MoneyMarketing July 2020

31 July 2020 | www.moneymarketing.co.za @MMMagza

First for the professional personal financial adviser

WHAT’S INSIDE

Janina Slawski

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PSG HONOURS ITS TOP ADVISERS AND OFFICES

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Government opts for voluntary approach rather than prescribed assets Institutions, with commercial banks and with other private sector financial institutions to develop a pipeline of projects ready to present to investors.

The extent of the journey walked to date, and the extent of involvement of infrastructure experts, bodes well for the success of this initiative.

One of the key success factors that has come through in the SIDS-SA discussions, is that these infrastructure projects are too big for local investors alone. South Africa needs to attract investment from international Sovereign Wealth Funds, the big European pension funds, the big university trust and endowments in the US and other large international investors. The reality is that the government is going to have to issue a volume of normal bonds because it has to finance its fiscal deficit. If an existing pension fund, for example, puts more money into investable infrastructure projects, then they’ll be disinvesting from government bonds and other assets – the assets than can go into infrastructure investments from local investors are finite, and

On 23 July, President Cyril Ramaphosa convened the Sustainable Infrastructure Development Symposium South Africa (SIDS-SA). MoneyMarketing’s editor, Janice Roberts, spoke to Janina Slawski, Head: Investments Consulting at Alexander Forbes, who attended the event.

I’d like to go back to the end of May, when the Infrastructure Commission in President Ramaphosa’s office held discussions with asset managers and banks around the almost R2tn that the government needs for infrastructure development.

These meetings were a precursor to SIDS-SA and I understand that Alexander Forbes was part of them.

What was the general mood like at these gatherings?

It was generally very positive. They had several introductory sessions and Alexander Forbes participated both as an asset manager, as well as the representative of investors including pension funds. And then they had the

pitching sessions, presenting some of the ‘shovel-ready’ proposals that are essentially ready to seek funding.

Our head of Alternative Investments, David Moore, who has worked at a development finance institution and has had exposure to big infrastructure investment projects over an extended period of time, attended these pitching sessions. SIDS-SA has been an initiative with an extended delivery timeline, with a deep immersion in what it takes to deliver projects that are ready for investor consideration.

You will remember that in 2018, the president hosted the first Investment Conference that targeted substantial infrastructure investment and, essentially, the President’s Office has since then been walking a journey with Development Finance

represent opportunity costs versus other investments.

I think the SIDS-SA initiative represents a truly exciting investment environment for international investors – a lot of them are looking for developmental impact investment opportunities, as well as for green energy investment opportunities to potentially obtain carbon credits to offset their carbon emissions. This could be an opportunity to marry South Africa’s infrastructure investment imperatives with international investors’ appetite for impact investments in developing markets.

Would you say that the present voluntary approach is better than the prescribed assets approach?

Yes, I agree 100% with the present voluntary approach. If there is any attempt to try to squeeze existing pension fund investors through prescription, that will not create new money. It will just result in a Continued on page 3

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NEWS & OPINION

31 July 2020

Continued from page 1

re- allocation from existing asset classes, and with a potential reduction in investment returns – because instead of investing where investors want to invest, they would be forced into some sort of prescribed investment. What we are actually seeking is diametrically the opposite to investor-unfriendly policies such as prescription. We, and we believe the SIDS-SA initiative, is seeking to create investments that are attractive to pension funds and other investors, in which they will voluntarily want to invest. But by far the biggest source of funds for these projects is going to be new international investors.

Can and should pension funds play a role in funding these infrastructure investments? And what about Regulation 28 of the Pension Funds Act? Yes, if the pension funds have the appetite to invest into illiquid investments. There’s one thing we have to understand about the South African retirement fund industry and that is that the majority of our retirement funds in South Africa are defined contribution funds in nature. Whilst the biggest funds in the country are defined benefit funds – for example the GEPF and the Eskom Pension and Provident Funds that still have long-dated, defined benefit type liabilities – the majority of funds (certainly by number) are defined contribution funds. Defined contribution funds by their nature are not necessarily very long-dated, given the short time that individual members might spend in their funds. They need to have assets available for the member that withdraws tomorrow, and to have the ability to calculate daily unit pricing and enable members to switch between portfolios.

One of the most interesting discussions that could happen in tandem to SIDS-SA is whether there are alternatives to traditional long-dated infrastructure investment vehicles. We hope that discussions around more liquid solutions will include the concept of green bonds and listed infrastructure bonds – the Association for Savings and Investment South Africa has been very involved in these discussions and the financial engineering that would be required to deliver these investible solutions. There is a trajectory that over time there will be more and more opportunities for investors to invest into infrastructure investments in liquid forms, but initially your big investors tend to be Development Finance Institutions, big Infrastructure Funds, and Sovereign Wealth Funds.

How ready is Alexander Forbes itself to invest in these infrastructure projects?

