MoneyMarketing December 2019

31 December 2019 | www.moneymarketing.co.za

@MMMagza

First for the professional personal financial adviser

WHAT’S INSIDE

YOUR DECEMBER ISSUE

DIVIDEND INVESTING: THE LOW-DOWN

STRUCTURED PRODUCTS IN AN UNPREDICTABLE WORLD

Companies that pay dividends provide investors with an effective inflation hedge

Structured products provide access to alternative assets and markets

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RISK MANAGEMENT IS SHARIAH’S GREATEST HURDLE Shariah investing is considered high risk in South Africa

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Is SA’s investment community investing responsibly?

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any people still think the idea that companies have some kind of social responsibility is nonsense, yet the social purpose of the corporation is enshrined in South Africa’s company law, Tracey Davies, director of the non-profit shareholder activism organisation, Just Share, told the Impact Investing Forum in Johannesburg last month. South Africa is one of the most unequal societies in the world, and the blame for this is usually laid squarely at the door of the government.

However, Davies said, the post-apartheid era has also seen a disastrous failure of leadership from most of the custodians of South Africa’s private capital: listed companies, banks, asset managers and pension fund trustees.

“This failure has contributed to and exacerbated inequality, both within the corporate sector and in our broader society.”

Davies believes that regulators – including the JSE – have failed to hold companies accountable for diversity and transformation targets, as well as for their impacts on people and the environment.

“Investors claim to be ‘responsible’, but their words are rarely matched by the kinds of action that could create meaningful social benefits.”

She said that the country’s investment community prides itself on being a global leader in ‘responsible’ investing.

“This mainly involves the integration of environmental, social and governance (ESG) factors into investment decision-making. In 2011, the Code for Responsible Investing in South Africa was launched with much fanfare. A large proportion of our financial sector has adopted this code, and many are also signatories to the global Principles for Responsible Investment, launched in 2006.”

Tracey Davies, Director, Just Share

Continued on page 3

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Davies questioned the impact that these initiatives have had. “Do we now have a more responsible, accountable corporate sector? Do the boards and CEOs of South Africa’s listed companies operate as if they know that their shareholders will ensure there are consequences for them if their companies cause social and environmental harm?”

She believes that ESG integration has not created meaningful social benefits.

“For decades, civil society organisations in SA have been studying and IT IS ASSET documenting OWNERS WHO the human and environmental HAVE THE PRIMARY devastation RESPONSIBILITY caused by our mining FOR RESPONSIBLE industry in INVESTMENT, AND surrounding ‘host’ IN PARTICULAR, communities and the environment.

PENSION FUNDS This information is widely and freely available, but investors simply don’t pay any attention to it.”

She added that seven years after Marikana, Lonmin employees’ living conditions have barely improved, and the company is still failing to comply with its social and labour plan – which is a condition of its mining right.

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NEWS & OPINION

31 December 2019

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“In fact, compliance with social and labour plans is pretty much unheard of in South Africa. But shareholders just don’t seem to care.”

Davies has seen sporadic efforts by asset managers to challenge what she calls the ‘obscene’ salaries of the executives of listed companies.

“But why have there been no calls for executive management to explain how their remuneration is fair and responsible in the context of overall employee remuneration – as the King Code requires? Why do institutional investors not demand a mandatory shareholder vote on executive remuneration?”

Davies pointed out that similarly, the JSE listings requirements require companies to have policies on race and gender diversity and transformation and to report to shareholders on progress in achieving their transformation targets, “but neither the JSE nor shareholders seem to care whether or not anyone is actually doing this”.

It could be argued that all of these issues are issues that should be regulated by the government and that if it is failing to do so, it’s not investors’ responsibility.

“But government’s failures should mean that institutional investors are even more motivated to be active owners. Of course, ‘investors’ and ‘shareholders’ are not a homogenous group. Asset managers are at the forefront of people’s minds when it comes to investing, and they are the ones who usually take the flack when things go pear-shaped. But it is asset owners who have the primary responsibility for responsible investment, and in particular, pension funds.”

Davies reminded the conference that the South African pension fund industry is one of the biggest on earth.

“It holds assets worth trillions of rand in trust for future beneficiaries, many of whom are the very same people who suffer directly from negative corporate impacts. Pension fund trustees also have the strongest legal mandate to ensure that their investee companies are not causing social and environmental harm. But pension fund trustees in South Africa are, to be perfectly frank, asleep at the wheel.”

There is, however, some good news. The landscape finally appears to be shifting, but this isn’t due to any regulatory change.

“In terms of both the Code for Responsible Investing in South Africa (CRISA) and the Principles for Responsible Investment (PRI), investors have

long been encouraged to work together to achieve common goals, but until recently, it was very rare to see these commitments in action.”

Davies said that some asset managers are starting to grasp the opportunities inherent in working together – and civil society shareholder activism has also definitely shifted the dial.

“Last year, at Sasol’s AGM, a coordinated group of social justice activists tackled the company’s board on questions of climate risk disclosure and environmental impact. Sasol’s recent Climate Change report is, its chairman acknowledges, a direct result of this and other activism.”

And in May of this year, Just Share, working with the RAITH Foundation and shareholder activist Theo Botha, tabled SA’s first-ever climate risk resolution at Standard Bank. “Shareholder resolutions are not a solution to all responsible investment problems by any means, but they do provide a unique mechanism for (a) ensuring that all shareholders take a stand on a particular issue and (b) laying down parameters for accountability that management can be held to.” RAITH and Just Share tabled a similar resolution with FirstRand.

“Both Standard Bank and First Rand have acknowledged the importance of the resolution in pushing them to shift their own internal understanding and acknowledgment of climate risk. The banking association of South Africa has, as a result of civil society activism on climate risk in the financial sector, set up a Climate Risk Working Group.”

Davies reported that since Standard Bank’s AGM, Just Share has engaged with institutional investors “who are serious about shareholder collaboration to improve disclosure and accountability”.

There are still big internal barriers to this kind of shareholder activism, and the biggest may be the fact that most South African institutional investors see themselves as part of the same social fabric as the companies they are invested in.

“I was recently told these investors are ‘allergic’ to association with the kind of activism that I represent. This is a mindset that will have to change if shareholders are serious about shifting corporate behaviour.”

Davies’s message totally affirmed the enormous potential that shareholder activism and responsible investment have to change the trajectory of South Africa’s economy, as well as the courage it will take from those who hold economic power.

EDITOR’S NOTE

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t’s been a difficult year for the country. But no one promised that life would be easy – and so we must shrug off the bad news and get on with living, and investing.

The year ahead won’t be a bed of roses either.

Things could be volatile – not only in South Africa, but further afield. I’ve just finished reading a note from Deutsche Bank, in which it lists no fewer than 20 risks for the US in the year ahead, including trade wars, which, surprisingly, don’t top the list. Instead, Deutsche Bank chief economist Torsten Slok sees the number-one risk for America as continued wealth inequality, income inequality and health inequality.

Indeed, it is inequality that is at the very heart of Democratic presidential candidate Elizabeth Warren’s campaign.

The senator from Massachusetts has said that if she becomes president, she will introduce a levy of 2% on families’ net worth of above $50m and 3% on household net worth over $1bn. She appears to be oblivious to the fact that these taxes would lead to an instant stampede of capital out of the United States, as the rich always make sure that their money is mobile. Countries in Europe that adopted a tax on the rich in the past – Austria, Denmark, Germany, Finland, Luxembourg and Sweden – have repealed it because wealth taxes just don’t work!

There has been renewed interest in South Africa to impose a wealth tax on the rich, which, in the long term, would drain the country even further. Instead, we must hope that our government sees the light and makes courageous policy changes that will lead to more employment, as well as improved education.

On behalf of the MoneyMarketing team, I wish you a peaceful holiday season.

Janice janice.roberts@newmedia.co.za @MMMagza www.moneymarketing.co.za

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NEWS & OPINION

PROFILE

31 December 2019

STEVEN AMEY DEPUTY GENERAL MANAGER: HEAD - SPECIALIST INVESTMENT SERVICES, DISCOVERY INVEST

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

Growing up I actually wanted to be a fighter pilot.

Top Gun was a movie I watched at least a dozen times. The thought of suiting up, going Mach 1 and firing missiles at the enemy seemed like a great career path. I soon came to the realisation that it was probably better to watch and admire these pilots than participate in hair-raising combat.

When I left school, I studied Commerce and Marketing and developed a passion for Finance and Sales. The ability to make a positive difference in the lives of people one touches is both meaningful and powerful. You often find that one’s investment guidance manifests in the family of your clients, thus enhancing the lives of an entire family, which is very rewarding.

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

My first investment was R20 that my parents deposited in a BOB account. I withdrew it in the first week to buy sweets and play arcade games – I was only 10 at the time. On learning the value of compounding and the importance of saving, my first investment was into two unit trust funds, an equity and balanced fund – and yes, I still have these today!

What makes a good investment in What have been your best – and worst today’s economic environment?

– financial moments?

Many believe the Financial Crisis of 2008 – the My best financial moment was providing most severe since the Great Depression of the investment guidance to a number of executives 1930s – shaped the way global markets of today in 1998 who wanted to disinvest from their behave and interact. Fund Managers have openly compulsory savings products. I convinced these confessed on just how difficult clients to purchase guaranteed it is to manage money in annuities, for life, when interest these times. Leaders of the rates where over 25%! These clients FUND MANAGERS developed world are more called to thank me years after they HAVE OPENLY active on social media, where retired.

CONFESSED ON JUST a simple tweet can steer My worst financial moment took market sentiment, drive up HOW DIFFICULT IT IS place during the financial crisis; levels of volatility, ultimately I was convinced by a number of TO MANAGE MONEY stockbrokers to dabble in CFD impacting investment returns.

Given this backdrop, a trading. I was and still am relatively IN THESE TIMES good investment in today’s risk averse, so you can imagine economic environment must be based on a how difficult it was to get involved in speculative solid foundation, comprising sound and proven trading – needless to say we all lost money, paid investment principles and behavioural discipline. our school fees and learned valuable lessons.

The former is well known, with the latter gaining traction as an ever-growing body of evidence-based Do you own any cryptocurrencies? research depicts just how big investors negatively If not, why? impact their own investment returns. This is due I don’t own cryptocurrencies. I have always to a number of inherent biases that subconsciously maintained if you cannot value it or fully impact our decision making. understand it, stay away.

EARN YOUR CPD POINTS The FPI recognises the quality of the content of MoneyMarketing’s December 2019 issue and would like to reward its professional members with 1 verifiable CPD points/hours for reading the publication and gaining knowledge on relevant topics.

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VERY BRIEFLY The Southern African Venture Capital and Private Equity Association (SAVCA), in collaboration with Investec and supported

by Sanlam Investments, last month announced the four category winners of the second annual SAVCA Industry Awards.

“The four portfolio companies being recognised this year – while very diverse in terms of industry and approach – all have two things in common. Firstly, they have all prospered from private equity and venture capital investment in the Southern African region. More importantly, these companies all have a positive impact on job creation, the economy and social development,” SAVCA CEO, Tanya van Lill, said. The winners are: 2019 SAVCA Industry Award for Best Start-up/Venture Capital Company: Aerobotics; 2019 SAVCA Industry Award for Best SME: DSES Project Solutions; 2019 SAVCA Industry Award for Best Mid-Market Company: Real Foods Group; 2019 SAVCA Industry Chairman’s Award: Meridian Consolidated Investments.

Maitland Group South Africa has been officially granted Level 2 B-BBEE contributor status, following an extensive audit. Prior to this, Maitland was a Level 4 contributor.

“The areas that B-BBEE aims to influence are ownership, management control, skills development, enterprise and supplier development and socio-economic development. From a Maitland perspective, this allows us to ensure diversity in the areas of recruitment and vendor selection, as well as to invest in the development of people both internally and externally to the organisation,” the company said.

“At the centre of this endeavour is the BEE Committee, who meet monthly to develop strategies for meeting and improving our B-BBEE level,” the company added. “The particular goal of reaching Level 2 has been months in the making and has involved staff participation across the board.”

PSG Wealth Melrose Arch has announced that James Arnold and Michael Richter have joined its team of wealth managers. “Both have enjoyed careers that include time spent at various top financial institutions, in a variety of management capacities,” the company said. “James has been recognised as a top wealth manager on a number of occasions and joins PSG to continue in this role. His journey through working in financial services embodies his passion for financial planning. Michael’s affinity for successfully managing portfolios has seen him flourish on his professional path spanning various facets of stockbroking. He will be assisting the office in managing and broadening its stockbroking and portfolio management offering.”

NEWS & OPINION

31 December 2019

Investment pioneer Allan Gray dies

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llan William Buchanan Gray died on 10 November 2019, of natural causes. The investment company that bears his name said in a statement, “Our first thoughts are with his family, and with them, as colleagues and friends, we are mourning the passing of a man who made an immeasurable impact on many lives as an entrepreneur, investor and philanthropist. He has earned his rest.”

The company added that Gray had left behind a lasting legacy.

“He founded Allan Gray and Orbis with the singular purpose of creating long-term wealth for clients and the firms continue to be guided by Allan’s strong values and his philosophy and approach to investing. He saw philanthropy as a natural extension of the impact that the investment business aims to make in people’s lives, spending considerable focus and energy later in his career on philanthropic endeavours.”

Gray’s last years were spent setting up the Allan & Gill Gray Foundation,

having donated his family’s controlling stake in the Orbis and Allan Gray groups to the Foundation.

He was born in East London in 1938. After completing high school at Selborne College, he studied at Rhodes University. He qualified as a chartered accountant and went on to earn an MBA at Harvard Business School in 1965. He then worked at Fidelity Management and Research in Boston, before returning to South Africa in 1973 to found what would become Allan Gray.

“He set up Orbis in 1989 to focus on global investing,” the company said in its statement. “A meticulous planner, he spent a number of years gradually handing over his responsibilities to others, confident that the firms were in excellent hands.

He handed over leadership of Orbis to William Gray in 2000, resigned from the Allan Gray board in 2010 and stepped away from his remaining investment responsibilities at Orbis in 2012, before retiring officially from Orbis in 2016.”

Allan Gray, 1938 - 2019

Advisers and family offices should collaborate

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he services of financial advisers and family Due to the high level of economic and political offices should not be regarded as mutually uncertainty and volatility in South Africa, the typical exclusive. On the contrary, South African ultra- picture of intergenerational wealth transfer does high-net-worth (UHNW) clients may benefit greatly not reflect international, first-world trends. One from collaborations that align both domestic and distinctive characteristic is the shortened life cycle global servicing opportunities, while encompassing of the family business, where it is uncommon for their inter-generational footprint. This sentiment was business owners to keep their wealth tied up in the reinforced by independent, multifamily business across multiple family office, Stonehage Fleming, generations. Rather than pass FAMILY OFFICES at their recent adviser event on down the leadership baton to their intergenerational wealth transfer. children, heads of family look to WITH A GLOBAL While family offices generally reduce their local asset exposure INFRASTRUCTURE through the timely selling-off of have in-house capabilities in ARE ABLE TO specialist areas such as law, fiduciary their family-owned businesses in and investments, relationships favour of offshore diversification.

OFFER OFFSHORE with third parties may be seen as In the above scenario, there FIDUCIARY AS AN a conflict of interest in the eyes of are two key areas in which a advisers. Quite the opposite, says IN-HOUSE SERVICE family office with an international Layve Rabinowitz, Partner in the capability can assist local advisers to Family Office Division in South Africa. A family offer clients a holistic and seamless global service. office’s key driver is to offer the right advice pertaining to its client’s unique situation. Due to the nature of Offshore capability, local presence their UHNW families – who typically live and own Due to the existing cost barriers to entry of setting assets across multiple jurisdictions – the help of a up offshore infrastructure from South Africa, it number of external specialists may be required to makes sense to work with a local firm of critical mass tailor the right solution. size that has the required invested technology and In order to make the most of the opportunities resources to operate efficiently on a global scale. arising from collaboration, Rabinowitz says advisers For example, while local advisers might offer should expand their focus to develop solutions offshore investment services inhouse, it is unlikely tailored to meet the needs of the entire family. that they would have an offshore fiduciary structure Such solutions must facilitate passing wealth down in place, which would mean outsourcing this to children and beneficiaries as tax efficiently service to more expensive international advisers. as possible.

