MoneyMarketing April 2021

30 April 2021 | www.moneymarketing.co.za

WHAT’S INSIDE YOUR APRIL ISSUE DEVELOPING YOUR ADVICE BUSINESS Understanding your options for succession Page 14

BOUTIQUE ASSET MANAGERS SUPPLEMENT The unique culture of boutique asset managers Page 23

ALTERNATIVE INVESTMENTS SUPPLEMENT Investors are turning their attention to alternative investments Page 35

NOW, MORE THAN EVER, IT’S ESSENTIAL TO GET CLIENTS INCOME PROTECTION THAT MATCHES THEIR NEEDS If a client suffers a disability, income protection is critical to their financial wellbeing and that of their family Page 44

@MMMagza

@MoneyMarketingSA

First for the professional personal financial adviser

The rise of thematic investing

BY JANICE ROBERTS Editor: MoneyMarketing

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outh Africa’s advisers, retail investors and institutional investors should take a closer look at thematic investing, what it means for the future of investing and why the old way of thinking about investments – based on income statements and balance sheets – is outdated in an age where platform technologies are taking over the world. That’s the message that Magda Wierzycka, CEO of Sygnia Asset Management, delivered to delegates at this year’s Meet the Managers forum hosted by The Collaborative Exchange.

Digital themes are in play right now that are shaping the future and, in particular, the future of investing.

“These digital themes are underpinned by disruptive innovation – and that innovation is basically making traditional industries value traps. A very good example of this is the difference between investing in a coal mining company and in a solar energy company. As solar energy is going to become the predominant source of energy worldwide in the next decade, why would you want to invest in a coal mining company if you can invest in the future?”

She emphasises that the speed of change is the fastest ever seen in human history, “and that Magda Wierzycka, CEO, Sygnia Asset Management

speed of change has been driven by technology, and technology is just going to accelerate”.

Big companies that do not adopt change to enable them to move into the future will be left behind. “Some big companies are completely inert. A very good example of that has been the fact that last year, instead of companies investing cash in innovation, we have seen massive buybacks of shares by the behemoths of the past.”

Millennials now constitute a third of the workforce, but will make up 75% of that workforce within the next five years. This means the way in which investments happen, and the way in which investment themes are promoted, will change. “For instance, the impact on ESG, or crypto investing, or traditional equity markets, will be driven by that intergenerational wealth transfer from baby boomers to millennials.”

Innovation, Wierzycka explains, requires both the private market and the public markets. “A lot of wealth creation in companies happens while they remain private and less accessible to retail investors.

But those private companies usually get to a point where they need to IPO, where they need to list, and where they need the support of retail and institutional investors in the listed space.” This, she says, is an opportunity for a typical investor to benefit.

At the same time, there are greater risks to traditional ways of investing. “Last year saw

massive price dislocations in oil, in banks, in yields, as well as some strategies employed by hedge funds. Shorting all of a sudden has become something completely different to what it used to be – and I’m sure I don’t need to describe to you what happened with Reddit, GameStop and Robin Hood.”

Wierzycka believes that the digital revolution requires a new paradigm of thinking and investing. One of Sygnia’s four pillars of investment has long been thematic investing based on platform-style delivery, alongside low management fees via passive investments, risk management through active tactical asset allocation, and alternative investment strategies.

She defines thematic investing as an investment approach that focuses on predicting long-term trends, rather than investing in specific companies or sectors.

“So, we are talking about trends that lead to structural massive once-off shifts that can change the way we live, the way we behave, the way we work. It’s about investing in innovation and in disruptive technologies.

Disruption is happening all around us, and it’s happening at multiple levels, for example data collation, cost, convenience, speed of access and social behaviour.”

Platform technologies are starting to converge and merge sectors, she says.

“A good example is Tesla, as it collects data on its customers and is involved in the development of electric vehicles as well as autonomous vehicles, and in battery/cell battery development. Tesla is much more than just a car manufacturer. Would you rather invest in a company of that nature, or would you rather invest in a traditional car manufacturer?”

Continued on page 4

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30 April 2021

EDITOR’S NOTE

EDITOR’S LETTER Continued from page 1

One important feature about thematic investing that needs to be recognised is that it is longer-term time horizon investing – and this means upwards of five years, she adds.

“There will be a lot of speedbumps and a lot of volatility along the way, but we believe there are some exceptional ith many global equity markets performance opportunities that lie in at an all-time high, and with thematic investing for long-term investors, global interest rates at an as old-style companies are left behind all-time low, investors have turned their much faster than was first thought.” attention to alternative investments – and Themes are maturing and now they’re looking for more information replacing traditional asset classes. “When on this asset class. MoneyMarketing we started the Sygnia 4th Industrial took note and publishes its very first Revolution Global Equity Fund that’s Alternative Investments Special this almost five years old, many of the themes month. In addition, we focus on the unique in which we were investing were in culture of boutique asset managers in our the research and development stage, increasingly popular annual Boutique whereas today, five years down the line, Asset Managers Supplement. they are in a revenue-generation stage.”

This is the second month of the ‘newShe believes that thematic investing look’ MoneyMarketing. I’m not one to fix plays itself out particularly well in the something that isn’t broken, but as we have exchange traded fund space due to such wonderful graphic designers at New efficient and immediate implementation.

Media, I thought we should try something In addition, top institutional investors different, and I’m delighted with the results worldwide are shifting their thinking. from the awesome team of David Kyslinger “And, as I always say, in investing you and Julia van Schalkwyk. I’m also delighted don’t stand in the way of the herd.” to announce that we have a new face There are over 380 companies within working on our digital side, and I extend a the Sygnia 4th Industrial Revolution warm welcome to Lebohang Malaka.

Global Equity Fund, referred to by As the magazine goes to print, South Wierzycka as the ‘market index’ of Africans are voicing their unhappiness thematic investing. “The Fund isn’t with the slow pace of the country’s weighted towards Apple, Microsoft, vaccine rollout – and I am one of them.

Amazon or Google, but rather a basket of Most alarmingly the Department of Health companies involved in the 4th industrial has – at the time of writing – inoculated revolution theme.” only 194 000 healthcare workers, and we Sygnia also launched the FAANG Plus still don’t know when the mass rollout will Equity Fund, which is seen as it’s big begin. Experts have said that the third wave tech fund. “This is because the Sygnia 4th of infections will be worse than the second Industrial Revolution Global Equity Fund wave, which could begin as early as the does not give investors exposure to big final days of this month. Please stay safe. tech companies, and if you do believe in Amazon, Microsoft, Facebook, Google, and Netflix, then you SUBSCRIBE JANICE ROBERTS should have the ability and the TO OUR janice.roberts@newmedia.co.za tool to exercise that view.”

NEWSLETTER @MMMagza In August last year, the Sygnia www.moneymarketing.co.za Health Innovation Global Equity bit.ly/2XzZiMV Fund was launched, again with

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COMMISSION EARNERS

Longer term trend……

Market capitalisation of the world’s most valuable public companies

2020

2005 ExxonMobil

$ 362.50

General Electric

$ 348.50

Microsoft Citigroup BP Royal Dutch Shell

Technology Conglomerate

$1 389.67

Apple

$1 378.06

Amazon

$ 279.00

$ 225.90

Facebook Berkshire Hathaway

$ 203.50

$977.00 $641.30 $451.15

Financial Services

thematic exposure built in.

Wierzycka notes that thematic innovation is happening in the broader market as well. Looking at the world’s largest companies by market cap, she points out that in 2005, three companies of the world’s global giants were involved in oil and energy generation – there was only one tech company, Microsoft, in the mix. Fast forward to 2020 and five out of the top six companies in the world are tech companies: Microsoft, Apple, Amazon, Alphabet and Facebook.

There is, however, a new generation of companies waiting in the wings. “This talks to the concept of private markets and wealth creation while the companies are private, and wealth creation and potential for wealth creation when the companies go public. Tesla is an extreme example. The company, at listing, was valued at $47bn, and it’s now valued at over $500bn.”

Presently, the Sygnia 4th Industrial Revolution Global Equity Fund – which delivered 88% returns in dollar terms last year – has five ‘sectors’ that have emerged as dominant groupings: • Autonomous tech and robotics • Genomics • Fintech • Cryptocurrency • Internet of all things.

What’s next?

Sygnia is now planning on launching funds that will enable more sophisticated investors to tilt their investment strategies

towards themes they believe have massive potential. An autonomous tech global equity fund is on the cards.

“The fund will invest in companies involved in R&D associated with energy storage, transportation, automation and manufacturing, and materials, among other industries, for example 3D printing, electric vehicles, autonomous vehicles, blockchain, drones, robotics, payment systems, electronic wallets and even space exploration,” she says.

A second fund planned is a biotech global equity fund that will invest in companies involved in technological and scientific developments in genomics, DNA sequencing, cell and gene editing, targeted therapeutics, bioinformatics, and agricultural biology sectors.

Sygnia will also again attempt to launch a Bitcoin ETF. “We last tried in 2017 as we believe in Bitcoin. We were just two days away from listing the ETF before the listing was pulled because the JSE regarded it as potentially too risky. We are engaging with the JSE again with the hope of being able to offer investors exposure to cryptocurrency, and particularly to Bitcoin. We do believe that Bitcoin has become a lot more mainstream than it was in 2017,” she adds.

Editor’s note: Shortly before the magazine went to print, it was announced that Magda Wierzycka will step down as joint CEO, of Sygnia but will remain involved in the company as a non-executive director.

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THE ONLY TIME WE LIKE SURPRISES. BEST FUND HOUSE - LARGER FUND RANGE 2021 MORNINGSTAR AWARDS IT IS AN HONOUR TO RECEIVE THIS MORNINGSTAR AWARD AND A PRIVILEGE TO BE THE FIRST INDEX-TRACKING BUSINESS IN SOUTH AFRICA TO DO SO. THIS IS NOT ONLY “ONE (BIG) STEP FOR SATRIX, (BUT) ONE GIANT LEAP FOR INDEX INVESTING” (APOLOGIES TO NEIL ARMSTRONG)

FOR MORE INFORMATION VISIT WWW.SATRIX.CO.ZA

Satrix Managers is an authorised FSP and approved manager in terms of CISCA, a schedule of fees and charges can be obtained from the manager. Full details and basis of the award is available from the Manager.

30 April 2021

MORNINGSTAR AWARDS

Morningstar announces 2021 South Africa Fund Award Winners

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ndependent investment research company Morningstar Research South Africa has named the winners of its 2021 South Africa Fund Awards.

ABSA won two awards – for the Best Bond Fund as well as Best Cautious Allocation Fund. Satrix scooped Best Fund House: Larger Fund Range and Kagiso won Best Fund House: Smaller Fund Range.

The annual Morningstar South Africa Fund Awards recognise funds and fund houses that added the most value for investors within the context of their relevant peer group in 2020 and over longer time periods.

According to Tal Nieburg, Managing Director for Morningstar South Africa, the past 12 months have been incredibly uncertain, characterised by tough markets and distinctive COVID-19 challenges that tested even the most experienced investors.

“Against this backdrop, our winners

were still able to deliver solid performance relative to their peers in tough market conditions,” he adds.

The Morningstar Awards methodology highlights the one-year return period, but funds must also have delivered sturdy three- and five-year returns after adjusting for risk within the awards peer groups in order to obtain an award. In addition, they must have been at least in the top half of their respective peer groups in no less than three of the past five calendar years.

Nieburg believes this combination ensures that the

Tal Nieburg, Managing Director, Morningstar South Africa

awards are given to funds that have earned strong oneyear results and have also shown they have the ability to earn strong long-term returns without undue risk.

Morningstar selects the winners using a quantitative methodology with a qualitative overlay that considers the one-, three- and five-year performance history of all eligible funds, and adjusts returns for risk using Morningstar Risk, a measure that imposes a higher penalty for downside variation in a fund’s return than it does for upside volatility.

FUND CATEGORY AWARDS:

WINNER:

Best Aggressive Allocation Fund

Prescient Living Planet

Best Bond Fund

ABSA Bond

Best Cautious Allocation Fund

ABSA Inflation Beater

Best Flexible Allocation Fund

Coronation Optimum Growth

Best Global Equity Fund

Schroder ISF Global Equity

Best Moderate Allocation Fund

Sasfin BCI Balanced

Best South Africa Equity Fund

Rezco Equity

FUND HOUSE AWARDS:

WINNER:

Best Fund House: Larger Fund Range

Satrix

Best Fund House: Smaller Fund Range

Kagiso Asset Management

Satrix wins Morningstar Best Fund House Award

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atrix, South Africa’s leading provider of index-tracking products, has been named the 2021 Best Fund House: Larger Fund Range in South Africa by Morningstar, a global financial services firm with 35 years of investment research.

Satrix, which launched South Africa’s first-ever exchange-traded fund more than 20 years ago, beat Coronation and Sygnia to the coveted top spot. The

Morningstar Awards honour managers that have added the most value for investors within their peer group.

The Best Fund House: Larger Fund Range category recognises the fund house with the strongest performing fund line-up on a risk-adjusted basis over a one-, three- and five-year history. Fund houses that qualify for this award must have at least ten eligible funds, with a minimum five-year track record in

“A large part of the ethos and philosophy of Satrix as a business is to provide investment access to all South Africans, no matter the size of their portfolios” 6 www.moneymarketing.co.za

the Morningstar database.

The Morningstar Awards play an important role in the fund management industry because their use of historical data highlights those houses that are strongest on a consistent basis.

Helena Conradie, CEO of Satrix, credits the win in large part to a team of people who are passionate about using the power of index-investing to grow wealth for all South Africans.

“A large part of the ethos and philosophy of Satrix as a business is to provide investment access to all South Africans, no matter the size of their portfolios.

Winning this award is a wonderful acknowledgement of the skill and diligence of our investment team, but also helps our business and the Satrix brand to reach

Helena Conradie, CEO, Satrix

more and more people who need to be included financially. But this is not just a great win for Satrix, it’s a win for the entire indexinvesting industry.”

Satrix manages over R120bn in assets and has a combined investment team experience of 173 years. Their extensive index-tracking range can

be accessed via unit trusts, exchange traded funds, life pools, offshore UCITS and segregated portfolios.

For more information visit www.satrix.co.za Satrix Managers is an authorised FSP and approved manager in terms of CISCA, a schedule of fees and charges can be obtained from the manager.

Full details and basis of the award is available from the Manager.

We are no ordinary boutique asset manager. Our range of top-performing and award-winning unit trusts are designed to return value to the most discerning of retail and institutional investors. Featuring some of the country’s most highly regarded fund managers, we present to you a single asset class – the world.

Sasfin Wealth comprises Sasfin Securities (Pty) Ltd, JSE member; Sasfin Asset Managers (Pty) Ltd, FSP No. 21664; Sasfin Wealth Investment Platform (Pty) Ltd, FSP No. 45334; Sasfin Fiduciary Services (Pty) Ltd; and Sasfin Financial Advisory Services (Pty) Ltd, FSP No. 5711. This advert is general in nature and is not advice.

Sasfin Wealth accepts no liability for errors or changes. As clients are responsible for their decisions, they should obtain independent advice before taking any action.

30 April 2021

MORNINGSTAR AWARDS

Schroders recognised for exceptional offshore equity fund Schroder ISF* Global Equity has won the Best Global Equity Fund Award at the 2021 Morningstar Awards.

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his latest win recognises the fund’s ability to deliver the best value for investors throughout 2020, in spite of the massive market challenges of the past year.

The Morningstar Awards are designed to help investors around the world identify the year’s most exceptional funds and fund managers. Morningstar selected this year’s finalists using a quantitative methodology with a qualitative overlay that considers the one-, three- and five-year performance history of all eligible funds, announcing the winners via an online event held on 15 March 2021.

“The last year has been one of the most challenging times for investors in recent memory. Yet, wins like this demonstrate that there were offshore equity opportunities for growth. We’re extremely proud that Schroder ISF Global Equity has been recognised for its ability to unlock returns for South African investors,” says Kondi Nkosi, South Africa Country Head for global asset manager Schroders. Pointing to the performance of South Africa’s local equity market, Nkosi

notes that many of the challenges in the investment sphere are still ongoing.

“With the JSE having reached an all-time high in February of this year, there are already fears being expressed that this growing gap between the stock market and the real economy may collapse in the near future. While there are indeed pockets of value to be found on the JSE, South African investors would do well to include an offshore equity component in their portfolios to increase the opportunity set, and offset concentration risk.”

“The fund has benefited from holdings in what the team calls its core compounders” Fund manager Alex Tedder explains that the fund has benefited from holdings in what the team calls its core compounders. “Our core compounders were behind much of the

Sasfin Asset Managers win again at Morningstar Fund Awards

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asfin Asset Managers has been acknowledged as Best Moderate Allocation Fund for a second year in a row at the Morningstar South Africa Fund Awards 2021 for the returns delivered by the Sasfin BCI Balanced Fund. This follows the team’s recent win at the Raging Bull Awards for the Sasfin BCI Flexible Income Fund.

Arno Lawrenz, Sasfin’s highly experienced and award-winning Chief Arno Lawrenz, Chief Investment Officer, Sasfin Asset Managers

8 www.moneymarketing.co.za

fund’s gains in 2020. These are companies that we are convinced will be able to sustain growth over a multi-year time horizon, due to a durable competitive advantage.”

Tedder adds that during a year of significant volatility, these holdings proved resilient to economic uncertainty and, in a number of instances, actually benefited as COVID-19 provided further momentum to established themes that were already driving growth. “We’re very pleased to have our strong, risk-adjusted and consistent performance recognised by Morningstar in this way,” he says.

Tal Nieburg, Managing Director at Morningstar South Africa, adds to this by saying that Schroders’ award was well-deserved. “The past year has been incredibly unpredictable with difficult markets, unique pandemic challenges and economic uncertainty – all of which have posed serious challenges to even the most sophisticated of investors. Against this backdrop, our winners were still able to deliver solid performance relative to their peers in tough market conditions.”

Nieburg adds that the awards

Investment Officer, explains, “This year, the fact that we have been nominated for two different awards and won for each of the funds, shows the depth of our expertise and capability as a multi-asset solution provider. These funds require a blend of expertise across asset classes, and points to the depth of resources across the equity and fixed income space.”

Lawrenz took the helm of Sasfin Asset Managers at the end of 2020. “I feel integrated into the business already. The first few months have been amazing in terms of client and team engagement and I have seen the level of experience this team has, which is now being rewarded by the industry with these wins.

Importantly, longer term investors like pension funds want to know about the sustainability of performance, which means they want to know it is repeatable, and this directly speaks to consistency and expertise that these wins point to.”

Robust process “The fund combines practical asset allocation decisionmaking with a deliberate risk-conscious mindset, and we are therefore quite pleased to see that the fund has been awarded not only on performance but also on its risk awareness. The award recognises risk and performance over various timeframes, which speaks to the funds’ consistency of solid performance delivery but not at any cost, and without having to assume excess risk,” he adds.

Sasfin Asset Managers investment philosophy is fostered around pillars such as identifying global macroeconomic themes, appropriate asset allocation, managing risk and controlling costs, where the belief is that these are some of the ‘core drivers’ necessary

Kondi Nkosi, Country Head: South Africa, Schroders

methodology emphasises the one-year return period, but funds must also have delivered strong three- and five-year returns after adjusting for risk within the awards peer groups in order to obtain an award.

Further, they must have been at least in the top half of their respective peer groups in at least three of the past five calendar years.

Nkosi says that Schroders is extremely honoured to receive such prestigious recognition. “To be singled out among so many incredibly capable firms is high praise, and we are indeed thankful for this recognition.

“Apart from the sterling expertise of our global equity fund managers, the award is also testament to the hard work our local Schroders team has put into growing its presence in the South African market and its long-term commitment here. We will continue to find the very best value for our investors and do our utmost to ensure that the trust they put in us is rewarded,” he adds. *Schroder International Selection Fund is referred to as Schroder ISF throughout this article.

to achieve sustainable, compounding returns over the long term.

“We believe that the biggest risk to a client is not meeting their intended long-term objective, and therefore capital is deployed such that there is a greater certainty in terms of realising these objectives, rather than just allocating based on historic returns.”

The fund also employs a multi-strategy approach in that the portfolio construction process incorporates and advocates the use of both indexation and active management, as the belief is that both have a role in achieving client investment objectives in a costeffective manner.

“The fund combines practical asset allocation decision-making with a deliberate riskconscious mindset” Quality and credibility Tal Nieburg, Managing Director for Morningstar South Africa, has described 2020 as “incredibly unpredictable with difficult markets”, yet, against this backdrop, the Morningstar Fund Awards winners still delivered solid performances.

“Most importantly, I think this indicates that Sasfin Asset Managers are on the right track, will continue on an upward curve, and promises a really bright future for us as a team and in terms of our investment capability,” says Lawrenz.

30 April 2021

NEWS & OPINION

PROFILE

Sithembiso Garane Head: Listed Credit, Futuregrowth Asset Management

How did you get involved in financial services – was it something you always wanted to do?

