MoneyMarketing February 2022

www.moneymarketing.co.za

WHAT’S INSIDE YOUR FEBRUARY ISSUE NEW TAX PROPOSALS SIGNED INTO LAW The President gave effect to 2021 tax proposals by signing three tax Acts into law Page 5

EXCHANGE CONTROL QUESTIONS ANSWERED The penalties of failing to adhere to exchange controls in South Africa could result in forfeiture of assets or even imprisonment

28 February 2022

TIMOTHY RANGONGO Editor: MoneyMarketing

I

nvestors are becoming increasingly concerned about questions of sustainability and equity. There is growing interest in Environmental, Social and Governance (ESG) related investing, especially post-COP26.

The approach, however, is still fairly new and undefined. BlackRock CEO Larry Fink recently prodded shareholders and governments for action. In his annual letter to CEOs, he said

First for the professional personal financial adviser

governments should offer more guidance on sustainability policy, regulation and disclosure across markets.

Across the globe, financial literacy is already an ongoing challenge. Add to this teaching people about sustainable investment, and how they could integrate it into their investment portfolios or consider different ways to align their investments with personal values – and it becomes even more challenging.

It is a deep challenge, and there is no taxonomy agreed upon, says Michael Young, manager of education programmes at the Forum for Sustainable and Responsible Investment on ESG education.

Though Young, like Fink, mentions governmental structures as critical to disseminating ESG education, he says it ultimately has to come from asset managers and financial service providers, too; firms that offer ESG-related products.

“When selling an investment product to a client, we are entering into a longterm relationship with our client. It is fundamental that we build trust between ourselves, in terms of understanding each other’s expectations and what we can deliver to each other; and not just for ESG but investments generally,” says Brunno Maradei, global head of responsible

investment at Aegon Asset Management.

When selling a fund to a client, among some of Maradei’s targets are ensuring that the fund meets its risk-return expectations, including the client’s preferences. He gets into details with clients about what they want to achieve with their capital, what their ESG objectives and sustainability risk tolerances are. This discussion includes having realistic expectations of what can be delivered.

The early stages of ESG investing also coincide with the trillion-dollar transfer of intergenerational wealth. But, numerous studies cite some disconnect between financial advisers and the inheriting generation: the millennials, who are also in their prime earning years and more inclined to invest in ESG. There are questions of whether there is any need for education, especially for this demographic of 25- to 40-year-olds – and if there is, how it is delivered. Should consultations continue the same way as previous generations of investors, or is there a need for different ways to accommodate this group’s different perspectives?

“Financial advisers and asset managers have to be flexible. Can the education be delivered the same way across the board?

I don’t think so. The world has changed so much,” says Young.

“Firms typically lose 70% to 80% of assets when transferred from one generation to the next”

ETF TRENDS TO WATCH IN 2022 Environmental, Social and Governance/Sustainable ETFs will exceed $200bn of assets under management Page 11

Page 15

@MoneyMarketingSA

Who is responsible for educating investors about ESG?

Page 8

ESG: PROPERTY PERSPECTIVE Listed property companies have increasingly become aware of the role they also need to play in society

@MMMagza

Michael Young, Manager of Education Programs, The Forum for Sustainable and Responsible Investment

Continued on page 3

28 February 2022

NEWS & OPINION

Continued from page 1

Firms typically lose 70% to 80% of assets when transferred from one generation to the next, according to a 2019 report by Julian Seelan, sustainable investing lead for wealth and asset management clients at Ernst & Young. The demand for sustainable investments is also being driven, in part, by millennials who prefer to invest in alignment with personal values, it adds.

“So, it would be crazy for a firm to not spend its time trying to create educational profiles – not only to help the client, and in particular a millennial client, understand what is possible,” says Young.

He adds that this engagement is also an opportunity for the firm to show off its capabilities – that they have been investing resources (including human capital) and time into building the types of platforms that deliver what an investor with a real focus on sustainable investment would like to see.

“There is also no one way to teach everybody everything. Some people prefer to work with financial advisers, while some prefer robo-advisers or DIY. In a nutshell, you have got to be able to do different things for different generations of people,” says Young.

Discussions about environmental, social and governance issues that may pose risks to their portfolio or opportunities, in some cases, is key. Some clients may only be interested in maximising return and not sustainability opportunities, to which he says they can still be steered away from the more specialised range of sustainability products.

“Overall, the importance to bear in mind is that ESG investors are not a homogenous group; even millennials are not a homogenous group. Everybody has different objectives when it comes to ESG.” In Maradei’s experience, some use ESG to maximise financial returns, while others use it to minimise risk.

Others want to use it to reduce reputational risk – to maximise what some call the ‘feel-good factor’ – and others want to achieve real-world impact.

“ESG can do all of that, but ESG is a catch-all term, and one needs to dig a lot deeper to get behind what the expectation of the client is, and what they want to achieve with their investment portfolio when it comes to ESG.”

Financial adviser education In terms of good fund management, Maradei says it is irresponsible of a financial adviser not to be looking at ESG. He considers it a breach of fiduciary duty to not be looking at material environmental, social and governance issues, especially when making a longterm investment.

“If a client is putting their pension fund with me and they are 40 years old, planning to retire in 25 years, and I am not looking at the impact of climate change on their portfolio, I am in breach of my fiduciary duty,” he says.

“ESG investors are not a homogenous group”

Brunno Maradei Global Head of Responsible Investment, Aegon Asset Management

A comprehensive list of contacts for financial products, services and tailored solutions.

EDITOR’S NOTE

A

nd the gloves are off. South Africa’s political hunting season was swung into full gear at the beginning of the year, with numerous campaigns now moving at high speed. Those vying for the presidency are unmistakably making their intentions known, and turning up the heat while at it.

Fragile coalition agreements in major metropolitan areas and indications that the ruling ANC party is increasingly fractionised and facing rising threats mean that the once predictable nature of the domestic political landscape could well be tested over the next two years, warns BNP Paribus.

For those who are already unnerved, political events of the past few months are just a fraction of the turbulence that is to come in the next couple of months, most especially within the ruling party, ahead of its national conference at the end of the year.

As the political risk and noise grows, Ninety One says it is more concerned about and closely monitoring the impact of the political cycle on National Treasury. Notwithstanding, Peter Kent, co-head of SA and Africa Fixed Income at Ninety One, says National Treasury has done a commendable job in being very sensible with the revenue windfall we recently received from commodities.

He mentions some long-awaited greenlights finally happening on the economic side, such as the spectrum auction going through with some developments, infrastructure investment and Eskom’s talks of unbundling the transmission entity at the end of the year. “So, reform is moving.”

Though National Treasury appears to not be under threat at the moment, should it be, Kent says the investment case would need to be reviewed, which has been relayed to the finance ministry.

TIMOTHY RANGONGO timothy.rangongo@newmedia.co.za @MMMagza www.moneymarketing.co.za

SUBSCRIBE TO OUR NEWSLETTER bit.ly/2XzZiMV

Brought to you by

AVAILABLE ONLINE NOW WWW.MONEYMARKETING.CO.ZA 2

www.moneymarketing.co.za

cib.absa.africa

28 February 2022

PROFILE

NEWS & OPINION

Teboho Makhabane ESG and Impact specialist at Sanlam Investments

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

Financial services was not really a field I was looking to get into. After studying for a degree in Mathematics, I was on my way to becoming an academic. However, when I switched programmes during my honours year to an investment-related degree, that sparked interest in financial services.

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

Ironically, my first investment was in Steinhoff. A colleague recommended it at the time as a good stock. I do not have it anymore and I also lost money when the share price plunged in 2017.

What have been your best – and worst – financial moments?

When I started working, I had student debt while earning a moderate income. I did not immediately pay it off, which was not the best financial decision because of the interest that it was accruing. Small payments would have gone a long way and, more importantly, introduced the habit of paying off debt very early. My best financial moments have been in the later years of my life, where I have saved, travelled, and still do much in terms of giving. That requires proper planning and budgeting.

What, in your opinion, are the main drivers currently supporting the global transition to decarbonisation?

I can think of three sectors which, in my opinion, are among the highest contributors to global carbon footprint, and their transition would support the reduction of carbon output.

1. Energy sector – Using renewable sources of energy such as wind, solar and hydro as opposed to fossil energy sources (for example, in South Africa coal is the major energy source). This transition will obviously require proper planning, dialogue and care to ensure that the livelihoods of those employed in these sectors

and the surrounding communities are not negatively affected by the transition to decarbonisation.

2. Electrification of transport – This is probably less relevant to South Africa at the moment, but the shift from fuel-powered vehicles to electrical power vehicles would contribute immensely to the reduction of carbon emission, provided that the locally produced electricity sources are renewable.

3. Building sector – Decarbonisation of real estate projects, from construction all the way to operations. The introduction of green buildings and the certification thereof helps improve the overall green design, including factors that help reduce the carbon footprint of the buildings.

What ESG trends are on your watchlist in the new year?

In the new year and the coming years, I expect the S element of the ESG to be more heightened. Covid-19 has reminded us of the inequality that exists in the world and, as a result, has brought forward social issues that were overlooked. Adding to that was the Black Lives Matter (BLM) movement, which also highlighted the need for diversity and inclusion in workplaces, among other concerns. With all that, I believe we will see more social factors being key in ESG consideration and analysis in the new year. The integration of social elements in our analysis could encompass: • Companies being scored on gender and racial diversity KPI’s at board and management level, as well as from a hiring perspective.

• Employee value propositions that show companies’ social responsibility towards its staff regarding mental health, flexible work environments, improving disparities in the wage gap, and work-life balance are more important.

• Another important S factor will be to encourage job creation through various job creation strategies and incentives.

Not all issues will be of similar importance but different countries will gravitate towards the important issues for their context.

EARN YOUR CPD POINTS The FPI recognises the quality of the content of MoneyMarketing’s February 2022 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. For more information, visit our website at www.moneymarketing.co.za

VERY BRIEFLY MiWay announced late last year that it had appointed Burton Naicker as CEO to replace René Otto, who retired at the end of 2021.

Naicker is no stranger to the insurance industry, having already spent more than 25 years at some of South Africa’s leading financial services Burton Naicker companies.

Burton officially assumed his CEO duties from January and will also serve as a member of the Santam Group executive team. Asked about his vision for MiWay, Naicker says he aims to continue to build on Otto’s legacy, who co-founded the company 14 years ago.

“René has played a critical role in successfully building a solid foundation for MiWay from inception.

He’s been instrumental in instilling a culture of innovation, transparency and, most importantly, putting clients first, and steered MiWay into a successful business over the years. I am excited to be part of the dynamic team and look forward to my journey at MiWay and the Santam Group.”

Alexander Forbes appointed Ann Leepile as the CEO of Alexander Forbes Investments effective this month.

Leepile previously served as the head of global manager research and deputy chief investment officer of Alexander Forbes Investments, which gives her direct Ann Leepile insight into the dynamics of the business and its clients.

She joins Alexander Forbes after heading Absa Asset Management for six years, during which she grew the business to one of the largest asset managers in SA. Leepile has 20 years of experience in the investments industry and is a CFA charterholder.

Franklin Templeton announced the appointment of Anne Simpson as global head of sustainability, a newly-created role charged with driving Franklin Templeton’s overall strategic direction on stewardship, sustainability and environmental, social Anne Simpson and governance (ESG) investment strategy globally.

Simpson says she looks forward to being part of the firm’s next phase of growth and evolution in sustainable investing. “There is new momentum in finance, driven by policymakers in leading European markets, net-zero commitments from COP26 and broad recognition of investors’ role in driving progress on sustainable investing – including important areas like diversity, equity and inclusion – to foster shared prosperity.”

www.moneymarketing.co.za

3

28 February 2022

NEWS & OPINION

The changing nature of financial advice and how to best adapt your practice DEBRA SLABBER, CFA Portfolio Specialist Morningstar Investment Management SA

T

he past few years have radically changed the way advisers connect, communicate and acquire clients.

They have accelerated conversations around the integration of technology, succession planning, strategic partnerships and long-term opportunities, and challenges for independent advisers.

Advisers constantly need to keep their finger on the pulse, stay informed, on-trend and in the know of what could impact their clients and their clients’ investments. Client demand for convenience, transparency and objectivity is also increasing. Regulation, technology, product construct and the availability thereof are changing rapidly.

What challenges are independent advisors currently facing, and how should they stay informed and filter out the noise with a continuous wealth of information coming at them from all angles? Clients are becoming more knowledgeable and demanding more convenience, transparency and objectivity.

At the 2021 Morningstar Investment Conference, I discussed these issues with two leading advisers – Robert Adshade, founder of Alchemy Financial Solutions, and Quinton Ralph, managing director, founder and private wealth manager of Resolute Wealth Management.

As the saying goes, the only constant is change. So, what are some of the basics advisers can focus on to best adapt their practice?

Embrace the positive changes the past few years have introduced Had people not been forced to interact with each other online (via platforms such as Zoom and Teams), would we have even considered it to be an option? Would clients have been open to trying it at all?

4

Who knows, but luckily we were obliged to find out. The Covid-19 pandemic forced everyone to adapt and to do so very fast.

Let’s take a moment to consider some of the positive changes that have become commonplace in the aftermath of the pandemic: • Clients were forced to have to try online meetings – and some now even prefer it.

Had it not been for lockdown requiring clients to interact with their advisers via Zoom, they might not have been as willing to try it • Online check-ins and meetings require less time on the road, leading to more efficient use of our time • Meetings and check-ins are shorter and can even happen more frequently • Face-to-face interaction is appreciated anew, selective, and a valuable relationship builder • We’ve been able to educate and liaise with clients regularly – via newsletters, webinars and one-on-one online meetings • Technology such as DocuSign has enabled us to save the planet one online switch form at a time, and has saved our clients a lot of time and effort • We’ve been able to gain access to and give our clients access to external experts and speakers that we wouldn’t usually have access to (due to cost, logistics, etc.).

Face-to-face interaction can never be replaced If lockdown restrictions showed us anything, it is the need, value and power of personal, face-to-face interaction. What we all missed the most was the ability to see our friends, family, colleagues, and to interact with each other.

The topic of robo-advice has made its rounds for many years now, with many speculating that it might just reach a point of replacing in-person financial advice. If the past few years have shown us anything, it is that this will not be the case.

Unquestionably, the most important role a financial adviser has is understanding the unique needs of the end-investor, offering creative and tailored solutions, emotional and behavioural guidance and a solid, long-term relationship. As much as financial advice is focused on the numbers, it is even more so focused on the emotional and behavioural advice element. There is a huge value attached to the trust relationship advisers have with their clients. You would be hard-pressed to find a robot that can truly accomplish these fundamentals.

Advisers agreed that, although roboadvice has its place and could very well

www.moneymarketing.co.za

add value, it would never replace the role of an independent adviser.

No man is an island Therapists often have a dedicated therapist of their own that they see on a regular basis.

Not only to help them deal with their own hardships but also to help them deal with the hardships of their clients that may affect them. In addition, when they need help, a different perspective and/or advice on how to best help their client, their therapist acts as a sounding board. Therapists recognise that the quality of their mental health and guidance is of paramount importance to assist their clients as well as possible. There is a lot that financial advisers can learn from this practice.

Although the industry is competitive by nature, one shouldn’t forget the value of having a network of like-minded advisers that you can tap into for advice and guidance.