However, South African family offices with a global

infrastructure are able to offer offshore fiduciary as an in-house service, reducing client costs and maintaining an important local touchpoint.

From an international standpoint, offshore advisers and banks dealing with South African residents may find it difficult to develop the same depth of relationship with clients as a family office, due to their lack of familiarity with the local landscape.

Seamless synchronisation By joining up the pieces of the local and global service offering, global family offices can add value through synchronisation, ensuring that no contradictions exist between the movement of funds and structuring of flows in and out of South Africa. In the situation where an adviser is already covering certain services within the chain of advice, a family office should have the capability to seamlessly fill in the gaps to ensure a smooth and efficient overall offering.

Rabinowitz adds, “While we understand that a possible overlap of select services may cause advisers to approach family office partnerships with caution, we maintain that collaboration opens up the possibilities for a far greater depth of global client service that can significantly benefit all parties in the long term.”

Layve Rabinowitz, Partner: Family Office Division, Stonehage Fleming (SA)

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NEWS & OPINION

31 December 2019

ANERIA BOUWER Partner and SDUDUZO MHLONGO Associate, Bowmans

The last days of tax-free foreign earnings

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outh African tax residents working abroad currently qualify for an exemption on their foreign earnings, subject to the proviso that they must be outside South Africa for at least 183 days during any 12-month period, and this period must include a continuous period of more than 60 days.

The exemption was originally introduced in 2000 to avoid the scenario where an individual’s earnings are taxed both in South Africa and in a foreign jurisdiction. At the time, National Treasury cautioned that the exemption would need to be monitored as it might potentially create opportunities for double non-taxation.

It is important to note that the exemption is not dependent on whether or not the South African tax resident has any tax liability in the foreign country in respect of such income.

Accordingly, currently, where the remuneration is not subject to income tax in the foreign jurisdiction, the remuneration could be earned tax-free.

However, those happy days are almost over! From 1 March 2020, the foreign earnings exemption will apply only to the first R1m of foreign earnings, with the excess portion being subject to income tax in South Africa. With just a couple of months to go until 1 March 2020, employers and employees are now trying to come to grips with the practical considerations in this regard, some of which we deal with below.

Firstly, and very importantly, how much tax will the employee actually pay in South Africa?

This depends on the specific circumstances. For example, if the South African employee’s only income for the year was qualifying foreign earnings of R1.5m, he or she would currently not pay any South African income tax in respect of such earnings.

From 1 March 2020, the employee’s South African income tax liability in respect of the R1.5m will be R113 655.

If no exemption applied, the South African income tax liability would have been R517 821.

For an employee receiving foreign earnings of R3m per year, the South African income tax liability would be R742 821. In the absence of the R1m foreign earnings exemption, this liability would be R1 192 821. (These calculations all take into account the primary rebate.)

What about the possibility of double tax?

If the foreign earnings are subject to income tax in both South Africa and the foreign jurisdiction, double tax should be avoided by the South African Revenue Service (SARS) granting foreign tax credits in terms of section 6quat of the Income Tax Act, 1962 (ITA). As a result, the employee’s liability to pay income tax in South Africa is reduced by foreign taxes paid.

The credit must be claimed in the individual’s income tax return.

If the employee earning R1.5m in the above example has been subject to R100 000 in tax in the foreign jurisdiction, his or her South African income tax liability would be reduced from R113 655 to R13 655.

Where the employee works for a foreign employer who does not have an obligation to withhold employees’ tax (PAYE), the employee would be obliged to submit provisional tax returns at the end of August and February each year.

The employee could reduce the provisional tax payments, taking into account the foreign tax credits.

The application of foreign tax credits can be somewhat tricky. The failure to calculate and pay provisional tax correctly could result in the imposition of understatement penalties and interest. It is thus important that the employee ensures that he or she applies the foreign tax credits correctly, or that he or she obtains assistance in this regard.

However, relying on foreign tax credits is even more complex if the

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employee has a resident employer who is obliged to withhold PAYE. The ITA does not, as a general rule, permit an employer to take into account foreign tax credits in order to reduce PAYE. While the ultimate income tax liability is that of the employee, an employer is personally liable for the failure to withhold the correct amounts of employees’ tax. It would be very negative from a cashflow perspective if the employee’s remuneration is subject to tax in both jurisdictions and if the employee has to wait until assessment (at the earliest in about July of the next tax year) in order to receive a refund from SARS. SARS recently released two publications regarding the revised foreign earnings exemption, which aim to provide guidance on how to deal with some of the practical issues, including the application of foreign tax credits.

These two documents indicate that the employer will have to apply for a directive from SARS to take into account foreign tax credits to reduce PAYE withholding on a monthly basis. SARS will apparently make a dedicated channel available to the public to apply for these directives.

The directive would not constitute the actual granting of the section 6quat credit but it permits a reduced PAYE withholding. The section 6quat credit will only be granted on submission of the employee’s income tax return, subject to the requirements of section 6quat.

What is the tax position if the employee ceases to be tax resident in South Africa?

The short answer is that a person who is tax non-resident, is subject to South African income tax only on his or her income from South African sources.

Remuneration received for services rendered in South Africa would potentially be subject to income tax in South Africa. However, foreign sourced income should not be taxable in South Africa.

In order to determine whether ‘tax emigration’ is an option, the person should first consider (a) whether it would be possible to cease to be tax resident and (b) the tax ‘cost’ of ceasing to be tax resident.

Most South African tax residents are probably what is referred to as ‘ordinarily resident’ in South Africa.

Such a person will cease to be tax resident in South Africa if he or she no longer regards South Africa as his or her home (subjective intention), and if this subjective intention is supported by objective facts. This could include working overseas for most of the year, emigrating from an exchange control perspective, selling South African assets and living overseas with his or her family. However, if the individual’s home and immediate family (spouse and minor children) are in South Africa and if he or she returns to South Africa on a regular basis, it would be much more difficult to persuade SARS that he or she is not ordinarily resident in South Africa.

It is important to keep in mind that there is a tax ‘exit charge’ should a person cease to be a tax resident in South Africa. The taxpayer will be deemed to dispose of his or her worldwide assets, excluding certain assets such as South African immovable property. For example, should he or she have investments in South Africa and/ or overseas, he or she will be subject to capital gains tax on any gain (the difference between their market value at the time that he or she ceases to be tax resident, and what he or she paid for them) at the time when he or she ceases to be tax resident.

There are therefore lots of practicalities for both employers and employees to consider before 1 March 2020. It is important that they obtain advice to ensure they do not pay too much tax or fail to meet their South African income tax obligations (which could result in a hefty tax burden).

NEWS & OPINION

31 December 2019

BRENT HAUMANN Chief Experience Officer, Striata

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AI can help financial services improve customer experience

ew companies are facing levels of disruption as high as those in the financial services space. While levels of disruption may vary across banking, wealth management, payments and insurance, there can be no doubt that those who adopt a ‘business as usual’ approach leave themselves vulnerable to new, innovative players.

People flock to these disruptors not because of the technology in and of itself, but because they provide a better overall customer experience (CX).

Established players can, however, improve their CX and win back customers through the strategic use of artificial intelligence CLEVER USE (AI).

According OF AI ALLOWS to Deloitte’s ORGANISATIONS TO AI Leaders FOSTER A FAR MORE in Financial Services HUMAN-CENTRED Report, the FORM OF CUSTOMER companies that have most fully COMMUNICATION embraced AI have achieved companywide revenue growth of 19%, directly attributable to their AI initiatives.

When it comes to implementing AI initiatives, a good place to start is digital communication, which plays a key role in enhancing the customer experience. Consistent, useful communication provides a strong foundation on which to build engagement, and ultimately a better relationship with customers.

Getting to that point means having these five things in place: 1. A path to a single view of the customer A single view of the customer means making all data about an individual available for other systems, in order to customise that customer’s interaction with the company. This is important, not to know what a customer has done in the past, but to predict what a customer will need in the future.

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2. Access to big data External sources of data are valuable in growing and refining the shape of the customer. These sources will be either structured data that’s already been filtered for a purpose, or raw data that is unstructured.

3. A data analytics tool It’s imperative to have an analytics tool that can consume available data to provide insights into customer behaviour in realtime. This information is vital for two key reasons: to measure the performance of each communication against set metrics and to continually refine and improve what you know about the customer.

4. An AI smart decisioning tool An AI-based decisioning tool will leapfrog your communication from personalised to hyperpersonalised, by predicting user behaviour and providing content based on that prediction to prompt the user’s next action.

5. A multichannel digital communication platform Ultimately, designing the perfect message is of no value if you can’t deliver that message to the customer. Part of the required architecture is a messaging platform that can deliver messages across digital channels and feed engagement data back into the process.

AI-driven customer communication Similar to the proverb “the best time to plant a tree is yesterday”, companies who’ve already invested in AI have a serious advantage.

According to Deloitte, 49% of frontrunners have a comprehensive, detailed, companywide strategy in place for AI adoption, which departments are expected to follow, giving them immediate scale and speed over rival firms.

Those embarking on their AI journey now, however, shouldn’t resign themselves to being left in the dust. Clever use of AI allows organisations to foster a far more human-centred form of

customer communication, which results in an immediate CX improvement.

As a consequence, customer retention becomes less about the friction associated with moving to another provider and more about the value derived from smart engagement and the ability to make their life easier.

And once the rest of the organisation sees what an impact AI-driven customer communication has, other departments will be quick to embrace it. If this is done properly, they’ll quickly catch up, and even pass, the market leaders.

Brent Haumann is the Chief Experience Officer (CXO) at Striata.

He started with the company in 2005 as a project manager and went on to head up platform development for over 10 years. Prior to Striata, Haumann managed large software implementations for Educos and Deloittes. His current position includes leading Striata’s South Africa and African regions. Haumann is a member of Striata’s global Executive Committee.

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NEWS & OPINION

31 December 2019

The critical role played by beneficiary fund trustees

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he role of beneficiary fund trustees in protecting the interests of minor beneficiaries cannot be underestimated. By doing their fiduciary duty, trustees play a critical part in changing children’s lives by helping them to be financially resilient and as self-sufficient as possible as they approach adulthood. It can be a complex job. There are lots of tricky cases and, although the law governs decisions, trustees do often have final say.

It’s easy to feel overwhelmed by the depth and breadth of responsibilities.

Christopher Mwalo, Acting Operations Manager: Sanlam Beneficiary Funds and Umbrella Trusts, says it’s pivotal to have a diversified board of trustees to foster absolute impartiality and ensure there are myriad perspectives being brought to the table. “Diversity is critical for good governance. It facilitates the robust discussions imperative to fair decision-making.

It’s the best way to challenge innate biases and ensure the interests of minor beneficiaries are central to every course of action undertaken.”

Mwalo lists trustees’ responsibilities as: • Taking all reasonable steps to ensure that the interests of members in terms of the rules of the fund and the provisions of the Pension Funds

Act are protected • Disclosing and properly managing conflicts of interest where they arise • Acting with due care, diligence and good faith • Ensuring proper record keeping of the fund • Ensuring proper control systems are employed by or on behalf of the trustees • Ensuring adequate and appropriate information is communicated to members informing them of their rights, benefits and duties in terms of the rules of the fund • Obtaining expert advice on matters where the trustees may lack sufficient expertise • Ensuring that the rules and the operation and administration of the fund comply with all relevant laws.

One of the biggest responsibilities is making decisions around pay-outs.

Mwalo says payments may be made for the purposes of the member’s education, maintenance, advancement and wellbeing from the member’s fund account at the request of the beneficiary, and subject to trustees’ discretion. When deciding on whether to make a payment, trustees need to consult the beneficiary fund’s rules, the Pension Fund Act,

TYRAN NAIDOO Compliance Officer at Compli-Serve SA

instructions from the retirement fund’s trustees and any court orders in effect (relating to divorce, maintenance, adoption, etc.). The idea is to conserve funds in such a way that the member will have something left upon reaching majority age.

In addition, trustees must consider: • Current capital amount in the member’s fund account • Age of the beneficiary • Duration of the fund account • Guardian’s duty of support • Long-term objectives, e.g. capital growth to provide for tertiary education.

There are also limitations to bear in mind, for example, school fees or educare payments may be capped, unless there are special circumstances.

Every case must be carefully considered on an individual basis.

There are plenty of examples of ‘trickier’ requests – for example, a guardian submitted a claim request asking the beneficiary fund to purchase a house for the two beneficiaries in her care. The trustees considered all the factors above, along with the Children’s Act, and decided to approve the request on condition the house be registered in

the beneficiaries’ names. In this case, the beneficiaries had enough funds to sustain them until age 18, after deducting the contributions to be made for the purchase of the house.

An even tougher example would be a scenario where that wasn’t the case.

Mwalo advises that trustees maintain their fiduciary duty at all times. He says that on top of the extensive training trustees undergo, they need to keep up to date with their annual CPD point requirements.

“It’s vital to keep learning and to be aware of any unconscious biases.

Having a diverse board of trustees will help catalyse greater impartiality and enable you to ‘bounce ideas’ off peers from all walks of life. Ultimately, you are safeguarding the interests of a minor child. You are playing a pivotal part in making young people more financially resilient.”

Christopher Mwalo, Acting Operations Manager: Sanlam Beneficiary Funds and Umbrella Trusts

Getting real about robo-advice

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s robo-advice becomes increasingly popular with clients wanting cheaper and more accessible ways to pursue financial planning, instead of fearing the evolution of financial services as we know it, financial advisers should see the real opportunity.

If used correctly to assist an adviser in providing clients with a service tailored to them, robo-advice can be an asset. An example is enabling an adviser to give clients more detailed information on their investment goals through using technology to generate information on their client’s needs, and then recommending suitable options to pursue.

This happens quickly and accurately.

A hybrid model comprising of robo-advice and face-to-face human interaction is the most likely outcome. This approach will also be more accepted by those clients who are tech avoiders.

One of the risks robo-advice presents is that current algorithms may not be sufficiently developed to provide clients with advice on more complex products. Algorithms are essentially a set of questions used to solve a problem, so for the advice to be suitable, the series of questions will

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need to be as detailed as possible. Working through issues and finding solutions like these will ease the transition process of merging technology with a current advice model.

If customer needs are more complex, such as around retirement planning, algorithms will need to be advanced enough to provide the customer with suitable solutions. Clients may not be aware of certain risks, such as an underestimated lifespan or propensity for illness. This is where human interaction may be required to probe the client and have a detailed analysis to provide the best recommendation. A word of caution, however: the speed of algorithm advancement using self-learning techniques will likely narrow the gap in the next few years.

Robo-advice can also make it easier for advisers to provide quick solutions for car, household, home insurance or low-risk investments. While we advance to a more sophisticated system of fintech, it is important to remain cautious, but to also be open to possibility and how change could improve your business. In this time, FSPs may find opportunity to partner with fintech companies to obtain

the technology needed to provide robo-advice successfully, tapping into a new marketing strategy.

Regardless of whether a hybrid model is used or robo-advice only, the supervisory function will always require some human intervention.

Compliance officers and key individuals will need to understand the regulations of robo-advice in order to monitor and review the technological systems. Chapter 3 of FAIS Board Notice 194 of 2017 sets out the rules for monitoring that should be in place if an FSP is using robo-advice.

Technological literacy is becoming increasingly important in the financial services industry and this trend will accelerate in times ahead. It is inevitable that robo-advice will continue on a growth trajectory to throw an increasingly large shadow over the financial services market.

Robo-advice comes with risks attached but we should note that it is not a passing fad. It's best to get on board before it's too late. Indeed, current market players should embrace this – using technology to enhance and expand their services where appropriate – for a future-proofed advisory business to thrive.

INVESTING

31 December 2019

TODD MICKLETHWAITE Head: Distribution, Sanlam Investments Alternatives

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he story of Africa’s growth potential is brought to life by 1.2 billion inhabitants and an urban population estimated to increase by 24 million people annually. Yet many local retirement funds have been slow to allocate to African countries outside of South Africa. But, with listed South African assets no longer offering attractive returns and with a better understanding of how best to implement strategies on the broader continent, there’s a case for retirement funds to reallocate a portion of their traditional South African growth assets to pan-African mandates – a move encouraged by Regulation 28.

