25 Jul 2019
Investec and Goldman Sachs
A winning combination for South African institutions.
Investec’s historic cash equities execution agreement opens up opportunities for South African institutions.
South African institutions have a lot to look forward to, thanks to the alliance struck between Investec’s equities business and Goldman Sachs International. The agreement brings together Investec’s skills and positioning in South Africa and Goldman Sachs’ global reach.
"We would be in a better position to execute such a transaction by way of a block trade."
According to Tinus Rautenbach, head of equities at Investec Corporate and Institutional Banking, the agreement will benefit local institutions by improving access to global institutional counterparties, an important consideration given that about 40% of the activity on the JSE is by foreign investors.
“When it comes to trading, what a local institution wants is to be able to buy or sell at the best price. This agreement will allow our clients to trade in larger amounts with the least impact on price,” says Rautenbach.
For example, explains Rautenbach, a local institution might be looking to reduce a significant holding in a particular share. However, selling the shares in the open market can take time, and also put downward pressure on the share price.
“As a result of our agreement, we would be in a better position to execute such a transaction by way of a block trade – thanks to the access to a larger universe of foreign institutions.”
"This agreement will allow our clients to trade in larger amounts with the least impact on price."
Rautenbach says the agreement should also help support liquidity growth on the JSE, which also benefits local institutions. “Many of Goldman Sachs’ global institutional clients will have enhanced access to trading JSE securities, providing additional liquidity to the market,” he points out.
“A lot of the local institutions we’ve spoken to say they are optimistic that this agreement will bring greater foreign flows into our market – which benefits everybody,” says Will Ridge, head of institutional equities.
Local institutions looking to invest directly offshore will also continue to benefit from Goldman Sachs’ international execution capabilities. “For institutions wanting to access the rest of the world, we are able to deal in an efficient way through Goldman Sachs,” Ridge points out “All of these benefits accrue with a minimum of fuss for the institutional client.”
It is something we expect to grow if in the future we provide execution for Goldman Sachs’ clients seeking exposure on these exchanges.
Rautenbach says the agreement may also be extended to cover the rest of Africa, where Investec already has a sizeable equity franchise and is active on a number of exchanges. “There is not a lot of trade in this area yet, but it is something we expect to grow if in the future we provide execution for Goldman Sachs’ clients seeking exposure on these exchanges.”
While the agreement only covers execution, Ridge says it doesn’t preclude pursuing new opportunities on behalf of the client, as these arise. “While research isn’t part of the agreement, we are happy to facilitate a conversation between a local institution and Goldman Sachs, for example, around a specific offshore theme, sector or security,” adds Ridge.
“The two parties have worked together before on specific opportunities and I certainly see scope for more of this in future – there are no doubt areas we can cooperate to the benefit of the client,” concludes Rautenbach.