Whether this is a group of your colleagues, team members and/or external industry peers, this group can be used to share new ways of working, brainstorm creative solutions to unique client problems, give support to other advisers, as well as receive advice on thorny issues. The goal is to enhance each other and, in so doing, act in the best interest of end-investors.

You can’t pour from an empty cup Financial advisers are human too. You read the same newspaper headlines as your clients and must also focus on remaining calm when the world is in a flat spin. As the saying goes: you can’t pour from an empty cup. Make sure you take the time to live a well-balanced lifestyle, don’t neglect your own financial and emotional wellbeing, and speak to colleagues or other like-minded advisers when you are struggling to cope with current events. Learn to receive support the same way in which you are often required to give support.

Decide what type of business you want Whether you would prefer to have a small number of large clients, or a large number of small clients, decide which you would prefer and adapt your practice to be able to cater to this. In the same manner, you need to decide if you want to manage assets and/or wealth. Do you want to keep

managing the investment process and products in-house, or would you prefer to free up your time to focus on clients? The most important thing here is making a decision and sticking to it.

Although the advisers I spoke to managed their practices in completely different ways, both highlighted the value of partnering with a Discretionary Fund Manager. For example: • All clients are given consistent advice across the board • It has allowed for risk mitigation, accountability, as well as improved research capabilities • It has enabled lower fees for clients, better pricing and enhanced performance • It has enabled both advisers to grow their practice by taking on more and bigger clients • It allowed for a unified investment approach and house-view • It has enabled succession and reduced key-man risk in that the business has the required process in place to continue should one key individual no longer be with the business.

In closing We all went through radical change but technology can be used to our advantage without dehumanising the industry.

There’s a great need for a community of advisers – especially with fewer in-person and networking opportunities. Now more than ever, independent financial advisers need a safe space in which to share ideas and knowledge. Older advisers have a responsibility to pass their knowledge to the younger generation of advisers. After all, they will be looking after your clients when you are no longer able to.

Find a recipe that works for you – whether that’s having a small group of large clients or having a large group of small clients.

Whether you work with DFM or continue managing the assets yourself – strive for a good work-life balance and always act in the best interest of clients. Start planning now how your business will continue to serve your clients when you are no longer involved and start putting steps in place from a very early stage. This will make the succession process easier for both you and your clients.

Most of all, never take for granted the power and value of good financial advice.

28 February 2022

NEWS & OPINION

New tax proposals signed into law – 5 key changes JEAN DU TOIT Head of Tax Technical, Tax Consulting SA

T

he President has given effect to the 2021 tax proposals by signing three tax Acts into law. On 14 January 2022, the President gave his assent to the Rates and Monetary Amounts and Amendment of Revenue Laws Act No. 19 of 2021 (‘Rates Act’), the Taxation Laws Amendment Act No. 20 of 2021 (‘TLAA’) and the Tax Administration Laws Amendment Act No. 21 of 2021 (‘TALAA’). These Acts were promulgated on 19 January 2021.

The Rates Act gives effect to changes in tax rates and certain monetary thresholds, whereas the TLAA and the TALAA contain more profound technical and administrative changes. Highlighted below are five key changes taxpayers need to know.

1. Assessed losses will be restricted – the TLAA enacts the proposal to restrict the offset of the balance of assessed losses carried forward to 80% of taxable income. To cater for all sectors and recognise that not all companies have sufficient cashflow

to face an additional tax burden in the first year they become profitable, the TLAA imposes a R1m threshold beyond which the restriction applies. Therefore, the company will be able to set off the higher of R1m or 80% of taxable income.

The amendment takes effect on the day when the Minister of Finance announces the reduction in the corporate tax rate in the annual Budget Speech.

2. Curbing ETI abuse – Government amended the Employment Tax Incentive Act to counter schemes where employers claim the ETI in respect of simulated employment agreements. These schemes involved the employment of students who do not perform any work or gain any experience for the employer, which undermined the objective of the ETI. The TLAA amends the definition of ‘employee’ to ensure that the substance of the employment relationship will determine eligibility for the ETI claim, as opposed to its legal form. This principle is bolstered by the inclusion of a proviso that the ETI shall only apply to employees not mainly involved in the activities associated with studying. Finally, the TLAA also stipulates that only remuneration paid in cash will be taken into account to determine if the employee qualifies for the ETI. These amendments come into operation on 1 March 2022, which deviates from the initial intention to have a retroactive effective date of 1 March 2021.

3. Section 7C proposals withdrawn – the proposals to bolster the provisions that curb the tax-free transfer of wealth to trusts using low interests or interestfree loans have been withdrawn.

The reason for this decision is the recognition that the proposal seeks to address avoidance schemes that fall outside the scope of section 7C. That being said, National Treasury indicated that it may introduce more specific anti-avoidance measures to counter the

mischief under consideration.

4. Allowing use of retirement interests to acquire annuities – previously, a person was restricted in terms of the annuities they may acquire upon retirement. The TLAA increases the flexibility for a retiring member by expanding the types of annuities a member can purchase upon retirement.

For example, the full value of the member’s retirement interest following commutation can be utilised to purchase a combination of living and guaranteed annuities. In line with current legislation, the portion of the retirement interest utilised to purchase each type of annuity must exceed R165 000. The effective date for this amendment is 1 March 2022.

5. Scrapping of proposed exit tax on retirement interests – the TLAB contained a proposal to tax the retirement interests of individuals upon cessation of their South African tax residency. The proposal was widely opposed by industry stakeholders and the Expat Petition Group, and after hearing submissions in Parliament, it was announced that the proposal would be withdrawn. The decision to scrap (for now) the proposal is confirmed with the promulgation of the TLAA. Taxpayers need to speak to their advisors to understand these changes and when they will come into operation. In particular, we look forward to the Budget Speech for a potential reduction in our corporate tax rate.

Can’t take the heat... stay out of compliance RICHARD RATTUE Managing Director, Compli-Serve SA

O

ver the last couple of years, headlines have shown a fair share of reporting on scandals, from CEOs getting away with money under the table, getting caught, to cryptocurrency being stolen and disappearing altogether. It’s essential to have a compliance function that always follows the rules.

Compliance officers or departments are faced with matters that require us to speak up when issues arise, or adopt a ‘head in the sand’ attitude. It should be obvious

that the former option is the preferred choice.

Reading through various regulatory post-mortems reveals that problems occurred not necessarily because of a lack of rules per se but rather a combination of lax oversight from both the senior management and risk and compliance personnel. In some instances, risk and compliance leaders had forgotten their impartial role and had essentially become cheerleaders for the business.

It’s unfortunately not uncommon for a compliance officer to be subjected to intense pressure from a business to approve certain reward structures or products. But keeping an objective and independent stance at all times is crucial. If a compliance officer is not of strong personality and in a position of some authority within a firm, there is a risk that their opinions and/or concerns will not be heard and will not get management’s attention. But this is not best practice by any means.

Clearly, when your salary is paid by the company itself, this can dilute independence, but it should have no impact on objectivity. If we take a look at the local environment, we have seen a similar focus on the roles within the compliance function, albeit with a more positive aspect, as the local compliance industry has taken strides towards professionalism over the last decade.

The move towards an outcomes-based oversight regime and technological developments in both RegTech and FinTech will force the risk and compliance function to adapt and evolve. Some components of the role will no doubt be taken over by algorithms, yet this will not change

the fundamental responsibility of the compliance officer, which is to act without fear or favour and to be allowed this opportunity by the business.

Believing in the vision of the company you work for is

“In some instances, risk and compliance leaders had forgotten their impartial role and had essentially become cheerleaders for the business” a good practice for a positive mindset, but it should never be at the expense of doing the right thing. Compliance is at the heart of following the rules and needs to function objectively to keep order. Firms with little to no governance culture can quickly run into trouble.

A compliance officer cannot become a sycophant for the business and must always apply an objective approach. To do anything else is to place the business and indeed the compliance officer at great risk of personal censure from the Financial Services Conduct Authority (FSCA) and could result in a career in compliance coming to an abrupt halt.

Compliance is not for everyone and if you can’t take the heat, then stay out of the kitchen and find a different role.

www.moneymarketing.co.za

5

28 February 2022

NEWS & OPINON

Foreign residency trend: it’s more than just emigration COREEN VAN DER MERWE Director at Sovereign Trust (SA) Limited

F

or the past decade, the major trend in the South African investment space has been the growing number of local investors looking to offshore investments to hedge their earnings against a volatile Rand. Now, we’re seeing the next big trend: a strong interest in foreign residency and citizenship by investment (RCBI) programmes, as people look for a second residency or citizenship for personal and business reasons.

The ‘citizenship by investment’ industry started in 1984 when the Caribbean nation of St Kitts & Nevis launched its programme. But it only really started gaining traction with the introduction of the first European citizenship programme, in Cyprus, in

2011. Today, a host of countries offer residency and citizenship by investment, including Portugal, Mauritius, Malta and Gibraltar.

There’s a common misconception that individuals invest in RCBI programmes with the sole intention of enabling their families to emigrate. While this is a requirement of certain programmes – the UK and US, for example – in most instances, this is not the case.

In fact, most of our clients who invest in government-authorised RCBI programmes do so to benefit from the flexibility and freedom they provide and to receive additional benefits that are not currently available to them.

We’re seeing Portugal and Mauritius emerging as two of the most popular destinations for South Africans not only looking for a so-called ‘Plan B’, but also looking to benefit from greater tax efficiency, investment and business opportunities, improved lifestyles, education options and greater freedom of movement.

Portugal is popular with many South Africans looking for a path to European Union residency – and ultimately, citizenship – for themselves and their families. Portuguese residency unlocks visa-free mobility across the entire European Schengen area, and offers an excellent quality of life with relatively low tax burdens and investment barriers. While there are several routes to get Portuguese residency, real estate investment remains one of the easiest,

“Mauritius is wooing a growing number of local investors through its relatively close proximity to South Africa”

6

www.moneymarketing.co.za

“Today, a host of countries offer residency and citizenship by investment, including Portugal, Mauritius, Malta and Gibraltar” with a minimum investment of €500 000 (reduced by 20% to €400 000 if the real estate is located in a designated area of low GDP or low population density).

Mauritius is wooing a growing number of local investors through its relatively close proximity to South Africa, attractive tax regime and laidback lifestyle. Occupation and residence permits are freely available to foreigners wishing to work, invest, live or retire in Mauritius.

Part of the attraction of Mauritius for foreign investors has always been its simple taxation system: company, personal income, capital gains and dividend incomes are all taxed at a rate of 15%, with further tax concessions available. It is worth noting that Mauritius introduced a social contribution levy called Contribution Sociale Généralisée (CSG) in September 2020.

The CSG is a form of a national pension fund and equates to an

additional tax of 3%, paid by employees of a Mauritian Company. Mauritian tax residents are taxed on Mauritiussourced income only, and there is no capital gains tax, no property tax and no inheritance tax. For those who will continue to earn incomes from outside of Mauritius (non-Mauritian sourced incomes), one would only be taxed on the funds that are brought into a Mauritius account (the remittance basis). In addition, there are no foreign exchange controls.

South Africans are already among the leading foreign buyers of property on the island. Setting up a business there is quick and easy, and there’s already a sizeable community of South African expats, making it familiar and easily accessible.

One word of caution, though.

When it comes to foreign residency and citizenship programmes, the most important thing is not to make life-changing decisions based on a friend’s recommendation. You have to take advice from the experts, who can unpack the various country and investment options available to you based on your specific needs.

Right now, few people and advisers are aware of the full range of lifestyle, business, investment and tax benefits to be gained when RCBI programmes are utilised correctly. But this is changing rapidly – and it’s a trend that is only going to gather momentum in 2022 and beyond.

28 February 2022

NEWS & OPINION

Xero and Investec launch fully digital bank feed to help South African businesses better manage cashflow

X

ero, the global small business platform, and Investec, the international bank and wealth manager, have partnered to give small businesses and their advisors access to financial data through a fully digital API-enabled bank feed in South Africa. The new feed is now live and available to Investec private banking clients in South Africa with a Xero account.

This fully digital bank feed means that small businesses and their accountants can import their banking transactions automatically and securely, directly from Investec into their Xero organisation. This bank feed uses a fully digital connection process.

It’s never been so important for businesses to have a clear view of their financial position so they can track cashflow closely and be ready for future disruption. This bank feed will help businesses and their accountants to reconcile statements easily; create smart, shareable reports and online invoices; and review cashflow from anywhere. This will reduce the time spent manually

Africa’s largest Alternative Investment Conference – 25 March 2022

I

n 2004, alternative investments accounted for only 6% of the global investable market. By the beginning of 2019, the size of the global market had doubled, while alternative investments had almost tripled!

The Chartered Alternative Investment Analyst (CAIA) Association estimates the size of the traditional global asset market at $102.6tn, while alternative investments have grown to $13.4tn.

Alternative assets make up 12% of the global investible market, making them an attractive alternative to traditional investments.

importing data.

“With the impact of Covid-19 and other economic uncertainties continuing, we all need to work together to support small businesses. This means making sure they have the digital tools they need to grow,” says Colin Timmis, Xero SA country manager.

“New technologies – like API bank feeds – are helping to automate manual processes like tax filing and support small businesses to better track performance and plan for their future. This is freeing them up to focus on growth, which creates employment and a healthier economy for all.

“As the first accounting and small business platform in South Africa to introduce fully digital bank feeds earlier this year, we’re excited to continue this innovation with like-minded organisations like Investec,” says Timmis.

“Our aim is to not only offer transactional convenience for our clients, but to become a fully-fledged digital business enabler and financial partner in their business

With the increasing demand for alternative investments, the Alternative Marketplace has, over the past five years, been hosting a conference that provides alternative investment fund managers with a platform to present their investment offerings to retail and institutional investors.

The next conference will be held virtually on 25 March and will be showcasing a number of the market’s leading alternative investment fund managers. Included in the line-up are investments from financial institutions such as Laurium, Investec, Jaltech Fund Managers, 360NE, and Kalon Venture Partners. The conference will provide attendees with exposure to a diverse line-up of investments, including hedge funds, cryptocurrency, technology, structured products, private markets and more.

In addition, Tanya van Lill, CEO of Southern African Venture Capital and Private Equity Association (SAVCA), will provide an overview of the South African private equity and venture capital market.

The conference is the only opportunity in the market for retail and institutional investors to gain

“This bank feed will help businesses and their accountants to reconcile statements easily; create smart, shareable reports and online invoices; and review cashflow from anywhere” journey. The introduction of Xero is the next step in the bank’s evolving proposition,” according to Wayne Summers, head of open APIs at Investec Digital in SA. “Whereas traditional banking focuses on product offerings, there has been a paradigm shift in the financial services sector. Digital banking that responds to a changing technology environment and user needs must put the client firmly at the centre of any new offering.

Today, any bank has to think about what is best for a client rather than what is best for the bank. This is the way the world is moving.”

Bank feeds are a great example of the transformational role open banking can play in helping South African small businesses to automate processes.

Many businesses are already using tools enabled by open banking, but the potential is much greater. It can help businesses get paid faster, make payments more efficiently, and access the capital they need.

The new Investec feed has been built to Xero’s API. Xero launched its Bank Feeds API in 2018, allowing banks to respond to customer needs by nimbly building connections to Xero.