Learning from the past While few funds have fully embraced the limits allowed by the regulations, a number have tread the path to some degree before. A number of key themes have been evident in cases where investors have struggled to earn the returns they expected. The first is that African frontier stock markets have exhibited elevated volatility, as they are often driven more by the whims of impatient and skittish foreign retail investors than by underlying economic growth. The second arises from private equity investors buying into what they believe is the next African entrepreneur success story, only to find it more challenging to positively affect

Investing in Africa: Strong returns with diversification benefits

businesses and to exit investments than in more developed markets.

Finally, local economies have found it difficult to weather currency volatility in areas where they are reliant on foreign investment. Real estate funds, for example, have felt the impact of the limited foreign exchange risk that tenants are able to bear before their ability to trade and meet their rental obligations is hampered.

Latest approaches to Africa The accumulated experiences of investors in Africa are helping to shape the market such that investors are now better equipped with adapted models, local knowledge and tested expertise to benefit from Africa’s growth than ever before.

Skilled asset managers who have ‘paid their school fees’ over the years and understand the idiosyncrasies of the various listed markets are better positioned to deliver value for investors. These managers recognise the need to cap the size of their funds to enable them to most effectively capture performance from the limited nature of frontier market stock exchanges. They also manage funds with liquidity limits in place, in order to protect investors from the volatility resulting from significant withdrawals by other investors (historically a big factor in the destruction of value).

Certain markets have developed to the extent that high-quality private market assets can be aggregated to a sufficiently diversified degree.

Regulators are supporting private market structures that allow more flexibility for local and foreign investors to access assets. Fund managers have innovated to offer flexible regional and pan-African platforms and collaborated with local specialist partners to manage assets in-country. They have also recognised that, for certain asset classes such as real estate, additional income can be gained through various value-adding initiatives rather than purely through greenfield or brownfield development.

Additional benefits of allocating to Africa Besides the wider opportunity set, geographic diversification and attractive growth narrative, a significant benefit of allocating to Africa is that retirement funds are able to gain an additional 10% US dollar exposure (beyond the 30% that Regulation 28 allows to global assets).

Using the regulatory Africa allowance to reallocate between interest-bearing assets (as opposed to growth assets) is also gaining traction. In particular, African private credit (senior, secured credit) is a good fit for institutional portfolios and it’s not difficult to see

why when considering: • The stability of returns from the regular, contractual cash flows • The fact that loans are selfliquidating through contractual exits (with invested capital typically being repaid from the first year) • Protection in the form of security and seniority in repayment order.

African senior secured private credit has consistently delivered 8-10% in US dollar terms, with volatility for South African investors almost entirely a function of the USD/ ZAR exchange rate. Including African private credit in a portfolio increases the expected return of the portfolio for a given level of risk, irrespective of the overall target return.

A commitment to Africa As a constituent of Africa, it is important for us to remember that uplifting the economies across the continent indirectly benefits South Africa, developing the overarching financial ecosystem of which we form part. Investing in Africa enables growth and economic development that is much needed across the continent and, when carefully considered in an investor’s portfolio, can offer strong returns with significant diversification benefits.

Moody’s: Global growth will remain sluggish

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ccording to rating agency Moody’s, global growth will remain soft over the next two years.

“As the global economy continues to slow toward a lower long-term trend, business sentiment across major economies has become downbeat amid elevated trade policy uncertainty,” Moody’s says in its latest Global Macro Outlook, a quarterly research report that sets out the rating agency’s latest GDP forecasts and assesses the trends that are likely to affect the global economy and credit conditions over the coming months.

Moody’s does not expect the global economy to enter a recession in 2020 or 2021, however, “the current economic environment is characterised by structurally low growth, low inflation and limited policy space, making the global economy more vulnerable to negative developments”.

The rating agency’s forecasts are broadly unchanged.

“We expect the G-20 economies to collectively grow at an annual rate of 2.6% in 2020, the same rate as in 2019. We expect continued deceleration of the two largest economies, the US and China, into 2020.

Growth of the G-20 economies will pick up slightly in 2021, to 2.8%, but will remain below the average

level over the past few decades.

“Growth of the nine G-20 advanced economies and the euro area will slow from a meagre 1.6% in 2019 to 1.4% in 2020, and then edge up to 1.6% in 2021. Stagnant productivity gains and adverse demographic trends in many countries are holding back growth potential.”

Moody’s says it expects emerging economies to stabilise or even pick up pace in 2020 and 2021, and it estimates that growth of the G-20 emerging market countries will increase 4.3% in 2019, collectively registering the weakest growth rate since 2009.

“Growth will accelerate only slightly in 2020, at a rate of 4.6%, followed by 4.8% in 2021. Of the 10 countries in this group, Argentina is the only one whose economy will contract in 2020, followed by a protracted recovery.”

The rating agency believes that the escalation of trade disputes tops the list of economic risks. “Although a partial trade agreement between the US and China would signify progress in reducing tensions, it would not, in our view, substantially reduce the prevalent trade uncertainty that is weighing on business decisions.”

Moody’s says slowing growth has led to synchronised monetary policy accommodation.

Major central banks in both advanced and emerging market countries have softened their monetary policy stances. “This policy accommodation on a global scale will support financing conditions across countries. While monetary policy in advanced economies has limited remaining firepower, lower interest rates could help foster credit-led growth in emerging market countries.”

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INVESTING

31 December 2019

Changes to Section 12J tax incentive not all doom and gloom

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ational Treasury appears certain to retain changes to the Section 12J tax incentive, which allows South Africans to write off 100% of the investment against their taxable income while simultaneously benefiting from attractive returns, creating jobs and stimulating the economy. According to the change, individuals and trusts will now only be allowed to invest R2.5m per annum and corporate investments will be capped at R5m per annum (previously these amounts were uncapped).

Dino Zuccollo, fund manager at Westbrooke Alternative Asset Mangement, SA’s largest S12J fund manager comments, “Due to these legislative changes, it is likely that smaller Section 12J providers will struggle to raise sufficient investor capital and keep up with the various Section 12J compliance requirements as they will now need to raise capital from a wider more ‘retail’ investor base. Should this lead to non-compliance of the legislation, the Section 12J companies they manage may be penalised

by SARS (up to 125% of capital THE MINIMUM raised), which will SUSTAINABLE effectively negate AND ECONOMIC a large portion of FUND SIZE FOR A the Section 12J tax deduction.

SMALL SECTION Westbrooke 12J MANAGER IS is therefore APPROXIMATELY cautioning financial advisers R200M and investors to do their homework on the asset manager and their investment strategies prior to investing.

“Ensure that the asset manager is capable of raising sufficient capital to make sizeable underlying investments. According to the South African Venture Capital and Private Equity Association (SAVCA), the minimum sustainable and economic fund size for a small Section 12J manager is approximately R200m. In addition, consider whether the manager has a history of successfully deploying funds raised in line with the 12J legislation and whether it has extensive operational and compliance structures in place that are capable of handling the larger number of investors as a result of the new investment cap.”

However, Zuccollo believes that the larger, more established Section 12J providers with a proven track record of raising sizable funds and successfully investing this capital through an experienced and skilled team will still provide a compelling investment opportunity for taxpayers while at the same time reducing their tax liability.

Westbrooke, as South Africa’s largest S12J asset manager, is well-positioned to ensure investors aren’t taking additional risk from investing in unproven funds.

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“In addition, the changes may be effective in curbing abusive structures that have crept into the industry. We are working with National Treasury and Parliament regarding these changes and are hoping to initiate a conversation regarding the potential extension of the Section 12J incentive in the coming months,” he says.

It is believed that significantly less than 2019’s approximately R4.5bn will find its way into Section 12J investments in 2020. This will reduce the amount of private sector investment into SMMEs (the original intention of Section 12J was to boost the local economy and create jobs).

Zuccollo believes that since both retirement annuities (RAs) and Section 12J are effective annual investment options that allow individual taxpayers to reduce their income tax or capital gains tax liabilities, they should be considered in conjunction as part of a balanced and well-diversified annual investment portfolio. Section 12J investments allow investors a shorter investment horizon when compared to RAs (minimum five years), a larger annual cap, the potential to receive annual dividends and the ability to invest in an alternative underlying investment as opposed to the more traditional asset classes into which RAs typically invest,” Zuccollo adds.

Investment performance As South Africa’s largest Section 12J manager with an established track record, Westbrooke’s historic Section 12J funds have outperformed traditional local and international benchmarks. From 1 March 2016 till end August of this year, a basket portfolio of Westbrooke’s 2016 S12J funds (14,9%) substantially outperform the MSCI World Index (9,5%), the JSE Top 40 (5,5%) and the SA Listed Property Index (-0,9%).

Westbrooke Alternative Asset Management has a 15-year track record in managing alternative investments through its private equity and asset management businesses. The company is the only S12J fund manager to have successfully deployed over R1.3bn in 50 Section 12J investments – about one third of the industry’s total investments.

Westbrooke offers three investment strategies for 2020 • Westbrooke Aria provides growth capital to a portfolio of asset-backed rental businesses, with contractual revenue streams in partnership with experienced and reputable operators to ensure alignment of risk and reward.

• Westbrooke Aria Plus seeks to invest in a portfolio of moveable asset rental businesses that generate predictable revenue streams alongside experienced, reputable entrepreneurs and which may take underlying equity positions. (Revenue streams are not necessarily contractual and are therefore compensated with a targeted higher annualised return).

• Westbrooke Stac invests into a portfolio of income-generating student accommodation properties in partnership with established and reputable student accommodation operators that have proven track records in the industry.

Zuccollo explains, “Some investors may be confused about which Section 12J investment to select. We also offer them the choice of income, balanced or growth portfolios that includes a combination of our investment strategies. In addition, we have created an online investor toolbox to provide a range of information so that those interested can fully understand the incentive and investment strategies prior to investing. Investors will be able to deduct the full investment against their taxable income and reduce the amount of tax payable at the end of February 2020.”

Westbrooke’s minimum investment size is R250 000 and offers close on 25 February 2020.

The above does not provide all information material to an investor’s decision to invest including, but not limited to, risk factors. The information is not intended as, and does not constitute, investment, legal or tax advice or an offer to sell any securities to any person or a solicitation of any person or any offer to purchase any securities. This is for information purposes and returns are not guaranteed. The targeted returns indicated are indicative in nature and are based on the performance of Westbrooke’s previous S12J investment strategies. The value of all investments and the return may fluctuate. Investment in financial products is subject to risk for the investor and investors are advised to be aware of these risks prior to investing.

Dino Zuccollo, Fund Manager, Westbrooke Alternative Asset Management

INVESTING

31 December 2019

KIM ZIETSMAN Head: Business Development and Marketing, Laurium Capital

What you need to know about the Laurium Income Prescient Fund

Tell us a bit about Laurium Capital Laurium Capital is an independently owned boutique manager, started in 2008. We run hedge and long-only funds in South Africa and the rest of Africa, and have R27bn assets under management.

Despite the broader limits in the Multi-Asset Income category, we are unlikely to make significant use of the equity and Africa allowances and property exposure will probably remain significantly below the limit over time, in line with the volatility target of the fund.

When was the Laurium Income Prescient Fund launched and who manages it?

The Laurium Income Prescient Fund was launched on 1 March 2019. It is managed by Jean-Pierre Du Plessis (J-P), who joined the team on 1 January 2019. Prior to joining Laurium in January 2019, he was deputy head of fixed income at Prescient Investment management in Cape Town where he worked for nine years. Prior to this, J-P worked in the portfolio management industry in the UK for 12 years.

What do you hope to achieve with this investment strategy and who would benefit most?

The fund is focussed on generating yield. We have a primary target of generating inflation +3% returns, and a secondary objective of avoiding drawdowns over a rolling three-month period. The fund is for conservative investors who want to obtain real returns but with low volatility and is focused on compounding real returns over time while minimising the potential for drawdowns, allowing them to generate income.

The Laurium Income Prescient Fund falls into the Multi-Asset Income Category – what can funds in this category invest in?

Funds in this category may invest in a spectrum of bonds, money market, real estate markets or, to a limited degree, equities, with the primary objective of maximising income. They can have a maximum effective equity exposure (including international equity) of up to 10% and a maximum effective property exposure (including international property) of up to 25% of the market value of the portfolio.

The ASISA category allows the fund to invest within the SARB limits, a maximum of 30% in offshore investments and 10% in African investments. This said, the fund will aim to limit currency volatility through hedging where appropriate.

GUY FLETCHER Head: Client Solutions & Research, Sanlam Investments

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et no one ever tell you that simply putting money aside on a monthly basis will solve all your retirement problems without a proper strategy. It is estimated that up to 80% of your retirement ‘pot’ is likely to come from the growth in your monthly savings, rather than the actual savings themselves. As such, we need to give the appropriate attention to how this money is invested.

Fortunately, the world of investments is constantly evolving and, in many ways, we now have more opportunities and tools at our disposal than previous

FORTUNATELY, THE WORLD OF INVESTMENTS IS CONSTANTLY EVOLVING

What are the largest drivers of return in an income fund?

The largest determinate of returns will be derived from generating yield in the portfolio. There are several drivers that can be used to actively generate returns – duration, credit, inflation linked bonds, preference shares, property and international assets and currency.

Why is the investment strategy appropriate?

Fixed Income investments play a vital role as a source of income, for capital preservation, total return and diversification benefits, especially for conservative investors who may be in their later life stage.

What are the risks, liquidity and returns for the strategy?

This is a conservative portfolio. We want to protect capital and generate real returns. We focus on liquid asset classes, reducing liquidity risk.

Property and international assets can be volatile, so it is important that we size these appropriately.

We may use currency options/overlays to reduce the volatility of having naked offshore currency exposure.

What are your key differentiators vs. your peers in the income space?

• Focus: It is our only fund in the Fixed Income space, not part of a greater model that allocates to this strategy • Size: The fund is small, which allows us to be nimble and get meaningful allocations to smaller assets and secondary offerings • Global experience: J-P’s experience of investing in offshore markets and structuring is also a differentiator • Team leverage: Financial analyst Matthew Pouncett and property analyst Ruan Koch give J-P an improved insight into the credit and property markets. J-P also receives quantitative research and support from our quants analyst, Menzi Mthwecu.

How would an adviser access this fund?

The fund is available directly via Prescient and also via Glacier, Investec and STANLIB LISPs. With the support of the retail allocators and investors, we are aiming to add it to additional platforms in time.

Nine investment elements your parents wish they had

generations had. So, how does the current landscape of investing stack up relative to the world of your parents?

Nine investment elements your parents wish they had: 1. Choice: There have never been more funds, more managers and more investment platforms than we have at the moment.

2. Technology: Choice leads to complexity and overcoming complexity requires insights, data processing and visualisation tools. Our methods of portfolio construction have never been more thorough, more personalised or more comprehensive.

3. Insights: A massive upside to technology is the ability to understand where performance comes from and how to manage your investment plan accordingly.

4. Costs: Costs have been declining

for years, both locally and internationally, particularly within the active manager space. In fact, the average consumer pays less than two-thirds of typical unit trust fees in the 1990s.

5. Opportunity: South Africans have seen their ability to invest internationally increase from 1% of their retirement portfolio in the early 90s to 30% today, with an additional 10% allowance for Africa.

South Africans are also individually entitled to take R10m foreign investment allowance offshore every calendar year.

6. Accessibility: Platforms abound.

Today there are multiple platforms, with very low switching fees, with low cost and negotiated access to the bulk of products.

7. Implementation: The second wave of choice is vehicles. One is no

longer limited to single investment products but can invest in a range of vehicles.

8. Expanded asset set: The world of private investments, including direct property, private equity (and debt) and, not least, hedge funds, used to be the preserve of only institutions and high-net-worth individuals.

Recent legislation has opened these up to the average investor.

