it means that Sanlam will have a big say but that EasyEquities is still very much in control of its own fate. Is this a particular strategy on Sanlam's part then to may be have fingers in different pies but not total control?
Yes, I think it's a significant stake but what's important is that for a FinTech company to stay alive and innovative and breath fresh air, it should not be constrained by a big corporate, it's also important that they run as an independent company. That you, at an arm's length, keep your innovation and your disruptive technology, and that's what we prefer as well. We prefer that you don't take it in-house but that you rather befriend a FinTech force and make it work for both parties.
"As a result of this @SanlamInvest deal we can now look to launch an app in first half of 2018" –@csavagegt247 chats with @alechogg
— EasyEquities (@EasyEquities) August 29, 2017
Amid a big deal like this what do you think that this says about the role of active fund managers in today's world? It looks as if there's a big push towards giving people back more control over their money?
I don't think this excludes active management at all. FinTech has got a big role to play in many aspects of the investment management industry; so, I think what this helps you focus on are those areas where you need to put in most of your energy around the decision-making process. You actually, now have more decision-making tools to help you make that decision and I think that's where FinTech is a big force. Whether it's in the active industry or in the passive industry, it's all about technology that is supporting the decision-making process and making you focus on what is really important. So yes, I think it makes sense. A more automated process but not without the human element. We should never lose that and for that reason, active management is definitely not excluded from a deal like this.
Now, in July, Satrix itself also launched three new ETFs on the JSE, providing access to US and emerging market equities. Just to get away from EasyEquities a little bit, can you tell us a little bit more about that specific launch by Satrix?
Yes, that was very exciting. I think we've worked hard to bring those funds to the market as well. If you go back in history, Satrix was owned or it was a joint partnership between Deutsche Bank and Sanlam. It was only in 2012 that Sanlam took 100% ownership. So, the db X–trackers were, in a way, Satrix international trackers, because there was this partnership. For that reason, Satrix never had international trackers themselves but from the DB partnership and being owned by Sanlam that's where we then decided that we are going to expand that part of our business and include the international funds as well. There are three of them. There's your MSCI emerging, MSCI developed, and then your S&P 500. So, I think it's a broad exposure that the investor can get now as well. These are available on the EasyEquities' platform as well, on SatrixNOW. So, if you take the S&P 500 you can now invest in the top 500 stocks in the US, in Rand terms, on a platform where there's no minimum and at a 0.25% cost of the product, so that's pretty amazing. I think that's a win-win for the investor. The fact that it's a FinTech company makes it more competitive.
"Around 35% of South Africans' portfolios are made up of ETFs" @csavagegt247 @BizNewsCOM #ETFtuesdays #wealth
— EasyEquities (@EasyEquities) August 29, 2017
The likes of Vanguard in the US are constantly driving fees lower. Do you think that the same is going to start happening in SA as well, with regard to ETFs?
Yes well, you see it already. I do think that it's a bit premature. We don't have the volumes in SA that those companies have. Vanguard makes about $56bn profit a year. That's the kind of volume that they're building their business on and I don't think that we're there yet in the SA industry. So, we must do this in a very responsible way because we also want to be there in 10 years' time but I do think that it's very healthy competition as well as the fact that there is more focus on fees. We all need to think where can cut our own costs? Where can we be more efficient? Just a very healthy clean-up in the way of the business and I think it's going to benefit the business and, in the end, the investor. So, with regard to fees, there's only one way and that's downwards.
In terms of giving South Africans more access to the likes of US equities are you seeing greater demand for global equities among South Africans and can we expect to see more products like that coming onto the market in the future?
For sure. You know, we had an exhibition stand at the Money Expo about a month ago and it was and we chatted to everyone on the floor. There were quite a few young investors coming to chat to us at the Satrix stand. It was very clear to me that, first of all there was a guy of 20 years' old and he came to me and he said he wants to invest and how does he do it? He was very worried that he may be too Rand denominated. He wants to invest globally as well. I thought, first of all, that I was not thinking of investment and trading at 20 years' old and this guy is already thinking that maybe he must diversify more internationally. That just tells you that the world has changed so much. Even your young investor is much more aware of political risk, country risk. We had a lot of interest. Since our IPO we've doubled our money in the fund and it's a month old. You can see the interest in there but also the understanding of diversification. That for me is a plus. People are not only running around to try and chase the latest trend but to actually, understanding why they should do that and that, for me, is a positive about the investment industry.
In terms of the complexities behind establishing access to international markets, has this been an incredibly tricky thing to do as Satrix?
I think if you do it through an index fund that is the easiest step. If you try to do it from an active side - it is very complex process because then you have all these choices. How do you actually pick the right stock? How do you compete with a global company? First of all, I think the fact that you're doing it from an index fund makes it much less complexed. We also chose a specific structure where we feed into a BlackRock and into an iShares and that makes it less complex and a little bit more efficient as well. So, you must think of cost. You must think of efficiency and what we, as SA, can accomplish from here and what you can do to make that process easier. But yes, it's a global market so, we have global partners. We understand the market much better and you can also put all these building blocks in place to make it a less complex investment. For the investor, it's not complex at all. You go to the normal website, your same account. You can just now invest with your Rands also in an international fund so, for them it's pretty easy.
Helena Conradie, it's been an absolute pleasure talking to you again. Thanks for chatting to us about EasyEquities and the latest updates at Satrix as well.
Thank you very much Gareth.