Small businesses and their accountants are able to connect the direct feed through their Xero account. The feed will be free of charge to all Investec clients with a Xero account.

REGISTER AT: WWW.ALTMARKETPLACE.CO.ZA

exposure to such a wide variety of alternative investments.

To register for the event visit www.altmarketplace.co.za

www.moneymarketing.co.za

7

28 February 2022

NEWS & OPINION

Exchange control questions answered BIANCA BOTES Director at Citadel Global

R

esponsible for regulating all crossborder transactions, the South African Reserve Bank (SARB) uses exchange controls to prevent the abuse of our financial system. The penalties of failing to adhere to exchange controls in South Africa are far more dire than one might be aware of and could result in forfeiture of assets or even imprisonment. The importance of understanding exchange controls – or employing someone who does – is, therefore, a necessity for both individuals and corporations who are active in the foreign exchange market.

What are exchange controls and which countries impose them?

Exchange controls are limitations imposed by government on the purchase and/or sale of currencies. They can also be used to restrict non-essential imports, encourage the importation of priority goods, control the outflow of capital, and manage the country’s exchange rate.

Interestingly, the International Monetary Fund (IMF) allows only those countries with transitional economies, such as South Africa, to apply exchange controls.

Such countries generally seek to limit speculation against their currencies by imposing exchange control.

How do exchange controls help the South African economy?

One of the major aims of exchange controls is to manage or avoid an adverse Balance of Payments (BOP) position. If the BOP is being pushed into a deficit position because of imports exceeding exports, it needs to be realigned. The controls mitigate decreasing foreign exchange reserves by limiting imports to essentials and encouraging exports via currency devaluation.

In times of economic or political turbulence, the government may opt to limit capital flight as residents increase foreign currency transfers out of the country. Such controls also regulate the movement of financial and real assets into and out of South Africa. In managing and reporting the total foreign exchange inflows and outflows, the government hopes to ensure currency stability and secure the BOP position.

Exchange controls may also be enacted to protect our domestic industry from competitors on foreign soil whose technology and expertise make them more cost-effective and appealing. In other words, exchange controls protect against negative impacts on the efficient operation of the local commercial, industrial and financial system.

Who must comply with exchange controls?

All South African individuals and entities who wish to move money into and out of South Africa need to comply with exchange controls. Foreigners living in

“All South Africans doing cross-border transactions are expected to either be familiar with the controls or to employ experts to ensure they are compliant” 8

www.moneymarketing.co.za

South Africa, however, may experience limitations on transferring money out of the country that was previously brought in; however, the SARB assesses these situations on a case-by-case basis. So, it is recommended that foreigners seek the help of an exchange control expert if they are unsure of their limitations.

“Individuals must also be aware of limitations on allowances of R1m and R10m”

How am I supposed to know my allowance limitations?

Exchange controls can be a complex and daunting topic to get to grips with; however, the SARB does not view ignorance as an excuse – all South Africans doing cross-border transactions are expected to either be familiar with the controls or to employ experts to ensure they are compliant. There is a common misconception that cryptocurrencies can bypass exchange control, which is entirely false. All transactions out of or into the country must be reported, at the risk of unwelcome repercussions.

If you are not sure, ask someone who is. False information concerning category code, amounts and supporting documents can land one in hot water. Individuals must also be aware of limitations on allowances of R1m and R10m. Entities must comply with certain criteria, such as foreign dividend receipts that must be converted to South African rand.

The SARB has published a manual to ease compliance for individuals, companies and authorised dealers. Still, in the light of the severity of penalties in the case of non-compliance, it is highly recommended that you seek assistance

from your treasury partner to avoid investigations, penalties and even the blocking of your bank account.

How do I get approval to do my transactions?

One of the SARB’s tasks is to provide the requisite approval for cross-border transactions to ensure that its value is maintained throughout various currency conversions and that the correct interest and taxes are charged. To impose this efficiently, the SARB delegates a large portion of imposing these controls to authorised dealers (a registered bank authorised to deal in foreign exchange or an authorised dealer in foreign exchange with limited authority).

Not all cross-border transactions are subject to SARB approval, but all must be declared and reported via the BOP reporting systems. SARB approvals apply to transactions that fall outside the normal scope of day-to-day operations, such as foreign direct investment for companies, or exceeding allowances for individuals.

South African courts have held that an agreement that required prior exchange control approval will be null and void if no such approval was obtained.

When local insight meets global expertise, your money can do more.

That’s why we have forged a partnership with one of the world’s leading investment specialists, J.P. Morgan Asset Management.

Broaden your investment horizons and pursue a whole new world of opportunities with direct access to our cutting-edge research, analytics, AI and investment professionals.

STANLIB Asset Management (Pty) Ltd is an authorised financial services provider and JPMorgan Asset Management (UK) Limited is an offshore strategic partner to STANLIB Asset Management (Pty) Ltd and is authorised and regulated by the UK’s Financial Conduct Authority.

TBWA\HUNT\LASCARIS 932106

Is your money ready to spread its ?

28 February 2022

INVESTING

Chinese take away – The risk of companies delisting from US exchanges KATHY DAVEY Investment Manager at Ashburton

I

n assessing the risk of Chinese companies listed on US exchanges being forced to delist by the US Securities and Exchange Commission (SEC), it is best to take a step back and consider why the US has taken what is seemingly a heavy-handed approach to these companies.

The tension between the US and Chinese regulators began as far back as 2002 when the Public Company Accounting Oversight Board (PCAOB) was created by US Congress as part of the Sarbanes-Oxley Act (SOX). The Act was passed in response to accounting scandals such as Enron and WorldCom to provide better oversight of the auditing industry, with the PCAOB serving as the industry watchdog.

The Act requires that auditors of foreign companies allow the PCAOB to inspect their audit work papers for audits of nonUS operations. Most foreign jurisdictions have complied with this requirement; however, Hong Kong and China have not. There have been compromises along the way with Chinese regulators offering some access to US-listed Chinese companies’ auditors. Still, the PCAOB has felt that when doing their respective inspections, they have not been given the access required to satisfy the oversight requirement for the companies. China’s stance on the matter is that doing so would compromise state security and therefore have been unwilling to cooperate fully with this request.

In April 2020, the issue reached a breaking point when it was revealed that Chinese coffee maker Luckin Coffee, listed on the NASDAQ, was found to

have inflated its revenue in 2019 by $310m, roughly 70% higher than what the company actually achieved.

By December 2020, the US House of Representatives had approved the Holding Foreign Companies Accountable Act, which requires the SEC to prohibit the securities of foreign companies from being listed or traded on the US securities markets if the company retains a foreign accounting firm that cannot be inspected by the PCAOB for three consecutive years. Chinese companies listed on US exchanges (currently around 248) have until April 2024 to comply or be delisted.

This has weighed on the share price performance of Chinese companies listed in the US. With little resolution in sight between the two countries, conversations have shifted from ‘if these companies will be delisted’ to ‘when these companies will be delisted’.

Chinese authorities have indicated that they are comfortable with US listings; however, it is plausible that to save face at some stage, China might revise its view and encourage firms to give up these listings before the companies are pushed off the exchange by the SEC. So why have so many Chinese companies chosen to list in the US rather than in Hong Kong in the first place?

The Hong Kong Stock Exchange (HKEx) is an accessible and reputable exchange for a wide range of international investors and is closer to mainland China.

In addition, the conflict between the US and China regarding access to audits is an issue that could be avoided by listing closer to home. Clearly, access to sizable and sophisticated US investors is a big tick for companies wanting to raise money. Still, another reason is that Hong Kong has more stringent listing requirements than the US. The HKEx had been ecommerce giant Alibaba’s first choice of exchange for its Initial Public Offering (IPO) in 2014.

However, this was not possible due to the company’s Weighted Voting Rights (WVR) structure, whereby certain shares have higher voting power than others, a structure often used when the founders of a company want to maintain control.

This share structure was not allowed on the HKEx at the time and, therefore, Hong Kong missed out on the largest IPO in the world at that point. This was most likely the catalyst for the exchange to amend

“Investors should ensure, however, that the stocks they are invested in have a dual listing on another reputable exchange and are fully fungible” 10

www.moneymarketing.co.za

its rules in 2018 to allow the secondary listings of WVR companies (with certain requirements) for the first time. This paved the way for Alibaba’s listing on the HKEx in 2019. Since then, there has been a string of US-listed Chinese companies dual listing on the HKEx, including JD.com, Yum China and Baidu.

These secondary listings are fully fungible with the US listing. They, therefore, allow international investors, who are attracted to the longer-term fundamentals of certain Chinese companies, the opportunity to simply move their holdings from the US to the HKEx at little cost. Due to the interchangeable nature of these shares, they generally trade at similar prices on each exchange.

One would need to be more concerned if you held the stock of a Chinese company listed on a US exchange that is not listed on another exchange outside of the US. It’s likely these companies are already scrambling to find a Plan B and the HKEx has made this a lot easier to achieve with further reforms having been implemented as of 1 January 2022. Even so, there may still be certain listing criteria that companies do not fulfil, so investors should focus on companies that are already dual listed.

One disadvantage of having to delist from US exchanges is that there will be certain investors who currently own shares in the US but cannot invest in Hong Kong.

These investors will be forced to divest their holdings. However, there is another source of capital that Chinese companies listed on the HKEx can tap into, which they otherwise would not have been able to do with a US listing. This is the Southbound Stock Connect program.

The program links mainland China stock exchanges to the HKEx, thereby

“One would need to be more concerned if you held the stock of a Chinese company listed on a US exchange that is not listed on another exchange outside of the US” allowing mainland China investors to buy shares in Hong Kong. The program currently excludes companies with dual listings, which would mean that duallisted Chinese stocks would need to delist from the US and move to a primary listing on the HKEx in order to participate.

With little cooperation between the US and China, it may be prudent for Chinese companies eligible for a primary listing in Hong Kong to delist from US exchanges before they are forced to and take advantage of these potential flows.

In conclusion, although the introduction of the Holdings Companies Accountable Act in the US has increased the probability of Chinese companies delisting from the US, international investors have other means of retaining their holdings should they wish to participate in the high growth and attractive valuations that some of these companies offer. Investors should ensure, however, that the stocks they are invested in have a dual listing on another reputable exchange and are fully fungible.

Kathy is an investment manager for the Ashburton Global Leaders Equity Fund at Ashburton Investments.

28 February 2022

INVESTING

ETF trends to watch in 2022: Conversions, international interest and sustainable funds DAVID MANN Head of Global ETF Capital Markets at Franklin Templeton Investments

F

irst, I hope everyone had a wonderful New Year – or at least an opportunity to reset and recharge. After two years of living with Covid-19 and the impacts it has had on the global economy, I remain optimistic that things are slowly getting back to normal and that 2022 will see even more of a return to normalcy.

This is my sixth year of giving ETF-related predictions. As I reread some of the prior articles, I noticed the same themes recurring in my predictions: fixed income ETF increases, active ETF adoption, smaller funds getting bigger, etc. For this year, I tried to avoid those themes while also avoiding specific market calls on interest rates or S&P 500 Index endof-year levels (not my forte).

You might rightfully be wondering what is left after omitting all those topics, but rest assured, as there’s still plenty! On to my top three 2022 predictions.

I think both of those numbers will double in 2022, and I would not be surprised if ETFs that had former lives as mutual funds exceed $100bn this year.

Global supply-chain concerns will once again shine a spotlight on international equity investing To be honest, I am not sure what to make of the recent headlines on the global supply chain as they are all over the place! Within the last couple of weeks, for every article that estimated global supply-chain issues could last a year or two longer, there was another that said everything should be resolved by this summer.

Many of the countries that serve as manufacturing centres within the global supply chain – for example Germany, China, Hong Kong, South Korea and Taiwan – had very different equity returns last year.

Chinese equity markets were down almost 25%, while Taiwanese equity markets were up over 25%. German equities were up a little on the year, while those from Hong Kong and South Korea were slightly down.

I may not have a strong opinion on whether or when these supply-chain issues will be resolved, but many investors most certainly do. That makes the ability to have targeted exposure using singlecountry ETFs that much more important. And as for a prediction, I think that we should once again see significant performance dispersion among ETFs that provide exposure to a single country’s equity markets.

Environmental, Social and Governance (ESG)/ Sustainable ETFs will exceed $200bn of assets under management (AUM) I’m a bit surprised I haven’t previously made an ESG-related prediction. I am bullish on ESG investing and think it will continue to gain popularity. However, before getting to a prediction, I wanted to talk a little about the bigger picture decision-making that goes

“2021 closed with about $126bn of assets in sustainable ETFs (which includes ESG and nonESG funds) with $38bn of inflows in 2021” into choosing an ETF. Assuming that investors are now comfortable trading any ETF, what should go into the ETF selection decision, especially given all the index and active ETFs available? I like to look at the two extremes of the index/active ETF spectrum (barbell/hourglass).

If your goal is simply to have exposure to a given market, then going with the lowest-cost index ETF makes a ton of sense.

On the other end of the spectrum, active management is a great option if you are looking for a specific portfolio philosophy (and management fee screening becomes less important.) I think ESG is a philosophy that can add value on both ends of the ETF selection spectrum. There are low-cost ESG index funds that provide broad market exposure with an ESG tilt.

Furthermore, you can also find bottom-up active stock-picking with the addition of ESG screens.

As options on both ends of the spectrum continue to grow and investors appreciate that they can maintain diversified exposure with an ESG screen, the environment appears ripe for significant asset growth.

I estimate that 2021 closed with about $126bn of assets in sustainable ETFs (which includes ESG and non-ESG funds) with $38bn of inflows in 2021. I think we will easily beat that number in 2022 and close the year well over $200bn.

Mutual fund-to-ETF conversions will continue to gain traction I have repeatedly outlined many of the trading and structural nuances of ETFs that make them so attractive, such as their liquidity, daily transparency, ecosystem, tax efficiency, etc. Judging by the 2021 inflows in the United States, which were within a spitting distance of $1tn, I am not the only one who thinks this way about ETFs. Last year was the first year we saw a decent number of mutual funds convert into ETFs, most likely for some combination of those reasons I listed above.

The 2021 numbers were impressive; I counted 16 mutual funds converted to ETFs last year, with those ETFs having a combined $37bn in assets.

“16 mutual funds converted to ETFs last year, with those ETFs having a combined $37bn in assets” www.moneymarketing.co.za

11

28 February 2022

INVESTING

Offshore diversification and quality in a tough local property market KIRSTIN GOVINDASAMY Investment Professional at Marriott Investment Managers

T

he South African listed property sector has had a tumultuous 24 months, from being the worstperforming sector in 2020 to one of the top-performing sectors in 2021.

Credit can be given to management teams who navigated their way through a difficult time by focusing on supporting

tenants and bolstering the balance sheet.

Further credit can be given to debtholders who remained pragmatic and supported landlords through the crisis. The sector is now out of its deepest troughs as collections have recovered to more than 100% in some instances, and fears of covenant breaches have since eased.

Although these short-term fears have dissipated, some of the longer-term negative structural impacts of the pandemic remain. The divergent impact of the pandemic has resulted in ‘winners and losers’ in the various sectors. The retail sector is, unfortunately, one of the losers against the backdrop of rapid growth in ecommerce and the office sector being negatively impacted by the work-fromhome trend.