9. Legislation: The regulatory framework that underpins the investment environment has never been stronger.

We have at our disposal the most comprehensive set of tools for improving our understanding, and creating a plan that services our individual needs and our individual risks. There truly has never been a better time to be an investor.

WWW.MONEYMARKETING.CO.ZA 11

INVESTING

31 December 2019

PRESTON NARAINSAMY, Investment Professional, Marriott

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Dividend investing: The low-down

he ability of a company to Limited. In 2000, R100 000 would pay out steady or growing have bought the investor 7 905 shares dividends is often a sign of a in the company. Those shares would healthy business and a good longhave paid the investor approximately term investment. These dividend R1 400 worth of dividends in the payments can play an important role first year. In 2018, that same investor for investors. would have received approximately A dividend is a payment made R30 000 worth of dividends from the by a company to its shareholders same number of shares. This increase and typically represents a portion in dividend income equates to an of a company’s earnings that the average annual income growth rate directors of a business have decided of 18.6% per annum for the past 18 to pay out and not reinvest back into years. This growth exceeded average the company. inflation over the corresponding The benefits of dividends are period by 13.2% per annum. outlined below: It is also important to note that the

value of a company increases at the A source of income rate at which its profit grows. In the Dividends provide investors with same way, the value of an investment cashflows, which can be used to fund grows over time at the rate at which lifestyle requirements, or they can be its income grows. Clicks’ average reinvested. It annual capital growth is interesting over the last 18 years COMPANIES THAT to note that has been 16%, which PAY DIVIDENDS in first-world corresponds with the markets PROVIDE INVESTORS company’s 19% average at present, annual growth in WITH AN EFFECTIVE dividend over the same dividend yields of period.

INFLATION HEDGE multinational Chart 2 illustrates blue-chip companies are higher than Clicks’ dividend and share price cash and bond yields, making them growth since 2000. an excellent source of current income.

Chart 1 compares the yields of Companies that reliably a selection of multi-national bluegrow their dividends tend chip companies to the 10-year US to outperform the market government bond yield. over time

Many investors think of reliable Inflation protection dividend-payers as stodgy, Companies that pay dividends uninteresting companies that will provide investors with an effective produce mediocre returns. This is inflation hedge. Take, for example, far from being the case. Studies have an investment made in Clicks Group shown that companies that pay and

CHART 2

1

3

2

CHART 1

grow their dividends outperform the market over the long term.

Table 1 below highlights the relative outperformance over the last 20 years of some of the world’s best dividendpaying stocks when compared to the S&P 500 index.

Possible explanations for why reliable dividend-payers outperform include: • The inherent optimism of people, which drives investors to overpay for exciting and high-risk companies with volatile dividends, and underpay for certainty • The large percentage that dividend income contributes to an investor’s total return over the long term • The fact that reliable dividend growth typically indicates that a company has a dominant brand, a strong balance sheet and a high degree of confidence that its earnings and cashflows will continue to support future payments.

Managing tax In South Africa, dividends

4

TABLE 1

Source: Bloomberg

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are taxable in the hands of the investor at a flat rate of 20%. This is an advantage for high-net-worth individuals in higher tax brackets.

Volatility Investing in companies that pay reliable dividends helps to reduce volatility – when the company’s share price declines, the investor will still receive dividend payments.

At Marriott, we fully recognise the important role dividends can play for investors in achieving their investment objectives. Our local equity fund, the Marriott Dividend Growth Fund, has managed to provide investors with a high level of dividend income that will grow faster than inflation over time. By investing in fundamentally-sound, JSE-listed stocks that have the ability to pay consistent dividends, the fund has delivered a reliable, inflation-beating income stream to its investors, with an average distribution growth of 11% each year since 2000, exceeding inflation by approximately 5.6% per annum.

5

Dividend Growth Investing Investing for long term income and capital growth.

Invest for Income Contact our Client Relationship Team on 0800 336 555 or visit www.marriott.co.za Marriott is an authorised financial services provider and is registered and approved under the Collective Investment Schemes Control Act. 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 are traded at ruling price and can engage in borrowing and scrip lending. 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. The inclusion of foreign securities in a portfolio are subject to risks including but not limited to potential constraints on liquidity and the repatriation of funds, macroeconomic risks, political risks, foreign exchange risks, tax risks, settlement risks and the potential limitations on the availability of market information. For any additional information such as fund prices, fees, brochures, minimum disclosure documents and application forms please go to www.marriott.co.za.

INVESTING

31 December 2019

Prolonged volatility brings cash to the fore

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nvestors, and those who manage wealth, Besides providing respectable returns, these have a lot to think about – especially with the money-market-linked bank cash investment government still to make clear its plans for the products also offer some certainty in uncertain refinancing of state-owned enterprises, which could times. “They can be used defensively to create a lot include imposing a prescribed assets policy on of predictability in a portfolio,” says Setoaba. “Cash pension funds. plays a critical role in portfolio rebalancing; where a Aside from the uncertainty around government financial adviser may move out of certain investment policy, the sluggish performance of the local classes and switch to cash to reduce the level of risk economy means that investors must be particularly exposure in a client’s portfolio.” astute when seeking opportunities across asset Even though cash as an asset class has its classes. advantages in difficult times, investors must consider Moving a slice of your allocation abroad is also a range of options other than putting it in a money no guarantee when it comes to protecting wealth. market fund or leaving it as a cash deposit.

Global issues like the trade dispute with China Setoaba says this is why independent financial and concerns over Brexit mean many overseas advisers (IFAs) must consider partnering with large jurisdictions will experience prolonged periods of financial institutions to figure out what cash or volatility and have seen their safe-haven statuses enhanced cash investment product is best suited to diminished. their customers’ needs.

Even so, despite the consensus “For instance, if an investor wants OVER THE market view that there will continue to set aside cash for opportunistic to be a degree of volatility, investors investments locally or internationally, PAST THREE still have to be open to opportunities their IFA should be aware of cash YEARS, CASH management platforms that allow that might come their way in SA and HAS DONE abroad. In a volatile market, a focus a financial adviser to execute on on capital preservation becomes that investments seamlessly and efficiently, if QUITE WELL much more important in managing a an unexpected opportunity arises, as it AS AN ASSET client’s portfolio. gives them control of the cash portfolio.”

One of the ways to respond to these Setoaba says the current climate is CLASS opportunities is to have a sizable causing advisers to seek multinational portion of their portfolio in cash. opportunities at an increasing rate. “As a bank, we Cash not only gives investors liquidity and are seeing a clear trend where financial advisers flexibility when switching to a more attractive are looking for offshore investment opportunities investment option when the market opportunity for their clients and it is for this reason that we arises, but placing cash into money-market-linked have integrated a balance of payments reporting investment products also offers meaningful returns. capability and created a dollar-denominated cash “Over the past three years, cash has done quite investment account within our Corporate Cash well as an asset class,” says Mabule Setoaba, who Manager platform,” confirms Setoaba. is the Head of Sales and Distribution: Investec for Using these types of platforms has the advantage Intermediaries & Head of Corporate Cash Manager. of direct control of US dollar-denominated savings, The numbers bear this out, with cash being highly as clients gain access to a dollar-savings vehicle competitive with an annualised return of 7.1% without having to undergo the traditionally onerous compared to the ALSI, 5.1% and the ALBI, 8.2% and expensive process associated with opening over the past three years.

FCA accounts.

Cash offers security Some investors prize capital security and the predictable nature of cash-based products. This is essentially what the post-retirement market is after.

These clients rely on the income generated by their investments for their subsistence.

This means the IFA needs to provide advice on products that have a clear and predictable interest rate, either a fixed rate or one with a prime linked return, as they create a degree of income certainty.

This makes cash and other capital secure investments that much more attractive as the potential return is appealing on a risk-adjusted basis. If you are investing R100k and you are guaranteed to receive an 8% return over one year, that could be more attractive than investing the same R100k for the possibility of receiving a 10% return, but also coupled with the risk of potentially losing 15% of the investment amount.

Advisers also need to be aware of the tax consequences of cash-based investments.

“Tax-efficient solutions and vehicles such as dividend-yielding income funds and endowment products can play a critical role in enhancing a client’s portfolio returns, without moving them too far right up the risk frontier,” says Setoaba. This is why Investec has introduced a dividend-yielding enhanced income fund and a fixed-return life endowment product.

As fixed-income investments become an increasingly important component in the construction of portfolios, it’s important for financial advisers to carefully choose their investment solutions, as well as to partner with institutions that can provide them with multidisciplinary investment solutions.

Mabule Setoaba, Head: Sales and Distribution: Investec For Intermediaries & Head of Corporate Cash Manager

Schroders South Africa announces new funds and team leadership

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chroders has announced that, after four years of leading the business in South Africa, Doug Abbott will be returning to the UK to take up a new role at the firm as co-head of UK Intermediary. Kondi Nkosi, who joined Schroders in 2018, will take on the role of Country Head, South Africa after Abbott’s departure at the end of Q1 2020.

The Schroders South Africa team continues to develop, with Ebeth Van Heerden having joined in Johannesburg in September this year as a business development manager.

Van Heerden is responsible for adviser and platform relationships.

Nkosi’s SA team will be further bolstered from December 2019 by the addition of a sales support person who will focused on supporting the local client servicing team. The firm also expects to fill a business development role in Cape Town with a further hire in 2020.

New fund approvals The FSCA has recently approved four more Schroders funds to offer to the South African market: • Schroder ISF Sustainable Growth The Global Sustainable Growth Fund invests in a concentrated, unconstrained global growth

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portfolio of 30-50 sustainable companies seeking to deliver outsized long-term returns. The fund has been running since November 2010 and follows a strict sustainability focused process that excludes stocks with material exposure to alcohol, tobacco, controversial and conventional weapons, gambling, adult entertainment, industries negatively impacting climate change (tar sands and thermal coal), high interest rate lending and human embryonic cloning.

• Schroder ISF Asian Equity Yield and Schroder ISF All China

The Schroder ISF Asian Equity Yield Fund aims to provide income and capital growth by investing in equities of Asia Pacific companies (excluding Japan). The Schroder ISF All China Fund invests in Chinese companies irrespective of where they are listed, i.e. onshore and offshore China. Both funds are able to invest in the onshore China market.

• Schroder ISF USD Liquidity The Schroder ISF USD Liquidity fund is designed to provide liquidity and aims to preserve client investment value, particularly in falling markets.

INVESTING

31 December 2019

DAVE MOHR: Chief Investment Strategist and IZAK ODENDAAL Investment Strategist, Old Mutual Wealth

Moody’s shouldn’t top the list of SA’s concerns A Moody’s downgrade is still very much on the cards.

The question is: How much should investors be concerned?

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he dust has now settled somewhat following the disappointing Medium Term Budget Policy Statement (MTBPS).

While Moody’s decided – soon after – not to downgrade the credit rating on government bonds to junk status, it’s not a very convincing outcome. After all, Moody’s made it clear that it needs to see concrete measures to stabilise the government’s debt ratios in the February Budget. That is only a couple of months away.

So what would a Moody’s downgrade mean? Firstly, South African government bonds are already rated sub-investment grade (‘junk’)

by S&P Global and Fitch. The sky did not fall on anyone’s head when these downgrades happened, despite much wailing and gnashing of teeth. The simple reason is that markets react in real time to the information ratings agencies incorporate in their models.

Ratings agencies make periodic announcements, but markets price the most likely future scenario in immediately. Moody’s is the last major ratings agency to maintain South Africa’s investment grade rating. This is not because it is more generous or patient than the other agencies, but reflects the fact that each agency has its own methodology.

Moody’s methodology places a large weight on institutional strength, and it is hard to argue that this has not improved over the past two years, even if the fiscal situation has deteriorated.

The reason so many analysts worry about a Moody’s rating specifically is that a downgrade by Moody’s would lead to South African bonds being excluded from the FTSE World Government Bond Index. Funds that passively track this index would have to sell out. Active funds that use it as a benchmark would have likely sold out long ago. No one has a firm grip on the extent of potential passive outflows, but it’s estimated to be between R20bn and R200bn.

However, most foreign investors are here for the yield, not the quality

of the rating. In any event, while over a number of years, so the actual a downgrade announcement can amount being spent this year and next cause volatility, it is unlikely to will not move the needle much. Total fundamentally change borrowing costs private fixed investment spending was or the level of the exchange rate. South R873bn in 2017 and 1.5% higher in Africa has already seen cumulative net 2018 at R886bn. outflows of R125bn over the past two In other words, even in a tough years, according to JSE data. Despite economic climate, companies spent this, long bond yields are essentially more than R800bn on machinery, flat over this period. vehicles, buildings, software and the These yields remain high and other necessities of running a business. have detached from other emerging When businesses get excited about markets, even ones with higher debt the future, they will spend a lot more. levels, that have seen much lower Business investment peaked at 15% of yields. Ultimately, it depends on GDP in the tail-end of the pre-2008 global risk appetite. Bonds rallied boom. Today the number is much and foreign purchases surged in 2016 lower at 13.5%. However, it must be in the aftermath of ‘Nenegate’ and said that this is well above the average ratings downgrades for the simple of the 1980s and 1990s. reason that international investors switched large-scale Economic growth into emerging markets.

The one element that South Africa benefited ties all of this together is MOST despite deteriorating economic growth. Faster FOREIGN fundamentals. economic growth will INVESTORS In other words, there improve debt and deficit are many things to worry ARE HERE FOR ratios by lowering the about in South Africa, numerator (debt and THE YIELD, but Moody’s should not borrowing) and raising NOT THE be top of the list. While the denominator (GDP). some have argued that This in turn will reduce QUALITY OF the threat of a downgrade pressure from the credit THE RATING is good for spurring rating and give the the government into Reserve Bank greater action, it could equally be considered comfort to cut interest rates. Lower a deterrent to investment as some rates in turn will boost growth. Faster businesses and individuals sit on growth will fire up the ‘animal spirits’ the side-lines until they know the of business leaders to invest more to outcome. And unfortunately, this has capture a slice of the growth. This is dragged out for many years now. the kind of virtuous cycle we need.

Instead, it still seems to be going in the Business investments other direction.

Not all businesses are sitting on their In the absence of faster growth, hands. A reported total of R363bn in the government will have to limit business investments was announced spending growth to prevent debt at President Cyril Ramaphosa’s second from rising too quickly. This is easier investment conference. This represents said than done and comes with its a healthy increase over the amount own implications. Fixed investment pledged last year, but clearly those spending by the broader public investments have not contributed sector is usually the first item to much to economic growth, which be cut, and it has already declined remains anaemic overall (and was from 7.6% of GDP in early 2016 to possibly negative in the third quarter).

5.6% in the second quarter. Cutting These investments are implemented the wage bill is politically difficult

and not something that can be achieved in the short term, since the government is tied into a three-year wage agreement. There are no silver bullets unfortunately, and historically, growth spurts have been as a result of external conditions (i.e. commodity prices and capital inflows), rather than generated internally.

Making it easier to do business What government needs to do is make it easier and cheaper to do business.

This means facilitating investment in infrastructure and skills, delivering essential services and removing unnecessary regulations. Much like the Springboks’ World Cup winning performance, the key is doing the basics right. President Ramaphosa has pledged to move South Africa into the top 50 of the World Bank’s Doing Business Survey in the next three years. This international comparison focuses on the ease of opening and running a business. Some reforms already in the pipeline will help raise South Africa’s competitiveness over time. Things are moving in the right direction, but clearly not at the speed most want to see.

Stick to the plan Government should also address the persistent uncertainty caused by some of its own proposed – but not implemented – policies. Importantly in this regard, Finance Minister Tito Mboweni noted recently that Treasury was not considering implementing prescribed assets. Therefore, while local investors have a lot to think about, there is no need to fear the government ‘raiding’ your retirement savings. Although a Moody’s downgrade is by no means a good thing, it is also not something that should scare investors into making unnecessary portfolio changes.

Therefore, while it might not always seem like government has a plan, individual investors should have one for their finances, and stick to it.

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INVESTING

31 December 2019

Two new hedge funds launched

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n response to increased market demand, Fairtree has launched two new hedge funds.

The Fairtree Jackalberry Equity Long Short SNN Retail Hedge Fund was launched in August 2019 and the Fairtree Marula Equity Long Short SNN Retail Hedge Fund was launched in November 2019.