I never really had a career plan; I have always wanted to do whatever I enjoyed in an environment that fulfils me. It has always been important to me to follow my passion and explore all accessible learning territories to enrich myself. I feel like it would be more appropriate, then, to say my passion for solving problems, and desire for understanding underlying drivers of what is easily observable, propelled me toward financial services. So, it was never something I had actively worked toward, but I’m glad it happened.

What was your first investment – and do you still have it?

My first investment was Merafe Resources. I really did not have any investment thesis nor enough money to buy a sizable amount of shares. I just remembered one of my former bosses who used to ask us to check Merafe’s share price every morning. Somehow, I just wanted to replicate his experience – classic way to lose some money. Long story short, I no longer have Merafe – nor do I have any emotionally triggered investments.

“The impact of COVID-19 will remain with capital markets for some time” What have been your best – and worst – financial moments?

My worst financial moment was losing money in a trade working for a brokerage firm. I quoted an incorrect rate resulting in a substantial loss for the client. The firm I was working for at the time had to pay for the error. I learned the hard way that attention to detail is important. My best moment – other than all those ‘light bulb’ moments when one finally figures out a solution to a problem that’s been depriving one of sleep – would be all those right calls/trades I made both on behalf of clients and in my personal capacity.

What do you tell investors who are worried about their investments due to SA’s current economic environment and COVID-19?

It has been a volatile period for close to a year now due to COVID-19. Even though there seems to be a slight return to normalcy with government relaxing the restrictions to life activity, it is important for investors to understand that the impact of COVID-19 will remain with capital markets for some time. In fact, the total impact of COVID-19 is yet to manifest in corporate SA’s balance sheets and thus the economy. Consequently, risk management should trump return maximisation.

During these times, reckless search for yield often leads to a loose downside.

What’s your view on Bitcoin and other cryptocurrencies?

Bitcoin has gained major popularity especially among the contrarian financial sect. While I know very little about the technology backing these cryptocurrencies, I think the biggest risk remains regulatory. Crypto pundits have ventilated in the market a lot of advantages about the Blockchain technology on which Bitcoin is built, and have likened it to gold. But what conventionally maintains the value of the currency is government declaration, and the gold trade is highly regulated. I hold the view that when regulations come to cryptocurrency – which is a matter of time – the value may be impacted. I do think the future may be cryptocurrency, but I have doubts that it will occur without government declaration.

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VERY BRIEFLY Breathing new life into the Financial Sector Transformation Council is a top priority for Pumla Ncapayi, who was recently appointed CEO of the body tasked with overseeing transformation in Pumla Ncapayi the financial sector.

Ncapayi was previously Head of the Gauteng Department of Economic Development. “The accelerated transformation of the financial sector is crucial in achieving a sustainable, inclusive and growing economy in South Africa,” she says.

The Johannesburg Stock Exchange (JSE) has the best gender balance on boards of any developing country in the G20, according to a new report. The Stock Exchanges Gender Equality Analysis Report, Leila Fourie issued by the Sustainable Stock Exchanges Initiative, looks at the gender composition of boards from the top 100 companies by market capitalisation on each of the G20’s major stock exchanges.

“We are honoured to be recognised in the Report,” says JSE Group CEO, Leila Fourie. “The JSE remains committed to promoting gender equality at all levels of the organisation.” She adds that while it’s important to acknowledge this step in the right direction, “significant work remains to be done in the global quest for gender equality”.

Gudani Mukatuni has been appointed Chief Information Officer at Glacier

by Sanlam. She has over 16 years of working experience and, prior to joining Glacier, she acquired her IT leadership and transformation Gudani Mukatuni experience working for organisations such as WesBank as their CIO, AIG Middle East & Africa Region as their Head of IT for Africa, and Nedbank Financial Planning / Wealth Management as the Head of IT. Her areas of expertise include leading IT transformation to achieve operational efficiencies and unlocking new distribution channels, through executing IT and digital transformation strategies in alignment with organisational goals. She has also held various management and IT advisory roles at EY, MTN Group and SizweNtsalubaGobodo.

30 April 2021

NEWS & OPINION

Beware the power of attorney

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t’s hard to think about, but a day will come when you or your spouse, your parents or someone you care for will reach a point where they won’t be able to make decisions for themselves. That is when others will have to step in to manage their finances, make decisions about their day-to-day living, or decide what kind of medical treatment they should have.

Enter the power of attorney, a popularly turned-to, cheap and easy-to-draft legal document that allows a senior person to choose someone who will have the power to act on their behalf. However, David Knott of Private Client Trust warns that this document will fail just when it is needed most.

A major problem affecting powers of attorney granted is that they lapse the moment the grantor is unable to mentally grasp or understand the effects of a decision – in other words, once he

or she becomes mentally infirm, whether it be through dementia, a stroke, a coma, Alzheimer’s, etc. Therefore, the main reason to grant a power of attorney is foiled. Any action taken by the person who holds the power of attorney after the grantor has become mentally incapacitated can be set aside and the decision maker sued in their personal capacity.

“Many people are caught unawares by this because it seems so illogical for the power of attorney to lapse just when it’s needed most. But that, unfortunately, is the law.

“It is true that many powers of attorney continue to be acted upon long after the grantor is mentally incapacitated, but there is always the risk of challenge should events not pan out as expected, even though the grantee has acted in good faith,” warns Knott. “For example, what seemed to be a sound investment could

“Government has been wrestling with the conundrum around the power of attorney dilemma for many years without success”

fail, or the sale of a fixed property could lapse in a declining market, among others.

Obviously, if the grantee acts dishonestly, or in bad faith, he is liable for actions against him.”

So what are the alternatives?

According to Knott, the High Court can appoint a curator when a person becomes unable to manage his/her own affairs. “Unfortunately, curatorships are costly and prone to bureaucratic red tape and delay. “A simpler and cheaper alternative is for the Master of the High Court to appoint an administrator in terms of the Mental Health Care Act. This person only has power to deal with the incapacitated person’s property (not personal affairs), and this alternative is only available in cases of actual mental illness or severe/profound intellectual disability, and only for smaller estates.”

A third option, while the person in question still has legal capacity, is to set up a trust to house his or her assets under the administration of trustees. “This will ensure that, should that day arise when you are unable to manage your own affairs due to mental incapacity, your loved ones will still be looked after, and your assets managed without interruption,” says Knott.

Government has been wrestling with the conundrum around the power of attorney dilemma for many years without success. In 2004, the South African Law

Reform Commission recommended changes to the law to allow for alternatives like an ‘enduring power of attorney’, which would remain valid despite the subsequent incapacity of the principal; and a ‘conditional power of attorney’, which would come into operation only on the incapacity of the principal.

“Unfortunately, nothing concrete has as yet come of that, and although some legal commentators suggest that our courts might perhaps uphold a properly-worded enduring power of attorney, the general consensus appears to be that it will not be recognised,” Knott adds.

David Knott, Fiduciary Specialist, Private Client Trust

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30 April 2021

NEWS & OPINION

Where is fintech going?

BY JAN SCHOLTZ Director, Compli-Serve Gauteng

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he landscape of the financial services industry will look very different in ten years’ time due to the growth and development in blockchain technology in general, and specifically fintech.

Fintech is not going away, and digital currencies are here to stay I recently completed a fintech short course via Harvard University, and found the most fascinating insight to be the challenges that reflect the complex but innovative nature of the financial technology market. Blockchain technology has much wider application than merely cryptocurrencies and Bitcoin.

Fintech has challenged and transformed the financial ecosystem across industries, countries and the globe. Fintech is undergoing consolidation and maturation and has created the need for regulation.

Fintech is the most promising innovation since the credit card, which has transformed the payment system worldwide. From the way you borrow money, or invest, or save for retirement or move money internationally, or even buy coffee, fintech will play a role.

Changes in the demographics of a population, technology advances and the fact that government and the regulators are often slow to adapt to change, make way for new products and, most importantly, a new way of doing things.

Making use of fintech is just that.

Arguably, fintech makes cheaper options available too, which means increased accessibility (and popularity). One cannot deny that a continent like Africa is perfectly positioned to benefit from developments, as mobile money is often the easiest solution to avoid travelling far distances to make financial transactions. This has already been happening for years and, as technology evolves, mobile money capability and fintech influence are further shaping financial services on the continent.

An African consumer, like any other consumer under a certain age, is also likely to be drawn to faster and easier access to financial services. The antiquated art of going to the bank to open an account is becoming a distant memory, and COVID-19 has of course made way for more digital capabilities to evolve, encouraging social distancing. Banks are vulnerable to innovations in payment ecosystems and many have adopted technology to stay relevant.

The payment industry has seen numerous entrants of diverse fintech players in recent years, from giants like Facebook and Google to start-ups that are presenting increased competition for banks, processors and networks. The prominence of smartphones as a channel has evolved customer expectations and real-time account transfers. This digital revolution will extend beyond payments and cards, causing significant changes in all areas of finance. An example is the development of facial-recognition payments, which of course has data privacy concerns.

I am convinced peer-to-peer (P2P) online sharing models, that negate the need for having a central server, will also increase and continue to impact financial services in a big way. Blockchain technology has opened doors and financial services offerings from P2P companies could be considered by consumers to be more trustworthy than their older counterparts. Almost daily, there seems to be something new within technology to discover.

existing methods of payment, such as credit cards, EFT, etc. Many still believe crypto-assets are mostly for money launderers or dark web transactions.

Scandals such as the recent Mirror Trading International (MTI) disaster, coupled with the volatility crypto-assets are known for, don’t help. Payment via cryptocurrencies is cheaper and quicker than traditional payment methods, which typically consist of a cardholder, issuer, merchant, acquirer, international card payment scheme and processor. All these layers add to costs. Before cryptocurrencies will become mainstream, issues like volatility, regulatory uncertainty and security concerns will need to be tackled.

The concerns around cryptocurrencies are discouraging to genuine investors but regulation is likely to bring some stability, and there is also a lot to be said for making use of the potential crypto offers.

Transaction fees are low and because of the limited number of currencies available, it makes the value of Bitcoin and other cryptocurrencies invulnerable to deflationary pressures, unlike other traditional currencies.

Unfortunately, many alternative payments and start-ups will fail, so physical and digital cards will remain for a long time because behaviour is entrenched and trusted brands in this space will still matter.

Crypto concerns Cryptocurrencies will see more widespread adoption over the coming years, but will also not entirely replace

Where to from here?

My advice is to have a positive attitude towards change, and to be flexible. Be active, take part and see disruption as an

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opportunity. The use of Artificial Intelligence (AI) has revolutionised the finance industry.

It has improved precision levels and sped up resolution periods. AI has streamlined processes to define customer profiles on their level of risk. As an example, AIpowered models can provide immediate assessments of a customer’s credit risk.

My prediction is that robo-advice and human advisory involvement will co-exist going into the future. Many people are emotional about money and need a trusted adviser to carefully guide them through the complexities of investing, which is something machines cannot replicate. Fees will be a concern and need to be sustainable, but it’s important to realise that robo-advisers may offer a convenient platform to keep up investment performance. While there is room for growth, diversification is still an old faithful (and many traditional investment products deserve their permanent place).

While I don’t believe crypto-assets will reach their predicted heights, there is certainly a place for them, and they cannot be ignored. But as with most trends, criminals are painfully aware of ways to exploit them, and while there are many ‘good guys’ out there, a firm set of rules governing fintech will create greater security, transparency and comfort for all.

It’s encouraging to see the progress of the Intergovernmental Fintech Working Group (IFWG) so far, and I predict that the FSCA will start approving applications for crypto providers later in the year. Working with professional compliance support that has the necessary skills and experience to guide you will make all the difference.

“Be active, take part and see disruption as an opportunity”

30 April 2021

NEWS & OPINION

Sanlam reboots its business through a purposeful brand ‘Live with Confidence’ business reboot will entrench the group as an African champion

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anlam announced in March that it would reboot its business to become a purpose-led organisation and brand, focused on giving millions of Africans the chance to live with financial confidence. In the next two to three years, the continent’s largest non-banking financial services group plans to catalyse this purpose through an expanded product offering, data and digital transformation, empowerment, building a future-fit culture, innovation and partnerships.

Paul Hanratty, CEO of Sanlam, says, “The pandemic has placed such a harrowing spotlight on how vulnerable the impoverished are, both in our country and across the continent. Everyone deserves an equal chance at living a better life, at inclusion in the mainstream economy. At the intersection of financial inclusion and financial security, you find financial confidence. That is where we will continue to build capacity, across Africa and beyond.”

According to the International Monetary Fund (IMF), financial inclusion is synonymous with increased economic growth, reduced income inequality and accelerated GDP growth. However, more than 1.6 billion adults globally remain unbanked. The World Bank’s Global Financial inclusion report found the financial systems of many African countries remain underdeveloped compared to other developing economies, despite focused reforms in the last two decades. Progress is often halted due to the digital divide, social and political instability, unemployment, and unequal opportunities for women.

Hanratty says true inclusion goes beyond access to banks and credit. “It’s about ensuring the previously marginalised have access to well-functioning financial infrastructure. It also means equipping individuals with the financial confidence to manage their money. The IMF ranks Africa’s growth prospects between 2018 and 2023 as one of the highest in the world. The continent is also home to the world’s fastest-growing middle class. The potential is immense, but only if it can be unlocked.

He adds, “By imprinting ‘live with confidence’ in the DNA of every aspect of our business, from the financial adviser’s meeting with a client to the development of new offerings, we will empower generations to be

financially confident, secure and prosperous.”

Sydney Mbhele, Chief Executive: Brand at Sanlam, says the new pay-off line ‘live with confidence’ will be brought to life through a range of initiatives, including new data- and AI-led innovations such as a Confidence Coach Chat-bot to upskill financial literacy, an Annual Financial Confidence Index to pinpoint regions where capacity building is imperative, and the launch of a financial literacy TV game show, Sanlam MoolaMoney, in April.

“No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable” Adam Smith, The Wealth of Nations, 1776 Mbhele says the rebranding goes beyond ‘beautiful words’. “It’s an enabler for the business. Sanlam has always had this notion of empowerment at its heart – from its founding mission in 1918 to empower poor Afrikaners, to pioneering South Africa’s first BEE transaction in 1993. We are going back to our roots of empowerment and articulating this in a more purposeful way.”

He adds that to live with confidence is a feeling of empowerment that comes from knowing you’re in control of your life. “Financial confidence gives you a better chance of reaching the goals that matter to you.

It’s accessible to everyone, whether you have a lot or a little, irrespective of age and stage. It is a mindset of abundance rather than scarcity.

“We believe the way you feel about your finances drives how you act. And those actions can have a profound impact on how securely and prosperously you live your life” Going forward, it will continue to be a fortress in South Africa, while championing its longstanding pan-African diversification strategy. It currently has a direct stake in financial services entities in Namibia, Botswana, Swaziland, Zimbabwe, Mozambique, Mauritius, Malawi, Zambia, Tanzania, Rwanda, Uganda, Kenya and Nigeria.

The Group has a footprint of insurance operations in Morocco, Angola, Algeria, Tunisia, Ghana, Niger, Mali, Senegal, Guinea, Burkina Faso, Cote D’Ivoire, Togo, Benin, Cameroon, Gabon, Republic of the Congo, Madagascar, Burundi and Lesotho. It also has business interests in India, Malaysia, the United Kingdom, USA, Australia, the Philippines and Lebanon.

This far-reaching footprint means Sanlam has the influence to move the needle at scale.

Hanratty adds that the group takes its responsibilities extremely seriously, “We are in the privileged position of being able to shape the narrative. Our actions now could foster greater socio-economic inclusion for generations to come. By focusing our efforts on instilling greater financial confidence across Africa, we believe we can best serve the continent we have always called home.

Now is the time to lead with courage.”

Left to right: Paul Hanratty, CEO, Sanlam, and Sydney Mbhele, Chief Executive: Brand, Sanlam

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30 April 2021

NEWS & OPINION

Developing your advice business

Part 1: Understanding your options for succession an immediate transfer of clients or a gradual transition to the buyer over time, the terms of which need to be established between the buyer and seller. These terms include a suitable price for the business, the conditions of payment and the transition period for the seller.

Global and local trends reveal that very few financial advisers have a clear plan as it relates to continuity and retirement from the industry. In the absence of a succession plan, advisers face several regulatory, personal and business risks. Tyrone Brand, Allan Gray distribution development specialist, examines how advisers can go about planning for succession.

Factors to consider: • What is their investment philosophy, management and communication style? It is critical to do your homework and understand your potential buyer’s investment philosophy to ensure synergy. Make sure your core values are aligned.

• What are their future objectives? Assess what their medium- to long-term goals are and whether these would inspire confidence from your clients.

• How are clients serviced? Consider how the business services its clients. Make sure you choose a partner who is as client-centric as you are.

BY TYRONE BRAND Distribution Development Specialist, Allan Gray

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oald Dahl’s iconic children’s novel Charlie and the Chocolate Factory contains several important life lessons. But looking through a different lens, the key theme is clear: succession planning.

Willy Wonka, the enigmatic founder of the Wonka Candy Company, goes in search of a successor after devising a plan to hide five golden tickets inside five chocolate bars, with the lucky winners invited on a tour of the factory. The tour, having tested and eliminated unworthy candidates, ends with Charlie Bucket being unveiled as the worthy successor.

There is a lesson for financial advisers to be learnt from this tale: Willy Wonka was intentional about finding a suitable successor for his business; he took the time to formulate a plan for a leadership transition. David Grau Snr, FP Transition founder, and author of Succession Planning for Financial Advisers: Building an Enduring Business, defines succession planning as the seamless and gradual transition of ownership and leadership internally to the next generation of advisers.

As a financial adviser, much of your time is spent helping others plan for their retirement, but how much time are you spending on strategising your own retirement and exit plan? Very little, according to international research, which reveals that around 70% of financial advisers in the US lack a formal strategy for succession planning. Retiring from your business can feel like you’re abandoning your baby, but having no plan in place exposes your practice, clients and dependants to significant risk in the event of your passing. Beyond this, developing a strategy that you are able to communicate to your clients will help foster confidence in your business.

“It is recommended to formulate a plan at least a decade ahead of your intended retirement horizon” Getting started It is never too early to start planning for your retirement. In fact, it is recommended to formulate a plan at least a decade ahead of your intended retirement horizon. So how do you get the ball rolling? Start by considering these questions: • Do you want to transition into retirement through a ‘sell and stay’ arrangement, or do you have a hard retirement date in mind?

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• How would you like your clients to be taken care of?

• What legacy would you like to leave behind? Are you building a practice to sell to a business or an adviser, or are you building a company for yourself as a lifestyle business?

The answers to these questions will essentially form the foundation from which you can determine the option that works best for you.

Drawing on learnings obtained through our work with advisers via our investment platform, we’ve identified three core succession planning strategies you can consider ahead of retirement. But as with every other aspect of retirement planning, the earlier you put your plan in place, the more time there is to action it.

1. Find yourself a Charlie Finding a Charlie means actively recruiting, equipping and overseeing the leadership and management transition of your business to a new generation of advisers – like Willy Wonka did. This transition typically occurs internally through the grooming of a successor over time, but it can also mean searching externally for a suitable partner to take over. For a founding adviser, this option requires a shift in skillset because you need to evolve from playing a client-facing adviser role to playing an operator role within the business.

Factors to consider: • Company culture – Having spent decades building your practice, you wouldn’t want to jeopardise your legacy by choosing an unsuitable successor. It is important that the person or people you identify to succeed you buy into your company culture and business values.

• Leadership characteristics – Know what characteristics you are looking for in a leader. This will help you identify potential successors to groom and develop.

• Competitive benefits and remuneration – An effective way of attracting and retaining the best talent is by offering competitive remuneration packages.

• Changing your business ownership structure – Amending your business ownership structure to allow for additional owners sends a strong message about your end goal.

2. Sell to another business The second option is to find a suitable buyer for your business. The nature of this kind of transaction could be

3. Become a lifestyle business The third option is to do nothing except find a continuity partner. This partner would become available to your clients in the event of your passing or if you become disabled. While various structures can be agreed upon, the basic idea is to provide your heirs and clients with security that, should anything happen to you, they will be taken care of.

For your heirs, a buy-and-sell agreement funded by an insurance policy should ensure that the value of the business is monetarily captured as an inheritance. For your clients, a trusted continuity partner is available to ensure the continued execution of their financial plans.

Once this risk has been mitigated, you can continue to provide advice to your clients on condition that you are still able-bodied to do so. Many advisers who choose this option then view their ongoing fee as an annuity stream to fund their retirement income, while scaling back on the number of clients they are advising, and freeing up more time for leisure.

Factors to consider: • Does your potential continuity partner have the capacity? The size of the business and assets under management becomes an important consideration when looking for a continuity partner. Make sure they have the capacity to service the influx of new clients in the event of your death or if you become disabled.

• You could lose clients – If you’re going to pursue this strategy, proceed with caution because there is a chance that your clients could begin to seek advice elsewhere and the value of this annuity stream can decline as you age. If you ever seek to sell, most buyers will not pay a premium for a business that is experiencing a decline in the client base. Having said that, there are always advisers looking to grow their practices through acquisition.