We are keen to invest into these projects for our investors, and to advise our standalone clients to invest into these projects. We cannot, however, put too much of our clients’ money into illiquid investments. The current environment is a very unfortunate illustration of why you can’t do that. We have several instances of clients that have illiquid investments that were not necessarily initially a large proportion of assets, but as they’re having to retrench employees or make other payments as their businesses or industries experience financial difficulty, they are having to pay more and more out of their liquid assets. This means that their unlisted assets start becoming a bigger and bigger proportion of their total assets. In our largest multimanager portfolio, the Alexander Forbes Investments Performer Portfolio, we already have a large allocation to alternative assets, at approximately 5%. We would never go to 15% because in this environment, we would not be able to liquidate and pay clients if and when they need their money, and other investors will face similar constraints.

You asked earlier whether there is a need to amend Regulation 28 of the Pension Funds Act, which has a 15% limit on alternative investments, to accommodate infrastructure investments. The reality is that most investors can’t actually go to the current limit – not because they don’t want to, but because they can’t afford to put so much into illiquid investments.

How can one predict that these infrastructure investments discussed at SIDS-SA will be well-managed?

As we’ve heard in the SIDS-SA discussions, there has been a lot of focus on the construction industry, which has been subject to a significant level of corruption, especially in the lead up to the 2010 World Cup. This potential for corruption or any potential for lack of delivery is a key issue that has to change in the infrastructure environment, and every stakeholder has to assist in ensuring that it does change. We know that even the best managed mega-projects can go horribly wrong in terms of overruns and not meeting timelines. What we have found as a strong positive in the SIDS-SA discussions is the whole process that has been followed in getting the candidate infrastructure projects ready for presentation. Experts who have been involved in successful delivery of mega-projects across the world have been advising on how to get a project ready for presentation, and in advising on how to enhance prospects for successful delivery.

EDITOR’S NOTE

“

This year, out of every rand that we pay in tax, 21 cents goes to paying the interest on our past debts.” These are with words with which our Finance Minister, Tito Mboweni, began his Supplementary Budget speech – and if that doesn’t convince people of our dire economic situation, then nothing will. Most of us were, however, prepared for the bad news as the minister himself managed to ‘leak’ figures a few days earlier.

We are, indeed, in danger of entering a debt spiral and we are, indeed, in a fiscal crisis. The minister stated in his speech that if we don’t take action now, we’ll suffer the same fate as Germany in the 1920s, Argentina and Zimbabwe in the early 2000s, and Greece in the past few years. This is why the government will start a debt stabilisation process that will influence the formulation of future budgets, while our growth plan will be reliant on increasing infrastructure and investment by the private sector.

I think most people expected to hear more in the speech about SAA – but there was nothing.

As for the public sector wage issue, not much more, but this could be because the present wage dispute is currently before the courts. The Land Bank was mentioned, and it will be recapitalised with a R3bn injection. I can’t help thinking that it wasn’t so long ago that this institution was seen as an example of a financially sustainable stateowned enterprise.

Encouragingly, the day before Minister Mboweni’s speech, President Cyril Ramaphosa launched the Sustainable Infrastructure Development Symposium (cover story). This is set to play a vital role in driving our post-COVID recovery. Unsurprisingly, there are questions around the success of this venture, given our record of corruption in infrastructure projects.

Let’s hope that this time we have our ducks in a row.

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

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NEWS & OPINION

31 July 2020

PROFILE EVAN WALKER PORTFOLIO MANAGER, 36ONE ASSET MANAGEMENT

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

After completing an MBA at Wits Business School in 1999, I knew I wanted a position in financial services with a more specific focus on markets and equities. I was fortunate to find employment at Standard Equities as a retail analyst where I was employed for seven years, until joining RMB Asset Management in 2007 (later to become Momentum Asset Management). I managed the Momentum Small/Mid Cap Fund for six years until Joining 36ONE Asset Management in 2012.

I grew the small cap assets at RMB/Momentum from R300m to R4bn over the six-year period and received three Ranging Bull Awards. I’ve been at 36ONE for eight years now, winning one Raging Bull Award for Best Equity Fund in 2015.

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

My first investment was shares in Bidvest priced at R30 – and yes, I still have the share, which is now Bidcorp and Bidvest, worth approximately R400. I liked the diversification of the investment and the entrepreneurial flair of Brian Joffe.

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

The best moment for me was two years after the 2008 financial crisis, i.e. 2010, as the Momentum Small/Mid Cap Fund was not only the bestperforming unit trust in its category but the best-performing unit trust in SA over three years by a substantial margin. The worst moment for me was the collapse of Steinhoff in December 2017. While my fund had a very small position

I ENCOURAGE THEM TO PICK OUT MANAGERS WHO HAVE SHOWN THEIR ABILITY TO BOTH PROTECT CAPITAL AND GROW VALUE OVER TIME

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(2%), the destruction of pension value driven by greed sickened me. I think we all learned valuable lessons from the loss.

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

I encourage them to pick out managers who have shown their ability to both protect capital and grow value over time. The 36ONE BCI Equity Fund, which I manage, is currently 30% ahead of the market over one year and compounded positive returns since inception. I also encourage people to try to save harder and diversify their investments further with a focus on always looking for quality mangers/investments and steering clear of complex investment structures that are hard to understand; simple is normally better and more trustworthy.