Both of Fairtree’s Retail Investor Hedge Funds developed out of a need to establish retail investment products for Fairtree’s growing number of retail clients.

Both funds are focused

on extracting alpha returns predominantly from the South African equity market. These returns are accessed through a fundamental understanding of South African instrument’s stocks, economic growth and broad economic themes, as well as medium and long-term relative valuation opportunities.

The majority of the funds’ investments will be large and liquid stocks. The aim is to identify highquality businesses through their strategic competitive advantage, strong management teams and resulting strong BOTH FUNDS ARE FOCUSED cashflow generation.

An active management ON EXTRACTING ALPHA style will assist in taking RETURNS PREDOMINANTLY advantage of mispriced FROM THE SOUTH AFRICAN opportunities, as well as manage risk.

EQUITY MARKET

The Jackalberry Fund is a directional long short hedge fund, consisting predominantly of listed South African shares.

“Most hedge funds compete with a cash benchmark. The Jackalberry is unique since it competes with Capped Swix. It competes with traditional long-only funds, but has more tools to work with. We can use leverage to enhance returns and we also have the ability to short shares, to capitalise on falling share prices,” said Fairtree’s Equity Portfolio Manager Cornelius Zeeman.

The Marula Fund is an equity long short hedge fund, employing relative value opportunities combined with directional strategies.

“The Capped Swix hasn’t delivered positive real returns

over the last five years. The Marula gives investors exposure to the equity market, but we can deliver attractive absolute returns, irrespective of the direction of the market,” Zeeman adds.

The two new RHFs will be managed by Fairtree’s awardwinning team consisting of Andre Malan, Kobus Nel, Deon Botha and Cornelius Zeeman. The fund will be managed alongside the Fairtree Equity Market Neutral Hedge Fund.

Cornelius Zeeman, Equity Portfolio Manager, Fairtree

Prudential cuts management fees, introduces performance discount

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rom 1 December 2019, Prudential Investment Managers will be reducing their Annual Management Fees (AMF) by between 0.20%0.25% p.a. across a range of their unit trusts, which will directly benefit client returns. This will include clients invested via investment platforms.

In addition, they will be introducing a new 0.25% p.a. discount on the base AMF for the Prudential Dividend Maximiser and Prudential Equity Funds should the fund performance (net of fees) fall below benchmark.

As Pieter Hugo, MD of Prudential Unit Trusts, explains, “We are committed to providing our clients with an offering that delivers excellent value for money, is competitively priced and aligned with the changing regulatory environment. To this end, we regularly review our product range to ensure our offering remains relevant and ideally positioned to deliver the best possible outcomes for our clients.

“During a recent review, we identified some fund classes where we felt our fees weren’t ideally positioned relative to comparable offerings in the market. While we believe these funds still provide excellent returns net of fees, we have decided to reduce our AMF to ensure their ongoing competitiveness. We are very pleased to be able to offer fee reductions of between 0.20%-0.25% p.a. across a range of funds and fee classes.”

He adds that, as part of their review, Prudential had also recognised the need to keep abreast of the expected changes to adviser fee payment methods as outlined in the FSCA’s Retail Distribution Review (RDR). As such, the group 16 WWW.MONEYMARKETING.CO.ZA

would be restructuring the way adviser fees are currently paid from the AMF of the A classes of some of their funds, applicable only to new business placed directly with Prudential, effective from 1 December 2019.

“We believe that these changes are in the best interest of our advisers and clients, and will help to ensure that we continue to deliver value for our clients,” notes Hugo. “As the investment management industry keeps raising its standards of transparency and fair treatment for clients, we aim to stay at the forefront of these improvements. At the same time, we are ever-mindful of costs, and our goal remains to provide clients with excellent long-term investment performance after fees, as well as outstanding client service.” The table shows the affected Prudential funds and fee classes that will benefit from AMF reductions.

Pieter Hugo, MD: Unit Trusts, Prudential

Prudential Fund

Fee Class

Current AMF

New AMF

Reduction in AMF

Balanced Fund

A – Retail

1.25%

1.00%

-0.25%

A – Retail

1.25%

1.00%

-0.25%

B – Rebate-free platform

0.85%

0.65%

-0.20%

C – All-in platform

2.35%

2.15%

-0.20%

A – Retail

1.00%

0.75%

-0.25%

A – Retail

1.25%

1.00%

-0.25%

B – Rebate-free platform

0.85%

0.65%

-0.20%

C – All-in platform

2.35%

2.15%

-0.25%

A – Retail

1.25%

1.00%

-0.25%

Dividend Maximiser Fund* Enhanced Income Fund Equity Fund* Inflation Plus Fund

All fees are annual and exclude VAT. *An additional performance fee is charged if specific performance objectives are met.

INVESTING

31 December 2019

What is ‘Actual Investing’?

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ate last year, the normally publicity-shy Edinburghbased asset manager Baillie Gifford launched its first large advertising campaign entitled Let’s Talk About Actual Investing. The reason: the firm was reluctant to go on being bracketed together with what is conventionally seen as active management.

“We consciously came to the view, over the last three or four years, that we’re no longer happy to be deemed as being part of the asset management industry in the same way as everyone else does,” Stuart Dunbar, partner at Baillie Gifford, tells MoneyMarketing.

“We’ve always thought like this, but we’ve just become a bit bold about it now,” he adds.

“We think our industry is losing its way and that’s showing in huge flows from active to passive management, as well as a focus on fees. We believe in low fees but the whole debate is unhelpful. It’s more and more apparent to us that most asset managers are self-serving, rather than focused on serving their clients. We’re seen as just another asset manager who’s trying to enrich our sales at the expense of our clients – and that’s not what we’re trying to do”.

He explains that the genesis of the Actual Investing campaign was the making of internal films for clients about how Baillie Gifford is different

to other asset managers. “This led us mainly about what people are going to sharpen our thinking as to how we to do next week – it’s a case of if I’m are different.” smarter I’ll do the opposite to what For Dunbar, it’s important to focus you’re doing and I’ll get rich at your on the fundamental job of investing. expense. We don’t think that this “Most investors seem to have serves a social purpose.” forgotten – both asset management Dunbar sees his firm’s job as companies and customers of asset outperforming for its clients. “If we management companies – that focus on wealth creation and longthe fundamental definition of termism, we understand where the investment is to take capital from returns are coming from – not share those who have surplus and make prices but from businesses that are it available to those who need it to doing very well.” use in wealth-generating projects.

This implies a five-year-plus view.

And I say projects rather than “We say don’t invest with us if companies because you don’t have a companies are three-, or better, RATHER BIZARRELY, just a collection of five-year horizon. projects. Investing If you want to THE WAY TO is not speculating invest for a year OUTPERFORM FOR on share and you think we CLIENTS IS TO IGNORE can outperform prices. Imagine if there was no the market, forget THE STOCK MARKET stock market at it. Over five years all – that’s how people would think there’s a strong correlation between about investing – and they’d ask: How share prices and the fastest growing am I deploying my capital, how am companies. Over less than five I working with the management of years, this doesn’t exist at all. Rather companies to make sure that we’re bizarrely, the way to outperform for successful in doing this?” clients is to ignore the stock market.”

Asset management companies Dunbar has had a lot of feedback have moved away from this type of from people he knows – and those he thinking, Dunbar believes. “Instead doesn’t – about the Actual Investing of investing being about wealth campaign. “Feedback has been creation, business management, quite positive as I’ve had a lot of imagination and entrepreneurism, people at other asset management we work in an industry that is companies saying they agree with

what we’re doing, but they work in organisations that don’t allow them to think the way we do. That shows how different we are.”

Baillie Gifford operates as a private company with no outside shareholders.

“We don’t have to pay a dividend every year, much less a rising dividend, and if our business makes half as much money this year as it made last year, we won’t change a thing. We don’t have to play the game that other asset managers do: if revenue is under pressure, they merge. But this has nothing to do with doing a good job for clients.”

Due to the United Kingdom giving more say in retirement planning to individuals, there are now fewer defined benefit pension schemes in existence. This means that Baillie Gifford’s core client base is changing and the firm wants to reach new audiences – including those in South Africa.

“We’ve seen our client base starting to decline, but this is not precipitous and we’ve seen it coming. We had to act – reluctantly – in anticipation of that and we now have wholesale businesses in different countries that are in their very early stages. Here in South Africa, we’re starting to work on building relationships with local financial institutions,” Dunbar says.

“It’s more about maintaining positive morale and positive momentum than it is about growing, as we have no asset growth targets, but if we want to attract good people, we have to be a reasonably thriving business to offer opportunities – we can’t sit back and watch the world evolve around us.”

Founded in 1908, Baillie Gifford currently manages over £200bn for clients all over the world, mainly in equities. SA’s Financial Sector Conduct Authority is now approving three more of the company’s funds that will bring the total to eight funds given FSCA approval.

Stuart Dunbar, Partner at Baillie Gifford

WWW.MONEYMARKETING.CO.ZA 17

FEATURE STRUCTURED PRODUCTS

31 December 2019

CHARLES BRITS Head: Business Development, Wealthport

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oday, as South Africa is made up of a diverse group of people, there are requirements for a more flexible investment universe – one that provides transparency in relation to fees, real potential for solid returns and one that has adapted to the new age of investing.

In fact, investors are starting to notice this shift and are looking for options that can work for a wider variety of investment outcomes, providing a substantial level of market certainty in such a volatile economy.

Over the past few years, there has been a shift from conventional investments to so-called ‘alternative investments’ – where asset classes vary from traditional investments on the grounds of flexibility, liquidity, regulatory frameworks and modes of fund management. Structured products are an alternative investment model, and they are no longer the domain of only large corporate investors, as they have become more accessible to everyday investors via endowment and living annuity wrappers.

Structured products combine two (or more) financial instruments that comprise a single structure.

This usually includes an interest rate-linked product (zero coupon bond) – plus one or more financial derivatives – and are designed to provide a defined investment outcome, based on pre-determined parameters over the term of the product. They

BRIAN MCMILLAN Investec Structured Products

S

tructured products have come a long way in recent years. From a specialised, exotic investment tool, they have become mainstream and financial advisers are now more comfortable to invest in them on behalf of clients.

However, even as they grow in popularity, there’s a responsibility on issuers and advisers alike to keep clients informed about structured products, their role in an investment portfolio and the specific types of structured product and their features.

In this article, we go through some of the key investment issues advisers and their clients need to understand before proceeding with an investment.

What is the client’s broad investment strategy?

As an adviser, you’ll have a detailed investment strategy in place for your client, taking into account life stage, income requirements, risk tolerance and so on. A structured product needs to fit into this broad strategy.

While each investor’s investment plan will differ, broadly speaking a structured product will be included in a portfolio for two reasons: to build

Structured products in an unpredictable world are unique in that they provide a clear investment objective, as well as capital protection. This is critical in a market such as ours where market conditions are adverse – providing the investor with a payoff profile upfront, ensuring no surprises down the line and helping shield investors from capital losses.

Furthermore, tax efficiency is provided where structured products – within a Companies Endowment wrapper – are able to provide tax-free returns. Most structures are designed to generate capital, so capital gains tax (CGT) is used – not income tax/interest. They are also designed for a period of longer than three years and therefore classified as subject to CGT. Lastly, structured products provide access to alternative assets and markets, including access to both local and foreign indices or different currencies and/or baskets of assets.

There are risks associated with any investment however and, with structured products, it is important to know who the credit issuer is and to check the investment grade status of the bank issuing the structured note – the better the rating, the less likely the bank will default on its obligation to investors.

Better yet, it is always prudent to speak to a financial adviser and obtain specialist advice before selecting an investment portfolio. The adviser should

be one that has a clear understanding of the changing investment market, provides an independent view of what is best placed for one’s own unique investment profile and ensures full transparency around the costs and returns of the portfolio.

As an independent platform, Wealthport has broken away from the tradition of supporting and hosting merely the ‘conventional’ categories of investments such as unit trusts, exchange traded funds and money market funds, by extending its wrapped offerings to include structured products.

We are setting the benchmark when it comes to smart investing – making room for the dynamic market conditions investors find themselves in and creating opportunity for truly transparent, unique and solid investment advice and management. In fact, we are a leading structured product administrator and have won the SRP Award for the best LISP, as well as best technology platform in Africa in 2017 and 2018 – as voted for by our clients.

Be part of the new age of investing today, contact Wealthport on 010 593 3103 or admin@wealthport. co.za for more information on our product offering and unique technology platform.

Wealthport (Pty) Ltd is an authorised Administrative Financial Services Provider, FSP number 44158.

Using structured products to enhance a portfolio up an exposure in a particular asset protection and participation in the class or to hedge an existing strategic upside – as noted above, often geared. investment decision.

This is useful for investors with a What are the liquidity long-term holding but who wish, at requirements of the investor? certain points in the market, to either Structured products come with a term hedge their exposure in the short or involved (three or five years are the medium term, or to take advantage of most common investment periods). short- or mediumWhile most issuers will term market provide some sort of conditions. commitment to pay out, STRUCTURED There are should the investor need PRODUCTS COME to access funds before the many structured WITH A TERM products that product matures, this can provide exposure result in the investor not INVOLVED (often geared) to realising the full potential a particular global index in a foreign of the investment – bear in mind that currency that the investor may feel most structured products are designed he or she doesn’t get from a typical to be held to maturity. balanced portfolio. The advantage of Typically, we would advise investors using a structured product in this way in structured products to only invest is that it doesn’t require accessing an with cash that they can tie up for the investor’s offshore allowance to do so duration of the investment period. or to breach the prudent investment guidelines that govern retirement Does the investor understand investments. the specific features?

Moreover, structured products We spoke above about gearing and usually come with capital protection, capital protection. Gearing simply whereby some or all of the potential means the investor gets a multiple of downside in the underlying market the upside returns of the underlying is limited. Thus the investor enjoys index (say two or three times). While

18 WWW.MONEYMARKETING.CO.ZA

this is an excellent feature for most investors, it’s important to note that this is usually capped at a certain level.

So if the underlying index advances beyond a certain level, the investor may not enjoy that full upside.

Similarly, capital protection may be limited to, say, the first 30% of the downside of the underlying index.

Depending on the structure, the investor may be exposed to the full extent of the loss beyond that. Falls of this degree are very rare over five years, but it’s still important that the investor understands the downside potential.

Investors should understand also that they are foregoing the dividend portion of the return on the underlying index. This is because, when the issuer puts together the structured product, the prospective dividend income is generally deployed to provide the capital protection.

Each structured product will have its own combination of features, but if the adviser and client are prepared to talk through their role in a holistic way and to also go through the features and scenarios for each product, they can be a true enhancement in an investment strategy.

FEATURE STRUCTURED PRODUCTS

31 December 2019

Helping clients understand, manage and lower risk

W

hat is in your investment portfolio that will diversify and protect against a market correction or the next crash?

Asset allocation undoubtedly helps, but it's not enough.

You should understand what risks are in your portfolio and then decide what you want to do about them.

Chasing returns with no cognisance of the risks taken to generate those returns is a foolhardy pursuit, whereas active risk management will ultimately triumph over time. You may decide to do nothing about the risks that present themselves because you’re happy to take them, but if you’re not, then that’s where we step in. The sole reason for the existence of the Absa Index and Structured Solutions team is to help clients understand, manage and lower risk. We can’t all outperform, and for every winner there must be a loser, but we can all lower our risk through an active risk management process.

While the industry offers a myriad of risk-lowering solutions, here we’re going to concentrate on the world of structured products. The key is in the name – we ‘structure’ the return profile to remove some or all of the downside risk. Simply illustrated and well-

documented in financial literature is this concept of loss aversion. Of course you are happy making money, but each extra rand eventually doesn’t make you that much happier. And on the flipside, if you are losing money, you become unhappy quickly and increasingly so (graph 1). By making sure we structure the downside risk, we hopefully help you crack half a smile (graph 2) knowing that you avoided some or all of the losses that may have occurred.