• Do they have the suitable expertise and experience?

Plan carefully All three strategies lead to the same outcome, which is an exit from the industry. The manner in which these strategies are implemented will, however, determine the quality of your exit. As Willy Wonka has shown us, successfully implementing a sound strategy leads to rewarding outcomes.

The next article in the series focuses on how to determine what an advice business is worth.

30 April 2021

NEWS & OPINION

‘Proposed Reg 28 amendments the opposite of prescription’

BY JANICE ROBERTS Editor: MoneyMarketing

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he proposed amendments to Regulation 28, to encourage private sector investment in infrastructure, are the opposite to prescribed assets, says Janina Slawski, Head of Investment Consulting at Alexander Forbes.

“There is no proposed change to the sense of Regulation 28, which is to make sure that investment strategies are prudent, that they include diversification, that they are not a concentration of individual asset classes, etc,” she adds.

“Anyone applying Regulation 28 has a fiduciary responsibility and they need to take into account risk and return. If anything, these proposed changes are the opposite of prescription, as they do not introduce minimum investment into infrastructure – which is something we have always been concerned about.

Prescription would require a minimum investment, but the proposed amendments introduce bigger maximum investments.”

While posts on social media after the Regulation 28 proposed amendments were released, stated that members of pension funds are going to be forced to hold up to 55% of their investments in infrastructure, Slawski tells MoneyMarketing that this is “an overreaction”.

She explains that proposed amendments introduce a definition of infrastructure that references the Infrastructure Development Act of 2014, which in turn refers to “public installations, structures, facilities, systems, services or processes in respect of which projects may be designated as strategic integrated projects”. The amendments propose introducing subcategories of infrastructure across several asset classes such as equities, bonds, property, own employer, hedge funds and private equity.

The overall limit on infrastructure across all these assets classes is proposed at 45% for domestic exposure, plus an additional 10% for the rest of Africa. The private equity limit would increase from 10% to 15%, and the current 15% limit that applies across the private equity, hedge fund and other categories would be removed.

“What the Government is trying to achieve is more investment into the big infrastructure projects – by that I mean the whole Sustainable Infrastructure Development Symposium (SIDS) process and the R340bn projects that have already been gazetted. It’s renewable energy, dams, toll roads, etc.

“These would tend to be illiquid investments, so normally investors would invest into them through an infrastructure fund that is usually a private equity structure. You don’t put your money in and take it out the next day – it’s locked in for ten years minimum.”

Slawski says the drive to get pension funds to invest long term into illiquid private equity infrastructure funds makes sense. “There are funds out there that want and can invest into these types of investments, particularly some of the biggest defined benefit funds. They can get good returns and they can take a 20- or 30-year view because they are supporting pensioners for those sort of time frames.”

The reality is that the majority of South African retirement funds haven’t invested more than 2% to 5% in illiquid investments.

“Most have invested nought and the current 10% limit was nowhere close to being an issue. Even the 15% overall across private equity, hedge funds and alternatives wasn’t an issue. So, we’re supportive of increasing that overall. While some funds would use it, it’s unlikely to shift the dial substantially in terms of actual investment into illiquid investments.”

She emphasises that the decision around whether or not pension funds should invest in infrastructure will remain the prerogative of a retirement fund’s board of trustees.

“If the board of trustees is not happy with the governance of a project, they won’t invest in it. With the limit on private equity increased, the board can invest more into all sorts of unlisted corporates – like those companies that have delisted from the JSE and have nothing to do with infrastructure.”

Janina Slawski, Head: Investment Consulting, Alexander Forbes

Withholding PAYE on salaries of non-tax residents

BY BOBBY WESSELS Associate, AJM Tax

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he emergence of a global workforce that can perform services to any employer from any part of the world, has challenged many of the legal norms under which society has operated. It is becoming increasingly important for advisers to consider these challenges and concerns in providing advice. One such consideration relates to the liability of a South African employer to withhold pay-asyou-earn (PAYE) on salaries paid to non-tax resident employees who perform those services abroad. A knee-jerk reaction would infer that PAYE would not need to be withheld. However, that reaction must be grounded in law.

The liability for withholding PAYE on remuneration paid by an employer to an employee is imposed by paragraph 2 of the Fourth Schedule to the Income Tax Act No. 58 of 1962 (the Act). Notably, there is no mention made of the tax residency status of the employee. All that is required is the existence of an employee-employer relationship and that the employer is liable to pay that employee an amount that constitutes ‘remuneration’.

If it is assumed that an employee-employer relationship exists, what remains to be ascertained is whether the amounts payable by the employer to the employee amounts to ‘remuneration’.

The term ‘remuneration’ is defined as ‘any amount of income’, and further, the term ‘income’ is defined to mean the amount of ‘gross income’ after deducting any exemptions therefrom.

For non-tax residents, amounts will only be included as part of gross income if they are derived from a source within South Africa. The source of the employment in the current scenario is not derived from within South Africa, as the employment is physically exercised elsewhere. For that reason, the salary paid in the current scenario does not fall within the definition of gross income. By extension, this would exclude those salaries from the ambit of income and, as a result, the salaries paid would not constitute remuneration as defined in the Fourth Schedule of the Act. There has been some debate as to whether the meaning attributable to income, as used in the context of ‘remuneration’, should be the ordinary meaning of the word or the specific meaning as defined in the Act. However, given the context and purpose of the provision of the Act, it would be more appropriate to rely on the definition that the Act provides, as opposed to favouring the general understanding of the word.

Therefore, the inability of the salaries payable in the current context to fit comfortably within the definition of remuneration would absolve the employer from the corresponding obligation to withhold PAYE. As a result, where a non-tax resident derives salary income, or income of a similar nature, in respect of their employment services rendered abroad, the South African employer would not need to withhold PAYE from the employee’s salary.

The above is of paramount importance for financial advisers in advising their clients – both corporate and individual. The monetary tax implications notwithstanding, there may be some practical difficulties that accompany the compliance related to the above-mentioned scenario. Furthermore, the impact of exchange control must also be considered in advising on the flow of funds from the employer to the employee. As with any professional advice, there is a myriad of factors that must be considered; however, the liability of the employer to withhold PAYE, in the current context, may be mitigated.

“The impact of exchange control must also be considered in advising on the flow of funds from the employer to the employee”

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30 April 2021

NEWS & OPINION

Freeing up your time to focus on clients Financial planning versus managing assets.

DEBRA SLABBER, CFA®, Portfolio Specialist, Morningstar Investment Management South Africa

by blending different managers and styles while still being valuation cognisant. This means that the underlying managers in our portfolios have different roles and therefore different alpha cycles (meaning they won’t all perform the same at the same time).

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ccording to financial services industry research company Investment Trends, the average adviser spends more than seven hours producing a financial plan and suitability report. This doesn’t take into account the time needed for responsibilities such as setting an appropriate asset allocation, building a portfolio and providing ongoing risk management. The reality is that it takes time to build portfolios to meet the different goals, financial circumstances and risk tolerances of every client in your practice.

Increasingly, advisers are deciding to work with providers of discretionary investment management to reduce the time spent on investment decisions and portfolio construction. This enables them to spend more time focusing on other aspects of their client’s financial plan and deliver more personalised services.

At Morningstar Investment Management, we believe that a first-class investment process focuses on the end-investor, strives to minimise cost, and provides long-term solutions that draw on tangible expertise.

With this in mind, let’s unpack Morningstar Investment Management’s core capabilities and, more importantly, how we work with the adviser to ultimately achieve a good investor outcome.

We apply our expertise in asset allocation, manager selection and portfolio construction to create investment strategies for our clients. This is strengthened by our access to independent investment research, data and analytics of the global Morningstar group.

Let’s unpack each of these capabilities separately.

Asset allocation Financial markets are increasingly complex, and the range of investment opportunities continues to grow. We know it’s a massive challenge to evaluate all these opportunities and assess their suitability for your clients.

When returns from asset classes are lower and volatility is higher, the responsibilities of managing and monitoring client portfolios become even more taxing.

In 2020, markets played havoc with endinvestors’ emotions. As an independent investment management firm, we manage asset allocation decisions on behalf of our clients and strive to keep clients calm and invested through volatile periods.

During the past year, we increased our South African government bonds position when yields blew out, we increased our South African equity exposure

when equity markets tumbled, we took advantage of a stronger rand to increase our global exposure, and we reduced cash as rates decreased dramatically. These asset allocation decisions had a positive impact on client portfolios.

Valuation-driven investing requires experience, dedication and the application of a robust and repeatable asset allocation process. Our approach allows us to maximise our exposure to our best investment ideas and accounts for the complexity and multifaceted nature of investment risk. We look at each investible asset class through a valuation lens, but also spend a lot of time trying to understand the underlying fundamental risk.

Manager selection Once we establish our asset class convictions, we search for managers that best align with our asset class views.

Our manager selection process follows a rigorous qualitative and quantitative method to identify the best of breed managers we choose to work with.

Morningstar meets with fund managers continually and has an ongoing structured review program to ensure we remain informed and can question managers where needed. Funds that appear to have strayed from their investment styles, experienced management and/or organisational changes, trigger a review of our initial analysis.

We are proud that the managers in our portfolios have delivered exceptional returns for our clients. Some of the stand-out performers over the past year have been managers like Fairtree Equity, Nedgroup Core Bond and Ninety One Global Franchise.

We aim to provide our clients with a consistently good outcome throughout their investment journey. We achieve this

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Portfolio construction Closing the loop on the first two aspects – portfolio construction is just as important as asset allocation and manager selection.

Maintaining portfolios is a task you can never truly finish: clients’ circumstances change, as do market conditions, asset managers’ performance and other factors that can affect whether a decision is suitable. Every portfolio carries never-ending monitoring and reporting responsibilities.

Portfolios are actively managed and subjected to rigorous qualitative and quantitative analysis when selecting underlying funds. The portfolios provide advisers with many benefits in terms of flexibility, liquidity and transparency. We combine risk profiling, renowned assetallocation research, strict investment selection and professional investment expertise in our Morningstar Managed Portfolios. We use unbiased, objective research from Morningstar, Inc. to create a range of portfolio options for clearly defined risk profiles.

We constantly review and seek to maximise the reward for risk across the investors’ journey. To do this, we have a formal structure to regularly reassess our asset class convictions, our manager buy-list and the underlying portfolio compilation given the changes in investment ideas, aggregate risks and exposure. This iterative process reconsiders the opportunity set, with a constant eye on fundamental diversification, while remaining biased toward inaction and long-term holdings. A key element is, therefore, keeping turnover and transaction costs as low as possible.

Independent investment research, data and investor education It’s not enough for financial advisors to be investment experts; they need to understand people. By helping investors uncover their true financial goals and align them to a portfolio, you’re putting them on track to achieve whatever they define as financial success. That’s when they start to

“Some of the stand-out performers over the past year have been managers like Fairtree Equity, Nedgroup Core Bond and Ninety One Global Franchise”

understand the value of advice.

We keenly share our knowledge, whitepapers, research insights and adviser tools with the advisers we work with to enable investor success. We provide advisers with the information, materials and support they need to build client relationships and expand their business.

We provide direct communications about the markets and portfolio changes and the reasons behind them, so advisers are always informed and able to explain these to their clients.

The information you get from us is immediately relevant to your clients because it can be easily communicated and understood. Our independent investment analysts have a track record of curating, contextualising and conveying investing insights simply and clearly through their candid analysis and use of consistent methodologies. We also have a dedicated behavioural science research team that regularly curate research and tools to help investors reach their goals.

Morningstar is focused on helping you empower investor success As a financial adviser, you know the real value of your service is making sure your clients’ financial affairs are in order. You make sure that clients are increasing their savings rather than accruing debts.

You help your clients save enough to live well in retirement. You create protection policies that can support children in case the worst should happen.

Where once investors and advisers didn’t have enough investment news and information, today there’s too much. Now you need a filter to identify appropriate investments from the rest – those investments that best fit into your strategies and get you closer to meeting your personal finance goals. Advisers aren’t expected to shoulder this investment management burden alone.

Working with a discretionary investment manager allows you, the adviser, to overcome capacity constraints and development expenses. This enables you to concentrate on growing your business, knowing you can lean on your investment management provider. It can also help you to create a better distinction between financial planning and managing assets.

Morningstar is focused on helping you empower investor success. At times like this, more than ever, we strive to provide the support advisers need to help keep clients engaged, informed and on track to achieving their financial goals.

Disclaimer available at https://bit.ly/ PlanningVSAssetManagement

30 April 2021

INVESTING Ray Pretorius, Iress Managing Director South Africa

John Daly, CEO, Listcorp

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n line with global trends, the increase in retail investing activity through social media, online share trading platforms and mobile apps create an opportunity for listed companies to educate and engage with this rapidly growing community about their business.

Until now, there hasn’t been an easy, standardised way for companies to engage with this community, beyond the regulatory information published on platforms such as the JSE. Technology company Iress, and Australian investment information service Listcorp, have formed a technology partnership to address this gap. Through Iress’ investor relations, South African listed companies can engage with investors, share their business activity, strategic insights, and elevate their corporate profiles to the retail market.

“With this platform, we are giving issuers a new way to tell their story directly to institutions and individuals” Rene_Ad.pdf

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New platform helps listed South African companies engage with investors Communicate directly with retail investors Listcorp is designed to facilitate discovery, understanding and communication between investors and listed companies. This service provides retail investors with detailed, timely information on all South African listed companies via a personalised, social media style experience. Listed companies are empowered to connect with all shareholders and investors with rich media company news beyond mandatory market announcements.

Iress Managing Director South Africa, Ray Pretorius, says the way South Africans invest is evolving, as digital platforms enable them to take more control of their own portfolios. “While most listed companies have established channels to communicate with analysts and institutional investors, they recognise that they need to reach retail investors, too.

Built for better engagement Issuers can populate their profiles with a range of company information to provide meaningful investor relations communications. They can also leverage web widgets powered by Iress market data on their own corporate investor relations pages, ensuring they offer

detailed and consistent company information to all investors across multiple platforms. These widgets are designed to be configurable and easy to use, with new features continually being added.

“One of the major challenges facing listed companies in South Africa is finding and engaging with their audience. Our aim is to provide these companies with access to a set of tools that help shareholders to become long-term investors. We also bring them a fast-growing and highly active investor community with a keen interest in finding new companies in which to invest,” says John Daly, CEO at Listcorp.

“With this platform, we are giving issuers a new way to tell their story directly to institutions and individuals – in the same place and format for every company, and in any media they wish. It’s a scalable, simple way for them to build lasting relationships with their investor communities.

“By making high-quality company information easily available to individual investors, it empowers them to make informed decisions about the equity investment opportunities on offer,” he concludes.

Visit iress.com/investor-relations/ for more information or sign up at listcorp.com for free.

Investor relations software

K

Built for better engagement iress.com/investor-relations

www.moneymarketing.co.za 17

30 April 2021

INVESTING

FNZ rolls out blockchain solution for SA funds industry

Asset managers meeting the challenges of the Coronavirus crisis

BY PIETER HUGO Chief Client & Distribution Officer, Prudential Investment Managers

This development takes the South African market to the forefront of managed fund servicing globally.

Hugh Evans, Managing Director, FNZ South Africa

F

NZ, the global wealth management platform, has begun the rollout of FNZ ChainClear, its blockchainbased fund trading and settlement solution, to the South African funds market.

The solution – which is being deployed in partnership with FinSwitch, following an agreement reached in May 2020 – will support the entire South African fund management industry and streamline fund operations across trading, settlement and reconciliation activities.

It achieves this outcome by replacing slow, file-based batch processing of fund administration activities with a single real-time, automated end-to-end solution. Using blockchain or distributed ledger technology, multiple copies of fund ownership records held by each industry participant and manually synchronised, are replaced with a single ‘source of truth’, securely federated across all participants.

This lowers costs and improves access for South African investors, as well as reducing operational delays and errors that give rise to risk.

Alongside these benefits, FNZ ChainClear provides an improved digital experience for users, including more powerful tools to dynamically manage business relationships and increase the efficiency of fund distribution.

FinSwitch and FNZ are now using blockchain technologies to process hundreds of thousands of trades and other transactions on behalf of 140 South African financial institutions every week, in a parallel processing phase

alongside the existing system. Once fully deployed, this will allow legacy market infrastructure to be retired.

“This development takes the South African market to the forefront of managed fund servicing globally,” says Hugh Evans, Managing Director at FNZ South Africa.

“It reflects our strong commitment to and conviction in the long-term growth potential of the South African investment industry. Our partnership with FinSwitch is a key part of our strategy in South Africa and we’re delighted to have reached this key milestone in just 10 months.”

Jack White, Head of FNZ ChainClear Proposition at FNZ, adds that blockchain and distributed ledger technologies provide a huge opportunity to make the process of fund administration and distribution more efficient and costeffective for all participants.

“This marks a significant milestone in the development of FNZ ChainClear, and demonstrates that we are taking that opportunity as we seek to deploy the solution more widely across the markets in which we operate.”

According to Nick Baikoff, Managing Director at FinSwitch, the FinSwitch blockchain, powered by FNZ, presents “an opportunity to fundamentally re-architect the existing operational topology of the Collective Investment Scheme industry in a way that brings about dramatic improvements in efficiency and cost reduction for all stakeholders, ensuring that costs will be significantly reduced over time, making investments more affordable to the end investor”.

“FinSwitch and FNZ are now using blockchain technologies to process hundreds of thousands of trades and other transactions on behalf of 140 South African financial institutions every week” 18 www.moneymarketing.co.za

T

he Coronavirus pandemic has had a significant impact on our asset management industry, accelerating some existing trends and introducing new challenges to business models and technological capabilities, as well as very interesting opportunities. Although many local managers like Prudential have navigated the crisis very successfully, it has shown us that going forward we will need to be more adaptable than ever. This, while also maintaining a stable company culture and operational base, and delivering consistently excellent client services and investment returns.

Among the most evident development over the past year has been an increase in the willingness of investors to use online channels to engage with their advisers or asset managers, educating themselves on their investments.

We see this as very positive, as individual investors have taken on more responsibility for their own money and securing their own futures. Asset managers have responded by implementing enhanced online processing, ramped-up electronic client service capabilities and an increasing use of the latest technology, such as AI and chat-bots, to help meet client demand and improve their online experience. Those companies without sufficient resources and skills to exploit new technologies for client engagement and data mining (and deploy all of this while operating largely in a ‘work-from-home’ environment) are being left behind.

The Coronavirus crisis also added urgency to the already strong and growing investor demand for offshore investments and the most efficient ways to access them. This, plus the ongoing internationalisation of asset managers, has accelerated local industry globalisation. Although this trend started long before the pandemic, there is greater resiliency among SA asset managers associated with global groups. Prudential has always had M&G Investments as a major shareholder since our founding in 1994, but in more recent years, some larger SA managers have partnered with international firms to access global expertise. Others have focused on building offshore investment capabilities themselves. Competition has become truly global, with scale (the more assets under management the better) an everincreasing necessity in helping reduce operating costs even further. Indeed, in the past year SA has seen many small asset management boutiques closing down and/ or consolidating, having become operationally unviable on reduced asset bases.

Today, Prudential is on an accelerated path to becoming more integrated with M&G Investments – both in terms of ownership and operations – recognising the enormous benefits of sharing in even more of their global expertise. Being listed in London, they must grapple with the higher costs and complications of complying with the latest regulations, changing standards for financial advisers, cost pressures from clients, and the development of new global investment opportunities – just to name a few issues – before they reach South African shores. This gives us an indication of the future of our own industry and makes us more prepared for change when it happens. Equally, there are the more obvious advantages of accessing new technologies through enhanced purchasing power, sharing global investment expertise with specialists based offshore, and employing the best governance and compliance practices. Most importantly for investors, however, globalisation can result in better investment results through improved portfolio diversification, risk management and access to new products through cutting-edge technologies.

“Prudential is on an accelerated path to becoming more integrated with M&G Investments”

30 April 2021

INVESTING

Active opportunities from extreme polarisation in equities

BY JANICE ROBERTS Editor: MoneyMarketing

S

etting the scene for the rest of this year, Fabiana Fedeli, Global Head of Fundamental Equities at Robeco, believes that vaccines, central banks and government stimulus will support the macro recovery. Equities are Robeco’s favourite asset class – and within equities, emerging markets are favoured – while in fixed income, credit is preferred to government bonds.

Importantly, the extreme polarisation in equities witnessed in 2020, will provide “significant investment opportunities for active investors”, Fedeli says. In addition, there are three clear long-term trends that investors will have to take exposure to: China, sustainability and smarter value.

However, she warns that investors will need to stay selective.

The policy trilemma Policymakers are confronted with a trilemma between public health, the economy and personal freedom when it comes to managing the COVID-19 outbreak. “The solution to this is the vaccine – the timeliness, the effectiveness, and a return to a new normal will shape 2021,” Fedeli says.

Robeco’s base case is premised on four elements: 1. Additional vaccines are approved in the first half of 2021. Global distribution is largely achieved but not without temporary hiccups and setbacks, while some social distancing measures remain.