On the other hand, the logistics and distribution warehousing space has emerged as a relative winner of the pandemic as it has benefitted from the rapid growth in ecommerce and supply chain optimisation.

Although the outlook for the South African property sector remains subdued

given the structural headwinds and weak economic outlook, it is important to be mindful of the variance among portfolios offered in the listed property sector. On a look-through basis, approximately 50% of the South African listed sector is based in properties offshore.

This phenomenon aids in geographical diversification and provides an escape from the weak fundamentals locally. It is likely that the operating performance of a property portfolio like Sirius, which owns business parks in Germany, and Nepi Rockcastle, a landlord of shopping centres in the Central and Eastern European region, will differ vastly from a property portfolio predominantly exposed to South Africa.

The disparity of fundamentals within the listed property sector gives us the opportunity to cherry-pick portfolios exposed to quality properties in relevant sectors with strong fundamentals, low balance sheet gearing, and management teams with good track records and specialist advantages.

This combination of factors, we believe, will result in stable, defensive income

streams in the future. Companies have also opted to employ pay-out ratios between 75%-95%, income of which is not lost but will aid in further strengthening the balance sheet and maintenance of current portfolios.

This will improve the overall sustainability of dividend payments over the long term.

Although property has benefitted from the rebound trade this year, we are aware of the challenges in the local environment and structural changes facing the sector.

As quality-focused managers, we are not benchmark-cognisant, and only the best companies are included in our portfolios.

We believe selecting relevant portfolios that should be able to reasonably weather any further obstacles remains a prudent strategy.

Given our filtering process, the average loan-to-value of the portfolio is 31%, relative to the FTSE/JSE SA listed property index (SAPY) at 37%. This past year has been a true testament to the direct correlation between balance sheet strength and dividend payments. The Marriott Property Income Fund currently offers an income yield of 7% and expected growth in income of 3%.

Nedbank Corporate and Investment Banking concludes Imperial’s first sustainability-linked revolving credit facility BRAD MAXWELL Managing Executive: Investment Banking at Nedbank CIB

N

edbank Corporate and Investment Banking (CIB) announced the successful conclusion of a R1bn sustainability-linked revolving credit facility (SL RCF) for the international logistics company Imperial Logistics (Imperial), at the beginning of this year. This marked Imperial’s first-

12

www.moneymarketing.co.za

ever sustainability-linked credit facility and was structured by Nedbank’s leveraged and diversified finance team in collaboration with the sustainable finance solutions team and client coverage.

The conclusion of the facility is further evidence of the bank’s ability to partner with its clients in respect of their sustainability journeys and is yet another demonstration of Nedbank’s expertise in delivering innovative solutions for its clients to assist in the unlocking of their sustainability objectives.

Imperial, which has operations mainly in Africa and Europe, approached Nedbank CIB earlier this year to consider innovative funding alternatives that align with its focus on ESG (Environmental, Social and Governance). Through active engagement with Imperial on its ESG strategy and debt financing requirements, we developed a R1bn sustainabilitylinked debt instrument under which Imperial aims to deliver on mutually pre-agreed sustainability performance targets over the debt term.

The bank increasingly uses ESG indicators to identify opportunities it can progress in partnership with its clients. The Imperial transaction is an example of one such opportunity and has been implemented at a time when Imperial is focusing its business

“Imperial, which has operations mainly in Africa and Europe, approached Nedbank CIB earlier this year to consider innovative funding alternatives that align with its focus on ESG” operations on becoming the logistics and market access gateway to Africa.

“At Imperial, we are proud to announce this milestone in our long-standing relationship with Nedbank. We thank Nedbank for being a valued partner to Imperial over the years and for supporting us in progressing our ESG journey,” said Mohammed Akoojee, group CEO at Imperial.

Akoojee adds that the facility demonstrates Imperial’s confidence in achieving its financial and ESG ambitions. This transaction is a testament to the fact that Nedbank continues to be a trusted advisor and key banking partner for Imperial.

28 February 2022

INVESTING

Portfolio positioning amid rising interest rates PIETER HUGO Chief Client and Distribution Officer, M&G Investments

O

n 27 January, the South African Reserve Bank (SARB) increased the repo rate by 25 basis points to 4% – the second of many more projected hikes over the next two years. Rate hikes do have wide repercussions for investors but are generally already largely factored into asset prices ahead of time, if the central bank has been clear in communicating its views to the market.

So how do interest rate changes impact different asset classes, and how do we believe investors should be positioning their portfolios in the current rising interest rate cycle?

First, cash and near-cash returns almost always benefit from interest rate hikes, as banks usually pass on the SARB’s increase by raising the amount investors can earn from call and fixed deposits. However, the latest interest rate that investors are likely to receive may still be lower than inflation, given the very low base off which it was hiked and the current rising inflation environment. Investors should therefore be cautious about increasing their cash holdings.

Even if real returns from cash improve over time, we would urge investors against raising their cash exposure since cash has historically been the lowest-returning asset class over the long term and has the least potential for long-term outperformance.

When it comes to equities, higher interest rates have a negative impact on company earnings and stock valuations. Borrowing costs become more expensive, while consumer spending slows down. This combination of higher costs and lower sales results in reduced revenue, so the company becomes less profitable. From a valuations perspective, investors value a company by using a discount rate to calculate the present value of its future cashflow, also referred to as the Discounted Cashflow method.

In this methodology, increases to the interest rate result in a higher discount rate, which essentially reduces the present value of that

company’s future earnings and, consequently, the price that investors are willing to pay for that stock. However, looking at current SA equity valuations, they remain cheap compared to their own history and to other global equity markets, reflecting the negative investor sentiment prevailing. This discount is overdone, in our view, so we are maintaining our preference for these assets in our multi-asset portfolios.

Nominal (or fixed-rate) bonds follow a similar valuation approach to equities: higher interest rates have an inverse relationship when determining the present value of future income payments, thereby lowering their valuation. In addition, newly issued bonds entering the market will need to offer investors a higher coupon rate, in so doing making previously issued bonds with lower coupon rates less attractive. Currently, like SA equities, we believe SA nominal bond valuations are attractive relative to their history and relative to other fixed-income assets, and also prefer to hold them in our portfolios.

“We would urge investors against raising their cash exposure since cash has historically been the lowestreturning asset class over the long term” Finally, Inflation-linked Bonds (ILBs) are usually more sought-after by investors in a rising inflation and interest rate environment, as they offer built-in protection against inflation. Their coupons are regularly adjusted higher or lower, based on the changing inflation rate. Amid their relative cheapness in 2021 and growing inflation concerns, ILBs strongly outperformed their nominal counterparts, making them relatively expensive. Consequently, we took some profits in our ILB holdings but still hold a neutral exposure to ILBs in our real return portfolios.

In conclusion, in building their portfolios now, investors should look beyond the obvious interest rate impact on assets and instead focus on what current market valuations are implying about future prospects. Unsurprisingly, our analysis suggests markets are currently discounting too much negativity surrounding SA equities and nominal bonds. While we prefer these assets, broad diversification is also important in order to account for a wide range of possible outcomes and ensure the portfolio is resilient against changes to the economic landscape, thereby reducing downside risk while diversifying potential returns.

ESG

ESG risk-measuring platforms to support sustainable investing SIFISO NDALA Head of Global Securities Services at RMB

NIGEL BECK Head of Sustainable Finance and ESG Advisory at RMB

T

he world is fast moving towards integrating sustainable finance across the financial ecosystem. Shareholders are increasingly integrating Environmental, Social and Governance (ESG) strategies into their investing criteria, with many jurisdictions requiring that companies provide potential investors with ESG-related information. Access to reliable ESG data and the ability to use such data in investment decision-making are vital to advancing sustainable investing. There are several different frameworks and data providers in the ESG space. However, the varied ecosystem makes meaningful comparisons difficult.

RMB’s new risk-measuring ESG tools address this challenge by giving asset managers and institutional investors (e.g. pension funds) affordable access to the latest ESG data – presented in visually appealing and easy-to-use formats.

ESGo! and ESGNow drive sustainable finance by offering client interfaces that enable more informed investment decisions when it comes to ESG considerations. They form part of RMB’s Sustainable Investment Analytics suite that independently assesses client portfolio risk profiles relating to sustainability issues.

ESGo! offers an on-the-go, high-level view of a portfolio’s ESG risk, highlighting areas that may warrant investor attention. With such a perspective, clients and portfolio managers are positioned to assess a portfolio’s underlying ESG components or instruments. As the name suggests, clients are empowered to ‘go’ – to move towards making the most informed investment decisions they can. It’s an action-oriented approach to intelligent investing.

For clients wanting deeper insights, ESGNow offers real-time information when it comes to sustainability-related investment and enables a current sustainable-investment assessment, tracking changes over time or from a specific date. The userfriendly ESGNow dashboard offers analytics with breadth, allowing reporting on a number of sustainability components – ESG, controversy association, climate metrics and alignment to international standards.

Depth is also key. ESGNow drills down to sector and holdings levels. The functionality incorporates detailed ESG calculations on the client’s portfolio, interprets and applies international standards, and provides transparency into underlying metrics drivers. This equips clients to make informed decisions ‘now’ that will impact tomorrow.

These ESG risk-measuring platforms is an essential enabler to businesses and a vital tool to understanding investment aligned to ESG criteria. It allows RMB to partner with clients – not only driving performance for them, but in working with them for a better world.

www.moneymarketing.co.za

13

28 February 2022

ESG

Emotion and the energy investment debate – finding a way forward PHILIPP WÖRZ Fund Manager at PSG Asset Management

A

rguably, awareness of environmental issues has never been higher. Extreme weather events and our sense of urgency are on the rise, and the UN Climate Change Conference COP26 (Conference of the Parties, summit 26) in Glasgow resulted in a steady stream of headlines on this topic towards the end of last year.

While COP26 succeeded in reinforcing the importance of agreeing on measures to limit global warming, it still fell short of the hopes and ambitions of many, especially after a last-minute push to water down the commitment to exiting coal. Despite the latest agreements, the world remains on track to miss the targets of restricting temperature rises to 1.5˚C by 2100 – for which we would need to achieve global net carbon neutrality by 2050.

Undoubtedly, the consensus opinion has shifted from one of climatedenialism to the view that urgent climate change action is needed, and the realisation that a fundamental reconsideration of the economy itself is required. This rise in climate awareness has coincided with something of a disenchantment with the capitalist model itself (consider the rise of stakeholder capitalism). Thus, a rapid rise in ESG (environmental, social and

14

governance) investing has followed, and with it, at the opposite end, active disinvestment from ‘old economy’ stocks and the energy sector in particular. This seems to be reflected in the minuscule weighting of energy in global indices.

Despite its importance to the global economy, the energy sector accounted for 3.1% of the MSCI World Index at the end of December 2021, compared to 6% just three years ago.

Disinvestment as a gut reaction The answer to climate change at its heart seems simple. Stop using fossil fuels, and switch to renewables – problem solved! Scale this response up, and the wholesale disinvestment from the carbon economy makes sense.

But such simplifications also belie the enormity of the task ahead of us.

Since the United Nations Framework Convention on Climate Change was signed in 1992, CO2 emissions have increased by 60%. In its ‘Net Zero by 2050 Roadmap’, the International Energy Agency outlines some 400 milestones that need to be achieved and states that ‘achieving net zero emissions by 2050 will require nothing short of a transformation of the global energy system’.

Simply put, we are not in a position to give up fossil fuels yet, and won’t be in a position to do so for some years to come. As recently as 2020, fossil fuels (oil, gas and coal) made up about 83% of the energy mix, with low emission sources such as solar, wind, hydro, geothermal and nuclear only contributing roughly 13% and 4%, respectively.

The extent of our reliance on fossil fuels was underscored by the fact that during last year’s energy crunch, Great Britain was forced to generate more power from coal, despite its intentions to the contrary.

Part of the strategy to achieve CO2 reductions involves switching to less dirty fossil fuel options, typically by substituting gas for coal, at least in the shorter term, rather than moving away from fossil fuels immediately.

www.moneymarketing.co.za

Often, all-or-nothing approaches also lose sight of the extent to which fossil fuels are an omnipresent part of everyday life. Oil, for example, is also used to make plastic, asphalt, fertilizer and chemicals, and in various forms it finds its way into your everyday life: from your contact lenses to shoes, soap, lipstick and smartphones, to name a few.

We have to replace the obvious uses of oil in fuelling cars or planes and have to find substitutes for these less obvious uses, even as green technologies such as wind turbines still require oil to be produced. Even in the scenario of electric vehicles reaching 35% of global car sales by 2030, according to International Energy Agency (IEA) data and analysis done by research provider Bernstein, global oil demand is still expected to grow from current levels.

This makes the coming energy transition not only a very complex one but also one that needs to happen very swiftly.

Meeting the energy (and economic) needs of a growing population is a complex issue The added problem is that our current renewable energy source technology is not adequate to deliver on the energy needs of a growing population while also cutting back on the use of fossil fuels. In the developing world, the challenge will be to meet increasing energy demand sustainably. According to the World Bank, only 46.7% of SubSaharan Africa’s population had access to electricity in 2019.

Some African countries such as Kenya, Angola, Ivory Coast and Ghana have also raised the point that they rely on the development of their gas and oil reserves to fund their growing populations’ economic development.

The move to decarbonise the global economy could further jeopardise energy equality and potentially harm the continent, especially from a social perspective – even though it is itself considered to be highly vulnerable to the effects of climate change and thus should have a high inclination towards

decarbonisation. Its concerns like these that have led words such as ‘just transition’ being added to our climate change lexicon.

Rethinking the energy equation In investments, it is often argued that emotions fuel poor decision-making and the same may apply when it comes to decisions about investment in energy stocks. Climate change is a highly complex problem and addressing it will require that we make far-reaching and sometimes unpopular changes to our broader energy system. It will still take a long time before the globe will be successfully weaned from its reliance on fossil fuels.

“The world remains on track to miss the targets of restricting temperature rises to 1.5oC by 2100” In the interim, it is critical that resources that are still required for global energy security and economic development are extracted as cleanly and sustainably as possible. Even though the global energy sector rebounded from the 2020’s lockdown-induced slump (and subsequently was the best-performing sector in both the S&P 500 and MSCI World Indices for 2021), investors have been punishing energy companies, depressing the valuations of these companies even as many of them are reevaluating their business models and are themselves making an effort to transition to cleaner energy.

Ironically, the pressure to decarbonise has led to chronic underinvestment in fossil fuel supply, with resultant strong prices. High energy prices put fossil fuel companies such as integrated oil majors in a prime position to return significant cash to shareholders, accelerate their sustainable energy programmes, and make the transition from dirty to clean energy faster than many may anticipate – an aspect that is often overlooked in the rush in the opposite direction.

As these companies distribute cash to shareholders and are increasingly seen as part of the solution to a cleaner future, a rerating of select stocks in the energy sector could therefore be more ‘sustainable’ than many anticipate.

28 February 2022

ESG

Environmental, social and governance (ESG) integration – A property perspective PELO MANYENENG Head of Listed Property at Momentum Investments

E

nvironmental, social and governance (ESG) investing encompasses many aspects related to allocating capital that were historically (deliberately or subconsciously) overlooked. In some cases, investors often (wrongly) viewed ESG investing as something falling within the purview of ‘greenies’ or some other ‘extreme’ ethical position.