What’s the best book on investing that you’ve ever read – and why would you recommend it to others?

I don’t read books on investing! Investing is a product of buying good companies, so I rather read about how people made good companies and what gave them the edge in doing so – and what makes a good business or industry. There are many books that combine the history of businesses and the people responsible into more light-hearted reading. One such book is Crazy Rich by Jerry Oppenheimer, which is a great story of the Johnson & Johnson dynasty. After reading this book, businesses of today in 2020 take on a different meaning. I love reading and understanding the origins of companies, as this tends to give investments way more meaning than just the share price on a daily basis.

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Financial adviser Grant Rossiter has joined PSG and will be working from the PSG Wealth Strand Street office.

“I always knew that I wanted to work in finance in some form,” Grant Rossiter says Rossiter. “When I went to varsity, I decided to study commerce, and this culminated in a CA(SA) qualification.”

He joins PSG with extensive experience: 20 years in various roles with his roots in stockbroking, beginning in 1999, just ahead of the tech crash of 2000, which he cites as a great learning curve to kickstart his career. Following his true passion, joining PSG coincides with his desire to get back to focusing on the markets and investment management.

“I value the entrepreneurial spirit that PSG embraces and look forward to a wonderful journey ahead, building on relationships with clients, while forging new friendships in the business, in the years to come,” he adds.

The South African Insurance Association (SAIA) has appointed Pamela Ramagaga to the position of General Manager: Insurance Risks, effective 1 June 2020. Ramagaga has Pamela Ramagaga successfully held the position of Acting General Manager: Insurance Risks from January 2020 after the position became vacant. In her new capacity, she will lead a team that drives several strategic and pertinent industry initiatives, while also reporting directly into SAIA’s Chief Executive Officer, Viviene Pearson.

Ramagaga joined SAIA in 2018 as the SAIA Executive Manager, working with the Internal Executive Team on several initiatives across the organisation.

“We are glad to have Ms Ramagaga take on this challenging responsibility on a substantive basis after only six months in an acting capacity. I have no doubt that her industry expertise and the maturity she displays in her approach to industry challenges will be an asset, not only to the organisation, but also for the entire non-life insurance industry. We welcome her into her new role, and wish her well for the future,” says Pearson.

Ramagaga brings with her valuable and extensive insurance industry experience, coupled with her academic achievements, which includes a Master of Business Administration (MBA) degree from the Gordon Institute of Business Science (GIBS).

NEWS & OPINION

31 July 2020

RICHARD RATTUE MD, Compli-Serve SA

Culture can cost you

A

company’s culture is the or compliance teams within various very bloodline from which it sectors across global financial operates in the marketplace. It services. The survey concluded should centre around company ethics before the COVID-19 pandemic took and principles, which should be wellhold, but nevertheless tapped into known by everyone working there, some pain points being felt in the and always adhered to. compliance realm. Key among them According to the 11th annual were culture risks.

Thomson Reuters Cost of Compliance Survey 2020, released earlier this year, Culture goes hand-in-hand the single biggest compliance risk with conduct facing those surveyed was creating a A reported 34% of respondents had unified compliance function. turned down a potentially profitable This could be for a number business opportunity in the last year of reasons, but because of culture or ultimately speaks to conduct risk concerns. needing everyone in a Evidencing culture HOW DO YOU company to be on the is a difficult task. How CONSISTENTLY same page. Company do you consistently PROVE WHAT procedures and prove what your compliance around YOUR COMPANY company culture is? them are there for a It isn’t something that CULTURE IS? reason. Having these is necessarily easily work well in unison makes for a great observed. Some company culture is (and compliant) place to work. consistent with high ethics and good Respondents of the Reuters morale, while other offices may fear survey are primarily on the board senior management and turn a blind

eye to misconduct.

There are many regulations to contend with as it is, so having cracks in your culture can be a costly problem in the end. It is one that must be solved, and quickly. Imagine a crack on a building; it gets worse the more you ignore it. A robust repair makes for a solid structure you can trust.

A compliant culture We know that trust in a financial services brand is essential. Consumers increasingly expect ethical behaviour from their service providers. With so many more of us working from home, and so many more of us operating online, culture and values count even more. Some adjustments may be needed, and a stricter policy for company conduct exercised.

Mandatory training came up in the Reuters’ survey as among tasks that can be outsourced. All staff need to go through the basic elements of legal and regulatory

requirements, which includes company policy on ethics and conduct. Prioritising this, or outsourcing it responsibly, is essential (and some things may have changed in the wake of COVID-19).

It was different when we were all in one office together, and arguably the culture risks have shifted dramatically.

Companies need to be clear on social media conduct and online etiquette, as an example.