2. Fiscal and monetary policy remain (very) accommodative with a high degree of mutual cooperation.

3. The outbreak is a disinflationary shock, but as economies open up and continue their recovery, inflation starts to turn, and earnings to rise.

4. US elections: The victory of the Democratic party with a relatively small majority in Congress means more fiscal expenditure and a limited increase in taxes.

“Our favourite asset class this year is equities. We favour emerging markets equities, followed by Europe. And we also see some interesting but selective opportunities in Japan. Within emerging markets, we like North Asia, but we’re also starting to see opportunities elsewhere,” Fedeli says.

She sees global equities as gaining between 10% and 16% this year.

The most important element to monitor for the equities outlook is COVID-19, as investors shift their attention from infection rates to vaccination rates. In the technology sector, Robeco is not keen on what Fedeli calls “the high-flying digital COVID defensive sectors”, preferring other areas in the sector, particularly hardware and lesser known companies.

“We like the enablers of sustainability as a theme – sustainability has done very well in the market. We like materials, healthcare and discretionary consumption and we like financials, but we’re sticking to the higher-quality balance sheets.”

China, value and sustainability Fedeli sees three clear trends unravelling as the path to normalisation continues.

1. China is destined to become a core allocation China is the second largest equity market in the world. It’s a third of the size of the US market but is far larger than other markets.

“We can’t ignore it. China’s presence in the MSCI index is also increasing because the government is frequently opening investment in the domestic market to foreign investors,” she says.

2. Smart value will return According to Fedeli, value investing will continue its return. “We’ve seen this since November 2020, but we believe that we have to look for smarter alpha value. Cyclical stocks will do well but we also believe we have to be careful. We really have to look at those companies that are able to innovate.”

3. Follow the green signs as COVID-19 has increased the stakes Sustainable strategies have had far stronger inflows than the rest of the mainstream strategies in equities.

“We believe this is a trend that is destined to continue, and it is a trend to which investors should gain

exposure, as governments will continue to pour more fiscal support into environmental protection.”

Active opportunities from extreme polarisation While the rally after the COVID-19 sell-off in March 2020 was driven by a handful of mega-cap tech names, there are still plenty of opportunities, Fedeli says.

“In 2020, the S&P 500 top five stocks were up 65%, and the other 495 were up 10%. In emerging markets in 2020, the top five were up 47%, and the other 1 375 were up only 11%. This means that as active investors, if we look for those companies that have strong fundamentals that are driven by similar trends as the top five – and many others that are exposed to the economic recovery – we can actually find some really strong opportunities.”

Fabiana Fedeli recently made a presentation at a webinar hosted by Momentum Investments.

Fabiana Fedeli, Global Head of Fundamental Equities at Robeco

www.moneymarketing.co.za 19

30 April 2021

INVESTING

How do you use tax-free products in your client’s investment portfolio? can offer almost 10% higher accumulated value if compared to a taxed investment vehicle, assuming a marginal tax rate of 30%. And this can increase to almost 50% higher accumulated value over a 30-year period.

MARTIN RIEKERT Head: Retail Investments, Momentum Investments

T

he 1st of March announces the beginning of a new tax year, and our yearly contribution limit to tax-free savings solutions starts afresh. This typically follows a busy February where advisers and clients rush to make a final contribution before the end of the tax year. For us it was no different this year, and in February we observed a total contribution to tax-free products almost three times the average of the previous 11 months.

But how do you utilise this tax-efficient investment vehicle as part of your client’s personal financial plan?

As a savings vehicle for a short- to medium-term goal or to accumulate monies for a rainy day? The effect of tax-free growth, coupled with the wonder of compounding, can be quite material over the longer term.

As an example, over 10 years a tax-free product

“Tax-free savings products also offer additional flexibility – most notably on asset allocation requirements”

*Source: Momentum Investments

This begs the question: What is the most optimal use of your client’s tax-free contribution limits? Although the effect on short- to medium-term investment goals are by no means something to ignore, the benefit is progressively more if a client remains invested for a longer investment horizon.

Tax-free savings products can be used as part of clients’ retirement planning. This is especially relevant for clients who have already contributed the maximum of R350 000 per year to their retirement fund savings, by supplementing their retirement savings with a tax-free product.

Tax-free savings products also offer additional flexibility – most notably on asset allocation requirements. Unlike retirement fund solutions, a tax-free savings solution is not

restricted to Regulation 28 requirements. This solution can therefore be used to tweak the overall asset allocation of a client’s investment portfolio, especially if there is a need for higher allocation to appropriate growth assets.

It is important to note that the effect on your clients will, as always, depend on their unique financial situation.

We believe that financial advice plays a critical role in understanding these circumstances, and in developing an investment strategy that addresses your clients’ personal investment goals.

And by partnering with a credible investment platform – like Momentum Wealth – you can get access to a personalised investment strategy. Momentum Wealth offers a wide range of underlying investment solutions – one of the widest ranges in the industry – that you can use to construct an investment portfolio that balances your client’s risk tolerance and risk appetite.

Advisers will play an increasingly important role as ‘financial coach’ to their clients. This partnership will assist clients not only to start their investment journey to success, but also to stay the course when markets become volatile. By staying invested, a client can accumulate significant benefits in their tax-free savings solutions that will help them to achieve their personal investment goals – something we know is important to you, and is equally important to us.

The information in this editorial is for general information purposes and not intended to be an invitation to invest, professional advice or financial services under the Financial Advisory and Intermediary Services Act, 2002.

Neither Momentum Wealth (Pty) Ltd nor any of its subsidiaries or affiliates make any express or implied warranty about the accuracy of the information herein. Momentum Wealth (Pty) Ltd (FSP 657) is an authorised financial services provider and part of Momentum Metropolitan Life Limited, an authorised financial services and registered credit provider (FSP 6406).

Strong interest in offshore equity funds

BY DAVE CHRISTIE Offshore Product Specialist, Ashburton Investments

T

he Johannesburg Stock Exchange (JSE) All Share and Top40 indices have made a series of record highs in the recent months.

This has not deterred South African investors from continuing to invest apace in hard currency global equity funds such as the JSE-listed Ashburton Global 1200 Equity Fund of Funds ETF and the Global Leaders Equity Fund.

We have seen record flows into these funds.

While many South African listed shares, and particularly the so called ‘SA Inc’ shares – like banks, retailers and local Real Estate Investment Trusts (REITs) – have rallied from very oversold levels, this, however, does not guarantee future returns.

Weak local economic fundamentals are a major contributing factor for investors’ preference for offshore markets. South Africa faces economic and industrial policy uncertainty of land expropriation, inflexible labour laws, among other populist pressures.

Add to that the current strength of the rand, which has helped drive up local shares and create a greater sense of confidence. A strong rand has provided South African investors with a window of opportunity to convert rand to hard currency and invest offshore, thereby globally diversifying their portfolios.

20 www.moneymarketing.co.za

Many South African investors continue to take advantage of the weaker dollar, taking a long-term view on the rand.

As a locally listed, passive option, the low-cost JSE-listed Ashburton Global 1200 Equity Fund of Funds ETF (ASHEQF) has continued to grow in popularity, having recently reached R1bn worth of assets under management in just over three years since its launch.

It provides cost-effective, geographic and hard currency diversification in one simple JSE-listed investment that does not require the use of offshore allowances.

It captures 70% of the world’s market capitalisation through investing in seven regional ETFs as a way to keep costs low while ensuring tracking efficiency. These are the S&P500 (US), MSCI Europe, S&P TOPIX 150 (Japan), S&P/ TSX 60 (Canada), S&P/ASX All Australian 50, S&P Asia 50 and S&P Latin America 40.

Another appealing offshore investment is the actively managed Global Leaders Equity Fund. This fund is designed for people wanting to invest long term in a

concentrated portfolio of the world’s most prominent companies, household names and industry leaders, such as Microsoft, Visa and Alphabet.

“Weak local economic fundamentals are a major contributing factor for investors’ preference for offshore markets” The Global Leaders Equity Fund gives investors access to mega-cap businesses, each with a market cap in excess of $20bn, with global presence and constituents of the major indices such as the FTSE, Dow Jones or Nikkei.

The Global Leaders Equity Fund aims to achieve longterm capital growth over the economic cycle by selecting no more than 25 equities with best-in-class management and solid balance sheets. One can invest directly offshore or utilise the Ashburton Global Leaders Equity ZAR Feeder Fund. Flows into the ZAR-based Global Leaders feeder fund have quadrupled in the last six months.

Whichever the route to offshore, it makes sense to invest in leading companies, technologies and industries, exposure to which is often not available on the JSE.

MI-CL-8-AZ-136660

Multiasset-class solutions

Index tracker solutions

Fixed income solutions

Equity solutions Property solutions

Smart beta solutions

Whatever your clients’ investment journey, we have the investment capabilities to help them achieve their goals.

Because with us, it’s personal.

We pride ourselves on the vast range and diversity of our investment capabilities.

Whatever investment road your clients are on, we have the investment capabilities they need to achieve their goals. We work with you to choose suitable options that can help transform each client’s hopes and dreams into reality.

Join the unstoppable force of momentum. Because with us, it’s personal.

Speak to your Momentum Consultant or visit momentum.co.za

Momentum Investments is part of Momentum Metropolitan Life Limited, an authorised financial services (FSP6406) and registered credit (NCRCP173) provider.

Alternative investment solutions

Global solutions

30 April 2021

INVESTING

Income funds still have a place in a volatile environment Loose monetary policy and fiscal stimulus remain a key component of developed market policies as the world navigates the pandemic, meaning risk assets may remain in demand. Income funds, however, still have a role to play in a portfolio, writes Glen Copans, Chief Investment Officer at Investec Specialist Investments.

A

ll eyes were on Finance Minister Tito Mboweni in February as he tabled the 2021 Budget. South Africans were looking for the easing of tax measures to help boost domestic and foreign investment and stimulate economic growth in a post-pandemic environment.

The impact of the Budget and the dynamic environment are, however, not limited to large institutional investors.

They’re equally relevant to private clients and retail investors who are struggling to balance risk and income in their investment portfolios.

The COVID-19 pandemic drastically changed the local and global investment landscape. Strict lockdowns collapsed

“Income funds, however, still have a role to play in a portfolio” demand and slowed economies to a sluggish pace. A loosening of monetary policy drove short-term rates to all-time lows. Investors may still be earning a real return on their investments through income funds; however, they are not at the absolute level that they were before inflation and rates fell.

Loose monetary policy and fiscal stimulus remain a key component of developed market policies as the world navigates the pandemic. This means that risk assets may remain in demand, at the possible expense of income funds. Any concomitant rise in inflation may also put

Glen Copans, Chief Investment Officer, Investec Specialist Investments

pressure on the income fund segment of the market, especially with short-term rates expected to remain low for the foreseeable future.

Despite these changing dynamics and the rising appetite for risk assets, income funds and similar funds are still prioritised by investors looking for consistent and enhanced returns with relatively low risk, within a balanced portfolio construction.

Income funds offer low-risk returns in volatile markets Income funds have been a popular investment strategy due to their dependable, low-risk return, especially when compared with general equity funds, which up to last year have had to contend with a sluggish local equity market.

Market dynamics can change quickly, however, as we saw last year. This is why investors need to regularly reassess their holdings, and the underlying forces that drive their returns, for signs of change.

Black Swan events, similar to that which we have experienced in the last 12 months, require a reassessment of the dynamics.

The market dislocations of March and April last year were a novel experience for many income fund investors. With the instantaneous and significant widening of credit spreads, coupled with the simultaneous steepening of the yield curve, fixed income assets fell significantly.

Despite income funds having low duration exposure, the allocations resulted in negative returns for the majority of income funds, with many funds delivering their lowest monthly returns to date.

Although losses have subsequently been clawed back with a normalisation of both credit spreads and interest rates, investors have seen that this class of funds is not immune to volatility or negative returns.

The majority of income funds do not take large fixed-rate exposure, with the expected yields being highly correlated to interest rates, as evidenced by the concurrent reduction in the absolute yield. The relative outperformance of the underlying assets, however, which continues to deliver around 2% above cash, is more pronounced in the current low interest rate environment. This level of outperformance remains compelling,

22 www.moneymarketing.co.za

as it continues to yield real returns above inflation, despite the lower absolute yield.

The selective use of credit instruments, including banks and corporate credit, drawn from an expanding investable universe, is a way for income funds to enhance returns. Another is to increase duration, given the steepness of the current yield curve, specifically through investment in government bonds. This offers an opportunity to earn returns in excess of inflation, despite this being a crowded trade in recent months.

Diversification can help you weather the storm The increasing diversification of investment strategies employed by income fund managers has led to greater dispersion of returns between funds, albeit that the majority have managed to produce real returns despite the volatility and low-yield environment.

Different sub-asset classes within the income space, such as credit, can help a fund manager achieve these diversification goals.

Consequently, investor interest persists, as is shown by the continued growth in the income sector dominated by a few large funds. We’ve seen a further diversion from cash investment allocations as investors better understand the risk return dynamics of the fixed income asset class under different market conditions.

New generation income-type investments may also fulfil a role in an income fund through so-called yield companies (yieldcos), whose distributions are tied to underlying contract income.

Good examples include yieldcos that invest in renewable energy projects, or those where income return is derived

from preference shares or real estate investments. In addition, the expansion of income assets to include global opportunities is both providing further diversification and enhancement to the portfolio construction process.

Persistence in performance should always be an important consideration for income fund investors. Typically, investors will want the comfort of knowing that funds that have delivered in the past will continue to do so in future. This is of particular relevance for income fund investors, for whom a reliable source of income is paramount. Persistence in the underlying instruments, achieved through a reduction in market risks by the investment manager, leads to greater certainty of the outcomes and less variability in returns. Compare this with, for example, general equity funds, where a degree of volatility can be tolerated in the short term, so long as growth is delivered over the long term.

Investors should therefore pay particular attention to measures such as dispersion of returns around the benchmark and maximum losses experienced through an appreciation of volatility, alpha (fund performance relative to its benchmark) and return drawdowns. In addition, qualitative criteria such as changes to portfolio managers, their investment strategy or philosophy, should also receive attention, given the conservative nature of the asset class.

The key focus, however, remains on managing the risks. If fund managers can control volatility and any potential capital risk, then allocations to a broader range of instruments can help investors to deliver consistent enhanced returns within a diversified portfolio.

“Income funds and similar funds are still prioritised by investors looking for consistent and enhanced returns with relatively low risk, within a balanced portfolio construction”

Boutique Asset Managers

SUPPLEMENT

WHAT’S INSIDE ...

The future of investing is human – only smarter and faster Integrating fundamental analysis with machine learning in a hybrid framework can improve investment decision making Page 26

The essence of being a boutique manager It is especially disconcerting to note that boutique managers are often regarded as start-ups or lacking scale Page 27

The road less travelled There are two major certainties in asset management: Asset allocation is the major determinant of portfolio performance, and costs erode returns Page 30

30 April 2021

BOUTIQUE ASSET MANAGERS SUPPLEMENT

Is the asset management industry primed for consolidation and what does this mean for boutiques?

BY KEVIN HINTON Director, The Collaborative Exchange

I

n last year’s MoneyMarketing Boutique Investment Management Survey, I wrote about fee and margin pressures across the industry, insurance companies acquiring assets and wealth managers, vertical integration of wealth and investment management businesses, and the fact that the asset management industry was a crowded space – by this, I mean that there is excess manufacturing capability.

Headlines across the world in 2020/21 have reinforced some of these principles – ‘M&A in 2021: Asset Management primed for consolidation’ and ‘Merger mania sweeps asset management industry’. According to a leading US investment bank, “Only half of the fund industry’s current asset management companies will exist by 2030.”

These are very bold predictions.

We all know that the developed world is not always a proxy for South Africa, but we have also seen a number of interesting transactions occur in the local landscape: 1. Laurium Capital acquired 100% of the equity of Tantalum Capital, which was previously owned by staff and RMI Investment Managers. According to Laurium, the deal was to “strengthen the combined efforts of the teams across multi-asset portfolios, with an emphasis on global equities and fixed income”.

2. Following Counterpoints merger with RECM, it also announced the acquisition of Bridge Fund Managers. With Bridge’s ‘payers and growers’ strategy, combined with Piet Viljoen’s ‘contrarian’ value and Sam Houlie’s valuation-based investing, it brings together ‘scale’ and a multiboutique offering.

3. Franklin Templeton, who has a presence in South Africa, announced its acquisition of Legg Mason, creating the world’s sixth largest independent company in the world.

These deals are possibly complementary to the acquirers and provide added scale

to these businesses. One could argue that the level of corporate activity is insufficient relative to our market size, but our fragmented market is also constituted by so many other factors.

In South Africa, we still have over 1 800 unit trust funds on offer, while the JSE has seen a flurry of de-listings in recent times, bringing the number of shares listed on our local exchange now to only 442.

Many funds in South Africa are ‘legacy’ funds and some of these are sub-scale and have very little assets in them.

The industry would be well advised to reduce this clutter to increase operational efficiency.

At least 2020 has brought about some relief to fund managers who have been struggling with scale and competition, as asset values have risen sharply over the past few months. However, it is my view that the following longer-term market dynamics will be in play for both boutiques and large fund managers in South Africa: • Sustained alpha generators will set themselves apart through a unique edge in investing and consistent outperformance of benchmarks and peers. Many fund groups are criticised as being ‘index huggers’, with no meaningful areas of differentiation.

• Vertically integrated distributors will continue to leverage their control of the full value chain to capture flows. This will give them privileged access to end investors or permanent capital through fund platforms (LISPs) and wealth management/agency sales force arms.

• Solutions providers will offer value through delivering on investor’s longterm complex investment needs, such as liability investing or outsourced Discretionary Fund Management services.

• Ignore indexation/rules-based investing at your peril. While in South Africa passive flows remain at about 10% of industry net flows, this is not the case internationally. Vanguard and BlackRock were the world’s bestselling fund managers globally in the first half of 2020.

According to renowned advertising executive Jonathan Perelman from BuzzFeed, in today’s modern world “Content is King, but Distribution is Queen, and she wears the pants”. Fund management groups would be well advised to consider this statement. Without effective distribution channels and access to growing asset pools, scale will inevitably be unattainable and industry margin compression (mainly driven by passive competition) will force further industry consolidation.

24 www.moneymarketing.co.za

The fund that turned

R1m into R100m

BY ALAN YATES Business Development, Peregrine Capital

A

t Peregrine Capital, our overarching goal is to create wealth for our clients. As an asset management business, this is the essence of our existence, and we have spent the past 22 years working to achieve this. December 2020 marked a special milestone for the High Growth Fund when it became the first fund in South African history to achieve 10 000% return for investors since its inception. This means that R1m invested on 1 February 2000 would be worth more than R100m today.

The goal of the High Growth Fund has always been to deliver exceptional returns to investors, and as such, it is the fund with the most equity market exposure in our hedge fund stable. The net equity exposure in the fund is typically between 60% and 80% and is therefore very comparable to funds in the multi-asset high equity category. Over the past 21 years, the average fund in the ASISA South Africa multiasset high equity category has given investors an annualised return of around 10.3%.

The High Growth Fund has delivered more than double that at 24.9% per annum.

This sort of long-term record is not something that can be achieved by simply swinging for the fences and assuming excessive risk. In fact, it can only be achieved if risk management is a cornerstone of your process. Loading up on risky bets might give a fund an exceptional once-off return, but ultimately it will sink the ship at some point on the journey. Our process always values consistency and predictability of outcomes over great short-term returns. In the 21-year life of this fund, we haven’t had a drawdown of even half the biggest drawdown on the JSE. Over the fund’s life, the fund’s maximum drawdown has been 17% vs 40% for the JSE Capped SWIX. That for us is a key measure to look at, because lower drawdowns and volatility make for much happier investors. Achieving great returns on their own is not enough. They need to come with exceptional risk management as well. Managing the risks well also makes it that much easier to generate great returns. By managing our portfolio risk well in March last year (the High Growth Fund was down 1% vs 16% for the JSE), it made it much easier for us to post a good net annual return of 17% when the JSE managed less than 1% in 2020.

While 100x capital is an achievement that we are certainly proud of, it is more a by-product of our investment process than a goal we set out to achieve. More than anything, it shows the impact of the compounding of returns over an extended period.

It highlights the importance of investing for the long term and sticking with a manager that can deliver sustained returns through the consistent application of a tried-andtested investment process. We are committed to applying those principles with renewed vigour for the next 20 years, so that we continue to deliver exceptional future returns for our clients.

SA’s first fund to deliver 100x initial investment Peregrine Capital’s High Growth Fund has proven its pedigree – R1m invested in 2000 is worth more than R100m today*

www.peregrinecapital.co.za

*Fund performance: Returns are quoted net of fees Annual management fee: 1.5% Fee class status: Class: A, distributing

Fund performance provided as at 31 January 2021 Performance fee: 20% subject to High Water Mark Source: Peregrine Capital

Peregrine Capital Proprietary Limited (“Peregrine Capital”) is an authorised financial services provider and is the investment manager of the Peregrine Capital High Growth H4 QI Hedge Fund (“High Growth Fund”). H4 Collective Investments (RF) Proprietary Limited, is an approved manager of collective investment schemes in terms of the Collective Investment Schemes Control Act, 2002.