We have seen in the past in financial markets, globally and locally, that, if left unchecked, ESG-related issues tend to lead to severe negative financial implications for shareholders, the environment and the well-functioning of society in the short and long term.

ESG integration is, admittedly, a somewhat complex process in practice that cannot be a ‘tick-box’ exercise. For ESG integration to be comprehensive, it should entail a thorough, dynamic assessment of the steps that companies are taking on matters such as energy conservation, carbon footprint, water usage, fair employment practices, inequality, corporate integrity and accountability, among others. Most of these factors, if looked at from an activist investment approach, often require time, deep and knowledgeable resources on the subject, as well as the existence of proper systems to track effective changes in behaviour.

Although we are proud of our achievements, the reality is that the industry at large (be it owners of capital, investment managers or corporates) still has some way to go in terms of having a comprehensive ESG integration process that informs day-to-day decision making. For investment managers, the challenge remains accessing relevant ESG data and translating that into information that can be used in valuing companies and ranking investment opportunities in a less subjective way. The good news, however, is that efforts from all stakeholders are all pointing in the right direction.

While we are doing our part in driving awareness on how we incorporate ESG in our investment processes, listed property companies (and many corporates at large) have increasingly become aware of the role they also need to play in society. For example, listed property companies have increasingly sought to reduce their carbon footprint by installing photovoltaic (PV) solar systems on roofs of their buildings and have started incorporating ESG reporting in their integrated reporting.

Redefine’s 2020 ESG report notes that the company invested about R250m in solar PV installations and has increased its solar PV generation capacity to

25 913 kilowatts. This initiative contributed to reducing the company’s carbon emissions by 33 607 tonnes of carbon dioxide equivalent during 2020. According to the company, this reduction in carbon emission is equivalent to eliminating the typical emissions of 7 260 passenger cars.

Given our constrained investable universe within the listed property space, eliminating companies that do not report widely on their ESG practices is often difficult.

As such, we approach ESG integration with an active corporate engagement role in mind. Our focus is to encourage the company to adopt or improve aspects of ESG, and we assess each investment opportunity based on its best efforts.

How do we integrate ESG into our processes?

We have introduced an ESG rating methodology within our listed property team, working together with our wider Momentum Investments’ team. The findings we obtain from our weekly ESG integration process are captured and used to guide our engagements with individual companies.

Issues we engage on range from unclear remuneration practices to issues such as lack of transparency in earnings reporting. We also exercise our rights by voting against company decisions that are not in the best interest of our clients. Our efforts are also placed on examining how companies reduce costs through green energy sources and their approach to electricity and water initiatives, as well as assessing continuity of skill and talent, and diversity at board level.

Examples of how we have engaged with companies on ESG matters in the property space On director independence, our approach is that after nonexecutive directors have served on the audit committee of the board for more than nine years and more than twelve years on the board of directors, their independence credentials should come under more scrutiny, as the familiarity between the directors and company management would have grown substantially.

A company might declare a board member still independent after an extended length of service, but a continual refreshment of boards is the best way, in our view, to ensure there will always be board members who can question the way the company is run with new and

independent eyes. This will ensure there is a better level of peace of mind for shareholders that the board has not become a club of like-minded individuals.

There was an instance where two independent nonexecutive directors had more than 15 years as board members. We shared our view with the company and the company CEO expressed an opinion. The CEO of the company maintained that he needed the individuals as independent non-executive board members. It has always been our view that if a company requires the service of a non-executive director for scarce or unique knowledge, insights and experience, then these non-executive directors should be appointed as nonindependent non-executive directors to garner positive votes for re-election. In the end, the company still listed the two directors as independent, now going on 17 years of service. We continue to vote against their appointment as independent non-executive directors.

Using the same company, we can highlight why one negative governance-related issue can be offset by taking positive steps to protect the environment and contribute to addressing inequality. We engaged with the same company on their environmental and social initiatives. Our discussions were focused on the company’s environmental sustainability plans that have been in place since 2015, which centred on the company’s electricity and water initiatives. The plan focused on reducing its tenants’ environmental footprint by using green energy sources, reducing consumption and optimising utility usage.

To bolster this skill set, the company appointed an engineer to drive the initiatives and provide sound metrics of its progress on these matters. This is positive, as it brings experience into the process. Our discussions with the company also centred on the work done by their academy, which seeks to empower young, black professionals with skills to develop their careers in property development and investment in South Africa.

At Momentum Investments, we believe a focus on ESG contributes to society, the environment and shareholder returns. ESG integration is an essential part of our responsibility, and we will continue to exercise our responsibility as investors and look to build on our current efforts. Therefore, we are proud of the efforts we have made on integrating responsible investment practices in our portfolios and the role we play in being good custodians of the investments we manage.

www.moneymarketing.co.za

15

28 February 2022

TRANSFORMATION

Transformation: a key part of responsible investing

“Many large asset managers and some smaller boutiques have made strong and rapid advances to lift their BEE credentials” NINA SAAD Head: Institutional Portfolio Solutions at Momentum Investments

T

ransformation is one of the important environmental, social and governance (ESG) concerns in our country. A transformed industry will help solve our country’s legacy economic imbalances, lack of education and levels of poverty.

It is also a key component to achieving the targeted, sustainable development goals we have committed ourselves to as a company. Transformation, therefore, serves as a critical component of our responsible investment approach. Like any other impact investment, it must be specific and measurable.

As custodians of our client’s investments, we place their interests first and seek to maximise the probability of delivering on the investment objective and, in so doing, ensure that the investment case always prevails.

16

www.moneymarketing.co.za

We believe in authentic transformation across the value chain and that responsible investing will enhance longerterm risk-return objectives.

In our commitment to support transformation in the asset management industry, each portfolio has a three-year transformation plan in place that is reviewed annually to ensure it remains relevant and aligned to our strategic intent. To supplement our transformation plan, we have a detailed dashboard to monitor the transformation credentials in our portfolios at a more granular level, which focuses our engagement efforts with the asset managers in a more personal approach.

With us, investing is personal.

Majority black ownership is only one element of transformation. We encourage authentic broadbased transformation, which will lead to more diverse investment teams and, specifically, black women in senior decision-making positions.

The established, big-brand asset managers who aren’t necessarily majority Black-owned but still have meaningful B-BBEE ratings have been fertile training grounds and sometimes the largest employers of transformation investment professionals in the past.

This trend continues and has been accelerating.

Many of these large asset managers have pioneered corporate initiatives that have contributed to meaningful transformation and the development of skills. In many cases, these initiatives have led to the establishment of independent black investment businesses. The large asset managers also allocate meaningful size brokerage to transformed stockbrokers.

We believe that the industry is embracing broad-based transformation and that it’s being adopted much faster in the institutional space than the retail space. Many large

asset managers and some smaller boutiques have made strong and rapid advances to lift their BEE credentials.

Shareholding credentials remains the most challenging aspect to address in large established asset managers, as it may necessitate corporate restructure or M&A activity in a somewhat subdued economy.

Also, the current opportunity set for strategic BEE partnerships with relevant experience is somewhat limited given SA’s skills shortage. A further challenge is that very few locally based asset managers have successfully developed the required skill and expertise in the multi-asset class and global portfolio management space, with the biggest growth and proliferation in the very competitive SA equity category.

As a key part of our research and engagement plan with asset managers, we continue to encourage and support the broad-based transformation initiatives. At Momentum Investments, we are committed to transformation and pride ourselves on being a responsible corporate citizen, and this includes our responsibilities as a custodian of hard-earned retirement savings.

“Each portfolio has a three-year transformation plan in place that is reviewed annually to ensure it remains relevant and aligned to our strategic intent”

We can't change the past, so we're focusing on shaping your future.

Because with us, investing is personal.

Instead of looking back on 2021, we’re looking forward to 2022. But this year, rather than resolutions, let’s focus on our goals. Our goal remains to be your At Momentum Investments, we understand everyone has personal life valued partner.

We can’t predict the future, butthat know that future goals cannot goals need to for. And that everyone’s circumstances are unique be they achieved bysave relying on past benchmarks.

We can provide youtowith them.

Which is why we help construct investment portfolios or funds based investment services and solutions, so you can focus on what is important on they your want clients to achieve, how muchthem they have invest, and when they towhat you and – providing with to informed and thoughtful need the money by.

Nothing is more personal than that.

We call it advice to keep them on track to achieving their personal financial goals. outcome-based investing and it makes the investment journey as Because with us, investing is personal. comfortable as possible so that your clients can stay on target to achieve their personal goals. Because with us, or investing is personal.

Speak to your Momentum Consultant visit momentum.co.za

Speak to your Momentum@MomentumINV_ZA Consultant or visit momentum.co.za Momentum Investments Momentum Investments

SCAN ME FOR MORE Momentum Investments

@MomentumINV_ZA

Momentum Investments

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

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

MI-CL-8-AZ-123446

28 February 2022

TRANSFORMATION

Our transformation journey over the past decade SUE HOPKINS Futuregrowth

F

uturegrowth was founded in the wake of South Africa’s democratic transition in 1994. So, it was probably inevitable that transformation would be in our DNA. Indeed, it is in the heart of our business; transformation at Futuregrowth has taken many shapes and forms – from creating innovative investment vehicles for a new era in our early days, to becoming vocal advocates for corporate governance and bond market reform in more recent times.

Through all the changes, we have not wavered from our original overarching purpose: to protect and grow investors’ savings through skill and diligence while being a force for good in the markets and environment in which we operate.

Looking at our life blood To meet the financial and social objectives of our clients, we have had to constantly assess the quality and potentiality of the people at Futuregrowth – the lifeblood of our organisation. Over the past decade, we have implemented a deliberate strategy to transform our staff composition, leadership complement, skills development programmes, shareholder structure and company culture – in the context of the available pool of talent and access to opportunities in our country. Our transformation has inevitably included a focus on adding to the talent pool of those working in investments.

The story of our transformation journey over the past decade can best be described across eight lanes, all leading us to where we are now – and impacting where we go from here.

us to broaden our focus, buttress our teams, embed our processes and build our systems. As a result, our total staff complement grew from 42 in 2011 to 86 in 2019 and then jumped to 99 by the end of September 2021.

The journey from ‘small’ to ‘big’ has required us to transform from what has always been a ‘family’ culture to a ‘high-performance team’ culture, without losing the aspects of caring and empathy inherent in our past. On the principle that ‘everyone wants to work for a winning team’, we are working together to improve our accountability, performance and delivery measures while continuing to share in the joy and sadness of each other’s lives, as we have always done.

A series of workshops on the transformation of the company culture have started and will continue into the new year. Our emphasis on this aspect will be substantiated further down.

2. Moving towards a more diverse staff complement In 2011, it was clear that previously disadvantaged individuals (PDIs), particularly black African staff, were still under-represented in the company – and a focused strategy was implemented to correct this.

Consequently, Futuregrowth’s overall PDI staff complement has grown from 60% in 2011 to 84% as at the end of September 2021 (see charts below).

Recruitment We have made exponential progress in our recruitment process in recent years.

As illustrated below, from 2015 to the end of September 2021, Futuregrowth made 84 new appointments, 83 (99%) of whom

1. Our transformation from ‘small’ to ‘big’ Through all the changes, we have not wavered from our original overarching purpose to protect and grow investors’ savings through skill and diligence, while being a force for good in the markets and environment in which we operate.

Since 2011, our assets under management have grown from around R99bn to over R191bn (9/2021), and our product range has expanded to many more offerings. The need to work remotely since March 2020 has added an extra level of complexity to our operations. This growth has required

18

www.moneymarketing.co.za

Gender diversity in our PMs

Increasing diversity through new staff appointments 120%

80% 63%

60%

50%

40% 20% 0%

Since 2015

Year to date to Sept. 2021 %PDI

Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 09/2021

Team size 17 17 19 26 25 32 33 36 35 44

% PDI 53% 47% 53% 65% 64% 69% 73% 78% 77% 81%

were PDI staff, with 42 (50%) of these being black Africans. Over the period January to September 2021 alone, 16 new staff members were appointed, 100% of whom were PDI and 63% were black Africans (see chart above).

Investment team diversity Special emphasis has been placed on the composition of our investment team.

While we have made progress here, we aim to do better. The table above

PDI representation in our PMs

36

45 55

64

%female PMs

100%

99%

100%

%male PMs

%White PMs

%PDI PMs

%Black African

% Black African 0% 6% 11% 12% 12% 16% 24% 22% 29% 33% is a summary of the changes in the Investment team since 2012.

3. Adding to the pool of PDI staff in the asset management industry In order for the pool of PDI staff in the asset management industry to grow, it has been important for us to create work opportunities for newly qualified young people. We have done this largely in partnership with Old Mutual Investment Group’s Graduate Acceleration Programme (GAP). Since 2011: • Futuregrowth has appointed 21 GAP interns, of whom 100% are PDI, and 13 are black African • 18 have completed their GAP internships and 17 have been permanently employed by Futuregrowth • Of the 17 permanently appointed, six have been promoted to analytical roles in the investment team (of whom three are black African) • Three of our GAP interns have progressed to become portfolio managers in our Investment team.

This testifies to the effectiveness of the

28 February 2022

programme in adding to the pool of not only PDI staff in the industry but also the pool of senior staff and future leaders.

Three students are currently busy with their GAP internships at Futuregrowth in Performance and Attribution, Specialist Investment Administration and Client Services.

4. Increasing the depth of PDI portfolio managers and range of leadership positions In addition to creating opportunities for young people, we have realised that we need to pay attention to the structure and depth of our senior staff levels. This has involved both growing our staff internally and adjusting our hiring strategy to include more experienced recruits.

Recent examples of the latter include the appointment of our new head of business development and head of listed credit, who joined us with 16 and 14 years of experience in the industry, respectively.

Increasing our pool of PDI portfolio managers has always been a challenge, mainly due to the complexity of our funds and the length of time it traditionally takes to rise to the position. To address this challenge, we started our Portfolio Manager Trainee programme with the aim of fast-tracking this aspect of career development for worthy candidates within the investment team. The first graduate of our programme was appointed as a portfolio manager in 2017, and a further four were appointed in 2021. (A graduate left Futuregrowth in 2021.)

TRANSFORMATION

The GAP programme Our GAP candidates are offered an internship at Futuregrowth for 18 months. These are recently graduated individuals who express a keen interest in pursuing a career in the asset management industry.

They are given a specific role for their internship period, where their responsibilities and decision making start on day one. They have access to the entire investment team for guidance, and are invited to participate in the team’s investment process if they have the capacity and interest to do so. They are also able to take advantage of training opportunities available to the rest of the Futuregrowth staff. Via this route (as we have witnessed), inexperienced PDI graduates can go on to become self-sufficient investment professionals.

In addition, over the past three years, two PDI staff have been promoted from within to take on portfolio management responsibilities.

As at September 2021, six (55%) of our eleven portfolio managers in the company were PDIs and four (36%) of the eleven were female. We still have some way to go to address gender parity here. The charts on the right show the makeup of our current group of portfolio managers.

The range of leadership roles within the Investment team has also been expanded to allow for a greater variety of leadership positions and opportunities for career growth.

These now include: • Head of Dealing (White male) • Head of Interest Rates (White male) • Head of Listed Credit (PDI male) • Head of Risk Management (PDI female) • Head of the Credit and Equity process (White female) • Head of Unlisted Credit (White male) • Head of Unlisted Equity Transactions (PDI male).