Going forward Fortunately, regulatory requirements have placed the financial sector in a relatively good position. Business continuity regulations requiring digital back-ups are a pre-pandemic win. I feel hopeful because I sense that the local financial services industry is banding together in these tough times. If we keep culture and conduct top of mind, we should be able to keep going strong and hit the ground running once lockdown is eased to the lower levels.

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NEWS & OPINION

31 July 2020

ROSALIND LAKE Director, Norton Rose Fulbright

PRIYANKA NAIDOO Associate, Norton Rose Fulbright

SA data privacy laws finally come into force

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n 22 June 2020, the effective commencement of the Protection of Personal Information Act 2013 (POPI) was gazetted as 1 July 2020.

Anyone processing personal information in South Africa will have a 12-month grace period to ensure they comply with the requirements of POPI. After 1 July 2021, any non-compliance with POPI will have consequences. Enforcement mechanisms under POPI include penalties up to R10m, civil proceedings instituted by data subjects, and criminal offences and fines in some circumstances.

Sections commencing 1 July 2020 The sections commencing 1 July 2020 regulate how personal information (which is any information that can identify and infringe the privacy rights of a natural or juristic person) may be processed in South Africa or transferred across borders. Anyone processing personal information will now have an obligation to notify the Information Regulator of any unauthorised access to personal information, especially with the growing number of cyber breaches.

The sections in force from 1 July 2020 include: • The need for any processing to be with the consent of the data subject or in the circumstances permitted by POPI • The conditions for lawful processing of personal information (including: ensuring that processing of personal information is adequate, reasonable and not excessive; ensuring that personal information is retained only as long as is necessary; appropriate mechanisms in place to inform data subjects of personal information being collected; and the notification of data breaches to affected data subjects and the Information Regulator) • The limitations on processing special personal information (e.g. children’s information, health information, race, biometrics, etc) • Codes of conduct issued by the Information Regulator • Procedures for dealing with complaints • Provisions regulating direct marketing by means of unsolicited electronic communication • Enforcement.

Sections relating to the amendment of laws and the effective transfer of functions under the Promotion of Access to Information Act 2000 to the Information Regulator will only come into force on 30 June 2021. The repeal of data privacy provisions in the Electronic Communications and Transactions Act 2002 will only take effect on 30 June 2021.

Act now Organisations should not underestimate how quickly the 12 months will pass because there is a lot to do to become compliant.

Serious consideration has to be given to the personal information that the organisation processes, and how this creates risk from a reputational, commercial and enforcement perspective.

This can be AFTER 1 JULY efficiently managed 2021, ANY NONCOMPLIANCE WITH through a POPI POPI WILL HAVE compliance audit. Such CONSEQUENCES an audit will identify risks or gaps that the organisation may not have been aware of, and will implement measures to address those risks. Awareness of the extent of the risks and the prevention action needed is the first step to identifying appropriate, practical and business suitable actions to mitigate the risks and ensure compliance with POPI.

Supporting your clients through challenging times

T

he South African Consumer Satisfaction Index (SAcsi) notes that customers’ approaches to their financial planning products and providers are likely to undergo radical change in a post-COVID-19 economy. During these uncertain times, intermediaries have an unprecedented opportunity to deepen client relationships for the long term.

Now is the time that clients need their intermediaries’ advice, expertise and support the most.

Madri Jacobs, Certified Financial Planner at Brilliance BlueStar, Sanlam, notes that the COVID-19 pandemic has brought about various concerns from clients regarding investment performance of retirement funds, market outlook, as well as the need to review risk planning and policies.

Intermediaries can help to create a holistic, realistic plan to help clients feel in control.

URGE YOUR CLIENT TO TRY TO PRESERVE THEIR RETIREMENT SAVINGS IF THEY ARE RETRENCHED

Below, Jacobs highlights ways that intermediaries can assist their clients during challenging times:

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Ensure your clients reprioritise their expenses Ensure your client prioritises important expenses such as medical aid, risk cover and other insurance and essential bills that need to be paid.

2

Carefully consider payment holidays If your client is offered payment holidays, make sure you review the terms and conditions as each situation is unique and would need to be assessed on a case-by-case basis. It is important to make your client aware that payment holiday arrangements only extend the payment terms and make the debt more expensive; however, this could still be desirable instead of defaulting on payments.

3

Have frank conversations about retirement savings This is a massive concern for many clients. Paint a holistic picture to help abate panic. And help the person to come up with a plan that feels achievable and reassuring:

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• Discuss the impact of COVID-19 on your client’s savings and how it impacts future goals.

• Urge your client to try to preserve their retirement savings if they are retrenched or out of work. It will be very difficult to make up lost savings in future. If it is not possible to preserve the full amount, advise at least preserving a portion of it.

• Suggest clients keep investing in the market at these lower levels for the potential of future growth.

4

Review and update budgets Now more than ever, your client needs to know what to expect in terms of their cashflow for the coming months, to plan accordingly. Advise them to review and update their budgets as some expenses may be adjusted, for example fuel costs if they are working from home during the lockdown.

small bump in your financial life and complete disaster in your entire life. If your clients are financially able to, advise them to establish an emergency fund to cover three to six months’ expenses.