Net asset value figures (NAV to NAV) have been used for the performance calculations, as calculated by the manager at the valuation point defined in the deed, over all reporting periods. The performance is calculated for the portfolio. Individual investor performance may differ, as a result of initial fees, the actual investment date, the date of reinvestment and dividend withholding tax. Performance is based on a lump sum contribution and is shown net of all fund charges and expenses, and includes the reinvestment of distributions. Actual annual figures are available to the investor, on request at info@h4ci.co.za. A schedule of fees, charges and maximum commission is also available on request from the manager. The rate of return is calculated on a total return basis, and the following elements may involve a reduction of the investor’s capital: interest rates, economic outlook, inflation, deflation, economic and political shocks or changes in economic policy. Annualisation is the conversion of a rate of any length of time into a rate that is reflected on an annual basis. Past performance is not indicative of future performance. This is a medium to high risk investment.

Fund Name

Inception date

Highest annual return

Lowest annual return

Rolling 12 month return

High Growth Fund

Feb 2000

53.01% (2004)

-11.98% (2008)

21.99%

FTSE/JSE Capped Swix All Share Index

Feb 2000

47.25% (2005)

-23.23% (2008)

6.60%

ASISA South Africa MA High Equity

Feb 2000

27.49% (2004)

-8.24% (2008)

4.15%

The ‘JSE Capped Swix All Share Index’ referenced is the index from December 2016 to date, before that the JSE All Share TR Index is used.

30 April 2021

BOUTIQUE ASSET MANAGERS SUPPLEMENT

The future of investing is human – only smarter and faster What is artificial intelligence?

AI refers to machines replicating human intelligence.

What is human intelligence? It has two key components: recognition and reasoning. Machines do a far better job at recognition than humans, but arguably, humans are still far superior at reasoning. Hence, the advent of augmented or hybrid intelligence, which blends the best of both worlds: machines doing the recognition and humans the reasoning. At Sentio, we combine machine learning (a branch of AI) with fundamental analysis (a branch of human intelligence) in an integrated process that guides our investment decisions.

What is machine learning?

The investment industry is full of rules of thumb like ‘buy low PE stocks,’ or ‘buy quality companies’. At the core, it’s all about trusting the fund manager who has extensive experience in markets and often speaks with high conviction. But, have these rules been tested in a rigorous manner? What about complex unintuitive relationships? That’s the home of machine learning, which is all about data-based and evidence-based testing of rules out-of-sample, and finding complex unintuitive relationships that are impossible for the human mind to fathom.

BY RAYHAAN JOOSUB Deputy CEO, Portfolio Manager, Sentio

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rtificial intelligence is not going to change the world – it has already. AI was already one of the fastest growing industries in the world and the COVID-19 pandemic has just accelerated that growth astronomically. The investment industry is no different, with a significant growth in AI-focussed managers launching into the market.

“Integrating fundamental analysis with machine learning in a hybrid framework can improve investment decision making” Sentio_MM_Apr 2021_Tech.pdf

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Machine learning has four key elements: • Massive amounts of data as input – both small data (like macro-economic and fundamental data) as well as big data (individual transaction data or social media data) • Determining relationships and patterns (complex higher dimensional relationships) • Using statistical and mathematical algorithms – both simple (more intuitive but less powerful) and complex (less intuitive but more powerful) • Self-learning – improving predictions with experience and new data.

In essence, machine learning is all about learning from data. However, machine learning has a few shortcomings: • Cause vs effect. Correlation does not equal causation.

For causation, one needs an economic theory, 13:11 and this is the domain of fundamental analysis. An

“Machines do a far better job at recognition than humans, but arguably, humans are still far superior at reasoning.

Hence, the advent of augmented or hybrid intelligence, which blends the best of both worlds” understanding of causation is crucial in order to make investment decisions with confidence – hence the need to integrate fundamental analysis with machine learning.

• You need lots of good quality data. Good quality data with a sufficiently long history can be expensive or difficult to obtain in financial markets. Alternative data, like transactional or social media data, show particular promise in machine learning applications; however, the ethical issues around using personal data for profit will pose significant challenges for the industry.

• History rhymes, it does not repeat. Not all cycles are the same. Every cycle has unique elements that can be identified by fundamental analysis. This can help machine learning models that are very focussed on past data, which may not be as reliable in predicting what may happen in the current cycle.

We believe that integrating fundamental analysis with machine learning in a hybrid framework can improve investment decision making. Machines effectively do the data capturing and analysis (the recognition part) while humans do the thinking and decision-making (the reasoning part). The future of the investment industry is still human – only smarter and faster.

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An Investment Technology Company Sentio Capital Management (Pty) Ltd is an authorised FSP.

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30 April 2021

BOUTIQUE ASSET MANAGERS SUPPLEMENT

The essence of being a boutique manager

BY JP MATTHEWS Head: Product, Matrix Fund Managers

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t Matrix Fund Managers, we take an agile approach to active investing, fuelled by our independent thinking and unconstrained style. Our core purpose is to deliver investment returns that are consistent with our risk and return targets. We do this while striving to provide personal and high-quality service for our informed client base.

As an owner-managed and focused asset manager, Matrix is regularly included in boutique manager surveys.

We regularly debate what it really means to be a boutique asset manager. It is especially disconcerting to note that boutique managers are often regarded as start-ups or lacking scale.

The fact is that many firms covered in these surveys are very well established.

Many boutique managers have been Matrix banner_outlines.pdf around for decades, are financially strong1

and manage assets of up to R100bn.

Boutiques with lower AUM also often manage higher margin product, such as hedge funds and private equity funds, where managers may have chosen to limit the size of their funds to ensure that returns are not diluted by asset gathering.

To our minds, the essence of being a boutique manager revolves around specialist skills, focused products and creating a well-governed environment that promotes agile decision making and rapid implementation.

At Matrix, a core group of our team has been in place since 2006, successfully managing investments across asset classes and through various market cycles. Today, we employ a group of highly skilled individuals, including 15 investment professionals with well over 200 years of combined market experience.

As we have grown, we remained focused on our key investment strengths, while building the governance, operational and business development infrastructure that helps our investment team thrive.

We will always be performance driven, and we prize independent thought and idea generation, as we believe that management by consensus or committee leads to inferior outcomes for clients.

We are pragmatic and opportunity focused, embracing the full risk spectrum to generate return. Mindful of clients’ objectives, we apply consistent processes across various asset classes and fund mandates, covering liquid markets with a keen eye on risk management.

The ‘matrix’ of our multi-asset process is built on robust bottom-up equity 2021/03/16 stock picking13:45 and macro top-down fixed

“We are pragmatic and opportunity focused, embracing the full risk spectrum to generate return” income processes that are combined with tactical asset allocation, designed to grow capital under various market conditions.

Our focused product range has grown organically to provide specific solutions for clients, drawing on central research and shared idea generation.

Launched in 2008, our award-winning fixed income hedge fund, the largest in the country, has generated strong risk-adjusted returns since inception. Our flagship defensive long-only multi-asset fund, exclusively managed for Amplify Investment Partners since 2014, has consistently outperformed its CPI plus 3%

target over the past five years – one of the few multi-asset funds to have done so in the SA market over this period.

Also noteworthy for a boutique manager is our commitment to ESG practices, and our ongoing transformation, via our management, employment, procurement, and socioeconomic development practices. With valuable input from our stakeholders, we have worked hard to attain our current Level 2 B-BBEE Contributor status.

By extending our agile and progressive approach across all areas, the Matrix culture remains firmly intact.

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30 April 2021

BOUTIQUE ASSET MANAGERS SUPPLEMENT

Don’t neglect your nest egg post-retirement

BY KIM ZIETSMAN Head: Business Development and Marketing, Laurium Capital

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etirement assets represent a significant portion of the formal domestic savings pool and the South African JSE equity market capitalisation. Government regulation of the retirement sector aims to protect the elderly against poverty and reduce spending on old-age grants, so it is no surprise that the retirement fund industry has been the subject of much debate and seen extensive legislative changes.

The growth of Balanced Funds Prior to 2011, Regulation 28 prescribed maximum limits to pension funds total

assets, which meant individual members could choose the exposure to asset classes that was not Regulation 28 compliant. For example, a person could choose to have 100% of their retirement savings in equity funds. Post 2011, preretirement investments needed to comply with Regulation 28 with limitations imposed on riskier asset classes like equity. Retirement products use Collective Investment Schemes (unit trusts) extensively, which explains for a large part why Balanced Funds have grown significantly in popularity and represent the largest category of funds as reported by the ASISA stats.

Investing post-retirement For most citizens, the retirement nest egg is their largest asset. Some of the reasons for investors underfunding their retirement is not saving enough, not starting early enough and not taking enough risk at a young age. However, no asset allocation limits to post-retirement savings apply, so individuals may choose to invest outside the constraints of Regulation 28. But many investors don’t review their investment choices post retirement and remain invested in Balanced Funds when perhaps they should be considering funds that are less constrained and have the flexibility to include

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a higher allocation to risky assets. People are living longer, and longevity is a real risk to not being able to retire comfortably.

Multi-asset flexible funds are generally positioned between balanced and equity funds and are unconstrained. If well managed, they may outperform balanced and equity funds, while protecting downside risk, with lower volatility over time. Given the wider investment limits, they are the ultimate expression of a manager’s view. They are able to allocate to asset classes where they see value and reduce exposure to asset classes that face headwinds. The flexible fund category is dominated by smaller boutique managers. In South African equity markets, and especially in these extraordinary times, size matters. Being a boutique manager that is nimble and able to react quickly is very advantageous. The flat organisation structure of boutiques means that investment decisions are made and implemented quickly.

The risk of a broader flexible mandate is the wider dispersion of outcomes – it is

therefore more important in this category to have a solid understanding of what kind of return profile the manager is attempting to achieve than in other more restrictive fund categories.

Launched in February 2013, the Laurium Flexible Prescient Fund (the Fund) aims to outperform CPI +5% and has a secondary objective of beating the South African equity market with lower volatility. The fund has an annualised performance of 11.9%, placing it 3/33 in the ASISA SA Multi-Asset Flexible category over time, outperforming the average of the category by 4.2%.

Those who have used the Fund as a proxy equity building block have been rewarded, outperforming 81/83 of the general equity funds at lower volatility over the past eight years. Key to this performance is asset allocation, select special situations and successful stock-picking based on strong fundamental analysis by an experienced cohesive team.

“Being a boutique manager that is nimble and able to react quickly is very advantageous”

Collective Investment Schemes in Securities (CIS) should be considered as medium to long-term investments. The value may go up as well as down and past performance is not necessarily a guide to future performance. CIS’s are traded at the ruling price and can engage in scrip lending and borrowing. A schedule of fees, charges and maximum commissions is available on request from the Manager. There is no guarantee in respect of capital or returns in a portfolio.

A CIS may be closed to new investors in order for it to be managed more efficiently in accordance with its mandate. CIS prices are calculated on a net asset basis, which is the total value of all the assets in the portfolio including any income accruals and less any permissible deductions. Performance has been calculated using net NAV to NAV numbers with income reinvested. The performance for each period shown reflects the return for investors who have been fully invested for that period. Individual investor performance may differ as a result of initial fees, the actual investment date, the date of reinvestments and dividend withholding tax.

Full performance calculations are available from the manager on request. Laurium Capital (Pty) Ltd is an authorized FSP (FSP34142). Prescient Management Company (RF) (Pty) Ltd is registered and approved under the Collective Investment Schemes Control Act (No.45 of 2002). For any additional information such as fund prices, fees, brochures, minimum disclosure documents and application forms please go to www. laurium.com. Annualised performance: Annualised performance shows longer term performance rescaled to a 1-year period. Annualised performance is the average return per year over the period. Actual annual figures are available to the investor on request.

30 April 2021

BOUTIQUE ASSET MANAGERS SUPPLEMENT

Truffle – A decade later IAIN POWER Chief Investment Officer, Truffle Asset Management

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he benefits of partnering with a boutique asset manager have been well researched and documented over the last two decades. Boutiques are generally asset managers, not asset gatherers, so investment performance is their priority. Being owner-managed means that business and client interests are aligned, and staff turnover is low. Being smaller also allows boutiques to be more nimble and flexible in their investment approach.

Ironically, many of today’s mega-managers started as small boutiques and are now faced with the very challenges that made them decide to start a boutique in the first place. Truffle is an owner-managed asset manager founded in April 2008. Looking back at the last decade, it is satisfying to see that our clients who trusted and partnered with us

have received the benefits that you would expect when investing with a strong boutique manager.

We are proud of the fact that over the last 10 years, our Truffle SCI General Equity Fund ranks top of its ASISA category (SA Equity General) and has delivered an annualised return of 12.31% p.a., beating the peer group average of 8.12% by 4.19% p.a. While a 4.19% p.a. additional return might not sound significant, over 10 years, a client who invested R1m into our equity fund would now have R3.2m. That is 46.6% more than a client who achieved the peer group average return!

Our Nedgroup Investments Balanced fund (previously called the Truffle Balanced Fund) will reach its 10-year anniversary in November this year. It has also delivered top decile performance since its inception. Our Raging Bull-award-winning Truffle SCI Income Plus Fund has delivered best-in-class returns for those investors seeking a more stable and consistent level of monthly income.

Overall, I believe that Truffle has managed to deliver what we promised our clients a decade ago: consistent superior performance. We’ve done this by combining

the skills of our experienced investment team with a disciplined and rigorous investment process, and a focus on downside risk.

At Truffle, our clients always come first. We strive to ensure the best possible client experience across all areas of the business, not just from an investment return perspective. This includes high-quality client engagements and process transparency with both our investment professionals and client service professionals.

It also includes interactions with the administrative side of our business.

As boutique managers grow and attract more assets, they inevitably need to build capacity in the investment team and the broader business. This can make it difficult to keep the ‘owner-managed’ focus and culture during this growth period. At Truffle, however, I think we have managed to do exactly that. Our culture is based on diversity, excellence, integrity and transparency, and we challenge ourselves to live up to this every day.

Source: Morningstar for the 10 year period ended 28 February

SCI = Sanlam Collective Investments

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30 April 2021

BOUTIQUE ASSET MANAGERS SUPPLEMENT

The road less travelled

BY ABRI DU PLESSIS Portfolio Manager, Gryphon

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ryphon’s multi-asset funds have distinguished themselves from their peers in three ways: • They have proven their ability to consistently deliver inflation-beating returns • They protect investor’s capital during volatility • They present a very different performance profile to that of their peers.

Gryphon’s Prudential Fund was awarded the Raging Bull certificate for Best South African Multi-Asset High Equity Fund on a Risk Adjusted Performance Basis over five years in acknowledgment of this.

Both multi-asset funds, the Prudential and Flexible, are managed in the same way; the Prudential Fund is Regulation 28 compliant and can therefore hold a maximum equity exposure of 75%, while the Flexible Fund can hold 100% in equities.

Common belief is that there are two certainties in life, namely death and taxes. Similarly, Gryphon believes that

there are two major certainties in asset management: • Asset allocation is the major determinant of portfolio performance, and • Costs erode returns.

Historically, equities have been the asset class that delivered long-term, inflationbeating returns. However, there have been notable periods where returns from equities have been quite muted; the past seven or so years have been just such a period.

What differentiates the Gryphon funds from their peers is the philosophy of being fully exposed to the asset class of choice – the execution of this philosophy means that during a bull market, the funds are fully exposed to equities but in a secular bear market they will hold no equities at all!

This is in stark contrast to the category peers. The average multi-asset fund tracks the FTSE/JSE All Share Index very closely.

Over the almost seven years of the funds’

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existence, the correlation between the FTSE/JSE All Share Index and the average return of flexible funds is around 95%, while the Gryphon funds vault between a negative or almost 100% correlation.

Given market returns over this period, investors would have benefited greatly from skilled asset allocation, as illustrated in the chart.

This picture tells the complete story – how effectively Gryphon’s multi-asset funds have been able to outperform the

underlying asset class components. This speaks to the ability of stepping on the right stones as the water is rising and falling, as well as moving forward while keeping one’s feet dry as the tide shifts and changes.

Given the performance history of the funds, we believe our rules-based approach has proven itself worthy of serious consideration, both for protection from volatility and the inflation-beating performance it delivers, as well as the diversification from its peers.

30 April 2021

BOUTIQUE ASSET MANAGERS SUPPLEMENT

The importance of risk management in the investment process

BY NOMATHIBANA MATSHOBA CFA, Managing Director, Terebinth Capital

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erebinth Capital is a Cape Townbased, 100% manager-owned boutique asset management company. It is a B-BBEE level two company focused on treating customers

fairly, advancing female and black talent, and creating a work environment that allows employees the freedom to thrive.

These objectives are strengthened by solid processes and procedures that rival some of the bigger firms.

Our investment philosophy is anchored on the interaction between macro-economics and quantitative research and modelling, with the aim of understanding the link between interest rates and inflation. The growth of the assets under our management is ensured by our macro-economic approach that allows us to implement replicable strategies in the deepest and liquid parts of the income universe.

As a boutique firm, with a scalable, repeatable and, very importantly, transferable investment philosophy, supported by solid processes and procedures, we set an environment for young talent to craft their path independently and proficiently. This debunks the notion of key-person risk as commonly assumed within most

boutique firms. Risk management and compliance is a standard requirement for any investment firm, irrespective of size. Therefore, with risk management and compliance central to our overall investment approach, all processes are adequately documented. To illustrate, our investment ideas are interrogated by the whole investment team and the implementation of ideas is documented to ensure adherence to pre- and post-trade compliance checks. These archives are available to the whole investment team, with documentation of all trades in a blotter for each fund, to allow junior team members to assess the actions of the more experienced members of the team.

This investment approach has ensured that all our funds consistently perform competitively in their respective categories. Most allocators argue that historic performance matters but is not a guarantee of future performance.

Therefore, a thorough interrogation of strong historic performance, to test for repeatability in the future, should confirm

the potential investment case.

We outsource non-core functions to the best-in-class service providers in their respective fields. As a boutique firm, in an environment of declining fees, we understand that the responsibility still resides within our small but knowledgeable team. However, it is not uncommon to find boutique firms that are efficiently run from an operating cost perspective. We believe that the outsourcing model allows the team the best possible opportunity to focus on what we deem important to our business – treating customers fairly by dedicating the maximum amount of time and resources to the market.

The environment for boutique firms has evolved, given the key focus on risk management and compliance. This can only be achieved with scalable, repeatable and transferable systems and procedures. At Terebinth, risk management is central to our investment process – an objective we achieve without altering who we are at the core.

Rooted in Knowledge. We Grow We never forget how much the money we manage, matters.

team@terebinthcapital.com (021) 943-4819 www.terebinthcapital.com

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30 April 2021

RETIREMENT

Retirement planning in a pandemic

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lmost half of the South Africans surveyed (49%) in the recent 10X Retirement Reality Report 2020 (RRR20) admitted they didn’t have a retirement plan.

Only 6% said they had a plan they were sticking to.

These numbers explain why 10X talked of a ‘retirement crisis’ when they started their research in 2018.

South Africans are, however, not blind to the consequences of having inadequate retirement plans and savings in place. In fact, 76% of those with a household income (HHI) between R20 000 and R50 000 expressed concern about it, as did nearly three quarters (72%) of those whose HHI was more than R50 000 per month.

“This indicates that a broad range of people are feeling anxious about their retirement and it highlights the important role advisers can play in

Jaco van der Merwe, Executive General Manager: Personal Finance, Old Mutual

“What should advisers/planners be saying to their clients?”

building more positive futures.

Apart from helping customers to understand their options and draw up a solid financial plan, qualified advisers can recommend solutions that support the plan and are appropriate for their life stage,” says Jaco van der Merwe, Executive General Manager for Personal Finance at Old Mutual.

Nobody could have predicted the COVID-19 pandemic and its economic fallout, which has worsened the problem, preventing many people from earning an income and pushing them into debt unless they had access to an emergency fund.

The lessons learnt were painful, but may mean that many more South Africans will now take steps to strengthen their long-term finances, reassess what’s important, scale back and plan properly for the future.

What should advisers/planners be saying to their customers?

1. Take advantage of tax breaks South African taxpayers are allowed an annual tax deduction of up to 27.5% of the higher of their taxable income or remuneration, but limited to a maximum amount of R350 000, in respect of contributions to retirement funds.

Make use of this concession to reduce your tax bill by increasing your contributions to your current employersponsored retirement fund or a retirement annuity fund.

You can also take advantage of a tax-free savings account, which allows you to save up to R36 000 a year (or R500 000 in total over your lifetime) without paying tax on the income or growth of your investment.

2. Consider all the available retirement options Look into all options for investing capital for an income at retirement, such as living annuities and the various types of guaranteed annuities. Remind customers of the wisdom of a sufficiently diversified portfolio, which spreads risks while seeking optimal returns.