5. Investing in learning and development As our history suggests, learning and embracing change have been fundamental to our journey. Futuregrowth has therefore always been a learning organisation that takes pride in its investment in its staff, in the form of training opportunities and study support provided. These have been key tools in tackling the transformation of both our company and industry.

Over the past five years, we have funded more than 2 000 training opportunities to a total of over R11.2m.

We focus not only on technical training but training that will also create future leaders both within Futuregrowth and in the industry as a whole. A ‘training opportunity’ is defined as a training programme for one employee.

These range from formal degrees and professional qualifications (CFA, CIPM, CAIA, post-graduate degrees, FMI, etc.), technical training across all aspects of our work (IT, Marketing, ESG, Regulatory, etc.), to coaching, leadership, culture and team building workshops. On average, 58% of these opportunities have been taken up by female workers and 81% by PDI staff. 22% have been taken up by

Overall PDI staff in 2011

40% 60%

PDI

White

Overall PDI staff in 2021

16%

84%

PDI

White

“Futuregrowth’s overall PDI staff complement has grown from 60% in 2011 to 84% as at the end of September 2021” black African staff (a factor we need to continue to address).

Staff who wish to further their education while working for Futuregrowth are supported with financial assistance, study and exam leave.

Continued on page 20

www.moneymarketing.co.za

19

28 February 2022

TRANSFORMATION

Over the past three years, we have supported 50 PDI staff to study towards formal or post-graduate degrees. Over the past three years, nearly R1.5m has also been spent by Futuregrowth to support our GAP interns to further their studies and qualifications.

Below is a breakdown of the training

spend in 2021. With all the challenges presented by the pandemic, combined with the rapid growth from small to big, it perhaps comes as no surprise that the emphasis on Culture matches (and in fact just surpasses) the natural prominence of Financial/ Investment-related training spending – with a dose of Mindfulness coming in at the tail end.

How the Futuregrowth Portfolio Manager Trainee programme works Trainee portfolio managers are paired with a senior portfolio manager who is responsible for the training over the period. The key areas of knowledge transfer include: • Understanding the investment mandate to the extent that the trainee portfolio manager can negotiate with a client or consultant • Being able to perform the risk management of the portfolios (including calculations and review) from credit, interest rate risk, liquidity and derivative perspectives • Portfolio trading (listed and unlisted, house view trades, trades linked to cashflows and portfolio rebalance trades) • Client engagements, including new business pitches, report backs and due diligence.

The length of training differs for each participant, depending on their starting level of experience. It is anticipated that the programme will run between 12 to 24 months. Once candidates are ready, they are assessed to determine their readiness to manage portfolios. We intend to continue with this programme to build our portfolio management capability to match the company’s needs as we grow. For more on this programme visit www.futuregrowth.co.za/insights/ discussing-the-portfolio-manager-trainee-programme/

20

www.moneymarketing.co.za

Since 2017 // Since 2019

>R11.2m = 2 000 training opportunities

58% female & 81% PDI & 22% Black African

50 PDI formal and post-graduate degrees

R1.5m = studies for GAP interns

6. Creating an engaging, innovative and empowering culture As a fiduciary asset manager, the values of ethics and integrity have always been the cornerstone of Futuregrowth’s culture. This is vividly depicted by a newly appointed senior staff member who described Futuregrowth as “people living up to their purpose, who are not afraid to stand up for what is right and can sleep at night knowing they have done the right things during the day”.

Along with this, we strive to create a feeling of ownership and engagement among all staff – from engaging them around strategy, to providing opportunities to broaden their exposure to new areas and functions. Staff are encouraged to examine their individual skills and knowledge, and determine what they need to learn in order to ensure they can grow with the organisation, given that their job requirements and roles are likely to change over time. This has fostered a culture of continuous learning and further study. Staff are urged to bring their learnings and new insights back into the organisation while, of course, maintaining our very strong credit and investment discipline at all times.

“Individuality, expressions of opposing views and open debate are supported” Individuality, expressions of opposing views and open debate are supported. This provides a setting for staff to strengthen their individual sense of purpose, find

their own voice, and take ownership of their space within the company in their distinctive way as essential and committed members of the (high-performance) Futuregrowth team. As a result, the ‘whole’ is infinitely greater than the sum of its parts; not to mention the gift of personal growth to those who choose to embrace this aspect of the culture.

This approach has resulted in a steadily increasing number of staff movements, career progressions and promotions within the company over the past decade. Refer to the table on page 21.

7. Working towards black ownership Futuregrowth embarked on a vigorous drive towards achieving an effective 51% Black ownership during 2021. We have been a B-BBEE Level Two contributor since 2018 and hope to achieve our Level One empowerment target in the near future. For a breakdown of our FSC scorecard since 2018, refer to bottom of page 21.

The composition of the Futuregrowth board will be reviewed once our Black ownership objective is reached.

The Futuregrowth share scheme, which forms part of the OMIG Management Equity Scheme (OMES), reserves 20% of Futuregrowth shares for staff with a maximum holding by white staff of 12% and PDI staff 20%.

Futuregrowth has also carved out a portion of its bonus pool to allocate specifically to PDI staff to accelerate the purchase of their Futuregrowth shares over the next few years.

8. Transforming our workspace With the onset of the Coronavirus pandemic and enforced working from home, we’ve had to transform the way in which we work with and relate to one other. The experience has compelled us

28 February 2022

TRANSFORMATION

Previous role

Current role

Previous EE category

Current EE category

GAP: Performance & Attribution

Quantitative Analyst

Technical/Specialist

Professional

Fixed Interest Dealer

Portfolio Manager & Fixed Interest Dealer

Professional

Professional

Fixed Interest Dealer

Portfolio Manager & Fixed Interest Dealer

Professional

Professional

Specialist Investment Administrator

Investment Analyst

Technical/Specialist

Professional

Investment Analyst

Portfolio Manager & Investment Analyst

Professional

Professional

GAP: Specialist Investment Administrator

Specialist Investment Administrator

Technical/Specialist

Technical/Specialist

Specialist Investment Administrator

Dealer: Cash Management & Money Market

Technical/Specialist

Technical/Specialist

Manager: Performance & Attribution

Risk Management Analyst

Professional

Professional

Operations Administrator

Client Services Project Specialist

Technical/Specialist

Technical/Specialist

Performance & Attribution Analyst

Manager: Performance & Attribution

Professional

Professional

Quantitative Analyst

Portfolio Manager & Interest Rate Analyst

Professional

Professional

to question our assumptions, and this has led to several realisations. The topmost of these include: • The importance of being a purpose-driven company with a shared vision and a holistic view of our clients’ experience • The need to be agile and able to make fast decisions – and that opportunities to share ideas and what is going on in the business are vital for this • That lived experiences, in partnership with others, are irreplaceable learning tools • That what got us to where we are won’t take us to where we need to go.

Year 2018 2019 2020 2021

We have come to the conclusion that a hybrid model, - Paul Rackstraw, MD incorporating working remotely and in the office, will benefit us most. Our offices are currently being revamped to accommodate our larger staff complement and provide a safe workspace that allows for collaboration.

“Don’t settle for average”

The way ahead: a cut above average Ghandi said “the future depends on what you do today”. In many ways, Futuregrowth is at a crossroads, and what we do now will define the next

Converted score 92.11 97.62 98.00 99.17

20-year trajectory of the company. We have invested heavily in the business, particularly over the past three years, to make it ‘future fit’ and will continue to do so. Now, more than ever, we need to keep our eyes open for new and better ways to do things, both relevant to the current time and with a view on the future.

At a recent online staff event, Futuregrowth MD Paul Rackstraw challenged all staff: “Don’t settle for average – not for our clients, not for Futuregrowth, not for yourselves in your personal lives, and not for yourselves when you come to work.”

Futuregrowth’s sense of purpose was and is based on our belief that investors can make a positive difference in society while earning sound investment

Actual score 76.45 94.04 94.41 93.81

“Futuregrowth embarked on a vigorous drive towards achieving an effective 51% Black ownership during 2021” performance for pension fund members.

Now is the time to ensure that new generations at Futuregrowth will be able to fulfil our founding promise – in new and exceptional ways.

Published on www.futuregrowth.co.za/insights.

Futuregrowth Asset Management is a licensed discretionary financial services provider.

www.moneymarketing.co.za

21

TBWA\HUNT\LASCARIS 933066/R

Let’s protect Buyani’s Building Company as well as Buyani.

At Liberty, we can partner with you as a Liberty Accredited Financial Adviser to take care of your clients’ needs with risk solutions that cover their business and personal needs. Speak to us about Business Assurance cover. It can help provide financial security to small businesses or professionals with side hustles through life, critical illness and disability cover should anything happen to the entrepreneur, business owner or even their essential employees. You can also offer your clients bespoke guidance on various solutions through Liberty in their business journey.

Entrepreneurs can

Risk Solutions.

The information contained on this page does not constitute advice by Liberty. Any legal, technical, or product information contained in this document is subject to change from time to time. If there are any discrepancies between this document and the contractual terms and conditions the latter will prevail. Any recommendations made by your adviser or broker must take into consideration your specific needs and unique circumstances. Liberty Group Ltd is a licensed Insurer and Authorised Financial Services Provider (no.2409). Terms, conditions, risks and limitations apply.

28 February 2022

RISK

Help your clients protect themselves and their businesses

E

ntrepreneurs, small business owners or professionals who have ‘side hustles’ are resilient, resourceful and innovative. Over the past two years, many have had to overcome various obstacles to ensure the survival of their businesses.

While most are on a steady road to recovery, the pandemic taught us that things can change in an instant.

As an accredited financial adviser, the best way to help your clients, in particular entrepreneurs, is to aid them in building resilience and agility in their finances by ensuring that their businesses will continue to operate even in an unforeseen event such as death, critical illness or disability of a key employee or business owner. This leaves them with more opportunities to focus on driving productivity and business growth, while creating generational wealth for their families and their employees.

Being an entrepreneur, small business owner or professional with a ‘side hustle’ is no small feat. A key ingredient to business success is having the right partner by your side – someone who shares your vision of building a business that will become a legacy and treats your business goals as if they were their own.

This is where you come in as a financial adviser.

At Liberty, we have learned through our vast experience and knowledge of the industry that the loss of a business partner due to death or disability could have severe financial implications on a small business.

There are business continuity factors and assets that business owners and entrepreneurs cannot do without that are worth protecting.

“There are business continuity factors and assets that business owners and entrepreneurs cannot do without that are worth protecting”

Protecting essential employees Any business has key role players whose knowledge and expertise create, steer and drive its success.

As an accredited financial adviser, a key question to ask your clients is whether they have considered the impact of losing the business expertise of such an individual due to a life risk event. Naturally, there would be a direct impact on the business’s profitability – and many other aspects of the business would suffer – in the event of an unforeseen loss of key support.

This is one of the many reasons why it is vital to assess how the death or disability of a key individual could impact the revenue, income, sales, and overall profitability of a business. Through our business assurance offer, your business clients could access Key-Person Cover, where Liberty can assist them in determining the impact of such a loss and provide a tailor-made risk solution to protect them against such eventualities.

Securing finances Most businesses utilise banks and other financial institutions to access business loans, asset finance and overdrafts. The death or disability of a leader, or business owner/partner, could severely impact the business’s ability to generate the income required to continue operating and meet its financial obligations.

The death of one of the business owners could have an impact on the security held by the financial institution, as that business owner would no longer have the ability to take personal responsibility for the debt or liability of the business.

In the case of a suretyship agreement, the death or disability of one of the business owners could result in the financial institution claiming payment of the full outstanding amount owed by the business.

It’s for this reason that Liberty offers business assurance with its Contingent Liability Cover, designed specifically for small businesses and entrepreneurs. This is to ensure that these unforeseen circumstances are managed without detrimental implications on the operation.

Over and above this, Liberty’s Lifestyle Protector provides personal life risk cover to entrepreneurs or

business owners, as well as their partners whose abilities and expertise are vital to the business. This gives them the peace of mind that they have adequate financial security for their businesses and themselves and their families, which could also help keep the business afloat where needed.

Our Liberty accredited financial advisers are committed to partnering with you to help your business clients develop a financial plan with the right risk and investment solutions to help protect their businesses and achieve their financial goals.

You can visit www.liberty.co.za and search Risk Solutions for Entrepreneurs.

“It is vital to assess how the death or disability of a key individual could impact the revenue, income, sales, and overall profitability of a business”

This material does not constitute tax, legal, financial, regulatory, accounting, technical or other advice. The material has been created for distribution to intermediaries only and is not for distribution to the public. This document is a summary of the features of Lifestyle Protector as at the time of publication. The material does not contain any personal recommendations and, while every care has been taken in preparing this material, no member of Liberty gives any representation, warranty or undertaking and accepts no responsibility or liability as to the accuracy, or completeness, of the information presented. If there are any discrepancies between this document and the contractual terms and conditions, the terms and conditions will prevail. Any recommendations made by an adviser or broker must take into consideration the client’s specific needs and unique circumstances. Liberty Group Limited, the licensed life insurer of the Lifestyle Protector Range and an Authorised Financial Services Provider (no.

2409). Terms and Conditions, risks and limitations apply.

For more details about benefits, definitions, guarantees, fees, tax, limitations, charges, premiums or other conditions and associated risks, please refer to the Lifestyle Protector Technical Specifications document.

www.moneymarketing.co.za

23

28 February 2022

RISK

Fleet insurance: start the new year by making sure you have the right insurance cover JASON MELLOW Head of MiWay Business Insurance

T

he past few years have been difficult for most businesses and has proven that now more than ever before, insurance cover is a must-have to provide a buffer against uncertainty and unforeseen risks.

What has changed?

The pandemic, with its associated lockdowns and growth in online shopping, means that more trucks and delivery vehicles are on the road. At the same time, the cost of doing business has increased thanks to petrol price hikes.

Furthermore, there has been an increase in risk due to hijackers targeting trucks and courier vehicles.

With many logistics companies having to spend more time on the road, this ultimately increases the risk of accidents.

Longer driving hours has led to driver fatigue, which ultimately results in accidents. A lack of training and management in many cases has also led to poor driver behaviour. Reduction in income for fleet owners has also led in some instances to inadequate vehicle and tyre maintenance. Therefore, it is very

lead to downtime and loss of income for these businesses.

Reducing risk Reducing risk begins with proper basic fleet management and staff training.

Drivers should be alerted to the risks and trained to respond appropriately, drivers should not be allowed to become fatigued on the road, cargo should be properly secured and locked down, vehicles should be well maintained and not overloaded, and the right levels of insurance need to be in place.

Insurance cover for fleets has, over time, become very standardised in the market. One aspect where an insurer’s unique offering differentiates against competitors is in how it assists clients with risk mitigation measures and rewards them if these measures are implemented. An insurer can offer clients preferential rates on telematics-enabled tracking devices linked directly to them, which enable the insurer to help clients mitigate risks, identify crash incidents and verify underwriting information. The benefit of this is a preferential rate to the client. For heavy commercial vehicles, a similar offering can be found with integrated dash cameras.

Telematics devices and dash cams for truck fleets are always advisable, and some insurers will be prepared to discount premiums significantly if these devices are fitted. In terms of commercial motor fleets, we would suggest that clients install

“The pandemic, with its associated lockdowns and growth in online shopping, means that more trucks and delivery vehicles are on the road” important to have an experienced fleet manager that monitors all fleet vehicles and immediately addresses issues such as poor driver behaviour and vehicle maintenance using fleet management tools available in the market.