Because structured products almost always require you to invest for a certain time period (on average three to five years), many investors shy away from them. But, in fact, it’s within the longer term growth portion of a well-constructed portfolio that you need such investment solutions, as they

should generate returns when your long-only allocations (that perform if markets go up) are not performing because markets are flat or falling.

Structured products are not a replacement for balanced funds or equity portfolios; they complement them and provide you with a lever to pull when the market environment is not conducive to long- only investments.

Think about a solution that locks in 12% p.a. in ZAR, even if US and European markets are down by 30%.

Or how about a solution that pays you a return each year of 14.5% even if developed equity markets are down by 15% and where you have no capital at risk unless markets are down by more than 40% after five years? For the even

GRAPH 1: LOSS AVERSION CHART

more risk-averse, consider a product that takes out all market downside risk (i.e. provides capital protection) and gives you a minimum return of 30% after five years and an extra 40% on top of that even if markets are flat? That’s a 70% return in a flat equity market with no risk to capital.

Jason Barsema, CEO of a large US fintech involved in structured products and partnered with Absa, called structured products “the biggest market no one has ever heard about”.

This is changing fast as investors and advisers alike recognise the use of these investment solutions to diversify and manage risk. Speak to us if you’d like to know more.

Contact Ryan Sydow, 0861 345 223 or aiss@absa.africa.

GRAPH 2: STRUCTURED DOWNSIZE RISK MITIGATION

Prepare your investment portfolio for what might be around the corner.

Our internationally experienced team deliver solutions in collaboration with our broad range of clients, using a comprehensive suite of capabilities afforded to us by virtue of being part of a top-tier banking institution, delivered in partnership with our trusted panel of local and global providers.

Call: 0861 345 223. Email: aiss@absa.africa

Absa Index and Structured Solutions

Authorised Financial Services Provider Registered Credit Provider Reg No NCRCP7

www.absa.co.za/ss

WWW.MONEYMARKETING.CO.ZA 19

FEATURE SHARIAH INVESTING

31 December 2019

RAYHAAN JOOSUB Portfolio Manager, Sentio Capital Management and IMTIAZ SULIMAN, CFA Portfolio Manager, Sentio Capital Management

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ne of the biggest challenges in the Shariah world is managing risk. Given the concentrated nature of the local equity market, Shariah investing is considered high risk in South Africa.

This is in contrast to the global arena where Shariah funds are viewed as a relatively safe option.

Why is Shariah investing viewed as risky in SA? The FTSE/JSE Shariah index is built off the FTSE/JSE ALSI, which in itself exposes investors to concentration risk by virtue of the domination of a number of large companies and sectors. Shariah restrictions include avoiding interest-charging entities, companies that hold more than 30% of total assets in either debt or cash, and those that engage in what Shariah law views as socially harmful

activities like gambling, alcohol and weapon manufacturing, for example.

These restrictions whittle down the FTSE/JSE ALSI to a mere 74 stocks that are Shariah-compliant.

Furthermore, four stocks – MTN, Sasol, Anglo American and BHP Billiton – make up about two-thirds of the Shariah index, so there’s very high single stock concentration.

There is also high sector concentration because resources make up around 50% of the index (including Sasol). South African Shariah funds therefore tend to closely track the performance of the resources sector. The Shariah index has a significant style bias to cyclical value stocks too. Shariah equity funds are therefore less diversified and, as a result, riskier than your typical, non-Shariah equity fund in the South African setting.

Risk management is Shariah's greatest hurdle

What is risk?

At this point, it is worth considering what risk really means. People generally overestimate their ability to recognise risk and underestimate what needs to be done to avoid risk. As such, they accept risk unknowingly and contribute to its creation. We define risk as the likelihood that we will receive a return that is different from what we expect, whether that return is better or worse. Bear in mind that higher-thanexpected returns represent a risk if they are a result of luck rather than skill. To translate risks into opportunities, we advocate pricing risks appropriately.

For example, the position size of a stock that enjoys stable earnings, cashflow and dividends but a middling expected return should be different to the position size of a stock that scores poorly on these metrics but has a high expected return.

Overcoming the risks inherent in Shariah investing None of this is to say that a Shariah investor needs to take on these risks.

There are ways that an asset manager can lower risk. Firstly, it is essential to have an unbiased mechanism such as a robust portfolio construction process to identify and control for unintended bets.

Secondly, incorporating nonvalue factors like growth and quality will offset your style exposure risk.

Investing in sectors outside of resources will lower your concentration risk, as will looking abroad to global assets. These not only provide better dimensionality than investing purely in the domestic universe, but also improve diversification. We believe this incorporation of global assets is a key contributor to a portfolio’s competitive performance.

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M

Y

How to invest in MSCI World Islamic Index companies

M

omentum Securities has launched a Global Shariah Portfolio providing South African investors access to an international Shariah aligned investment opportunity for a minimal initial investment amount of R5 000.

This portfolio invests in companies contained in the MSCI World Islamic Index (USD), which is also the portfolio’s benchmark.

“Investors can gain access to this portfolio via an exchange traded note (ETN) listed on the JSE, which invests directly in the Global Shariah Portfolio,” says portfolio manager Francois Strydom. “This means that investors gain offshore exposure without having to utilise their offshore allowance.”

Momentum Securities will furthermore ensure that all dividends, interest and management fees are included within this single instrument listed on the JSE. “At Momentum Securities we select companies and analyse them both in isolation and in context of the macro environment in which they operate, enabling our investment teams to determine what value to place on securities’ growth potential. This investment process assists us in finding stocks that trade below their intrinsic value, generate more

20 WWW.MONEYMARKETING.CO.ZA

CM

MY

CY

CMY

K

reliable cash-flows, and ultimately provides us with a competitively performing portfolio,” adds Strydom.

“Our investment management process therefore appropriately gears us towards applying Shariah investment principles to our existing asset management process. This is done on a bespoke basis by excluding securities utilising two types of criteria: business activity and financial ratios,” Strydom continues.

Strydom explains that excluding companies based on business activity, this portfolio refrains from investing in companies that are directly active in or derive more than 5% revenue from the following activities: alcohol, tobacco, pork-related products, financial services not regarded as Islamic financial institutions, defence/weapons, gambling/casinos, adult entertainment, music, hotels and cinema.

No shares outside of the MSCI World Islamic Index may be included in the portfolio and Momentum Securities will not conduct dividend purification.

“The fund is high conviction, invested in approximately 20 different companies in the healthcare, information technology, consumer-non-cyclical, industrial and real estate sectors. A third of the fund is currently in cash, which enables us to take advantage of any investment opportunities we identify.

“Ultimately, this fund is targeted at individuals looking for global equity exposure to the MSCI World Islamic Index universe with a minimum of a five years investment horizon. As with all investments that are higher risk, we encourage investors to seek advice before making any investment decisions,” Strydom adds.

Francois Strydom, Portfolio Manager, Momentum Securities

VALUES-BASED ASSET MANAGEMENT Sentio’s Shari’ah products use human expertise and experience, integrated with sophisticated investment technology to achieve sustainable, repeatable returns in a Shari’ah compliant way.

CRITICS’ CHOICE AWARD

Islamic Asset Management

Global Islamic Finance Awards 2019

sentio-capital.com | +27 11 880 6080 Full details and basis of the award are available from the manager.

Sentio Capital Management (Pty) Ltd is an authorised FSP.

FEATURE SHARIAH INVESTING

31 December 2019

Shariah investing – principle-based and socially responsible

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hariah investing, a form of ethical investing, is arguably a scarcely understood discipline within discretionary fund management (DFM), even by seasoned investment professionals.

“With its Quranic basis and grounded in Islamic trite law (Shariah law), there is the belief that Shariah investing is exclusively for investors who follow Islam. This is a misconception,” says Imraan Khan, Research and Investment Analyst at Glacier Invest.

Specific investment objectives Shariah investing helps investors who have an ethical or moral interest in where their money is being invested. Shariah-compliant funds avoid stocks and shares in any company or industry whose core business and revenue are derived from non-halaal (forbidden or haraam) sources. They also pursue companies focused on sustainable, planet-conscious processes.

Stringent processes “Shariah investing presents challenges,” says Khan.

“Of the 164 stocks on the All Share, only 74 are Shariahcompliant. The Shariah investable universe, therefore, is quite limited.

The stocks we focus on are mainly in the resources and property sectors.

We focus on transparent companies that have been around for decades and have limited debt, which would make them financially stable. And of course, they have to meet our due diligence requirements for

consideration.”

Choosing Shariah funds – as with all other funds available on the Glacier platform – is a complex process. “Transparency, adherence to strict principles and screening of the funds and their managers are critical to our methodology. Due diligence involves key resources from our team of 31 investment professionals at Glacier Invest.

22 WWW.MONEYMARKETING.CO.ZA

We interview, interrogate, prod and probe, until we are satisfied that all criteria are met. One example is that every fund we consider must have a Shariah supervisory board made up equally of clerics as well as financial professionals.”

Interest-free sukuks “In the main, the banking sector does not feature in our universe,”

says Khan, because of the income derived from interest and the sector’s emphasis on debt. Instead, Shariah funds rely heavily on sukuks – Islamic bonds structured in a way to generate returns to investors through loans that do not generate riba (interest). In SA, murabaha sukuks are used mainly, which means participation of ownership in a company or underlying tangible asset where the cost and profits are disclosed upfront.

Volatility “For a few reasons, Shariah funds are more volatile than the All Share Index,” says Khan. “The resources sector is cyclical and creates volatility in the market.

This is increased in that Shariah stocks must be backed by tangible assets. To mitigate volatility, we have created Shariah wrap funds – blended Shariah funds and management styles – for capital protection as well as growth.”

Glacier Invest Shariah wrap funds As a result of the limited fund universe in the Shariah space, Glacier Invest has three Shariahcompliant wrap funds currently covering three risk profiles. “Before, our Shariah wrap funds only catered for moderate-aggressive and aggressive investors. Now, cautious investors have funds to consider.

We are able to cater to clients who need to draw an income – such as those invested in living annuities – and they can do so in a Shariahcompliant way.”

FEATURE SHARIAH INVESTING

31 December 2019

ESG and the rise of faith-based investing Saliegh Salaam, Lead Fund Manager of Shariah funds at Old Mutual Investment Group, answers a few questions about Environmental, Social and Governance (ESG) investing and faith-based investments.

What is ethical investing?

Ethical investing is using one’s ethical principles and moral codes as the primary filter for the selection of investing in listed shares. Ethical investing depends on an investor’s views and brings about a more personalised result. It can focus on ESG principles and faith. Faith-based investment solutions are therefore a part of ethical investments. Managers managing ethical funds only invest in companies with good ESG metrics. In addition to applying an ESG lens, they may actively avoid companies that tend to have a low social license to operate. A social license refers to the level of acceptance or approval by local communities and stakeholders of organisations and their operations. Companies with low social license to operate tend to experience negative sentiment, higher staff turnover, and often attract higher government taxes – as seen in the tobacco and alcohol industries – which further reduces their profitability.

The investment industry has developed Shariah investments, which are constructed in line with Shariah principles. This means that as an investor one does not invest in ‘sin stocks’: companies where their core business is frowned upon by Shariah, such as alcohol, tobacco, gambling, adult entertainment, non-halaal foodstuffs, interest-bearing instruments and the weapons sector. However, over time Shariahcompliant funds continue to attract investors from all religious backgrounds. This is because there is a

Does Old Mutual Investment Group offer faith-based investment solutions?

Yes, our Shariah offering includes a Shariah equity portfolio, a Global Shariah equity portfolio and a Regulation 28 Shariah Balanced Portfolio (suitable as a stand-alone retirement investment). We also offer unit trust funds to direct investors.

The Old Mutual Albaraka Balanced Fund may invest in local equities, global equities and nonequity assets such as sukuk. It may also invest in the portfolios of other unit trusts, both locally and those registered in countries with acceptable regulatory environments. We also offer investors The Old Mutual Global Shariah Equity Fund.

This fund provides investors with exposure to international assets and enables them to achieve greater diversification and benefit from investing in global companies.

significant common ground from a values perspective across the investor base.

Do faith-based investments perform?

There is strong evidence that Shariah-compliant funds can outperform their conventional non-Shariahcompliant peers. Over 25 years, the oldest ethical fund in SA, the Old Mutual Albaraka Equity Fund, has outperformed the average non-Shariah compliant equity fund by 0.6% annualised.

In September, the Old Mutual Albaraka Balanced Fund was awarded the Best Islamic Balanced Fund 2019 by the Global Islamic Finance Awards (GIFA).

The GIFA Awards have become a highly coveted, market-led recognition of excellence in Islamic banking across the world.

What value does ESG add?

A report by Bank of America Merrill Lynch suggested that poorly rated ESG companies are much riskier than highly rated ESG companies. The study found that companies in the top 20% of ESG ratings from 2005-2010 experienced the lowest (32%) volatility in their earnings in the subsequent five-year period, while companies with the lowest 20% ESG ratings had nearly three times more volatility.

In fact, the report concluded that investors who added ESG analysis to their overall assessment of companies on the S&P 500 – the American stock market index – in this same period (2005-2010) could have avoided most corporate bankruptcies.

A prominent feature of our investment approach is the integration of Shariah investing and ESG principles. By using an integrated approach, our investors are able to benefit from an investment approach that meets both their Shariah and ethical principles. Our funds evaluate Shariah compliance of companies, but also place a high premium on

BEST ISLAMIC BALANCED FUND 2019

How can a client be certain that there is Shariah compliance and ESG monitoring?

The investments are subject to the scrutiny and approval of an independent Shariah Board that oversees adherence to the applicable Shariah principles. Interest income is stripped out of the unit trust funds daily as impermissible income, and is paid to the SA Muslim Charitable Trust, elected by the Shariah Supervisory Board. This trust is completely independent and neither Old Mutual nor Albaraka have any say in the allocation of funds and the recipients thereof.

For more information on the Old Mutual Albaraka Shariah Funds, visit www.oldmutual. co.za; call our Client Care Centre at 0860 234 234 or your financial adviser.

Saliegh Salaam, Lead Fund Manager, Shariah Funds, Old Mutual Investment Group

The Old Mutual Albaraka Balanced Fund has been awarded Best Islamic Balanced Fund 2019 by the prestigious Global Islamic Finance Awards (GIFA).

This award is recognition of the strong and long partnership between Old Mutual and Albaraka Bank, offering investors a Unit Trust fund that delivers sustainable, long-term performance, while combining the principles of ethical and Shari’ah investing.

In short, a rare investment opportunity that supports your faith and your values.

INVEST WITH FAITH

120779L

What is faith-based investing?

Faith based investing refers to investment solutions that are consistent with religious principles or values that use ethical screening as part of the investment process. These investment solutions align to principles of, among others, Christianity, Judaism, Catholicism and Islam, with the most in-demand solutions currently being those that are based upon Islam.

evaluating corporate behaviour and companies’ social licence to operate, which may determine the future performance of companies.

oldmutual.co.za/shariah or albaraka.co.za/wealth

Old Mutual Unit Trust Managers (RF) (Pty) Ltd is a registered manager in terms of the Collective Investment Schemes Control Act 45 of 2002. The fund fees and costs that we charge for managing your investment are set out in the relevant fund’s Minimum Disclosure Document (MDD) or table of fees and charges, both available on our public website, or from our contact centre. Old Mutual is a member of the Association for Savings & Investment South Africa (ASISA). Albaraka Bank is an authorised financial services and credit provider. The Old Mutual Albaraka Balanced Fund received Best Islamic Balanced Fund 2019 by the Global Islamic Finance Awards on 16 September 2019. Full details and the basis for the award are available from Old Mutual Unit Trust Managers (RF) (Pty) Ltd.

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EMPLOYEE BENEFITS

31 December 2019

NASHALIN PORTRAG Head: FundsAtWork, Momentum Corporate

Talk to your smaller clients about employee benefits

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hile many small and medium-sized employers recognise the value of employee benefits, most still see it as administratively complex and expensive. The answer to this dilemma is an umbrella fund with an option designed to address the specific needs of smaller businesses.

Employee benefits is probably not a priority for smaller employers in the current harsh economic climate.

Financial advisers can help these employers to look beyond their current challenges and unlock more value from their greatest asset: their employees.