At Personal Financial Advice (PFA), our advice model makes it easier for advisers to make the right recommendations for appropriate action backed by Old Mutual, a 175-year-old leader in the financial services industry.

Our market-leading solution recommendation tools and propositions, together with the integrated wealthplanning platform and the practice management support, give advisers a competitive edge in the market.

For more information on the adviser value proposition offered by PFA, email Vusi Zingitwa, Provincial General Manager, Personal Finance at Old Mutual at VZingitwa@oldmutual.com

Eight reasons why a retirement annuity is a good idea

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or many years retirement annuities (RAs) have formed part of investors’ retirement savings plans.

In these times of profound economic uncertainty, Roenica Tyson, Investment Product Manager at Glacier by Sanlam, says it’s never too early (or too late) to start saving and adding an RA to a retirement savings plan.

We’re just not saving enough for retirement The reality is that most people who have a retirement benefit at work, opt to make the minimum contributions that the retirement fund allows for – and it may not be sufficient. People who invest in an RA, as well as their employer retirement fund, create a larger pot of retirement savings, which means they have more to invest to secure a better income during their retirement.

Why investing in a retirement annuity makes good investment sense

It provides a kickstart to a retirement savings plan. Whether fulltime employees, or self-employed, RAs can propel people on their retirement savings journey – as a standalone solution, or as part of a retirement savings plan.

1 Roenica Tyson, Investment Product Manager, Glacier by Sanlam

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5

It’s affordable.

A small monthly investment can make a big difference to retirement savings outcomes years from now.

6 2

It offers flexibility.

RA contributions can be paused or reduced should the need arise.

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Tax benefits.

A portion of contributions is tax deductible, and no tax is paid on interest or capital gains within an RA.

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It ticks many retirement savings boxes.

An RA potentially offers the opportunity for investment in a wide range of funds, risk-profiled solutions and share portfolios, customised to suit particular needs and risk profiles.

Savings are protected from creditors.

A retirement annuity investment is protected from creditors.

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You can’t touch it.

Well, not until you’re at least 55. Once invested in an RA, it’s for the long haul.

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The underlying investment options of an RA are selected based on one’s particular risk profile.

Every investor has different needs, lifestyle and risk appetite that can change over time. Establishing a risk profile, based on life stage and financial needs, is a critical first step on the retirement savings journey.

Glacier Financial Solutions (Pty) Ltd and Sanlam Life Insurance Ltd are licensed financial services providers.

30 April 2021

RETIREMENT

Blended living annuities – a just choice for retirees

BY BJORN LADEWIG Longevity Actuary, Just SA

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he most common requirement for South Africans approaching retirement is to secure a stable income that at least covers essential monthly spending and that will last as long as they do. A sure-fire way to achieve this is through a life annuity, which offers a guaranteed monthly income for life that never decreases. But the biggest detractors from a life annuity are often the perceived lack

of flexibility, as well as the belief that leaving a capital legacy for beneficiaries is not possible.

Retirement income specialist Just SA cautions that, as in life, there are many trade-offs in retirement.

Having an income that lasts and leaving a legacy are often perceived as opposing ideas. Instead of being conservative with a view to leaving money to heirs, retirees should rather be looking to reduce the risk of depending on the next generation later in life.

Historically, the inability to adjust income from a life annuity has led to many retirees self-insuring against running out of money and is the reason why many South African retirees opt for a living annuity. However, where annuitants can’t afford to draw an income at a sustainable level, they face increased longevity and investment risk. And many South African retirees invested in living annuities will likely outlive their savings.

Blending a life annuity within a living annuity Just SA believes the answer lies in a blended living

N ew- gener at i o n li fe annuit y r at es

17.5%

Current living annuity drawdown

ZONE 3 ZONE 2

F S CA r eco m m end ed d r awd o wn r at es

ZONE 1

2.5% 50

Age

85

Source: Just SA

“Having an income that lasts and leaving a legacy are often perceived as opposing ideas” annuity – a unique combination of a living annuity and a guaranteed life annuity. Offering the ability to partially annuitise inside a living annuity, blended annuities allow you to balance a sustainable income for life and provide a capital legacy – all in a single product. And it is not an all or nothing decision. Blending allows annuitants to structure an optimal portfolio over time, balancing the various trade-offs by switching additional tranches into the life annuity component when required.

Identifying who will benefit most from blending By analysing the distribution of living annuity clients by age and current living annuity drawdown in relation to the FSCA draft recommended drawdown rates and the rates of a new-generation life annuity, you can identify annuitants who are most at risk of outliving their savings.

The following illustrative example shows who could benefit most from a blended living annuity.

Retirees with high, unsustainable drawdown rates (Zone 3) can both mitigate the risk of running out of money by incorporating a switch to a lifetime income portfolio and prolong their living annuity to at least cover essential expenses. Even in a blended annuity, those drawing the maximum (or close to it) will still need to consider lowering their drawdown rates to avoid depleting their flexible assets and having to rely solely on guaranteed income from a life annuity. Annuitants in Zone 3 who are closer to the pink line are likely to secure a life annuity rate close or equal to their current drawdown and protect against longevity and market risk.

Those in Zone 2 benefit most from a switch to a blended annuity, which will allow them to rest easy and consume more with less risk of running out of money.

Even those with very low drawdown rates (Zone 1) can seek to improve their retirement outcome with a blended annuity as a diversifying asset class.

Improve income sustainability & security in retirement with a blended annuity A blended annuity allows you to ‘dial up’ the level of guaranteed income to find an optimal balance between: • the life annuity, which pays an income for life no matter how long you live or investment market movements • the living annuity, which provides flexibility for discretionary spending, or to leave a financial legacy

A blended annuity is the best of both in a single product Just Lifetime Income is Just SA’s flagship with-profit annuity, which is accessible as a lifetime income portfolio in a blended living annuity or as a standalone life annuity.

% in Just Lifetime Income 0%

100%

To find out more visit justsa.co.za Just Retirement Life (South Africa) Limited is a registered life insurance company, regulated by the Prudential Authority of the South African Reserve Bank and the Financial Sector Conduct Authority as an authorised financial services provider (FSP no. 46423) and is a wholly owned subsidiary of Just Group Plc, one of the UK’s leading providers of retirement financial solutions.

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30 April 2021

RETIREMENT

Think of it as life cover for your clients’ income.

Income protection covers a key element of your clients’ success – earning power.

Momentum’s innovative income protection covers it better than any other – by being flexible enough to meet their unique, changing needs.

By adding our Permanent Disability Enhancer, clients can choose between a monthly income, lump sum payout or a combination of both when they have a qualifying claim.

If they choose a monthly payout, but pass away before the end of the benefit term, the remaining payouts will be paid to their beneficiaries.

So bring your clients the most comprehensive, flexible income cover available. To find out more, go to momentum.co.za Here for your journey to success

Terms and conditions apply. Momentum is part of Momentum Metropolitan Life Limited, an authorised financial services and registered credit provider. Reg. No. 1904/002186/06.

BRAVE/6620/MOM/E

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Divorce and retirement savings

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lthough the official statistics for South Africa’s divorce rate during COVID-19 are yet to be released, globally the pandemic sent divorce rates soaring by up to 30% or more during 2020. According to DIY Legal, South Africa ranks in 83rd place out of 154 countries for divorce.

“An issue that is often overlooked in the process leading up to divorce, but equally messy to navigate, is what the implications of such a decision are on a couple’s financial affairs,” says Jaya Leibowitz, senior legal adviser at Allan Gray.

Leibowitz says that divorce is a traumatic and life-altering experience with wideranging implications, especially when it comes to retirement savings.

“A ‘pension interest’ deduction allows a non-member spouse to be eligible for a pension benefit from the member spouse’s pension from the date of divorce. It doesn’t take into consideration the duration of the marriage or whether you were married when you first became a member of the retirement fund,” she says.

A pension interest distinguishes between pension interest in a retirement annuity fund, and pension interest in any other retirement fund (e.g. a pension fund, provident fund, pension/provident preservation fund).

“It is therefore important to be aware that a 100% pension interest deduction from a retirement annuity fund may not be the full value in the fund. Furthermore, if a member has multiple accounts in a retirement fund, pension interest is calculated at fund level and not at account level. The divorce order must therefore refer to the fund and not an individual account. However, the member may elect which account in the retirement fund the pension interest deduction must be made from,” says Leibowitz.

Does pension interest apply to all matrimonial property regimes?

Leibowitz explains that the three different matrimonial property regimes in South Africa are 1) marriage in community of property, 2) marriage out of community of property without accrual, and 3) marriage out of community of property with accrual.

“The default if you marry without concluding an antenuptial contract is a marriage in community of property. In this regime, you and your spouse each own 50% of the assets and liabilities in the estate (joint estate), and upon divorce each spouse has a 50% claim against the other,” she says. “If you do not want to have a joint estate, you must conclude an antenuptial contract, either with or without accrual.”

If without accrual, each spouse keeps their own assets and there is no claim against the other’s assets. If accrual is included, at divorce the spouse with the larger estate (assets less liabilities) must pay the difference between her/his estate and the estate of the other spouse to the spouse with the smaller estate.

“Importantly, if you are married out of community of property without accrual after 1 November 1984, your spouse has no claim for pension interest from your retirement savings.”

Who is responsible for the tax?

In terms of the provisions of the Income Tax Act, if the non-member spouse elects to take a cash lump sum, the benefit will be taxed in his/her hands. However, if the benefit is transferred to another retirement fund, the benefit will be transferred tax-free. When the non-member retires or withdraws from that retirement fund, he/she will be liable for tax on the retirement or withdrawal benefit.

What about living or life annuities purchased with retirement benefits?

Pension interest deductions only apply to retirement funds and do not apply to compulsory annuities, such as living annuities. Once a member has exited the fund, the pension interest in the retirement fund no longer exists. Despite the annuity policy not being a consideration for pension interest, a recent court judgement held that the future value of annuity income forms part of the policyholder’s estate and must be included when calculating the accrual for a marriage out of community of property with accrual.

“Most importantly, people who are in the process of a divorce must ensure that the wording of the court order and settlement agreement is in line with legal requirements. If the order is granted and the wording is not competent, the fund will not be able to give effect to the order. This will require the court to formally amend its original order, which is a lengthy and costly exercise,” adds Leibowitz.

Jaya Leibowitz, senior legal adviser at Allan Gray

Alternative Investments WHAT’S INSIDE ...

SUPPLEMENT

Creating jobs and empowering disadvantaged groups

7 things you should know about 36ONE Hedge Funds

Futuregrowth has strategically invested in a number of promising VC companies, with more in the pipeline

For all private equity deals, SPE applies the filter of job retention or job creation, as well as the potential for above-average returns and growth

These funds are diversified and invest in South African and offshore equity markets

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Venture capital: a much-needed growth engine in a virus-ravaged economy

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30 April 2021

ALTERNATIVE INVESTMENTS SUPPLEMENT

How private market investments offer real benefits for pension fund members

BY DAVID MOORE Head: Alternatives, Alexander Forbes Investments

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ith private markets, your investments are made tangible and real. They are investments into small and medium enterprises (SMEs), schools, retirement villages, roads and power plants that you and future generations will benefit from.

Private market investments in our everyday life John is a newly employed member in a pension fund. Each month when his contribution towards his employer-led pension fund gets deducted from his salary, a certain portion gets allocated to the investment portfolio of his choice.

John’s investment portfolio is an accumulation portfolio that aims to grow his retirement savings. Among other investments, an allocation to private market investments means John directly contributes to companies with which he interacts constantly, even if he doesn’t know it yet.

“Private market investments are those that keep on giving” John has just bought a home in a new development that offers affordable, quality housing in an estate close to his place of work – social infrastructure managers within private markets often fund such developments. John can easily work from home using the highspeed fibre connection in the estate.

Interestingly, the fibre-to-home provider that installed the connection was funded by a private equity manager within the private markets asset class.

Something that could interrupt both his work from home and his Netflix viewing is load shedding. Fortunately, his estate uses an off-grid renewable energy installation as their main energy supply, which is provided by a solar power supplier. Here too, the estate’s solar power supplier was a private market beneficiary of a domestic infrastructure manager.

During the day, John receives a call

from his sister who has some good news: she has just landed a job at a newly built shopping centre in her community – a bricks-and-mortar asset built, owned and operated by a direct property manager within private markets. This centre is also conveniently positioned near the retirement centre that John’s mom stays in and close to his younger son's primary school – both the school and retirement accommodation were financed by unlisted credit practitioners within private markets that filled the funding gap between sponsor and commercial banks.

All the above assets form part of private market investments that John had contributed to with his first salary – and will continue to do so with each contribution over his working career.

Social impact with commercial returns Private market investments are those that keep on giving. Their multi-dimensional benefits are a key rationale for their entry into mainstream investment portfolios, globally.

This is a far cry from being ignored in the past because they were difficult to convert into cash, at short notice.

However, they have consistently added significant value to domestic institutional investor portfolios by: • Boosting economic growth in creating jobs and key social infrastructure • Delivering lower volatility by not depending as much on investment performance relative to traditional investments.

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Why including hedge funds in a portfolio enhances returns

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he blended five-year performance of a basket of Amplify Investment Partners hedge funds proves that the inclusion of hedge funds in investment portfolios enhances returns and reduces risk, ultimately benefiting investor portfolios both pre- and post-retirement.

Marthinus van der Nest, head of Amplify, told the 2021 annual Meet the Managers conference that hedge funds provide for asymmetry of returns, or the ability to protect an investment on the downside but capture returns on the upside. “There is a common misconception that hedge funds only protect on the downside, which isn’t accurate,” Van der Nest said. “Access to tools such as short-selling, leveraging, and derivatives enables hedge funds to generate better risk-adjusted returns than long-only funds and to produce positive returns in both up and down markets that are uncorrelated to those of other asset classes.”

The importance of including hedge fund investment has become clear in the past five years’ low return environment when equity performance has been poor.

This is reflected in the All Share Index (ALSI), returning 8.23% per annum, while the blended performance of four Amplify hedge funds, over the same period, has reflected a return of 13.85% – from August 2016 until the end of February this year.

But Van der Nest warned that not all hedge funds are created equal.

“There are various hedge fund strategies and manager styles available to investors.

These broad set of skills and offerings can be daunting to new investors and, without a proper understanding of how the strategies and styles work in various market conditions, can result in a negative perception of the alternative asset class as a whole.”

Amplify appoints who it believes are the most appropriate independent hedge fund managers to manage their mandates. In fixed income, Amplify chose four specialist managers – Marble Rock Asset Management, Terebinth Capital, Acumen Capital and Matrix Fund Managers – as it wanted a diverse range of strategies, with the funds generating returns and taking positions at different areas of the yield curve. “Different managers, when blended together, provide a more diversified portfolio and range of outcomes,” he said.

For Amplify, one of the significant advantages of hedge funds is the low correlation to traditional multi-asset portfolios. When included, it provides higher growth, lower drawdowns and an overall better risk/return profile.

“For clients in the last couple of years before retirement, or those that are already in retirement, the last thing they can stomach is drawdowns. They are looking for real, smoother returns that ensure that their income in retirement isn’t going to be lower than expected,” Van der Nest said. “In an environment where you are getting poor returns from traditional asset classes, clients drawing an income from their investment could find themselves in a spiral of eating into their capital.”

As the local economy’s outlook is bleak, people think the possibility of a low return environment is here to stay. Coupled with globally high equity markets, many investors ask what if there is a downside from these levels. “This is where the benefit of hedge funds and low correlated returns comes to the benefit of investors, protecting clients when markets are under pressure, while still providing positive returns should they continue to reach new highs.”

For Amplify, investing in hedge funds is critical as they: • Provide a smoother return profile, protecting an investment on the downside while still capturing returns on the upside • Offer a broad range of strategies that are suited to various market conditions • Are an alternative asset class providing diversification and enhancing returns to traditional multi-asset portfolios • Ensure lower volatility and greater investment longevity for investors drawing a regular income from their investments.

Amplify has seven distinct retail hedge funds managed by hand-picked experts specialising in multi-strategy, equity and fixed income.

Marthinus van der Nest, Head: Amplify Investment Partners

AF2286

The true value of Alexander Forbes is the power of one team. As one, we combine 85 years of knowledge to offer our clients a seamless experience. Through a single platform, we share our expertise, experience and insights to strengthen our advice-led approach across our retirement, investment and health portfolios. Because as one, we can ensure the best outcomes to help our clients grow.

Go to alexanderforbes.co.za

30 April 2021

ALTERNATIVE INVESTMENTS SUPPLEMENT

Venture capital: a much-needed growth engine in a virus-ravaged economy

BY AMRISH NARRANDES Head: Unlisted Equity Transactions, Futuregrowth

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enture capital (VC) has long offered excellent growth potential to investors who are prepared to manage the higher risks associated with companies in the early stages of their journey. Not only are these entrepreneurial ventures essential engines of growth, but their disruptive business propositions provide healthy competition to the more established players in their industries – to the benefit of all the customers they serve.

Now more than ever, the South African economy needs the dynamism these companies have to offer.

Airbnb is an excellent example of a company that was born out of the 2008 financial crisis and completely changed the market for short-term holiday and business accommodation. After coming up with the idea of renting out an air mattress in their San Francisco living room, in 2009 founders Brian Chesky and Joe Gebbia received top-tier VC backing for their new company and went on to experience explosive growth.

“Now more than ever, the South African economy needs the dynamism these companies have to offer” The South African economy is reeling from the impact of the lockdown put in place in 2020 to prevent the spread of the coronavirus, and it is these types of fast-growing companies that will help provide the impetus needed to emerge from this crisis.

VC investment – how it’s done The multibillion-rand Futuregrowth Development Equity Fund (DEF) has been investing in early-stage companies for years and remains committed to finding and investing in high-quality VC companies that show significant growth potential. The DEF comprises a diverse range of companies, from early-stage businesses that offer higher but less reliable returns, to mature businesses that have already built up successful track records and provide lower but more consistent returns.

Futuregrowth’s investment team spends considerable time and effort identifying suitable companies and making investments where we believe we can propel the company’s growth to new heights and expand

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its reach beyond its existing footprint. For every 100 potential investments we look at, we only end up investing in two or three. Since the DEF was set up in 2006, Futuregrowth has strategically invested in a number of promising VC companies, with more in the pipeline. In late 2018, for example, we invested in Yoco, the innovative technology-driven point-of-sale payments provider. The DEF was the first South African institutional investor in the company and, to date, the investment has proved to be a success.

What are the main factors to consider? In our view, the younger the company, the more important the quality of the people driving the business. Also, success will depend on the size and nature of the company’s market, its revenue potential, the scalability of the business and the barriers to entry.

When analysing a potential VC investment opportunity, these are some of the questions we ask: • Is there a large addressable market for what the company has to offer?

• Is the company in a high growth market?

• What does the company offer that others don’t?

• Is the business proposition disruptive (groundbreaking and an agent of change) in its industry?

How does it compare to the competitors?

• What is the revenue potential, is the business proposition scalable, and are there barriers to entry?

• Does the business have a great management team?

We would prefer to back an A team with a B idea, rather than a B team with an A idea. Ideally, of course, we look to invest in a company run by an A team with an A idea.

• Does the management team have a mix of technical and business skills?

• Has the company gained traction in the market and is there proven demand for what it has to offer?

• Are the company’s forecasts achievable (realistic)?

• What could cause the business to fail?

“Futuregrowth has strategically invested in a number of promising VC companies, with more in the pipeline” LifeCheq – ticking all the boxes Investment date: February 2020 One company that met all these criteria is LifeCheq, a digitised holistic personal finance business. What we most liked about the company is that it has taken a complex and often daunting topic – personal finance – and used technology to offer its service in an attractive way to a far broader market than is traditionally the case.

LifeCheq’s differentiator is that it makes expert advice accessible to professionals and entrepreneurs who are inadequately served by the existing financial advice industry. The company can tailor and personalise financial advice to suit different individuals with different risk profiles by using data and algorithms to generate solutions. Most importantly, the business has an impressive management team, with all the credentials and experience to qualify as an A team. The four cofounders and members of the executive management team have a diverse range of experience, from financial services product design to software engineering.

LifeCheq more than met our requirements as a disruptor in the financial services industry, with a welldefined, addressable market, providing technologybased personal finance services to mass-affluent and emerging-affluent individuals. We also took comfort from the fact that the business had already built traction and proved its credentials to an existing investor that had earlier bought into its business vision and proposition.

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ALTERNATIVE INVESTMENTS SUPPLEMENT

that Futuregrowth remains committed to backing entrepreneurs who are creating proudly South African products, services and IP – and taking them to the rest of the world, thus raising the South African flag high.

SweepSouth – giving the vulnerable a voice Investment date: June 2020 We added to our growing VC portfolio when we invested in SweepSouth, a distinctive online platform for booking, managing and paying for home cleaning, and a variety of other services.