Every theft, hijacking, accident or breakdown impacts the business, revenue and reputation. If businesses do not have the appropriate insurance cover in place and, furthermore, do not have the capital reserves to self-insure and repair or replace these vehicles, this will eventually

24

www.moneymarketing.co.za

early warning devices rather than passive devices in vehicles due to their faster reaction time. It is important to not only install these devices but also ensure that these devices are closely monitored.

What should your fleet insurance cover?

At the very least, businesses need basic comprehensive cover combined with an appropriate level of third party indemnity cover to protect the fleet owner’s reserve capital. Given the political unrest in South Africa over the last year, SASRIA cover should no longer be considered optional.

Other nice-to-have covers are available at an additional cost, but these could prove crucial for assuring business continuity, so they are worth considering.

For example, Theft & Hijack cover to courier companies and Driver Dishonesty cover to ensure that the policyholder is covered against loss, damage, injury, and other liability, even if drivers don’t comply with the terms of the policy. Even with this cover, it is still of the utmost importance to ensure that all drivers fully understand all policy conditions. Goods in Transit cover is also important for many businesses.

Paying the right premium for your fleet Setting premium levels is fully at the discretion of the insurance company and the only way for a fleet owner to know if they are paying the best premium is to do comparative quotes with different insurers.

Historic claims experience is one of the biggest drivers of insurance premiums for fleets. Fleet owners who manage the

“There has been an increase in risk due to hijackers targeting trucks and courier vehicles” insurance risk on their fleet well can show incident frequencies lower than the market as a whole and can easily negotiate preferential rates with their insurer. The converse is also true, where fleets with poor claims experience will receive pricing far higher than other market participants.

The types of goods transported and the distances covered will also impact the insurance premiums.

It is important to keep in mind that fleet risks are generally big and complex policies with a high probability of claims, so the quality of service from an insurer is very important, even if this comes at a slightly higher premium. It is also important to consider the speed and ease of lodging claims and having them settled, as well as general policy administration, since fleet policies tend to have amendments done frequently.

With the right insurer and the right level of cover backing you, you will have the peace of mind to focus on building your business instead of dedicating all your time to mitigating risks.

MiWay is a licensed non-life insurer and Financial Services Provider (FSP 33970).

28 February 2022

RETIREMENT

Tax-efficient products to meet retirement and savings needs JAN VAN DER MERWE Head of Actuarial and Product, PSG Wealth

on individual circumstances. A combination of the two may also be a suitable way to achieve desired outcomes by leveraging the benefits of each to achieve retirement and savings goals.

Key considerations when balancing investments between RAs and TFSAs: • Tax on investment income • Both products offer investors a tax advantage as they attract no tax on interest, dividends and capital gains while funds are invested.

A

fter another unexpected and eventful year, the festivities have officially ended, bringing us back to square one – outlining future goals, saving plans, etc. For those who were fortunate enough to receive additional income in the form of a bonus or ‘13th cheque’ – now is the time to consider saving a portion of your income in a tax-efficient manner. This article provides insights on products that are suitable for maximising the tax benefits available to you as we approach the tax year-end on 28 February 2022.

The role of RAs and TFSAs in retirement planning Retirement Annuity (RA) products have been around for many years and are specifically designed as a vehicle focused on saving for retirement. Tax-free Savings Accounts (TFSAs) were introduced in 2015, and though not designed specifically for retirement, they do provide unique rules around tax treatment that can be leveraged to supplement retirement savings. While both products provide tax incentives to save and benefits when creating a long-term financial plan, appropriate product choices will depend

Note that even without these tax treatments, SARS allows certain annual tax exemptions on investments outside of these products, namely a R23 800 annual interest income allowance and a R40 000 annual capital gains tax exemption.

So, if you receive less than R23 800 in interest income or less than R40 000 of capital growth, you will not owe any tax on your investments. However, you will still be charged a dividends tax of 20% on all shares that have paid you a dividend.

Contributions There are no contribution limits in an RA. You can contribute and deduct up to 27.5% (capped at R350 000) of your total annual taxable income in any given tax year, and any excess contributions can be claimed as deductions in the following year of assessment.

By contrast, TFSAs have a maximum contribution limit of R36 000 per tax year and R500 000 over the lifetime of the product, and contributions exceeding these limits are penalised at a 40% tax rate. Annual contributions are not tax-deductible and do not carry over to subsequent tax years, so it’s important to use as much of each year’s TFSA allowance as possible.

Contributions to both products can be made on a lump sum, monthly or ad hoc basis, but the exact payment arrangements vary between product providers. For example, the RA and TFSA offered by PSG (the PSG Wealth Retirement Annuity and PSG

Wealth Tax-free Investment Plan) have minimum lump-sum contribution amounts of R20 000 and R6 000 respectively, and the minimum debit order amounts for both products are R500 a month, R1 500 a quarter, R3 000 half-yearly and R6 000 yearly.

Accessing your savings RA savings can generally only be accessed at retirement, at which stage a maximum of one-third of the withdrawal amount can be taken as a lump sum, and the remainder must be invested in a retirement income product. On withdrawal from an RA, the lumpsum portion will be taxed according to the retirement lump sum tax tables or the withdrawal lump sum tax tables (depending on the event). Income from the retirement income product will be taxed at your marginal income tax rate.

TFSA savings can be accessed at any time and there is no tax payable on the amount withdrawn.

There is also no limit on the amount you can withdraw, but you cannot replace the withdrawn amounts, as TFSA contribution limits apply regardless of withdrawals.

Investment choices RAs are subject to certain restrictions on asset classes prescribed by Regulation 28 of the Pension Funds Act. These limits are 75% equity, 30% offshore assets and 25% property. These limitations do not apply to TFSAs, so a significant benefit of TFSAs is that they allow investors an opportunity to achieve almost 100% offshore investment exposure – for example, by investing in a unit trust feeder fund. These funds – denominated in rands but mostly invested in foreign currency funds – are available through local product providers (such as PSG Wealth). This approach also significantly simplifies the offshore investment process, and you don’t need to use your own offshore investment allowance.

Additional product differences There are a few additional notable differences to consider when selecting an appropriate product.

These are indicated in the table on the left.

In conclusion, TFSAs are ideal vehicles to use to supplement retirement savings, as they provide additional flexibility and diversification. However, finding the right balance between an RA and a TFSA may not always be a simple task. It is important that you engage with a financial adviser to support you through this process.

*Executor’s fees are not applicable to TFSAs issued by life insurance companies.

www.moneymarketing.co.za

25

28 February 2022

RETIREMENT

A generation of unwilling pensioners FRAN TROSKIE Investment Research Analyst at RisCura

A

somewhat grey and gloomy reality faces most of us as future retirees in South Africa. High fees, declining returns, and insufficient contribution and saving rates are frequent topics of discussion. As a generation of Baby Boomers retires, there’s another important question that’s been getting more attention globally: What is the right age to retire? Should South Africa’s ageing workforce be working – and contributing – for longer?

Retirement reforms in some countries have seen the retirement age increase, at times sparking the ire of wouldbe pensioners. Brazilian authorities faced widespread public opposition, as did the Italians. This cohort of 50-something workers wants to retire at 55 or 60 years old. But there is also a flipside, particularly in countries where pension provisions are inadequate or, as in South Africa, where some critical skills are in short supply.

Picture a 64-year-old university lecturer who is a year away from being pensioned off. She’s grateful to have her health and perhaps looks forward to a touch of leisure.

Yet, mostly, she’s concerned because she knows she only has one year of her working life to accumulate enough for a comfortable retirement. This seems unattainable and rather overwhelming due to a combination of factors: • Past mistakes: For example, she cashed out her retirement savings when she changed jobs twenty years ago and subsequently chose the lowest contribution rate • Present circumstances: For example, not being offered an in-fund annuity by her employer and not receiving financial education on saving for retirement • Future prospects: With advances in medicine, she realises that her retirement years will last far longer than she’d foreseen 20 years ago.

Unfortunately, there isn’t much she can do about these factors, but one thing she can do is to keep working and keep contributing to her pension pot. Some industries and/or professions, however, impose mandatory retirement ages and this choice is effectively off the table.

The mandatory retirement age for public servants and educators in South Africa is still 65 years.

In many respects, the teacher believes she’s a more valuable employee now than ever before. She has a lifetime of knowledge, learning and experience. She’s the first one to pull into the school parking lot in the morning and the last to leave, since her kids are grown up and there are fewer responsibilities for her at home.

She is one of thousands of highly-skilled employees being unwillingly forced into retirement every year to face a financially uncertain future. There is a whole generation of people who believe they are still fully capable of making a meaningful contribution to society – but the current employment system seems to underestimate the value they can add.

As recently as March 2020, the KwaZulu-Natal Department of Education was encouraging its workforce to take early retirement. The Department of Public Service allows employees above the age of 55 to take early retirement without losing their benefits. The idea behind ‘pushing’ teachers into retirement was that it would reduce pressure on the fiscus by cutting the Department’s substantial wage bill (estimated to be about R49bn at the time). It was also suggested that vacant positions would be filled by young, then-unemployed individuals. This would, on paper at least, reduce the province’s unemployment rate as retirees are generally no longer considered to be part of the workforce. The reality, however, is a different story.

The reality is that in South Africa, many retirees have not received sufficient education (even if they were in the business of education) about their options upon retirement.

They are therefore unlikely to have put measures in place that will allow them to retire comfortably, and their pensions are simply not enough to sustain them through the remainder of their lives. The other stark reality is that ageing employees, irrespective of their skills, are unlikely to obtain work. The country faces an ever-increasing unemployment rate. The latest data for the third quarter of 2021 shows that unemployment is at its highest level since comparable records began in 2008. The official unemployment rate hit a whopping 34.9%. In addition, the impact of Covid-19 has left the fiscus in a position where it is largely unable to provide a sufficient social safety net.

“The mandatory retirement age for public servants and educators in South Africa is still 65 years” While there are no simple solutions, there are considerations that policymakers need to take into account when ‘forcing’ members of the workforce into retirement: • Policies and regulations should encourage trustees and investment consultants to educate the workforce about their options at retirement • Funding models need to be appropriately tailored to suit the demographic profile of the country and any profession. This means that life-stage models and asset-liability matching form a critical part of the retirement system • Skills shortages, likely to be exacerbated by the socalled ‘brain-drain’, need to be addressed • Gaps in the social safety net need to be addressed, lest unwilling pensioners face destitution.

The South African government may need to reconsider how it uses the longer-lived grey workforce. An added emphasis on skills transfer programmes would be laudable, with educated, healthy individuals encouraged to act as mentors. This is likely to have positive socioeconomic spill-overs, including a sense of belonging in both mentees and mentors.

Deciding which interventions are feasible needs more attention. But, at the very least, it is clear that a generation of unwilling pensioners and a growing grey workforce should not be left in the cold.

26

www.moneymarketing.co.za

28 February 2022

RETIREMENT

Close to retirement but haven’t saved enough?

HILDEGARD WILSON Product Solutions Actuary at Momentum Investments

A

few years ago, the National Treasury stated that only 6% of South Africans can replace their full income after retirement. This sentiment was reiterated in the National Treasury’s release in December 2021 on the suggested two-pot retirement savings paper. Despite the current interventions, such as financial education, tax savings vehicles and retirement reform, South Africa’s retirement saving situation has not changed meaningfully. With such a bleak picture, some may think it is too late to change their future if they are close to retirement age, but there are always steps that can be taken.

Step 1: Consider your ‘hierarchy of financial needs’ In the 1940s, psychologist Abraham Maslow gave us a glimpse into the human psyche, explaining his theory of human motivation. He defined a hierarchy of needs as in chart 1.

Chart 1: Maslow’s hierarchy of needs

As Maslow explained, people should first fill their basic needs (physiological needs such as food, water, warmth and rest, and security needs such as security and safety) before they fill their ‘need’ for luxury items or experiences, such as an expensive outfit, an evening out or a dream holiday. This hierarchy of needs can help us not only understand ourselves but also how people save.

Financial savings, for example, only become a ‘need’ after your more basic needs such as food, security and clothing have been covered.

When planning for your retirement, it’s important to first budget for your ‘basic’ needs before moving further up the hierarchy triangle. In this way, if you

are short of money in your retirement, you can prioritise the money you do have to ensure that your essential needs are met. However, in South Africa, the prices of many basic goods have increased disproportionately when compared to salaries.

Step 2: Keep your budget up to date with your personal inflation as opposed to consumer price index (CPI) inflation Let’s look at a case study. In this case study, we assume salaries have kept up with inflation. If a person’s expenses grew by more than inflation, a higher proportion of salary will have to be allocated to expenses. For example, if you spent 2% on electricity in 2011 and your salary increased by inflation, by 2021 the electricity bill will make up 4% of your total salary. The reason is electricity prices increased by 8% more than inflation each year over the last 10 years.

This will clearly have an impact on how much ‘free’ cash you have available for

“National Treasury stated that only 6% of South Africans can replace their full income after retirement” the rest of the needs in your hierarchy.

The graph below took a list of possible basic expenses and allocated a % of salary that might have been spent on each item in 2011. We allocated a rate at which each item increases based on industry averages. In reality, this rate will differ from person to person, for example a family shopping at high-end shops will have experienced different price increases when compared to that of a budget shopper.

Below is an example of the impact could look like.

Continued on page 28

www.moneymarketing.co.za

27

RETIREMENT

Will your clients get the full value of their group insurance benefits?

Continued from page 27

SIPHOKAZI PARIRENYATWA Disability Manager at Momentum Corporate

Looking at the above scenario, we see that disposable income has more than halved in the past 10 years. With less disposable income to put towards non-urgent needs, this has put significant pressure on people trying to save for retirement. Retirement savings should be even more deliberate and planned.

The pressure of saving for retirement can be alleviated by keeping an up-todate budget to make sure there’s enough money left to contribute towards retirement.

Step 3: Take control of your retirement now – no matter your age Given the pressures making life difficult and more expensive for consumers, there are still a few options available for those who haven’t managed to save enough to retire comfortably by the time their retirement age comes around: • Additional contributions: Although making additional contributions to your retirement savings is not always possible, there is another option. When retiring, many people opt to take as much of their hard-earned retirement savings in cash as possible. However, the truth is you’re more likely to burn through cash if you have free access to it. If you have another source of income in your early retirement years (e.g. a part-time job, consulting, rental income or a stipend from your family), it would be wise to invest a portion (or all, preferably) of your saved retirement funds, so that you can continue to grow your retirement savings during your retirement, and only access the savings when you no longer have this additional source of income. Compound interest can create significant wealth. For example, if a modest investment return of 8% per year can be achieved and interest is re-invested, your investment will double in just nine years. If invested at 12% per year with interest re-invested, your investment will double in just over six years.

• Delay retirement or partial retirement: The current retirement age of 65 was set in the late 1800s and aligned closely to the average life expectancy of people in that era. More than 100 years later, is this age still appropriate, given that many people seem to live longer than previous generations?

Each person’s retirement date should be as personal as any other financial decision. Consider whether it is possible to start a second career or to consult on a part-time basis. If retirement can be postponed from age 65 to 70, more than a 10% increase in income can be achieved from a life annuity.