The latest Momentum/Unisa Consumer Financial Vulnerability Index (CFVI) highlights the deteriorating financial vulnerability experienced by many South Africans.

The Momentum Effective Employee Index shows the negative impact rising financial vulnerability has on employees’ performance in the workplace.

In a small business, each employee needs to pull their weight to move the business forward. Small businesses don’t necessarily have access to the resources that larger companies enjoy.

As a result, the impact of declining employee productivity is often more immediate and intense in smaller businesses.

Employee benefits reduce employees’ financial vulnerability, helping them save for the future and offering protection from unexpected, financially catastrophic life events. As financial vulnerability improves, financial stress reduces and performance improves.

The question is how smaller businesses can offer employee benefits, affordably and effortlessly. The answer is the right umbrella fund.

EMPLOYEE BENEFITS REDUCE EMPLOYEES’ FINANCIAL VULNERABILITY

What does the right umbrella fund look like?

The right umbrella fund includes core benefits designed to address the needs of smaller employers. Delivery should be efficient and seamless, so employers are free to focus on their core business.

Affordability is critical. Participation in such an umbrella fund should not only offer all the cost-efficiencies synonymous with this type of retirement fund, but administration and investment fees should be as low as possible.

In addition to retirement and insurance benefits, the speciallydesigned option should provide free access to health expertise and valueadded benefits that help improve employees’ physical health. The right umbrella fund also provides services that support employees and their families going through tough times.

Financial advisers are key in driving awareness of these additional benefits which, when used, can reduce some of the stressors that distract employees from their work.

Low financial literacy increases financial vulnerability. The right umbrella fund should offer counselling and communication that focuses on boosting financial literacy levels and helps employees make smarter financial choices.

Full compliance with all regulatory requirements is also key. This includes the default retirement fund regulations designed to make sure retirement savings are invested in an appropriate, cost-effective investment portfolio and facilitate informed financial choices when employees change jobs or retire.

The right umbrella fund even rewards businesses financially for creating a safe workplace and offering benefits that help employees to be healthier, less stressed and more productive.

Don’t wait for your clients’ employees to ask for employee benefits. Talk to your smaller clients without employee benefits about the right umbrella fund.

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Broadening employee benefits with gap cover

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he current state of public healthcare facilities in South Africa and growing pressure on consumer wallets has reinforced the fact that employee benefits, especially private healthcare insurance, remain an invaluable part of the total compensation package. Regrettably, today medical schemes will no longer cover members for everything, and additional insurances are necessary to limit members’ exposure to exorbitant out-of-pocket expenses. The need to incorporate medical gap cover has increased exponentially in recent years as medical specialist fees far outpace medical aid tariffs.

“Although the core employee benefits, such as private medical cover, remain an essential part of the overall compensation package, there has been a strong drive towards ensuring optimal cover and measuring the benefit richness of medical scheme offerings against the actual premiums charged,” says Jacqui Nel, Business Unit Head of Aon’s Healthcare division. “Supplementary products such as gap cover are being offered to offset employee out-of-pocket medical costs and provide greater financial peace of mind in a health crisis. Medical gap policies are proving invaluable where an employer has moved to a high deductible medical plan, or where the employee has opted to move to a lower benefit option to better manage their costs.”

Medical aid cover can cost South Africans up to 20% of their monthly pay packets, even with a 50% monthly contribution from the employer.

The point of having private health cover is that it promises the very best quality of care, which is not readily available in public facilities.

Employees often assume that their medical costs will be fully covered if they are on medical aid, but statistics show this is seldom the case.

“The reasons for this is that South Africa’s private healthcare sector is characterised by an under-supply of medical specialists, contrasted against medical schemes that are struggling to keep these specialist costs under control. The truth is that few medical schemes provide fully comprehensive cover for in-patient specialist care. This means that without supplementary cover, members potentially face large shortfalls between their medical scheme benefits and the actual costs incurred for surgery or other in-hospital treatment,” explains Nel. “It is essential that employees are thoroughly guided by a professional broker as to what gap cover is and what it is not. Gap cover should not be viewed as replacing medical scheme cover but supplementing certain shortfalls that may occur. Essentially, gap insurance covers the potential shortfall that arises from specialist charges for in-hospital procedures.

Specialists often charge up to 400% of the benefits offered by medical aid. So, if the employee’s medical scheme only pays out at 100% of tariff, the employee will then be liable for the shortfall of the other 300% out of their own pocket. This can amount to thousands of rand and leave the employee in a serious financial predicament. Members are mainly at risk when it comes to in-hospital treatment or other serious treatments.

Shortfalls of R30-40k are now commonplace, whereas even a few years ago such high claims were rare exceptions,” she adds.

For a lot of employees, their first exposure to the concept of financial planning will happen in the workplace through the support and guidance from their HR counsellors and employee benefits programmes. The reality is, unless a company introduces employees to financial planning products such as gap cover, it would never be taken of their own accord.

Most consumers have no idea what gap cover is, nor do they understand why it is required or what the financial benefit of it is.

In this scenario, for many employees the employer is the door opener to a professional adviser or broker to take them through the steps of planning their future financial security. Even for the more financially savvy and well educated, private medical scheme cover is complex and benefit designs are difficult to understand.

Deciphering the industry jargon without Jacqui Nel, Head: the help of a professional broker can be Business daunting. “Often people only find out about Unit, the shortfalls in their cover when it’s too Healthcare late,” adds Nel. Division, Aon

Wow,

and I didn’t even ask!

FundsAtWork Core is the proactive solution for smaller employers who often provide employee benefits only when employees ask.

It is a hassle-free way to offer essential group retirement and insurance benefits.

• Low administration and investment management fees make participating affordable. • Efficient, seamless delivery reduces operational issues for your clients. • Plus, members have access to FundsAtWork’s innovative value-added benefits and services.

Contact your Momentum Corporate Specialist. momentum.co.za

Momentum Corporate is a part of Momentum Metropolitan Life Limited, an authorised financial services and registered credit provider. Momentum Metropolitan Holdings Limited is a level 1 B-BBEE insurer.

RISK

31 December 2019

ROBIN WAGNER Senior Vice President: International Insurance, TransUnion

Consumer consent in the insurance industry

Data protection is becoming central to the digital transformation of financial services businesses. Heightened awareness of data privacy issues is driving government policy on consumer protection – including a legal obligation for insurers to obtain consent for using consumer data for various purposes. Robin Wagner, Senior Vice President, International Insurance at TransUnion, examines the dynamics of consumer consent and shows how, by offering an ecosystem of additional services, insurers can gain consent while building customer trust and loyalty.

O

ne of the most important variables shaping the development of insurance globally is consumer consent. The flow of data and the development of new analytics and AI technologies are increasing at a tremendous pace, opening many potential new benefits for consumers and insurers – but all is contingent upon consumer consent.

A global snapshot The number of people affected by identity theft, fraud and data breaches has spiked in recent years, resulting in growing costs for insurers. Insurers across all lines of business lose about $80bn each year to fraud, and approximately 60% of insurers say fraud has increased over the last four years.

A heightened awareness of the Data Protection Bill 2018 in India, and risks of fraud and the need to protect South Africa’s Protection of Personal consumers’ identities, privacy and data Information Act 4 of 2013. are having a big impact on government It is important for insurers to be policy, driving change in the legislative aware of what is permissible. Explicit structures of many countries. Nowadays, consent may be required for certain consumers (and regulators) want to purposes, particularly direct marketing know how their data is being used, why and the use of sensitive data. Some certain decisions have been made about jurisdictions may allow insurers to their insurance products, and how their use aggregated data for developing digital identities are being managed, products, as this practice may not stored, secured and necessarily compromise protected. the identity of the Around the world, ONE INNOVATIVE individual consumer. the use of consumer WAY TO ADDRESS The challenges data in the insurance THE CHALLENGE of consent process is governed by a variety of different One challenge insurers OF CONSENT IS sets of legislation, for typically face is that it

BY OFFERING example insurance, takes time and resources ADDITIONAL consumer protection to explain and capture and/or data privacy consent, whether SERVICES legislation. Most it’s online, over the markets have some form of legal phone, or face to face. While there are protection in place to govern access, consumers who expect you to monitor use, process, disclosure and transfer of their profiles in order to provide better personal, sensitive and credit data. services and products, there will also Recently, there is a noticeable global be those who will be more sensitive trend of enacting or updating data about how their data is being used. protection laws to be on a par with the Transparency is key to establishing General Data Protection Regulation in trust, which in turn makes consumers the European Union. Examples include more willing to share their the California Consumer Privacy Act information. But how do you build in in the US, the General Data Protection transparency and ask for and obtain Law (Federal Law no. 12,709/2018) in consent in a way that’s compliant and Brazil, which is expected to become consumer-friendly without obstructing effective in early 2020, the Personal the sales process?

26 WWW.MONEYMARKETING.CO.ZA

The insurance lifecycle One way is to incorporate consent at different points in the insurance lifecycle. If you need information for pricing, request it at the quote stage.

Depending on the requirements of the data protection law in different countries, if you want to access credit information for a new purpose, for example policy management, crossselling, direct marketing or repricing, you may be required to ask for the consent of the consumer.

Additional services Subject to the requirements of the data protection law in different countries, one innovative way to address the challenge of consent is by offering additional services (either free or subscription-based) that add value to the consumer. Adding new services could yield a set of consents enabling cross-selling, marketing and product development.

Many insurers are building an ecosystem of services that relate to their core products to strengthen customers’ perception of value and improve retention rates: roadside assistance and emergency services for auto insurance, for example, or healthy-living rewards linked to medical cover.

The demand for ecosystem services is high. The more you can wrap around your core offering, the

more loyal (and less price-sensitive) your customers are likely to be.

These ancillary services can be used to garner consent for different types of use of data after the sale, and they don’t have to be developed in-house. TransUnion’s CreditVision and TrueIdentity – products that help consumers protect their digital identities – are examples of services that complement any insurer’s core offering and can be used to acquire consent while offering greater protection to customers.

Gearing up for more layers of legislation As consumer protection heightens the world over in line with growing consumer awareness and the rising amount of data being collected, the demand for consumer privacy will intensify. Data protection will become a core part of the financial services industry and legislative structures in many countries.

Future iterations of legislation that come with more layers of protection for the consumer will require greater levels of transparency on the part of the insurer. Insurers that have robust processes for requesting, explaining and obtaining consent will be well placed to comply, earning the trust of their customers and building longterm loyalty.

RISK

31 December 2019

OSTI and OLTI to merge MoneyMarketing speaks to the Deputy Ombudsman for Short-Term Insurance, Edite Teixeira-McKinon

T

he Ombudsman for ShortTerm Insurance (OSTI) and the Ombudsman for LongTerm Insurance (OLTI) will enter into a ‘soft’ merger to form a single insurance ombud scheme. That’s the word from the Deputy Ombudsman for Short-Term Insurance, Edite TeixeiraMcKinon.

National Treasury has in fact encouraged the four voluntary financial ombud schemes – OSTI, OLTI, as well as the Banking Ombudsman and the Credit Ombudsman – to look into how they can, through self-regulation, amalgamate their schemes.

“National Treasury’s approach has been largely informed by what happened in the UK and Australia,” Teixeira-McKinon says, explaining that the ombud schemes in those jurisdictions have undergone major reconstruction and now form one scheme: the Financial Ombudsman

GIDEON GALLOWAY CEO, King Price

Service of the United Kingdom and the Australian Financial Complaints Authority, respectively.

“I think National Treasury ultimately wants one scheme, but in the meantime, it has asked individual schemes to look at starting the process and determining what they’d like to look like. What we are doing is a ‘soft’ amalgamation. The hard amalgamation will come in time. When Chapter 14 of the Financial Sector Regulation Act comes into effect (maybe next year), we will know more clearly what the Ombud Council wants from the schemes. A diagnostic analysis of the schemes is being planned to evaluate what works and doesn’t work. In the meantime, National Treasury is letting us explore amalgamating.”

Although OSTI deals with shortterm insurance complaints and OLTI deals with long-term ones, this creates a lot of confusion for consumers.

“Both ombuds deal with insurance

Complaints on the rise In 2018, OSTI received a total of 9 474 complaints – and this year, there’s been an increase.

“The reason, I think, is predominantly due to the way OSTI captures complaints. We’ve changed the process. What used to happen in the past is that there was a window period where insurers could try to resolve complaints lodged at our office themselves before we formally registered these complaints, but now we’ve closed that window, and we capture complaints a lot sooner in the process. So far, we’ve seen an increase of around 12% in complaints received this year.”

The number-one cause leading to insurance companies invalidating claims remains misrepresentation and non-disclosure, a trend that has been around for several years now, while many of the complaints OSTI receives also concern the quantum of offers made by insurance companies around motor and home owners contents

claims, Teixeira-McKinon says.

In 2018, disputes were resolved in 104 days – and this is probably as good as it gets.

“With the increase in volume, we’ve seen a slight increase in our turnaround time this year. It’s not always ideal to solve complaints as quick as possible.

We want our service to be efficient but not at the cost of good and effective outcomes,” she adds.

She confirms that most complaints submitted to OSTI are from the direct market. “Brokers often try to mediate settlements and resolve disputes, whereas in the direct market consumers are more likely to come to us.”

Edite Teixeira-McKinon, Deputy Ombudsman for Short-Term Insurance

The future of car insurance is here – well, almost

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f the crystal-ball gazers are to be believed, hardly any of us will own our own cars in the next 10 years. We won’t even do our own driving, as fleets of self-driving cars whoosh us silently to where we want to go. And as car ownership plummets, the car insurance industry will collapse in on itself. Another legacy wreck on the side of the highway of progress.

Or not. Look, I love a bit of disruption as much as the next guy. But I think we need to slam the brakes on for a moment here. For a start, car insurance isn’t going away. As long as there are cars on the road – or in the air, for that matter – they will need to be insured. Will the risks change? Absolutely. But where there’s change, there’s opportunity.

Let’s take a look at some of the trends we see playing out in the next few years.

How we own cars will change Newsflash: it’s changing already. There are two key disruptors at play here. One, people are increasingly able to get around without their own cars, especially if they live in an urban area. Think Uber, Bolt, Taxify, even car-pooling. And two, younger generations simply don’t see cars as status symbols in the same way that older generations do. They see them as a way of getting from A to B. What does this mean from an insurance point of view? Ultimately, it means a reduction in personal car ownership, which means a reduction in personal

after all, and the amalgamated scheme will create a single point of entry for all insurance complaints. As the amalgamation is, for now, a soft one, it’ll have the least impact on staff and operations,” Teixeira-McKinon adds.

car insurance. Still, someone will own the cars – and will have to insure them. Different business model.

Different opportunities.

The roads will get safer The biggest cause of accidents on our roads is human error. Plain and simple. Between 94 and 96% of accidents, in fact. It follows logically that if vehicles become more intelligent, with auto-braking, lane detection, and even self-driving, we will see fewer accidents on the roads. Let’s face it, we’re still some way off self-driving cars being in common use in First World countries, let alone South Africa. But when they are, they will certainly turn the risk universe on its head.

Fewer accidents, more expensive repairs KPMG predicts that, in the US, losses from car accidents could decline by 63% by 2050. But while there will be fewer accidents, we’ll probably see a steep increase in repair costs through the need to fix more sophisticated machines. The cost of repairing new models can be several times higher than older models, because of gadgets like collision-avoidance technology in grilles and bumpers. The liability for accidents will change too: if it’s a self-driving car, who’s responsible for the accident?What does it mean? How will we survive?

The bottom line: the industry is watching developments like a hawk. What a time to be alive.

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RISK

31 December 2019

Insurance is an essential risk mitigation factor for any trucking business

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he South African commercial vehicle industry is firing on all cylinders.

According to year-to-date results released by the National Association of Automobile Manufacturers of South Africa (Naamsa), the transport industry contributed R275 280m to the country’s GDP in the second quarter of 2019.

While most economic indicators are down currently, increase in demand for transport and logistics services is clear in the significant growth posted year-onyear in the medium and heavy-duty commercial vehicle sales. Online shopping and local hub deliveries are two of the factors contributing towards this resilience in the transport sector.