The business, which was first established in June 2014, has expanded its offering from its personalised home cleaning roots to gardening and pool cleaning, heavy lifting, fixing and maintenance, and, most recently, commercial sanitation. Its services are available in South Africa’s major metropolitan areas of Cape Town, Johannesburg, Pretoria and Durban.

As an early-stage business disruptor, SweepSouth is solving South African-specific problems. The company has taken a large segment of the informal sector – one of the biggest employers in the country – and formalised it, giving this part of the workforce unusual protection and security in their working environment.

The SweepSouth management team has a demonstrable track record in building the company to where it is now, while constantly engaging in ongoing innovation. Its social impact credentials are impeccable, playing a material role in empowering previously vulnerable workers to play an active part in their destiny by giving them a voice, and flexibility and control over their own time.

“The younger the company, the more important the quality of the people driving the business” offering and remarkable team, which has extensive and in-depth industry knowledge and experience, including widespread audiological, engineering and IT skills. The group has conducted over one million hearing tests and screenings worldwide since its inception and its products are now used in over 68 countries. The company’s vision is to provide affordable and accessible hearing healthcare solutions through its world-first smartphone technology.

We believe that the investment in hearX shows

Building our VC portfolio responsibly The hearX investment expands the DEF portfolio’s global reach considerably and adds an entirely new dimension to the existing pool of assets within the portfolio. It is also in line with Futuregrowth’s commitment to improving all South Africans’ lives by striving to identify opportunities that yield optimal financial returns for our clients and make tangible contributions to society. These include VC investments in transport, infrastructure, housing, agriculture, development finance, renewable energy, health, education and SMME development, among others, and are complemented by a variety of maturing and established companies in the developmental space.

The DEF is well positioned to benefit from the significant growth potential of these entrepreneurial, early-stage investments – while relying on its core established investments to provide the security and consistency of returns needed to balance out the riskreturn profile of the Fund.

Futuregrowth Asset Management (Pty) Ltd (“Futuregrowth”) is a licensed discretionary financial services provider.

hearX – democratising and decentralising global access to hearing care Investment date: December 2020 According to the World Health Organisation, hearing loss is one of the most widespread health conditions worldwide, as 466 million people have permanent disabling hearing loss. About one third of people over 65 years of age are affected by disabling hearing loss. The prevalence in this age group is most significant in South Asia, Asia Pacific and sub-Saharan Africa.

We added global exposure to the DEF portfolio by investing in another homegrown company, hearX – an early-stage medtech company. The hearX Group was established in 2016 by Pretoria-based academics and still operates from there.

We saw great potential in the company’s product

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30 April 2021

ALTERNATIVE INVESTMENTS SUPPLEMENT

Africa’s first sustainability-linked bond launched

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SE-listed Netcare, which operates a network of hospitals and other healthcare services in South Africa and Lesotho, has launched Africa’s first sustainability-linked bond, in partnership with Standard Bank.

The coupon rate of these bonds is linked to the issuer’s achievement of certain preagreed sustainability performance targets. In Netcare’s case, the group aims to reduce its energy consumption, procure more renewable energy, reduce total carbon emissions, and further improve its water efficiency – partly by increasing its capacity to recycle grey water. In addition, Netcare is developing systems to ultimately convert all infectious healthcare risk waste (HCRW) produced on-site to inert products and achieve zero waste to landfill, outside the HCRW stream, by 2030.

Dr Richard Friedland, Chief Executive Officer of Netcare, says, “Our comprehensive environmental sustainability strategy developed in 2013 is firmly on track to meet our 10year goals and targets. Netcare is delighted to be part of a global community of healthcare institutions leading the transformation to climate-smart healthcare, and this innovative sustainability-linked bond will further assist us in achieving our longer-term goals.”

On 16 March 2021, Netcare, with Standard Bank acting as Sole Arranger and Sustainability Agent, executed on the continent’s debut sustainability-linked bond (NTCG01). The bond was listed on the interest rate market of the JSE on the 19th of March. Netcare raised a R1bn, three-year, unsecured note priced at 5.4% (3 month Jibar +175bps). If Netcare achieves its climate change mitigation and water efficiency targets linked to the bond, it will benefit from a step down in the coupon rate.

Carl Wiesner, Debt Capital Market Transactor at Standard Bank, says, “Through the offering of the sustainability-linked bond, Netcare was able to access a deeper pool of liquidity at a compressed upfront pricing level, with the added incentive of a quantifiable future pricing benefit, while investors are able to encourage positive forward-looking sustainable corporate behaviour. The large level of interest the market has expressed for this transaction demonstrates the increasing importance of ESGdriven investments in both the international and local capital markets.”

Netcare has already made significant progress with its sustainability programme. As of 2020, the company has solar installations capable of generating more than 20GWh of renewable energy, and had achieved a 24% reduction in energy Carl Wiesner, Debt Capital intensity per bed since 2013, against a goal of 22% Market Transactor, by 2023. In 2020, scope 1 and 2 carbon dioxide Standard Bank emissions reduced by 37% from 2013.

The progress that Netcare has made towards being a leader in environmental sustainability within the healthcare sector in South Africa, and the world, was recognised when the company achieved the distinction of being the only healthcare institution globally to have received gold awards – the highest accolade – in each of the four categories in the international 2020 Healthcare Climate Challenge Awards organised by Global Green and Healthy Hospitals (GGHH).

The awards were for Greenhouse Gas Reduction [Energy], Renewable Energy, Climate Resilience and Climate Leadership.

The company was also awarded the prestigious Association of Energy Engineers (AEE) Sub-Sahara African Corporate Company of the Year award in 2019, a global recognition across all industries.

Nigel Beck, Global Head Sustainable Finance at Standard Bank, says, “Over the course of the last 12 months, Standard Bank has been working closely with Netcare and institutional investors on a sustainability-linked product offering, advising on meaningful sustainability performance targets aligned to Netcare’s corporate strategy. We are encouraged by the overwhelming level of interest and demand the market has expressed for sustainable product offerings, which was evidenced by the extent to which the bond was oversubscribed.”

Along with other instruments, such as sustainability-linked loans, green bonds and social bonds, demand for sustainable finance solutions is rising fast in Africa.

Sustainability-linked corporate financing facilities offer clients an opportunity to directly fund ESG improvements, or to refinance existing general corporate funding with a solution that also delivers an indirect socio-economic benefit for the communities and environments in which they operate. Investor demand is partly being driven by the recognition that companies that operate in a sustainable manner tend to have lower risk profiles and outperform over the long term.

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A retirement revolution

BY ADAM BENNOT Senior Associate, Alternative Investment Services, RisCura

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he focus in the retirement industry centres around there being enough reserves in the pension pot to go the distance, but a crucial consideration is the kind of environment that will be waiting to retire into.

With the world changing rapidly through advancements in medicine and technology, what does a sustainable retirement plan look like?

Cleaner and greener investing has become more urgent to achieve. The COVID-19 pandemic has been a stark reminder of the social, health and environmental issues South Africa faces. Pension funds have the ability to influence these issues through sustainable and impact investing.

There is a growing need to invest responsibly in a world that is worth retiring into. If the environment is uninhabitable, what will retirement savings be worth?

For long-term investors, retirement funds being key among them, sustainability should be the key objective. An unhealthy and unsustainable economy cannot serve investors who have a multi-decade investment horizon, and who are concerned about the livelihoods of future generations.

Projections can help to quantify how much we might need as a pension, but these don’t account for the havoc

facing our ecosystems and planet due to climate change. Sometimes, imagining a dystopian future helps us to face harsh truths.

Reimagine Imagine if, due to technology, the government increased the national retirement age to 85, for those who are able-bodied. Technology is already changing the narrative in real time for so many sectors of the economy, so it could conceivably contribute to see us living even longer.

South Africa will be a large, aging population 30 years from now. Ages 55-65 may be the common retirement range today, but many are retiring later if given the choice (some out of financial need), and if you have access to technology to keep you healthy, this is likely to grow.

Imagine a bionic hip and the extension it could bring to your working years. Imagine if there was a caste-system according to how much you’ve managed to save for retirement and if you didn’t meet a certain threshold, you could end up in a labour camp, farming waste into fuel for others to use.

Retirement saving’s worst enemies are inflation and environmental risks.

We must consider these risks, both the cost-of-living years from now, and the cost to our environment if we don’t invest appropriately.

If we are living longer and can work harder, anything is possible. The future impact of today’s investment decisions matters most. It may have been a persistently low-return environment in South Africa for some time, but we believe that investing for developmental impact can drive sustainable returns and help tackle the imbalances that characterise our country.

“There is a growing need to invest responsibly in a world that is worth retiring into”

30 April 2021

ALTERNATIVE INVESTMENTS SUPPLEMENT

Reimagining life after COVID-19 for private assets

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his year, the theme of the Southern African Venture Capital and Private Equity Association (SAVCA)’s virtual conference was ‘reimagine’ – an apt idea, given how the Coronavirus pandemic has forced people to relook at how they live their everyday lives.

MC Zipho Sikhakhane, CEO of EMZ Advisory, told delegates they needed to reimagine themselves in the context of SAVCA, “Reimagine the organisation itself and how it creates value, reimagine how we invest, and reimagine how we collaborate as an industry,” she said.

SAVCA Chairperson Lelo Rantloane, who delivered the conference’s opening address, also advised delegates to reorient themselves and their organisations to position for whatever the industry’s post-COVID future looks like. “We all need to rethink strategy, transform our organisations and the culture of our businesses to ensure success in the postpandemic world,” he said.

The theme was evident across all sessions of the conference as panellists and speakers related their individual perspectives on what it means to reimagine private equity investing after the pandemic.

Other notable recurring themes over the two-day conference included the role of infrastructure investing, the importance of collaborative and strategic execution, and the value of the social contract between the public and private sectors in South Africa.

The conference saw intense discussion around the proposed changes to Regulation 28 of the Pension Funds Act, which aim to make it easier for

retirement funds to invest in infrastructure to generate the returns investors need, while also acting as a resource to rebuild the country’s economy. The discussion highlighted just how much work still needs to be done in this area for the implementation and execution of the proposed changes to be successful.

Ensuring alignment between retirement funds, that proper classification and definitions exist, and that oversight and monitoring is effectively undertaken, are all steps in the right direction.

Further discussion was centred around the business case for investing in Southern African private equity.

Encouragingly, both Runa Alam, CoFounding Partner and CEO of Development Partners International (DPI), and Vuyo Ntoi, Joint Managing Director of African Infrastructure Investment Mangers (AIIM), pointed out that despite the devastation COVID-19 has wrought, the fundamental business case for investing in Southern African private equity has not changed.

“Demographics are still young and driving productivity, urbanisation is still high and technology take-up has accelerated as a result of COVID-19,” said Alam. “Wherever the opportunities lie, though, execution needs to be your defining feature. Your ability to execute is what really matters. This means having an excellent and cohesive team with complementary skillsets, a supportive culture and following proper processes and procedures,” she added.

Conference speakers also ran through some of the lessons they’d learned through the COVID-19 experience, which included

Alexander Forbes Investments wins SAVCA Impact Award

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lexander Forbes Investments has won the South African Institutional Investor Impact award from the Southern African Venture Capital and Private Equity Association (SAVCA) in recognition of its commitment to ESG and/or impact investing in South Africa.

SAVCA is a non-profit industry association representing 170 members across Southern Africa, who collectively have more than R185bn in assets under management.

The awards acknowledge excellence, dedication and innovation within the industry through a self-nomination and peer voting process.

“Despite the devastation COVID-19 has wrought, the fundamental business case for investing in Southern African private equity has not changed” the importance of frank conversations, how leadership is about value add – not just capital – and how technology has changed the way we operate and educate.

David Wilton, CEO of Zhang Partners, advised delegates not to look to Europe or Australia for expansion, “Think of expansion beyond South Africa as something you can do just north of the border.” Professor Nick Binedell, of the Gordon Institute for Business Science, called on speakers to share their thoughts on how South Africa should go back to basics to recover from the COVID-19 pandemic. The discussion centred on the roles the state and private sectors would have to play, how South Africa needs to digitally upskill its workers – especially black women and black youths – and lessons businesses learned through the crisis.

First-time awards The conference was not only about reimagining the future of the private equity industry and the region as an investment destination, it was also an opportunity for SAVCA to honour the excellence, dedication and innovation within the industry with the inaugural SAVCA Conference Awards.

The award is evidence of Alexander Forbes Investments being an active investor, leading investment into sustainable and community-focused private market assets for over a decade.

Alexander Forbes Investments demonstrated its ESG focus by engaging with its partner providers to foster ESG practices and transparent disclosures on ESG reporting. The company was an early funder of green, clean energy alternatives in South Africa, promoting the necessary transition from fossil fuel energy sources to more sustainable technologies. Furthermore, Alexander Forbes Investments continues to promote transformation and a more inclusive asset management industry through explicit investments into empowered asset managers with track records of performance across both traditional and private market asset categories.

“Alexander Forbes Investments believes that private market investments have a demonstrable ability to provide both commercially acceptable and socially measurable returns to clients,” says David Moore, Head of Alternatives at Alexander Forbes Investments.

“The SAVCA award reflects our continued efforts at

Winners of the various categories as voted for by their peers: • Acquisition – small/mid portfolio company: Sanari Capital for their investment into LightWare Lidar • Acquisition – large portfolio company: Sanlam Investments for their investment into the Cavalier Group • Exit – large or small portfolio company: Pembani-Remgro for their exit of Octotel Pty Ltd • South African Institutional Investor Impact Award: Alexander Forbes Investments (South African Private Markets Programme) • Fund Manager Impact Award: Norsad Finance • Service Provider of the Year: SANNE Fund Services Left to right: Tanya van Lill, CEO, SAVCA; Vuyo Ntoi, Joint Managing Director of African Infrastructure Investment Mangers (AIIM); Professor Nick Binedell of the Gordon Institute for Business Science.

leading in the field of ESG integration, ESG reporting and impact investing among institutional investors. Our innovative approach to private market investment through the Alexander Forbes Investments South African Private Markets Programme affords investors access to a blend of quality, cost-effective private market investments across infrastructure, private equity, unlisted credit and direct property that are structured in a way to provide orderly liquidity and access to a lowly correlated, low volatility return outcome with tangible social benefit to pension fund members.”

David Moore, Head: Alternatives, Alexander Forbes Investments

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30 April 2021

ALTERNATIVE INVESTMENTS SUPPLEMENT

Creating jobs and empowering disadvantaged groups

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n a win for the private equity sector in South Africa, as well as transformation in the agro-processing industry, Sanlam Investments, through its private equity business Sanlam Private Equity (SPE), last month acquired a majority stake in the Cavalier Group of Companies – a supplier of premium red meat products and the largest employer in the Cullinan region of Gauteng for an undisclosed amount.

The Cavalier Group of Companies specialises in creating the shortest and most cost-effective route for red meat products from farm to fork. The Group consists of five entities: Cavalier Foods, Cavalier Livestock, Cavalier Abattoir, Cavalier Feeders and the holding company.

The deal is the first to close from the Investors Legacy Range’s Private Equity Fund, one of three impact funds launched in June 2020 with a collective goal of creating or preserving 27 000 South African jobs – while still delivering value for investors.

Cavalier, one of only two Woolworthsapproved red meatpackers in South Africa, employs 1 412 staff.

Paul Moeketsi, Managing Partner, Sanlam Private Equity

SPE has acquired a majority stake in Cavalier Group in a replacement capital transaction, acquiring the stakes from both the Land and Agricultural Development Bank of South Africa and Griekwaland-wes Korporatief Bpk. The Land Bank shares were earmarked by the state-owned bank to be sold to an empowered equity partner to bring about muchneeded transformation in this largely untransformed sector.

This investment by SPE comes at a time when the Cavalier Group had started embarking on various growth initiatives and when the business needed a strong and empowered equity partner to help it achieve its growth plans. This planned growth by the company will create further employment opportunities – another win for jobs at a time of record-high SA unemployment levels.

SPE managing partner, Paul Moeketsi, says Cavalier is a robust business with strong diversification and growth potential. “As SPE, we partner with strong management teams, and we invest in businesses that have good growth prospects and where we believe our involvement will unlock additional value in the business. We were attracted to Cavalier Group because we believe that this business meets these requirements. While Cavalier Group holds supply contracts with major retailers in South Africa, new opportunities can include exporting products to the Middle East and supplying quick-service restaurants and hospitality businesses.”

As a keen impact investor, SPE was drawn to the Cavalier Group, in part because of their dedication and commitment to transformation. It is the largest employer in the Cullinan

region, and 60% of its employees are women. They are also in the process of rolling out several projects for the benefit of the community and for its employees, most of whom are local, previously disadvantaged individuals.

“Our impact strategy is to create jobs and empower disadvantaged groups, focusing on women empowerment and youth unemployment. We also invest in companies that offer job growth to their employees, as well as opportunities to improve their standards of living,” Moeketsi adds.

Cavalier also boasts a strong ESG track record. They have installed solar panels and a biogas plant using organic animal material. The company has also shown good governance in ensuring compliance with food safety regulations and health and safety protocols.

Cavalier recently built a state-of-the-art meat processing, deboning and packing facility for its AAA-grade red meat business and is poised for growth. With its vertically integrated value chain, and as the largest red meat copacker in the country, Cavalier is strategically positioned to take advantage of several red meat opportunities in future.

“We are excited to have a partner such as Sanlam Private Equity in our business. With their strong empowerment credentials and their strategic focus of helping businesses grow, we are confident our partnership will be a very successful one in the future,” says Kabols Le Riche, CEO and founder of Cavalier Group.

Moeketsi says SPE expects to announce another deal from the Investors Legacy Range’s Private Equity Fund soon as part of their strong pipeline of impact investment opportunities.

“For all private equity deals, we apply the filter of job retention or job creation, as well as the potential for aboveaverage returns and growth. We look for quality businesses that need capital and that have the management expertise to move to the next level.”

SA’s first impact fund of funds investment series launched

F

ebruary’s national Budget Speech made it clear that government’s ability to spend on developmental programmes that impact the lives of South Africans is extremely limited. According to purpose-driven investment firm RisCura, it is time for institutional investors to take action and work towards investing for a better South Africa.

RisCura is applying its extensive institutional investment experience to impact investing and has launched the country’s first impact fund of funds series, in line with the globally recognised definition of impact investing “to generate positive, measurable social and environmental impact” within South Africa, while still delivering competitive investment returns. The impact funds in this series focus on unlisted debt, unlisted property and unlisted equity.

“The fund of funds structure also helps to manage risk” “Retirement funds and other institutional investors are not blind to the myriad social and developmental needs facing South Africa. But finding ways to invest their

pools of capital to directly address these issues is not always easy,” says Malcolm Fair, RisCura MD. “We’ve always focused on helping our clients find ways to ensure their members are financially secure when they retire or fall ill. But what if the environment and society they retire into are on the point of collapse, or the health system they need to rely on is failing? This is the question driving us to create new solutions for our clients. Sustainable financial returns can only be generated, and later used, in a healthy society and environment.”

Experienced in establishing and managing technically intricate portfolios, the fund has launched after months of extensive work in modelling this impact solution with input from asset managers, institutions and local experts in the field.

RisCura’s series of impact investments for institutional investors uses a fund of funds structure.

“Using a fund of funds structure enables us to create a pooling mechanism for longterm impact capital that can provide a stable source of funding for commercially competitive impact and development projects that align to both South Africa’s National Development Plan (NDP) and the UN Sustainable Development Goals (SDGs),” says Fair.

“The fund of funds structure also helps

42 www.moneymarketing.co.za

to manage risk. Imagine if you have only invested in one fund and it experiences a disastrous credit event. This could wipe out 5-10% of the portfolio. In a fund of funds, this risk is mitigated through diversification as the number of counterparties multiplies.”

Unique to these funds is their liquidity, despite being primarily invested in unlisted instruments. Investing in the unlisted space often means long initial investment terms of 7-10 years, whereas RisCura’s funds will have much shorter initial investment periods, whereafter the products have innovative design features that work to provide short-term liquidity.

“Liquidity has long been an issue for smaller institutional investors who often

Malcolm Fair, MD, RisCura

balk at the long investment terms of, for example, many private equity funds. By introducing specific liquidity provisions, we hope to ease concerns around the practicalities of investing into unlisted investment vehicles.”

The RisCura funds will also explicitly measure and monitor the impact they are having in each of the priority investment themes. “There is a great need for impact capital, and part of our intention in developing this series of funds is to help support and grow the impact investment industry in this country. We want more asset managers to have funds that are explicitly focused on making an on-theground and measurable impact on the lives of South Africans, for the good of South Africans,” says Fair.

By mapping the objectives of the National Development Plan 2030 to the targets and objectives of the UN Sustainable Development Goals (SDGs), RisCura identified eight priority investment themes to invest in: • Quality education • Quality healthcare • Creation of quality jobs • Inclusive finance • Infrastructure • Clean energy • Affordable housing • Sustainable agriculture.

30 April 2021

ALTERNATIVE INVESTMENTS SUPPLEMENT loss and maximises the probability of real returns over the long term.