• Lowering income levels over time: Most people can’t absorb an immediate drop in income after retirement, and understandably so. However, with coaching, most people are able to lower their standard of living over time, in much the same way people tend to increase their standard of living when they get salary increases. To do this, people would need to gradually reduce their drawdown level to a sustainable level by slowly cutting back over time. This is a risky option as the future retiree will be exposed to risks such as sequencing risk. This is where a large income amount is withdrawn while markets and the retirement investment are low. In this scenario, a proportionately higher percentage is drawn from the retirement fund during a market downturn compared to when investment markets are high.

“Each person’s retirement date should be as personal as any other financial decision”

With a little innovative thinking, there is hope for those facing these financial challenges.

28

www.moneymarketing.co.za

28 February 2022

EMPLOYEE BENEFITS

Make sure they don’t short-change themselves or their loved ones

C

ovid-19 highlights just how important group insurance is in protecting your clients and their families from the unexpected. However, many high-income earners miss out on the full value of their group death and disability benefits if their income pushes these benefits over the free cover limit set by the insurer.

The underwriting approach for group insurance benefits is different to the process for individual underwriting. Most employees joining a group arrangement don’t need underwriting at an individual level. But if they’re a high-income earner, their insurance cover may be higher than the free cover limit the group insurer sets and they will need to be underwritten to receive the full benefit.

The free cover limit is the maximum amount of insurance cover an insurer gives to a member of a group insurance arrangement without the member having to provide medical evidence of health.

Death and disability cover is linked to income. If a high income pushes cover over the free cover limit, the member needs to be underwritten. Otherwise their benefit is capped at the free cover limit and they lose out on the additional cover.

It’s your high-income earning clients, like senior management and leadership, who are at risk of losing out on valuable benefits if they ignore free cover limits and don’t go for underwriting when asked to do so. Unfortunately, this group is also at the greatest risk of developing an illness that could lead to death or disability.

Rising claims related to chronic illnesses, mental health and musculoskeletal injuries are likely to have a disproportionately higher impact on higher-income earners.

Momentum Corporate’s claims data shows that the incidence of cancer, mental illness, neurological and chronic musculoskeletal claims is higher than average for management employees. The data also shows that when experienced managerial personnel in the age group 40 to 60 years are absent from work due to a disability, the duration of their disability tends to be longer. This loss of skills and experience impacts business productivity.

One of the reasons high-income management employees do not increase their free cover limits by participating in underwriting is that, traditionally, the underwriting process has been cumbersome, time-intensive and invasive.

To solve this problem, Momentum Corporate pioneered a new digital underwriting process that allows the insured member to answer a few simple questions on their PC or mobile securely from the privacy of their couch, and take part in a hassle-free, digital underwriting process that even provides advice on how to improve their health.

Financial advisers must ensure that their high-income earning clients understand the implications of the free cover limits their group insurer has set and encourage them to be underwritten where required, to avoid losing out on the full value of their group insurance benefits.

“The free cover limit is the maximum amount of insurance cover an insurer gives to a member of a group insurance arrangement without the member having to provide medical evidence of health”

It’s not only about taking care of billions of rands.

It’s also about taking care of millions of lives.

The success of your clients and their employees is our business. That’s why we work with you to offer a suite of benefits that best suits the unique needs of your clients’ employees. That’s also why we make our solutions as flexible as possible, so that when life changes, employees can change their plans along with it.

When you partner with the right employee benefits provider, your advice helps employers put solutions in place for their employees to feel appreciated, protected and invested in the success of their business. #AdviceForSuccess Talk to your Momentum Corporate Specialist momentum.co.za | move to Momentum Here for your journey to success.

Momentum Corporate is part of Momentum Metropolitan Life Limited, an authorised financial services and registered credit provider.

BRAVE/7350/MOM/E

28 February 2022

MEDICAL SCHEMES

A pre-hospitalisation checklist for elective surgeries DR MORGAN MKHATSHWA Head of Operations at Bonitas Medical Fund

lower risk of infection because patients go home on the same day; and there is a decreased waiting list.

W

aves of Covid-19 and the emerging variants meant that several elective surgeries were postponed to minimise the use of hospital beds and to avoid unnecessary exposure to the virus. As the number of infections decreases, surgeons and hospitals are catching up on the backlog of elective surgeries. Dr Morgan Mkhatshwa, head of operations at Bonitas Medical Fund, says there are pre-hospitalisation requirements for those going in for elective surgeries and has penned a quick checklist.

So, what exactly is elective surgery?

As the name implies, it does not mean that the surgery is optional but rather that it doesn’t need to be performed immediately. It can be scheduled at the patient’s and surgeon’s convenience.

Hospital networks Medical schemes negotiate preferential rates with Designated Service Provides (DSPs) who have partnered with them to ensure that members get the best quality services at the most cost-effective rate, so that benefits are optimised. If you use a network hospital, doctor or pharmacy, you will not be charged more than the agreed rate. This will help you avoid co-payments and make your medical aid last longer.

So, to reduce co-payments and even avoid them altogether, find a healthcare professional on your schemes network.

Pre-authorisation All procedures that take place in a hospital must be pre-authorised.

Essentially, it’s an agreement between the medical aid and the hospital, indicating a willingness to pay for costs associated with the visit.

But even if you do have preauthorisation, your medical aid is not promising to cover 100% of the costs.

All preauthorisation requests are evaluated against the different schemes’ rules and clinical funding policies; however, you remain responsible for any shortfall, including any co-payments. If you are unsure how

Step-down facilities Your medical aid will stipulate the number of days you need to stay in hospital and check whether you will need a stepdown facility when you are discharged.

There are several facilities where patients can be cared for and start rehabilitation in conjunction with other medical professionals, for example physiotherapists. to go about the process, speak to your broker or your medical aid.

Quotes A quote is not the same as a preauthorisation. Most medical aid plans have varying hospital benefits, according to the level of cover you have chosen, and they also have a rate at which they reimburse healthcare providers. This means that even if the payment is 100% of the rate, this is not necessarily what the healthcare provider will charge; they may charge 200% of your medical aid rate. Asking for a quote prior to being admitted to hospital means you will know what your medical aid will pay and what payment you might be responsible for. It gives you an opportunity to negotiate, and eliminates any additional ‘surprise’ co-payments required after the procedure.

Co-payments Medical practitioners, hospitals and pharmacies often charge more than medical aid scheme rates, which could be between 100%-300% of the medical aid tariffs. A co-payment refers to the outstanding portion of the account for which the member is responsible. This co-payment varies from one medical scheme to another and is sometimes not required if members use DSPs or network hospitals.

Day hospitals Consult with your surgeon to see if your surgery can be done in a day hospital.

Globally, day surgery hospitals have changed the experience of patients by offering an alternative to acute/conventional hospital surgery. The advantages include no overnight stays – ideal for children, so they don’t have the trauma of overnight stays; there is a

“Asking for a quote prior to being admitted to hospital means you will know what your medical aid will pay and what payment you might be responsible for”

30

www.moneymarketing.co.za

Home-based care Find out if you are eligible for homebased care after your procedure. Many patients prefer to be discharged from hospital as soon as possible and receive hospital-level care at home. This means good, clinical quality care, which translates into a great patient experience, and is also more affordable.

With hospital-level care at home, nurses, other health providers and caregivers are an essential element of the care continuum and play a critical role in recovery.

GAP cover Gap cover is an additional insurance cover that complements medical schemes.

It helps to pay the difference in cost between the amount the specialist or hospital charges, and the amount paid by a hospital or medical plan. You will be required to pay any shortfalls (copayments), after which you may claim from your gap cover. Keep all documentation related to the surgery and hospitalisation to submit to the gap cover provider.

Covid-19 test For emergency admissions, a rapid antigen test is performed at the hospital, but for elective surgery you are required to have a Polymerase Chain Reaction

(PCR) test a maximum of 72 hours before admission. If your test is positive, you will have to delay your surgery by at least ten days and then re-test.

“Find out if you are eligible for homebased care after your procedure” Pre-admission Pre-admission can be done a few days before you are scheduled for surgery, which makes the admission process less stressful on the day. Pre-admission involves answering a series of questions and doing tests to eliminate the possibility of allergic reactions, drug interactions or physical complications before, during and after the surgical process. For administrative purposes, the following items are required upon admission: • Your identification document or passport • Your medical aid card • Authorisation number supplied by your medical aid, or the letter of guarantee issued by your insurer • X-rays, if applicable • Chronic medication, if staying overnight.

In addition to these, remember to take any chronic medication you are on to the hospital and make sure the doctors/anaesthetists are aware of what you are taking.

By following this checklist and making sure the surgeon and hospital have all the necessary information, you will eliminate unnecessary stress ahead of your procedure and prevent unpleasant surprises when you are supposed to be recovering.

EDITOR’S

28 February 2022

BOOKS ETCETERA

BOOKSHELF

Remote Work Revolution: Succeeding from Anywhere

By Tsedal Neeley A Harvard Business School professor and leading expert in virtual and global work provides remote workers and leaders with the best practices necessary to perform at the highest levels in their organisations.

The rapid and unprecedented changes brought on by Covid-19 accelerated the transition to remote working.

Experiencing the benefits of remote working – including non-existent commute times, lower operational costs, and a larger pool of global job applicants – many companies, including Twitter and Google, plan to permanently incorporate remote days or give employees the option to work from home full-time. But virtual work has it challenges. Employees feel lost, isolated, out of sync, and out of sight.

They want to know how to build trust, maintain connections without in-person interactions, and a proper work/life balance. Managers want to know how to lead virtually, how to keep their teams motivated, what digital tools they’ll need, and how to keep employees productive.

Providing compelling, evidence-based answers to these and other pressing issues, Remote Work Revolution is essential for navigating the enduring challenges teams and managers face. Filled with specific actionable steps and interactive tools, the timely book will help team members deliver results previously out of reach. Following Neeley’s advice, employees will be able to break through routine norms to successfully use remote work to benefit themselves, their groups, and ultimately their organisations.

The Netanyahus: An Account of a Minor and Ultimately Even Negligible Episode in the History of a Very Famous Family

By Joshua Cohen Corbin College, not quite upstate New York, winter 1959–1960: Ruben Blum, a Jewish historian – but not an historian of the Jews – is co-opted onto a hiring committee to review the application of an exiled Israeli scholar specialising in the Spanish Inquisition.

When Benzion Netanyahu shows up for an interview, family unexpectedly in tow, Blum plays the reluctant host to guests who proceed to lay waste to his American complacencies.

Mixing fiction with nonfiction, the campus novel with the lecture, The Netanyahus is a wildly inventive, genre-bending comedy of blending identity and politics that finds Joshua Cohen at the height of his powers.

Cohen’s novel is considered a sidelong portrait of the recently deposed Israeli prime minister, Benjamin Netanyahu’s father. The bulk of the novel is given to Blum’s pedantic account of his Corbindale existence and the visit paid in January 1960 by the Netanyahu family – Benzion, his wife, and their three wild, ribald sons (Benjamin plays a minor though not unmemorable role in proceedings). It is The New York Times’ most notable book of 2021 and one of The Wall Street Journal’s best books of 2021.

SUDOKU

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

Children of Sugarcane

By Joanne Joseph Children of Sugarcane is a novel drawn strongly on historical record and fact to recreate the period of Indian indenture in the Colony of Natal, and the narratives of the human beings caught up in it.

Written by one of South Africa’s most accomplished journalists, Joanne Joseph, the book tells a story of Shanti, a bright teenager stifled by life in rural India and facing an arranged marriage, dreaming that South Africa is an opportunity to start afresh. The Colony of Natal is where Shanti believes she can escape the poverty, caste, and troubling fate of young girls in her village. Months later, after a harrowing sea voyage, she arrives in Natal only to discover the profound hardship and slave labour that await her.

Spanning four decades and two continents, Children of Sugarcane demonstrates the lifegiving power of love, heartache, and the indestructible bonds between family and friends. These bonds prompt heroism and sacrifice, the final act of which leads to Shanti’s redemption.

SUBSCRIBE TO

EDITORIAL EDITOR: Timothy Rangongo timothy.rangongo@newmedia.co.za LAYOUT & DESIGN: Julia van Schalkwyk SUB EDITOR: Anita van der Merwe DIGITAL CONTENT ASSISTANT: Lebohang Malaka

ADVERTISING ADVERTISING SALES EXECUTIVE: Mildred Manthey Direct: +27 (0)11 877 6195 | Cell: +27 (0)72 832 5104 mildred.manthey@newmedia.co.za © Copyright MoneyMarketing 2022

DISTRIBUTION & SUBSCRIPTION Felicity Garbers felicity.garbers@newmedia.co.za

PUBLISHING TEAM GENERAL MANAGER: Dev Naidoo PUBLISHING MANAGER: Sandra Ladas sandra.ladas@newmedia.co.za PRODUCTION MANAGER: Angela Silver angela.silver@newmedia.co.za ART DIRECTOR: David Kyslinger Published by New Media, a division of Media24 (Pty) Ltd.

GET A 12-MONTH SA SUBSCRIPTION FOR ONLY R494!

(SA postage only, including VAT)

CONTACT FELICITY GARBERS Email: felicity.garbers@newmedia.co.za Tel: +27 (0)78 758 6227

MANAGEMENT TEAM CEO NEW MEDIA: Aileen Lamb COMMERCIAL DIRECTOR: Maria Tiganis BRAND STRATEGY DIRECTOR: Andrew Nunneley CHIEF FINANCIAL OFFICER: Venette Malone CEO MEDIA24: Ishmet Davidson MoneyMarketing is printed and bound

by CTP Printers – Cape Town.

Johannesburg Office: New Media, a division of Media24 (Pty) Ltd, Ground Floor, 272 Pretoria Avenue, Randburg, 2194 Postal Address: PO Box 784698, Sandton, Johannesburg, 2146 Cape Town Head Office: New Media, a division of Media24 (Pty) Ltd, 8th Floor, Media24 Centre, 40 Heerengracht, Cape Town, 8001 | Postal Address: PO Box 440, Green Point, Cape Town, 8051 Tel: +27 (0)21 406 2002 | newmedia@newmedia.co.za

Unless previously agreed in writing, MoneyMarketing owns all rights to all contributions, whether image or text.

SOURCES: Shutterstock, supplied images, editorial staff. While precautions have been taken to ensure the accuracy of its contents and information given to readers, neither the editor, publisher, or its agents can accept responsibility for damages or injury which may arise therefrom. All rights reserved. © MoneyMarketing. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, photocopying, electronic, mechanical or otherwise without the prior written permission of the copyright owners. © MoneyMarketing is not a financial adviser. The magazine accepts no responsibility for any decision made by any reader on the basis of information of whatever kind published in the magazine.

www.moneymarketing.co.za

31

MAKE ESGINFORMED INVESTMENTS MAR

80%

FEB

20%

REDUCED CO

JAN

15%

46% GROWTH

R4.5M

R1.5M

13K

29K

43K

65K

R2.5M

Our data-rich ESG platforms give you the insight you need to make informed investment decisions. Because the difference we make should be measurable.

Request a demo rmb.co.za/u/esg

a division of FirstRand Bank Limited, is an Authorised Financial Services and Credit Provider NCRCP20. Terms and conditions apply.

97% PASS RATE