In the late 1990s a rash of first-generation empowerment managers, with names such as Prodigy and Infinity were set up. Though they had substantial black shareholding, the investment teams often had limited employment equity. They were often heavily leveraged to the 1997/1998 small-cap boom and soon faded when that collapsed.
So it is not surprising that Renaissance Asset Management is reluctant to describe itself as an empowerment manager. "We are a group of five professionals, four of whom happen to be black," says CEO Tebogo Naledi.
Renaissance was formed after Naledi and four fund managers - Nothando Ndebele, Khaya Gobodo, Khulekani Dlamini and Andrew Joannou - left Investec Asset Management. Investec was a good training ground, but they had come to the conclusion that it was time to leave their comfort zones and move to a more entrepreneurial environment.
"Our business model is simple. We are money managers and will focus on managing money for third parties. We do not want to become a financial services conglomerate and we are not going to get involved in BEE deals," says Naledi.
Administrative functions are subcontracted, with Finsource responsible for the back office and VII Consulting for IT.
Naledi says independence is imperative. It has obtained debt finance from Brait Specialised Funds, which will enable it to keep the doors open for three years but there is no outside equity. Brait was also Renaissance's first client. The Serengeti Frontier Fund, a long/short equity fund, is a component of the Brait Absolute SA fund. Renaissance now has R450m of funds committed to it. It has three direct mandates with pension funds, including Telkom and the SA Local Authorities Fund.
It is one of the specialist equity managers used by Investment Solutions. It is offered both to mainstream clients and those who want to invest with black-controlled managers.
"We want to be compared with the best managers in the country and don't like to be pigeonholed as BEE or emerging managers. But, if the fact that we happen to be predominantly black opens doors, we are realistic enough to accept that."
The team is especially excited about their investment philosophy and what they call the "alpha engine". It is positioned as a specialist high-tracking error manager.
Though it would be dangerous to make any firm conclusions, Renaissance has beaten its benchmarks over the past three months during which it has been running "live" long-only portfolios.
Renaissance has not appointed a chief investment officer. Gobodo is called head of equities and is responsible for the effective functioning of the investment process. Ndebele, trained at Goldman Sachs Asset Management in London, is head of research and is responsible for ensuring that the standard of research remains high. The four portfolio managers take joint responsibility for company research - with the intention of remaining generalists - and Zahira Kariel is responsible for quantitative analysis and risk management.
Before it could open its doors, Renaissance had to agree on a common investment philosophy. They had all operated in different silos at Investec with different mentors.
Dlamini says the fund managers that failed were often cobbled together by people from different shops with different approaches. There was often an asymmetry of ownership, with only a few people benefiting. But with Renaissance all five partners have an equal share.
Says Gobodo: "We are not in a specific box - we have no size bias and we can run small- and large-cap portfolios. The common characteristic of all the shares we own is good quality and good prices - we realised early that we are not momentum managers who chase market trends, we are long-term investors. "For example, we had a strong conviction about Truworths, which has a higher return on capital than its peers, at R30, and were even keener on the share at R20.
"Our preference for high-quality shares has served us well during the recent market volatility. An opportunity to buy shares for the long term has opened up and we have been loading up on Truworths, MTN, Telkom, Naspers and Massmart at lower prices. We also like small caps such as Famous Brands and Adcorp."
Many institutional clients remain conservative and will not appoint managers unless they have at least a three-year track record - fortunately for Renaissance, some large clients and multimanagers are more willing to take a chance. Some time next year, Renaissance's performance will be published in the investment surveys, and its investment performance will be there for all to see.