Now is also the time to advise your client to look at their financial plan to ensure that their short-, mediumand long-term goals are still aligned.

Highlight the importance of including a provision for unexpected events in a plan – especially where it reduces the client’s cashflow and possibly depletes his or her savings.

During these uncertain times, clients need to know that intermediaries have their best interests at heart. “This is also an opportunity to encourage your clients to change bad spending habits, if they have any, and replace these with good habits to be in a better financial situation post the pandemic,” Jacobs says.

5

Emergency funds and financial plans COVID-19 has shown the importance of having an emergency fund. Have the conversation with your clients and explain to them how an emergency fund can be the difference between a

Madri Jacobs, Certified Financial Planner, Brilliance BlueStar, Sanlam

NEWS & OPINION

31 July 2020

David McWilliams, Adjunct Professor: Global Economics, School of Business, Trinity College, Dublin

Living through a ‘pandession’

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hat the world is experiencing now in the COVID-19 era is something that’s never happened before, says economist, author and broadcaster David McWilliams. This isn’t a recession, nor is it a depression.

Rather, it’s something he has termed a ‘pandession’.

“A ‘pandession’ is an economic recession brought on by a global pandemic,” Dublin-based McWilliams recently told investors during a webinar event hosted by Nedgroup Investments. “We need new language to describe new phenomena.”

When examining the way people reacted to previous pandemics, McWilliams says there is reason to be optimistic. “The black death in 1347 destroyed one third of the European population and the implication was that Europe would go into some sort of trauma afterwards. But the opposite happened. There was a great flourishing of Italian literature and thought and, within a generation, the Renaissance, after which came the printing press and then the discovery of the US and Central America. The world responded positively to what had been a trauma.”

McWilliams describes the Spanish flu of 1918 as an extraordinary pandemic that killed millions of people worldwide. “Again, you would have thought that this would have caused trauma, but what followed was the Roaring Twenties – the decade that saw electricity and automobiles like the Model T Ford introduced in North America.” He believes that there’ll be a similar recovery from the COVID-19 pandemic. “Once we’re over this in a year or two, we’ll react in a very positive way. What history teaches us is that when humans are faced with something unbelievably traumatic, we don’t go into our shells but rather we come out of them.”

McWilliams believes that the current ‘pandession’ has done more for communism than its founder, Karl Marx, could ever do. “The reason is because we’ve actually suspended capitalism,” he says, explaining that a type of war communism is in place, that relies on instruments such as ‘free money’ printed by central banks, as well as enormous government spending. “So, the questions are: How do we reinstate capitalism? What will it look like?”

In the same way as COVID-19 exposes the underlying conditions of certain people, making them more susceptible to the virus, McWillams notes that the ‘pandession’ has exposed underlying conditions in the social, economic and political capital of countries, making those countries, like the US and UK, directionless – and their populations angry and edgy.

In Europe, he sees Italy as a danger to the health of the European Union.

“Italy is a bankrupt country. If you look at its growth rate and debt, you’ll see that this is a country that needs help.” He adds that waiting in the wings is Matteo Salvini, the leader of the right-wing Italian Northern League party, who is stirring up dissent in the country, hoping to profit from any economic meltdown.

US election Turning to the US, McWilliams believes that the country will have a Democratic president in office in January next year. He shares his experience of listening to two speeches that recently came out of America: One by a rapper in Atlanta called Killer Mike, and the other by President Donald Trump. “The rapper was deploying the language that used to be reserved for presidents, talking about tolerance, acceptance and civility – and the president was deploying the language that used to be reserved for rappers, the ‘shooting and looting’.

When the president talks like a rapper and the rapper talks like the president, you know that the United States is in a strange, strange place.”

McWilliams believes that Donald Trump will lose the November election spectacularly. But the person taking over may not be Joe Biden. “If he’s still displaying these characteristics of a guy who’s not really mentally there [a reference to concerns around the 77-year-old’s mental health], in July or August, I think the Democrats might ask him to move aside for the good of the country.”

The extent of the Democrat’s victory depends on who the party fields as a candidate. “I think if they try to put in someone like Andrew Cuomo, they could win hands down… The US is a different country to the one that we knew – and that’s maybe our narrative: all countries are different now to what they were at the

beginning of the year.”

McWilliams expects to see profound changes to global business and the supply chains created during the globalisation era. At the outset of the ‘pandession’, the US and European countries queued up to outbid each other for medical devices from China. “That will never, ever, ever happen again. The Europeans and the Americans will never be as dependent as they were on the Chinese for strategic goods again. In the past, nobody cared who they were doing business with, as long as it was cheap.”

Manufacturing, he believes, will now begin in other countries, and price – the dominant factor in the supply chain for many years – will

ONCE WE’RE OVER THIS IN A YEAR OR TWO, WE’LL REACT IN A VERY POSITIVE WAY probably be replaced by security.