7 things you should know about the 36ONE Hedge Funds

BY STASH MARTINS Investment Consultant, 36ONE Asset Management

3

6ONE Asset Management has a 15-year track record of managing hedge funds and is currently the largest hedge fund manager in the country. Our primary hedge funds are the 36ONE SNN QI Hedge Fund (QIHF) and 36ONE SNN Retail Hedge Fund (RIHF).

1. What are the main differences?

In terms of investment strategy, the two are mirrors of one another. Key differences include: Investor type Inception date

36ONE QIHF Available to qualified investors 01 April 2006

36ONE RIHF Available to all investors

01 December 2008 November 2016 (CISCA Inception) Investment R1 000 000 Lower investment minimums (regulation stipulated) minimums, dependent on provider Frequency of liquidity Monthly Daily and pricing 2. What is an equity long/short strategy?

This strategy predominantly generates its returns from positions in equity markets. This style of investing has historically produced equity-like returns with substantially

less volatility than traditional equity unit trust strategies over the long term. The 36ONE QIHF has returned on average 16% p.a. since its inception after fees. Importantly, not only has the volatility been 55% lower compared to the market (ALSI), but it has also experienced much lower drawdowns during the period.

3. What do these funds invest in?

These funds are diversified and invest in South African and offshore equity markets, as well as other financial instruments (such as cash and derivatives) to enhance returns and, importantly, to manage risk.

4. What are the objectives and who is best suited for these funds?

Capital preservation is key to these funds’ objectives.

They aim to outperform cash and generate absolute returns over the long term, regardless of market direction.

Investors looking to grow their capital in real terms over time, while significantly reducing the volatility associated with investing in equities, are best suited for these funds.

5. Are they available in retirement products?

Yes, Regulation 28 allows for a maximum of 10% in total to be allocated to hedge funds. We believe that hedge funds should form part of an investor’s investment portfolio, as a diversified portfolio limits the risk of permanent capital

6. A few benefits of investing in these funds include: • Increases diversification: The bi-directional strategy (from the long and short positions combined) means that we can generate returns in both upward and downward trending equity markets. The ability to go long and short broadens the portfolios’ ability to exploit a larger opportunity set.

• Improves risk-return profile: Not only can these funds generate profits from their long and short positions, but the short positions act to reduce market exposure. This can provide an element of protection (or hedge) when markets decline because the gains on short positions will offset the losses on long positions.

• Combats portfolio longevity: Our funds can reduce portfolio volatility and, in turn, play a role in keeping clients invested through market cycles, due to substantially lower drawdowns.

7. Fund accessibility The 36ONE RIHF is available via Sanne (our Manco) and also via certain LISP platforms. For more information on how to access our funds, please contact us.

Disclaimer: Bloomberg, Sanne as at 28 February 2021. Past Performance is not necessarily an indication of future performance. 36ONE SNN QIHF CISCA inception date is 01 November 2016. Sanne Management Company is registered and approved by the FSCA under CISCA, and retains full legal responsibility for the third-partynamed portfolio. 36ONE QIHF Highest and lowest rolling 12-month performance since inception: High 58.63%; Low -10.84%. 36ONE RIHF Highest and lowest rolling 12 month performance since inception: High 18.84%; Low -2.01%. Full mandatory disclosures can be obtained on our website by following this link: https://www.36one. co.za/legal/disclaimer 36ONE Asset Management Pty Ltd is a licensed financial service provider. FSP# 19107

R9 221 600

HAVE YOUR INVESTMENTS PERFORMED LIKE THIS? The 36ONE SNN QI Hedge Fund has returned an average of 16% per annum since inception in April 2006

R3 770 200

R1 000 000

April 2006

April 2013

February 2021

Disclaimer: Collective Investment Schemes in securities and hedge funds are generally medium to long-term investments. The value of participatory interests may go up or down and past performance is not necessarily an indication of future performance. Sanne Management Company (RF) (Pty) Ltd, (“Sanne”) (“the Manager”) is registered and approved in terms of the Collective Investment Schemes Control Act 45 of 2002. The Manager does not guarantee the capital or the return of a portfolio. Collective Investments are traded at ruling prices and can engage in borrowing and scrip lending. A schedule of actual annual returns, fees, charges and maximum commissions is available on request. 36ONE Asset Management (Pty) Ltd (“36ONE”) reserves the right to close and reopen certain portfolios from time to time in order to manage them more efficiently. The Manager ensures fair treatment of investors by not offering preferential fee or liquidity terms to any investor within the same strategy. Additional information, including application forms, annual or quarterly reports can be obtained from 36ONE, free of charge.

Performance figures quoted are from Bloomberg and Sanne as at the date of this report for a lump sum investment, using NAV to NAV with income reinvested and do not take any upfront manager’s charge into account.

Income distributions are declared on the ex-dividend date. Actual investment performance will differ based on the initial fees charge applicable, the actual investment date, the date of reinvestment and dividend withholding tax.

Annualised return is the weighted average compound growth rate over the period measured. Sanne retain full legal responsibility for third party named portfolios. Highest and lowest rolling 12 month performance since inception (as at 28 February 2021): Highest - 58.63% and Lowest - 10.84%. CISCA inception date: 1 November 2016. 36ONE Asset Management (Pty) Ltd. is a licensed financial service provider. FSP# 19107.

36ONE_BarGraph_220x155_MoneyMarketing_1503_PrintReady.indd 1 2021/03/15 11:12 www.moneymarketing.co.za 43

30 April 2021

RISK

Now, more than ever, it’s essential to get clients income protection that matches their needs

BY SCHALK MALAN CEO, BrightRock

I

f 2020 taught us anything, it’s that life can change drastically over a short space of time, and when it does, we need to adapt to that change. This is also true when it comes to insurance. Clients’ needs will change over time – that’s why it’s important for you to get them cover that can precisely match their needs at the start of the policy, and can then change with them as their needs change.

As you know, a client’s most important asset is their ability to earn an income. It’s critical that they protect their income through efficient income protection cover that can protect their future pay cheques.

Temporary disability vs permanent disability With income protection, you should consider both temporary and permanent disability cover that protects

your clients’ pay cheques should they suffer an illness or injury that interrupts their income stream for either a short period or until they would have expected to stop working and actively earn a salary. Temporary disability cover protects against the financial impact of less severe, higher-frequency events, like fracturing a bone, while permanent disability caters to severe, less frequent events, like losing a hand or being diagnosed with stage four cancer.

How income protection fits into your client’s financial plan If a client suffers a disability, income protection is critical to their financial wellbeing and that of their family. If their income is fully protected in the event of a temporary or permanent disability, it means that a pay-out will see to it that they can meet all their current financial obligations.

With an income that’s comprehensively covered, clients will still be able to pay for medical aid, children’s school fees, fund their retirement, continue paying their bond and other debt instalments, and maintain their standard of living. It’s an essential mechanism that holistically supports a person’s financial plan as it makes sure that their other financial goals will still be on track.

Closing the income protection gap South Africans are underinsured, especially when it

Sheldon Shaw: Making his mark

“If a client suffers a disability, income protection is critical to their financial wellbeing and that of their family” comes to income protection. At BrightRock, we believe in helping clients close this gap by enabling advisers to structure their clients’ policies appropriately from the start, thereby giving them cover that can match their needs exactly. This avoids unnecessary waste and helps the client buy as much cover as is needed when they need it most – which is right now.

We also believe it’s important to offer clients flexibility when it comes to their pay-outs. For example, if a client chooses lump-sum cover for their permanent expense needs with BrightRock, they can change this choice to a recurring pay-out at the claim stage, or to a combination of a lump sum and an ongoing monthly income when they have insight into how their condition will impact them.

With the appropriate cover, it’s possible for clients to close the gap and get more comprehensive coverage for their income.

Sheldon Shaw, Tattoo Artist

Tattoo artist Sheldon Shaw explains the impact of his profession on the lives of others and why he needs income protection to continue making his mark.

BY ELMARIE SAMUEL Product Marketing Specialist, FMI (a Division of Bidvest Life Ltd)

could help change their lives for the better.”

Sheldon on the impact he makes: “My dream day is to give someone what they want and to make them happy. Tattoos help people get through tough times, or they show a story. I always want to make a positive impact, and with tattoos I get to do that every single day for the rest of my life.”

Sheldon on his income: “The income I have gives me the freedom to do whatever I want to do. And that’s why I work so hard – so that I’m able to enjoy the things that I’m passionate about.”

S

heldon’s FREE HUGS tattoo says it all.

He is a people’s person and loves his job. “It’s a fun, free environment that I really enjoy,” he says. “I like meeting new people and interacting with them. And that was probably the biggest draw card for me into this profession – to do something that involved people and to do something that

Sheldon on life insurance: “It’s super important for anyone who works on commission to have cover that protects them if they get sick or injured. Because if I can’t work, I don’t make money. I am responsible for looking after my dependants. Why should it fall onto someone else if something happens to me?

And I think that’s one of the biggest reasons why people should have income protection.”

44 www.moneymarketing.co.za

What cover can someone like Sheldon get?

There are two points to consider: Firstly, the waiting period: FMI recognises that commission earners, like tattoo artists, lose income from day one of being unable to work. With our Event Based Income benefit, most claims will be paid from day one.

Secondly, sensitivity to claim: Occupations such as tattoo artists are so sensitive to claim that they are typically unable to take out income protection.

For example, a minor finger injury which wouldn’t affect working in a more traditional occupation, could result in someone like Sheldon being unable to work for a few weeks.

This means that these individuals may often be unable to protect themselves against any injury or illness, which includes the events that they’re not at increased risk of suffering.

At FMI, we have a different view. We believe everyone needs to protect their income. That’s why we developed our Event Based product to help provide cover for those occupations that would traditionally not be covered. Instead of providing these individuals with cover for an injury or illness that prevents them from working in their occupation, each occupation gets cover for a predefined list of injuries and illnesses. This means that tattoo artists like Sheldon can now qualify for income protection.

To watch Sheldon’s inspiring story, go to www.fmi.co.za/impacters

Is your finely crafted financial plan a grand masterpiece?

Or will it be let down by traditional life insurance products that don’t match your clients’ needs?

As a highly skilled financial adviser, you know that every financial plan is carefully designed to meet your client’s needs today, and as their life changes. BrightRock’s needs-matched life insurance lets you create a product solution that precisely matches the financial plan you’ve crafted for your client.

For example, we can offer your client up to double the capital disability cover on their current policy for the same premium, so they can afford the cover they need. With traditional disability products, your client’s cover is designed to offer the lowest level of cover today, with the promise of more

cover in the future. It’s priced to keep growing, even when your client is close to retirement and needs far less of it. We cut out this waste, without compromising on meeting your client’s needs, giving them up to double the disability cover for the same premium now.

Only with needs-matched life insurance do you have unrivalled flexibility and efficiency, so that your finely crafted financial plan becomes an enduring masterpiece in your client’s hands.

Get the first ever needs-matched life insurance that changes as your life changes.

*Terms and conditions apply BrightRock Life Ltd is an authorised financial services provider and registered insurer.

Company registration no: 1996/014618/06, FSP 11643. Terms and conditions apply.

brightrock.co.za

30 April 2021

RISK

Insurers brace for fresh wave of regulatory reforms Christine Rodrigues, Partner, Bowmans

N

on-life insurers will have to stay on their toes throughout this year.

Hard on the heels of the COVID-19 business interruption judgments that caught some insurers off guard in 2020, a raft of new regulatory reforms aimed at protecting policy holders is likely in the coming months.

“2020 marked a shift in attitude towards policyholder protection and this will no doubt continue in 2021 with additional regulatory reforms,” says Christine Rodrigues, partner at Bowmans.

The anticipated reforms are likely to affect the way insurers contract with policyholders and their intermediaries, as well as the kind of products that are sold to customers, among others.

“And of course, the most substantial change of all for insurers – and the rest of the financial services industry – is likely to be the coming into effect of the Conduct of Financial Institutions (CoFI) Bill, whether in its existing form or after further revisions,” Rodrigues adds.

How 2020 set the scene for change Referring to 2020 and 2021 as years of far-reaching regulatory change for the insurance industry, she says the COVID-19 pandemic has been catalytic, particularly in how Treating Customers Fairly (TCF) is approached.

“Until the end of 2019, ‘principles-based regulation’ was unexplored and untested,”

she says. “When the pandemic was declared, it was tested and tested again, resulting in TCF going from abstract to concrete in a short period of time.”

The shift began during 2020 when “policyholders unexpectedly took on insurance giants to enforce their rights on business interruption insurance, and gained momentum when the Supreme Court of Appeal came down against insurers. “2021 now holds the prospect of additional regulatory reforms relating to policyholder protection,” Rodrigues says.

While some of the expected reforms will apply to the general financial sector, others are specific to non-life insurance.

Sector-specific reforms include a revised conduct standard for the third-party captive cell insurance business. Rodrigues adds that the Financial Sector Conduct Authority (FSCA) published a draft revised standard on 28 July 2020 and is considering all public comments received.

“If there are no significant changes required, the current draft conduct standard will be tabled for parliamentary scrutiny. ”Premium collection is also being addressed. On 30 October 2020, the FSCA published exemptions to facilitate payment of remuneration in the context of direct premium collection models.

“Several concerns were subsequently raised and the FSCA will reconsider the exemptions published.”

In addition, premium collection

requirements will be included in the amendments the FSCA is making to the Policyholder Protection Rules (PPRs).

“These amendments accommodate various Retail Distribution Review developments, such as carving out advice from intermediary services to facilitate the charging of advice fees and what commission may be paid for.”

Another important change concerns insurance sold at motor dealers. On 19 October 2020, the FSCA published an information request relating to add-on insurance policies sold at points of sale at dealerships or as part of vehicle financing

“The anticipated reforms are likely to affect the way insurers contract with policyholders and their intermediaries” arrangements. “This is more than likely to inform future regulatory reform,” she adds. The Financial Conduct Authority in the United Kingdom also conducted its own analysis and in 2019 published its findings relating to, among other things,

conflict of interest relating to commission payments, which is an area that the FSCA is focusing on.

Meanwhile, non-life insurers will also be affected by the general reforms planned for the financial services sector.

Governance, financial education and COFI The general reforms include the joint standard that the FSCA and the Prudential Authority (PA) will start drafting to regulate the corporate governance and culture of financial institutions.

“The FSCA is also drafting a proposed conduct standard for consumer financial education initiatives,” Rodrigues says.

This follows the publishing for comments of the FSCA’s discussion document, titled Ensuring Appropriate Financial Consumer Education Initiatives, in June 2020.

Then there is the COFI Bill, which the National Treasury published for comments on 29 September 2020 and is likely to come into effect this year.

The COFI Bill will usher in a complete overhaul of market conduct regulation in the South African financial sector.

“Soon we will know if a further draft COFI Bill will be released, or whether the current draft will be put forward for the parliamentary process. All in all, this year is set to be a momentous one for regulatory reform in the sector,” she adds.

Santam acquires 100% of Mirabilis S

hort-term insurer Santam will increase its stake in Mirabilis Engineering Underwriting Managers by acquiring the remaining 45% shareholding, subject to the fulfilment of conditions precedent for the acquisition of the remaining stake.

Santam currently holds a 55% shareholding and the transaction will effectively make Mirabilis a wholly owned subsidiary of Santam.

Founded in 2006

by Russell Myers, an engineer by trade,

Mirabilis is the leading engineering underwriting manager in South Africa.

Russell Myers will retire at the end of June 2021 and Curt Meyer has assumed the CEO leadership role.

“Santam is excited by the opportunities that this transaction brings to both Santam and Mirabilis. The transaction will strengthen Mirabilis’ already excellent capability and service offering to the engineering sector in South Africa. Furthermore,

“The transaction will effectively make Mirabilis a wholly owned subsidiary of Santam”

46 www.moneymarketing.co.za

it will provide Mirabilis with a significant strategic advantage by leveraging off Santam’s footprint across Africa and in selected international markets,” says Quinten Matthew, the Executive Head of the Santam Specialist Business.

“Backed by Santam’s financial strength, Mirabilis will continue to operate as an independent underwriting management business, committed to providing the client and intermediary with the very best service and solutions,” he adds.

Quinten Matthew, Executive Head: Santam Specialist Business

EDITOR’S

30 April 2021

BOOKS ETCETERA

BOOKSHELF

Future Tense Reflections on my Troubled Land

By Tony Leon In 2008, Tony Leon’s award-winning biography On the Contrary concluded with a chapter entitled ‘Future Imperfect’. Now, in the riveting new Future Tense, the topic and title have changed to capture and analyse the squandered and corrupted years since.

Leon, with unique access and penetrating insight, presents a portrait of today’s South Africa and prospects for its future, based on his political involvement over thirty years with the key power players: Cyril Ramaphosa, Jacob Zuma, Thabo Mbeki, Nelson Mandela and FW de Klerk. His close-up and personal view of these presidents and their history-making, and many encounters in the wider world, adds vivid colour to the normal black-and-white picture painted of a country and planet in upheaval.

Written during the coronavirus lockdown, Future Tense also examines the surge of both the disease and the response, which has crashed the economy and its future prospects, as well as the rise of a Julius Malema-led populism, and how this echoes global discontent elsewhere. As the founding leader of the official opposition, Leon also provides an insider view, for the first time, of the power struggles within that party, which saw the exit of its first black leader in 2019.

Slabbert: Man on a Mission

By Albert Grundlingh Frederik van Zyl Slabbert was always a man on a mission, whether as an academic, opposition politician, democratic facilitator or businessman. Perhaps it was the product of his restless, probing intellect, or his early ambition to become a dominee in the Dutch Reformed Church. When he famously led a delegation of leading Afrikaners to Dakar in 1987 to meet the exiled ANC, many saw it as a breakthrough moment, while others felt he had been taken in. And yet his reputation – for honesty, integrity, wit and courage – still towers above many of his contemporaries. Slabbert was always different.

As an academic turned politician, the charismatic Slabbert brought unusual intellectual rigour to Parliament, transforming the upstart Progressive Federal Party into a force that could challenge the National Party government.

Disillusioned by the paralysis of formal white politics, and by the growing polarisation of South African society, he resigned in 1986 to explore democratic alternatives to the impasse into which the country had been led under apartheid. Largely side-lined during the democratic transition, he continued to pursue a broad range of initiatives aimed at building democracy, empowering black South Africans and transforming the economy.

Albert Grundlingh’s penetrating biographical study offers sharp insights into the thinking and motivation of this most unlikely politician. Concise but wideranging, Slabbert: Man on a Mission provides new perspectives on a figure who, even today, remains something of an enigma.

How to Grow Rich 50 Ways to Debunk Money Myths and Master Wealth

By Douglas Kruger Over a billion people globally were lifted from extreme poverty between 2010 and 2020. This is an all-time record, both in outright numbers and per capita growth, constituting nothing short of an economic miracle. Yet, the narrative about worsening hardships for the poor prevails, contrary to all evidence. Why? Few topics are more contentious than money. Yet, when weighed against empirical data, most of us would be amazed to discover how embarrassingly wrong our assumptions are, and how badly they have impaired our capacity for growth. Wealth is intimately linked to belief systems, and that presents us with choices. Which ones lead to prosperity, and which, predictably, cause ruin? After a century of trial and error, the answers are clear, and they are fascinating. And they are in this book.

The problem is that they do not always agree with the accepted narrative. In fact, the things we are glibly told about wealth and poverty are so demonstrably wrong as to be baffling in their endurance. Sifting through a world of tired clichés and trite truisms, can we separate the useful from the merely politically expedient, the true from the endlessly repeated yet baseless? Can we transcend gloomy platitudes like ‘from shirtsleeves to shirtsleeves in three generations’?

Can we clear out the clutter in our thinking and, as a result, be better equipped to prosper? How to Grow Rich identifies every bad idea about wealth and explains why we don’t have to accept them, and how each one of us can overcome these thought hurdles in order to prosper and grow rich.

SUDOKU

ENTER NUMBERS INTO THE BLANK SPACES SO THAT EACH ROW, COLUMN AND 3X3 BOX CONTAINS THE NUMBERS 1 TO 9.

Towards A New Deal A Political Economy of the Times of My Life

By Rob Davies Former SA Minister of Trade and Industry, Rob Davies, offers an insider account on the evolution of trade and economic policy in South Africa. Beginning in the early 1970s, and up to now, Davies gives insight into the inner workings of the government.

He concludes with a chapter on the ‘new dawn’, focusing primarily on the impacts of COVID-19 and the challenging period that lies ahead. Told with intriguing anecdotes and Davies’ personal and humanising history of activism and time spent in exile, this memoir is intended to present a strong case for economic change and is essential reading to grasp the political and economic dynamics of the moment.

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SEEKING 50 UNCOMMON PEOPLE We’re looking for 50 people. Singularly uncommon financial advisers. Men and women who want to do things differently. Who want to change the world and do some good while they better themselves. We want leaders, learners and truth seekers who are experienced but never jaded. We want people who are looking for a lifetime of value and opportunity from a partner.

Old Mutual Personal Financial Advice is looking for 50 uncommon financial advisers who want to have a lifelong competitive edge in the industry.

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