The chief executive officers of three of South Africa's largest fund managers expect an increase in takeovers and mergers, resulting in fewer players in the industry as the savings pool stagnates.

"There will be consolidation," STANLIB Asset Management CEO Derrick Msibi told delegates at the inaugural INN8 Invest summit in Johannesburg on Wednesday, 13 September. Both asset managers and discretionary fund managers (DFMs) will be affected. INN8 Invest is one of the country's largest DFMs, with over R50 billion in retail assets under management.

Ninety One's Hendrik du Toit, who leads the country's largest asset manager, agreed.

"This is such a fragmented industry," Du Toit said during a panel moderated by INN8 Invest executive De Wet van der Spuy. It makes sense "given the current economics" in the industry, where operating costs are relatively high, and it's at a fragile point in the cycle, with volatile financial markets, high interest rates and stubborn inflation.

According to Boston Consulting Group, assets under management in South Africa's collective investment schemes industry, including products such as unit trusts, dropped by 5% to $190 billion (R3.4 trillion). Globally, Assets under management fell 10% to $98 trillion, the second-largest single-year decrease since 2005, following a rout in markets worldwide due to the war in Ukraine and worries over inflation and interest rates.

"In South Africa specifically, we face our challenges," said Anton Pillay, the CEO of Coronation Fund Managers, South Africa's fourth-largest asset manager. "The market is not growing. There's low economic growth, and savings levels are exceptionally poor."

According to RMB, there are more than 500 asset-management firms in South Africa, which are either independent or owned by insurance companies or banks. RMB predicts the number could shrink by 3% over the next five years. Most of the consolidation will come from asset managers with less than R10 billion under management.

The industry is highly regulated, which, while protecting consumers, also adds to costs. An increasing number of delistings from the Johannesburg Stock Exchange has narrowed the number of investment options for asset managers.

Despite the pressure to combine, not all mergers and acquisitions will turn out how the transacting parties intended, predicts Msibi of STANLIB, South Africa's second-largest asset manager.

"It's a people's business, which is difficult to integrate, so not all of them will be successful," he said.

INN8 Invest's Van der Spuy said the DFM industry has seen significant growth over the past few years, which comes with added responsibilities. For one, transparency needs to be improved so returns can be compared between the different DFMs. As a DFM, one of INN8 Invest's roles is to research and select the most skilful asset managers and help financial advisers construct their client's portfolios.

"Together, as advisers, DFMs and asset manager partners we can create and secure the best outcome for investors and clients," said Van der Spuy.