“People are going to do business with people they know, relationships will count for much more, trust will count for much more, while price will count for much less.” This means two things: “One is that inflation in the manufacturing sector will rise and two, that the Cold War between China and the United States will be crystallised.” He sees a possibility that Africa may well become the crucible for this new Cold War as “Chinese cheque book diplomacy there has been phenomenal”.

The interesting thing about the Americans, he notes, is one can argue that the US needs an enemy to galvanise itself in order to recover from COVID-19. “When the enemy was the Soviet Union, the US was quite at ease with itself, and maybe making China the enemy will again allow America to grow.”

Emerging markets McWilliams sees the present status quo in emerging markets as unfair and unsustainable. “When I say emerging markets, I’m talking Turkey, South Africa, Brazil, Indonesia, India – we’re not talking about small countries. These countries are consistently terrorised by current account deficits and by weak currencies, leading to capital flight.

And countries that are not in the hard currency zone of the euro, the yen and the dollar will consistently experience capital flight.”

He believes that the Bretton Woods conference, which set out a post-war economic system in 1944, will have to be changed – and this is why he hopes a Democrat wins the US election in November, as that party seems keen on the once obscure branch of economic thinking known as Modern Monetary Theory.

“You’ve got various different ways in which the IMF, financed by the rich countries, can stabilise the exchange rates, interest rates and current account balance trilemma of emerging markets. This has to be fixed and it demands global thinking.”

What COVID-19 showed the world is that everyone is in the present situation together. “We can no longer regard ourselves as isolated countries that pick and choose the best bit of globalisation and leave the worst. Emerging markets have gone through this boom, bust, boom, bust cycle. Capital arrives and capital leaves. Interest rates go down and interest rates go up. Currencies go up, currencies go down. That’s not a way to grow an economy.”

McWilliams believes that the time is right for unconventional responses.

“What was good for us in the last 20 years is no longer good for us. And the interesting thing during crises is that what used to be radical becomes mainstream and what used to be mainstream becomes redundant. It’s a time for new ideas.”

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NEWS & OPINION

31 July 2020

LULLU KRUGEL Chief Economist, PwC Strategy and

DR CHRISTIE VILJOEN Economist, PwC Strategy

A very bleak Supplementary Budget On 21 April, President Cyril Ramaphosa announced a R500bn economic relief package to alleviate the impact of the COVID-19 pandemic on the economy. This meant that the budget tabled by the Minister of Finance in February 2020 would need to be adjusted.

year. That is more than R300bn less than planned for just four months ago. This includes previously announced R26bn in tax relief and R44bn deferred due to delays in tax collection.

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A R145bn spending response to the pandemic The government plans to allocate R1.57tn to non-interest expenditure in the 2020/2021 financial year. This is R36bn more than planned during February. While the Supplementary Budget plans to save more than R100bn by, for example, reducing national departments’ baseline budgets and suspending some provincial and local government conditional grants, it has also added R145bn in additional fiscal response to the pandemic.

Notable new expenditure points include: • A temporary COVID‐19 grant to more than 18 million South Africans • Special Relief of Distress grant for 1.5 million adults without income • An additional allocation of R25.5bn to the Department of Social Development for a total social relief package of R41bnR21.5bn for COVID‐19‐ related healthcare spending • R12.6bn to services at the frontline of the pandemic response • An additional R19.6bn for the repurposed public employment programme.

inance Minister Tito Mboweni delivered his Supplementary Budget Speech 2020 to (a virtual) Parliament on June 24.

Against the backdrop of a pandemic and deepening economic recession, the minister released adjustments to the February budget numbers, also promising a second round of adjustments in October alongside the Medium‐Term Budget Policy Statement (MTBPS).

next several years. Absent these scenarios, there will be prolonged weakness in economic growth.

This weakened economic environment will, of course, result in additional pressure on already struggling State-Owned Enterprises (SOEs). This makes the need for broad-based reforms at SOEs even more urgent than before, to make these entities more efficient and financially sustainable. This would include reducing the number of A deep recession in 2020 SOEs, incorporating certain of their The National Treasury expects the functions into central government, economy to contract by 7.2% this seeking equity partnerships, and year, however, PwC’s scenarios ensuring stronger policy certainty range from 8.3% to 10.6%. and implementation. Planned Irrespective of the financial transfers from eventual number, the the fiscus to SOEs will THE ECONOMIC be strictly conditional economic recession will be deep – the on improving their RECESSION worst in 90 years. sheets. There WILL BE DEEP – balance In support of the were no specific THE WORST IN references in the economy, Mboweni again highlighted the Supplementary Budget 90 YEARS government’s R500bn Review 2020 to South economic support package. PwC’s African Airways and very little about earlier calculations show that only Eskom as well. about R192m of this is ‘new’ money, with the rest being redirected R300bn less in expenditure or financial guarantees. government revenue While the country’s economic During the first two months of the outlook is heavily influenced by fiscal year, tax revenues totalled trends in the global economy, the R142bn compared to a February Supplementary Budget Review 2020 forecast of R177bn. Based on these warned that domestic fiscal policy collections and the economic measures and implementation of outlook for the remainder of the economic reforms over the next six period, the National Treasury now to 12 months will determine South expects gross tax revenues of only Africa’s growth trajectory over the R1.12tn in the 2020/2021 financial

Budget deficit more than doubles The balance of the smaller revenue pool and increased expenditure will translate into a budget deficit of R761.7bn, equal to 15.7% of GDP. This is more than double the 6.8% of GDP figure released in February. To finance this, the National Treasury has revised its borrowing strategy, planning for increased borrowing and the issuance of shorter-dated bonds. More than R300bn in additional domestic bond sales (compared to February plans) and an extra R96bn in international borrowing is now factored into this.