This is also a sector facing escalating costs as a barrier to successful bottomline results. The local industry – especially the small to mid-sized fleets that are predominantly owner-operated enterprises – are forced, in difficult market conditions, to magnify their focus on scrutinising every aspect of the operations.

One of the components of transportation costs and an essential risk mitigation factor for any trucking business is insurance, according to Sharon Paterson, Chief Executive of Infiniti Insurance. “However, with the right proactive and structured approach, with expert attention to detail, a company can minimise insurance costs, protect their asset base, enhance the safety of employees and benefit from as much coverage as is required,” Paterson points out.

Through its partnership with Heavy Commercial Vehicle Underwriting Managers (HCV), Infiniti has refined its tried-and-tested approach of deploying high technical expertise, strategically positioning key members of the team to allow them to focus resources on swift solutions. Together, Infiniti and HCV leverage from their combined strengths – guiding their actions and initiatives to where they best create value and stability for the insured.

Vanessa Correira of HCV takes up the story. “In a landscape filled with large fleets, HCV caters for small to medium transporters who have one or two vehicles, and these are often owner-driven. We live our pay-off line – ‘caring for trucks and truckers’ – and we go beyond normal insurance parameters. Infiniti is an ideal partner for HCV. Both companies are client-centric and focussed on service delivery,” she says.

“HCV’s policy holders are typically private, small-scale subcontractors who are extremely vulnerable to industry and route disturbances and can least afford downtime on their vehicles. Their trust and long-term loyalty to HCV stems from having their needs consistently understood and met. We draw their attention to the risks of having an employee incapacitated or unable to work or the potential loss of revenue waiting to be paid out for a vehicle that has been written off. Proper insurance cover facilitates a far quicker return to operation and keeps the load on the road,” she explains.

Correira adds, “We look for reasons to pay claims. We look at every claim as unique. We believe in sharing in the claims journey with the client. This requires being able to talk to someone who knows and understands their situation and has that personal touch. A dedicated claims person deals with the complete claim process.”

She points out that the same tailored methodology is evident in how they underwrite. “Generally, people will look just at the vehicle as the insured asset.

We take a very different approach. We view the business holistically. Just as we are partnering with Infiniti, we partner with our transporters. We encourage our brokers to take us along to see their clients; to have a look at the business; to understand the transporter and their specific needs. This approach gives us a deep insight into the business and the risk.”

Operators often add things that increase the value of the vehicle. “We don’t simply look at market or retail value. Our approach is tailored to ensure the client is covered adequately. We engage in close consultation with the insured and agree on value.”

HCV does not have a list of approved panel beaters that a client is obliged to choose from.

“Owner operators know their trucks. They have trusted repairers who they prefer, often in specific geographical areas, and being able to use their repairer makes a huge difference Sharon Paterson, in their lives.” Correira says.

Chief Executive, Infiniti Insurance

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Many professionals still do not have professional indemnity cover

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he severity of risks in the liability space have increased two-fold – not only is the frequency of litigation on the rise, but exposures related to professional error have also increased. This is mainly due to factors relating to the poor economy and a skills deficit.

This is according to Malcolm Padayachee, Managing Executive of Professional Indemnity and Liability at SHA, who says that despite the above fact, it is worrying to see that many professionals still do not have professional indemnity (PI) cover in place.

“Our annual SHA Risk Review shows that around 12% of the professionals we surveyed have been sued at least once during their careers. Yet, only 57% of professionals currently have PI cover in place.”

Padayachee adds that the professional liability landscape has changed dramatically in recent years. “SHA’s claims statistics show that the cost of litigation against professionals has become considerable. The average intimated PI claim size for architects is around R1m and climbs to roughly R3.7m for attorneys, while for engineers is shoots right up to R13m.”

He explains that the major trend driving this rise in the size of claims is the fact that litigation following a liability event has increased. “It seems that far fewer clients are now willing to settle disputes in an informal manner, rather opting for the litigation or arbitration route.”

Compounding this, the cost of litigation has also seen a considerable increase. “Looking at SHA’s own panel of attorneys, the cost of legal representation has grown by between 8-10% per annum. Consider the fact that PI claims can take up to five years to resolve, the inflationary effect of legal costs during that time is significant. The cost of foreign litigation has increased by even more, with the average cost of attorneys in international cases nearly doubling between 2016 and 2018.”

Padayachee says that the other major reason for the toughening risk landscape is the fact that more professionals are unknowingly putting themselves at greater risk. “Competition on pricing between professional firms increases the risk of litigation. Firms that significantly cut their costs, often cut down on the resources and manhours that are allocated to projects.

It is also increasingly common for professional firms to supplement their

incomes by diversifying into services that are not part of their core skills.

Both of these behaviours greatly increase the likelihood of a professional or their firm making mistakes that could lead to litigation.”

From an insurance standpoint, Padayachee says that, subject to the insurer’s risk appetite, an underwriter may be able to structure adequate PI policies that account for the increased risks resulting from these behaviours at an additional premium. “However, there are many instances where this risk becomes uninsurable. In SHA’s own experience, we have seen cases where firms expect their existing staff members to perform functions for which they are not qualified. If it is found that the professional gave gratuitous advice or performed services that they were not qualified for, their PI policy would not respond and the litigation costs will land on the firm’s balance sheet.”

Lastly, he points out that renewing PI policies on time is of absolute importance. “SHA’s research found that 20% of professionals do not understand how late renewals affect them, and 22% indicated that they do not rely on a broker to explain policy requirements.

It is a troubling finding, since only renewing a PI policy after it has lapsed means that the professional’s retroactive date no longer applies. Effectively, this means that if a new liability claim arises from a mistake that the professional made some years before, it will no longer be covered by the new policy. Long-tailed liability claims are commonplace, especially in incidents involving children, which is why it is vital to have uninterrupted cover.”

Padayachee reiterates that professionals across all business sectors are more vulnerable than ever to litigation by clients. “Even if it is found that the professional had acted responsibly, one is at risk of bankruptcy from the cost of legal defence alone.

With this in mind, it is critical that professional service firms indemnify themselves and their professionals against the ever-increasing minefield of liability risks.”

Malcolm Padayachee, Managing Executive: Professional Indemnity and Liability, SHA

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Inside 20 Introduction intelligence 22 Demystifying artificial financial plan?

23 How about a ‘self-driving’ your homework 24 Dear investor, do the next revolution in 26 Is AI all hype? Or asset management? changing the game

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31 Alexa, are you acting and investing: the 32 Machine learning great poetry cautious seldom err

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Sage investment advice holds that long-term investors should include a fairly large proportion of equities in their portfolios. Equities traditionally outperform inflation by a sizeable margin.

What happens when the go-to stocks on the JSE deliver meagre capital growth over the

By Jaco Visser medium term? And which fundamentals need to change for the situation to improve?

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quities, as the historical beaters of inflation, have lost steam and many retail investors and pensioners now begrudgingly keep an equity portion in their portfolios. Local and global market forces have beaten the life out of many of South Africa’s largest and most traded shares.

The FTSE/JSE Top 40 Index, a local benchmark index ranked by market capitalisation, delivered capital growth of 3% per year over the past five years and a total return of just over 5%. Given that consumer prices rose by 5.9% per year over the same period, investors in the Top 40 Index lost out to inflation, even when dividends are considered.

Bonds, or listed debt by government and companies, returned an annual 8.16% over the past five years, according to Bloomberg data.

In addition to the largest shares’ lacklustre performance over the past five years, several long-standing constituents dropped from the index, while the recent resource price boom benefitted only a few mining stocks. Of the 42-member * Top 40 Index during the final quarter of 2014, only 19 delivered capital growth to investors over the last five years. The other 23 shares delivered declines ranging from 98% for Steinhoff to 5.34% for Absa Group. Some issues were of an international nature while others were geographical and company-specific.

The Fed yanked the carpet

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Kwaku Koranteng Head of institutional business at Absa Multi Management

Nico Els Fund manager at Ashburton Investments

the index constituents was the US Federal Reserve’s (Fed) interest rate hiking cycle which ended last year.

Investors from developed economies, conscious of the risk of investing in emerging markets with all their political and policy uncertainties, theoretically favour less risky developed-market assets.

“During the US interest rate hiking cycle that ended in 2018, periods of sell-offs in emerging markets had a negative impact on SA’s 40 largest and most liquid stocks,” says Kwaku Koranteng, head of institutional business at Absa Multi Management. “The negative impact varied depending on the company, its sector and geographical reach.”

For instance, Naspers** performed well over this five-year period, while other listed companies, such as SA miners (up to 2016) and companies in the healthcare sector were negatively impacted, he says. Investors in the three private-hospital shares would have lost at least a third of the value of their capital since 2014.

Mediclinic, Netcare and Life Healthcare, the three largest private-hospital chains in SA, dropped out of the Top 40 subsequent to 2014. Naspers delivered capital appreciation of 304% to investors as its turn-of-thecentury bet on Chinese gaming giant Tencent paid off.

Nico Els, fund manager at Ashburton Investments, says that the emerging-market sell-off in assets happened very late in the US interest rate hiking cycle.

The MSCI Emerging Markets Index, which comprises more than 800 companies in 23 emerging countries, reached its lowest point in January 2016 – a month after

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EDITOR’S BOOKSHELF

BOOKS ETCETERA

31 December 2019

Our selection of December reads 7 SECRETS TO INVESTING LIKE WARREN BUFFETT

BY MARY BUFFETT AND SEAN SEAH Mary Buffett was married to Warren Buffet’s son, Peter, for twelve years. During that time, she studied Warren Buffett’s investment techniques and observed his habits. Investor Sean Seah spent years learning Buffett’s strategies and applying Buffet’s value-investing methods to his own successful portfolio. Mary and Sean share their personal stories – as investors who use Warren Buffett’s proven methods – to walk readers through the process of assessing and buying stocks. Their direct style, concrete examples and simple charts make it easy to understand how to prosper in the stock market and avoid common pitfalls. Readers will learn how to read financial statements and balance sheets, how to look for stocks that will perform well over time and how to build and track a stock portfolio.

TRAILBLAZER THE POWER OF BUSINESS AS THE GREATEST PLATFORM FOR CHANGE

BY MARC BENIOFF AND MONICA LANGLEY What’s the secret to business growth and innovation and a purpose-driven career in a world that is becoming vastly more complicated by the day? According to Marc Benioff, the answer is embracing a culture in which your values permeate everything you do.

In Trailblazer, he reveals the inner workings of one of the world’s most admired companies.

He shows how Saleforce’s core values and commitment to giving back have become the most powerful engine of its success. No matter what business you are in, Benioff says, values are the bedrock of a resilient company culture that inspires all employees to do the best work of their lives. None of us can afford to ignore what’s going on outside the walls of our workplaces. In the future, profits and progress will no longer be sustainable unless they serve the greater good. Whether you run a company or have just draped an ID badge around your neck for the first time, Trailblazer reveals how anyone can become an agent of change.

UNCOMMON KNOWLEDGE THE ECONOMIST EXPLAINS EDITED BY TOM STANDAGE The world can be an amazing place if you know the right questions to ask: How did carrots become orange? What’s stopping us from having a four-day week? How can we remove all the broken bits of satellite from orbit? If everything is so terrible, why is the global suicide rate falling? The keen minds of The Economist love to look beyond everyday appearances to find out what really makes things tick. In this latest collection of The Economist Explains, they have gathered together the juiciest fruits of their never-ending quest for answers. For an uncommonly interesting read, take a peek at some Uncommon Knowledge – and pass it on! The world only gets more amazing when discoveries are shared.

30 WWW.MONEYMARKETING.CO.ZA

TOOLS AND WEAPONS THE PROMISE AND THE PERIL OF THE DIGITAL AGE

BY BRAD SMITH AND CAROL ANN BROWNE Microsoft President Brad Smith operates by a simple core belief: when your technology changes the world, you bear a responsibility to help address the world you have helped create. This might seem uncontroversial, but it flies in the face of a tech sector long obsessed with rapid growth and sometimes on disruption as an end in itself. While sweeping digital transformation holds great promise, we have reached an inflection point. The world has turned information technology into both a powerful tool and a formidable weapon, and new approaches are needed to manage an era defined by even more powerful inventions like artificial intelligence. Companies that create technology must accept greater responsibility for the future, and governments will need to regulate technology by moving faster and catching up with the pace of innovation. In Tools and Weapons, the authors bring us a captivating narrative from the cockpit of one of the world’s largest and most powerful tech companies as it finds itself in the middle of some of the thorniest emerging issues of our time. These are challenges that come with no pre-existing playbook, including privacy, cybercrime and cyberwar, social media, the moral conundrums of artificial intelligence, big tech’s relationship to inequality, and the challenges for democracy, far and near. While in no way a self-glorifying ‘Microsoft memoir’, the book pulls back the curtain remarkably wide onto some of the company’s most crucial recent decision points as it strives to protect the hopes technology offers against the very real threats it also presents.

BOOKS ETCETERA

31 December 2019

BILLIONS AT PLAY: THE FUTURE OF AFRICAN ENERGY AND DOING DEALS

BY NJ AYUK African economies are experiencing a transformative period. The energy sector, in particular, holds great potential to revitalise these economies and empower growth and development. This is the subject author NJ Ayuk explores in Billions at play: The future of African energy and doing deals.

With a foreword by OPEC Secretary, General Mohammad Sanusi Barkindo, Billions at Play sets out to answer the questions: How do African countries and societies get the most value from their resources? What exactly can African leaders do to put their countries on a sustainable, profitable path? And how can all parties win in Africa’s energy deals of the coming decades?

Using his experience and knowledge of the global energy sector, Ayuk challenges key players to be more active in developing their resources and local content skills, while encouraging decision-makers to put Africa’s people at the centre of economic growth plans.

Making the case for the petroleum industry having the power to support and transform emerging economies, he unpacks key issues, including what and how Africa can learn from itself, the role of natural gas in Africa’s energy future, effective and sustainable investment strategies, strategic oil and gas revenue management, and the role of women in the African petroleum sector.

BLESSED BY BOSASA: INSIDE GAVIN WATSON’S STATE CAPTURE CULT

BY ADRIAAN BASSON It’s easy to imagine that state capture began with Jacob Zuma and the Guptas, but that’s not true.

Born out of the ANC Women’s League 20 years ago, Bosasa has come to be described as the ANC’s ‘Heart of Darkness’. At its helm was the late Gavin Watson, a struggle-rugby-player-turned-tenderpreneur who made it his business to splash out on gifts and cash to get up close and personal with the country’s top politicians and civil servants. In return, Bosasa won tenders to the tune of billions of rand and – with friends in high places – stayed clear of prosecution.

Author Adriaan Basson has been investigating Bosasa since he was a rookie journalist 13 years ago. He has been sued, intimidated and threatened, but has stuck to the story like a bloodhound. Now, in the wake of the explosive findings of the Zondo commission, he has weaved together the threads of Bosasa’s story.

Blessed by Bosasa is a riveting in-depth investigation into an extraordinary story of high-level corruption and rampant pillage, of backdoor dealings and grandiose greed. Through substantial research and a number of interviews with key individuals, Basson unveils the cult-like underbelly of the criminal company that held the Zuma government in the palm of its hand.

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

SWEAT, SCALE, $ELL

BY PAVLO PHITIDIS An astonishing 94.6% of businesses started never get sold. Yet, there are only two destinations for every business: sale or closure!

Businesses close at an enormous cost to the owner, their family, their staff, suppliers and customers. According to Phitidis, you’ve got to build to sell. Sweat, Scale, $ell shares real business-building stories about how ordinary business owners took charge of their fate using the Asset of Value™ method.

With the author, they Sweated to reshape their business to be relevant to a changing world; they built a solid foundation for Scale; and then they pressed hard to ramp up growth in preparation for $ale to create a business any buyer would want. Phitidis draws on 25 years of direct experience in conceptualising and building businesses across four continents. Having started, built and sold 12 businesses generating in excess of $300m, he founded the Asset of Value™ method, a practical approach to build a winning business. His book is audaciously optimistic as it shows every business owner and entrepreneur where to find growth in a no-growth economy, make an impact and secure big returns.

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