Size isn't everything

WITH large investment managers such as Stanlib, Investec and Old Mutual dominating the JSE's R120bn real estate sector, we could assume a small, start-up asset management outfit would have a tough time muscling in on that action.
Not so for Evan Jankelowitz (32), Mohamed Kalla (28) and Kundayi Munzara (27), three of the listed property sector's brightest young minds and key movers behind new property equity specialist firm Sesfikile Capital.

Less than four months after leaving the corporate hallways of Stanlib, Barnard Jacobs Mellet (BJM) Securities and Investec Bank respectively, the trio already have committed funds under management approaching R1.3bn.
But size is definitely not what it's about, says Jankelowitz, who first toyed with the idea of starting a boutique property fund management firm eight months ago while heading Stanlib's property franchise.
Says Jankelowitz: "At the time Stanlib's listed property exposure was nearing a massive R14bn. We were at full capacity. And being that big in a relatively small sector meant you couldn't be aggressive in your investment choices.

"I realised there was a gap in the market for an independent, niche player who could take tactical bets without being swayed by political and other considerations big corporates are often bound to."
With the backing of a private equity consortium which shared Jankelowitz's vision, it didn't take much persuading to get Kalla and Munzara on board. Says Kalla: "The timing was right, as listed real estate only recently started differentiating itself as a separate asset class, with plenty of new demand for property scrip."
While the private equity consortium (which wants to remain anonymous) provides working capital and has a 50% stake in Sesfikile, Jankelowitz, Kalla and Munzara collectively run the show. Each brings different but complementary strengths to the table. Jankelowitz is the dealmaker, while Kalla’s forte is financial analysis and modelling, number-crunching skills he honed during a five-year stint as property research analyst at BJM.
UCT graduate Munzara cut his teeth in real estate as a property valuer for the Old Mutual Investment Group before moving to Investec Bank. He brings extensive portfolio management experience and offshore property knowledge to the team. As head of research for Investec Property Investments, Munzara was recently based in Britain, where he managed private client portfolios invested in British and Australian real estate investment trusts, among others.
Kalla and Munzara echo Jankelowitz's view that Sesfikile won't be chasing size. "What we're chasing is performance," says Kalla. The idea is to cap funds under management at around 7.5% of the sector's total market capitalisation. That would equate to around R9bn at current property share price levels.
Kalla says they're mindful of the fact that once you become too big you lose your ability to outperform the benchmark, as it's difficult to take bold buy and sell calls on individual stocks. "Let's assume you have a 12% stake in a large counter, such as Growthpoint or Redefine, and for whatever reason you no longer like the stock. If you sell, you risk bringing its share price down significantly."
Adds Munzara: "That's precisely our competitive advantage. We have the ability to be flexible and nimble, allowing us to be active investors and not just price takers." Munzara also believes there's a place for strong, independent views on corporate shenanigans, mergers and takeovers to counter the "big brother" opinions often adopted by larger institutional fund managers.
"Ultimately," says Jankelowitz, "it's about having skin in the game by putting our own equity into the company."
* This article was first published in Finweek.
* To read more Finweek articles, click here.
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