‘Debt is our weakness’ “Debt is our weakness. We have accumulated far too much debt;

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this downturn will add more,” commented Mboweni in his speech.

Current projections see gross public debt increasing to an equivalent 81.8% of GDP this year, compared to 65.6% of GDP projected in February. However, the minister pledged that the government will narrow the fiscal deficit and stabilise debt at 87.4% of GDP in 2023/24.

Accordingly, the MTBPS is set to be drafted on a zero-based budgeting process, i.e. starting from scratch, to achieve this. Downward spending adjustments of R230bn will also be required in the next two years.

Reigniting the economic growth flame The Supplementary Budget Review 2020 reported that the government envisions a package of economic reforms “that will improve productivity, lower costs and reduce demands of state-owned companies on the public purse”. These measures will include: • Unbundling Eskom and taking other steps to open up energy markets • Modernising ports and rail infrastructure • Licensing mobile spectrum • Lowering the cost of doing business • Reducing red tape • Improving access to development finance for small, medium and micro enterprises (SMMEs) • Support for agriculture, tourism and other sectors with high jobcreation potential • Facilitating regional trade • Reducing the skills deficit by attracting skilled immigrants.

Admittedly, none of these plans are new, and would be familiar to anyone who has read the ‘Economic transformation, inclusive growth, and competitiveness: Towards an Economic Strategy for South Africa’ paper. The document has been around since August of last year and has not received overwhelming support (or implementation) within national government. This raises strong questions as to the ability of the state to reform the economy out of its recession, and in turn the ability to reduce the fiscal deficit and stabilise public debt.

NEWS & OPINION

31 July 2020

Ramaphosa in strongest position ever within ANC

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resident Cyril Rampahosa has never been stronger than he is at the moment within South Africa’s ruling ANC, political analyst and former ANC MP Melanie Verwoerd told STANLIB clients as she provided an update on the country’s political landscape.

“People frequently want to know if the president is in control of his party,” she says. “This is in contrast to when the COVID-19 lockdown started at level five, when all was going well and people were very impressed with how the government was handling the situation. And they were very impressed with the president. Then things started to change with the issue of the banning of the sale of cigarettes.”

In communicating that the country would move to level four of the lockdown, Ramaphosa initially said the ban on cigarettes would be lifted. Government then changed its mind and stated that the ban would remain in place. This was announced by Cooperative Governance Minister Dr Nkosazana DlaminiZuma. “People became upset and suspicious,” says Verwoerd. “There was the suggestion that Minister Dlamini-Zuma had sabotaged the president and that she had joined forces with the anti-Ramaphosa faction in the ANC. Some analysts even spoke of a coup. I think this also happened at the same time as people became impatient with the lockdown.”

She adds that a narrative developed that the ANC government didn’t know what it was doing, “and secondly, there was also this narrative that the ANC was trying to use the lockdown period as a way of enforcing government control over the populace that would continue way beyond the lockdown period.”

Verwoerd notes that these narratives were supported by some in the press and on social media. “The press were becoming increasingly bored and didn’t know what to report on, and there were opinions from some very dodgy analysts who claimed to have heard from ‘reliable sources’ that President Ramaphosa was about to be kicked out – but of course, it was all nonsense,” she adds. “The president has never been stronger within his party.”

Verwoerd says a lot of anxiety that people feel around the president’s position seems to be linked to Dlamini-Zuma. “I know her relatively well as I served as ambassador to Ireland when she was minister of foreign affairs, and I knew her when she was in parliament before becoming a minister.” While Verwoerd says she is not particularly fond of, or very close to, Dlamini-Zuma, she has to acknowledge that some of the things said about the minister following the continued ban on the sale of cigarettes, were unfair and totally wrong. “She would not have taken any decision on her own. I think it’s well established

Melanie Verwoerd, Political Analyst

now that the ANC acts as a collective, and it’s just What drove the ANC to do the things they did is not in the ANC’s culture for any individuals to take very, very clear to me – and I speak to a lot of ANC a decision by themselves. The ANC debates issues ad members and know a lot of them personally.” nauseum, and it’s only once they feel that there’s some Verwoerd explains that the ANC was “absolutely form of consensus, or at least a majority view, that petrified” by the coronavirus outbreak. “And they they make a decision. Minister Dlamini-Zuma would remain very, very concerned about the effect that this never have taken a decision like that on her own.” epidemic can have on our country and particularly Moreover, Dlamini-Zuma – who is a medical doctor on the poorest of the poor. They are terrified of and who served as health minister in the 1990s – has what can happen if this epidemic really takes off in been against smoking for decades, “so I don’t believe the townships, in particular because of our big HIV there’s anything unusual about the fact that she took a population and because up to two and a half million strong stand against tobacco”.

HIV-positive people in South Africa are not on any Verwoerd points out that, contrary to popular antiretroviral drugs.” perception, Dlamini-Zuma is very There is no precedent anywhere in close to President Ramaphosa. “She has the world that South Africa can follow PEOPLE always been and, in spite of the Nasrec in what happens next, she warns. There party leadership battle, there is no FREQUENTLY is international experience with HIV in animosity between them. And certainly that if one’s CD4 count is high, the person WANT TO since Ramaphosa became president, will get through the coronavirus like any KNOW IF THE other person. But if the CD4 count is she has been working very closely with him on a number of tricky issues.”

PRESIDENT IS low – and one could expect that at least For Dlamini-Zuma to pose a threat 70% of the 2.5 million people who are IN CONTROL not on antiretrovirals would have a very to the president or for her to want to OF HIS PARTY low CD4 count – the probability is that join the anti-Ramaphosa faction at Luthuli House would imply she still has an enormous percentage of those people ambitions to become president or take Ramaphosa could die. on for another run. Verwoerd strongly believes this is “The one thing the ANC knows is that if tens of not the case. “Even around the time of Nasrec, people thousands of people start dying, particularly in the questioned if she was really interested in becoming townships, it could cause a huge catastrophe for president. It was clear to those close to her that she South Africa politically, socially and economically.” wanted to retire when her term as chairperson of the Verwoerd says she has been warning her clients Africa Union was up. Suggestions that she now wants about this. “I told them I could write the script for to begin another election campaign are simply not them right now and it’s about what EFF leader Julius valid.”

Malema will say when the virus starts picking up.

Verwoerd believes that, at present, no one can take Malema has been very quiet but on Youth Day (16 on President Ramaphosa within the ANC and stand June) he came out with the script I predicted. He any chance of winning. “Even the ANC’s National warned Ramaphosa that he will hold him personally General Council (NGC) meeting that was supposed accountable for the loss of lives as a result of to have taken place in the middle of this year – and COVID-19 because of the way in which he handled that posed a small threat to Ramaphosa – has been the situation.” postponed until next year. He is untouchable at Verwoerd says the narrative continues that the present. The National Executive Council (NEC) of president is folding under pressure from white the ANC recently held a couple of virtual meetings business and the middle class, as the lockdown and I am told that every single person involved eases, “and that’s a very dangerous political narrative supports the president and is impressed by him.” She and can cause huge problems for the president and adds that ANC MPs were addressed by Ramaphosa the ANC. On a daily basis, the government has a couple of weeks ago in an ANC parliamentary to sit with the terrible dilemma that the decisions caucus meeting. “I am told that even those who aren’t they take can possibly cause the death of tens of particularly fond of the president were blown away thousands, if not hundreds of thousands of people with the way in which he presented himself and – and on the other side, the incredible strain this is explained things.” putting on the economy.”

For Verwoerd, the anti-Ramaphosa faction “has no Verwoerd is “amused” when people say the oxygen” at the moment. “They can’t mobilise. They ruling party has been dictatorial and has taken cannot travel enough to mobilise and linked to that, away individual rights because, with the exception of course, is the fact that the National Prosecuting of alcohol and cigarettes, they were following Authority (NPA) hasn’t stopped their work and the international precedent and were doing what most faction knows that the net is closing in on a lot of countries in Europe in lockdown were doing. “In fact, them. For them, this is an unpleasant time because in many countries, for instance in France, they had the President’s position is strengthening and their stricter lockdown conditions than we did.” power base is very quickly shrinking.”

She acknowledges that when lockdown rules were She says it’s important to make the point that the eased in South Africa, the ANC government made decisions the National Command Centre took under mistakes around communication. “This is something Ramaphosa’s command were definitely not related the ANC is very bad at – they keep on bungling to any pressure from the anti-Ramaphosa faction communication strategies.” She is adamant that within the party. She adds that a lot of mistakes were when talking about the party’s lockdown intentions, made as the situation brought about by COVID-19 conspiracy theories must be discarded. “The is unprecedented. “Nobody could have prepared for President has never been under pressure from within this anywhere in the world. Nobody saw this coming. his own party.”

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BECOMING A FINANCIAL PLANNER FEATURE

31 July 2020

Why settle for second best?

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ll of us had to adapt to a new normal as we settled down to a life in lockdown, self-isolation and social distancing.

Financial planners continued to be in high demand as clients were suddenly faced with this life-altering experience, bringing home the importance of seeking proper financial guidance. As part of MoneyMarketing’s feature on the best available options for financial planning education, we asked Marilize Putter, Dean at Milpark Education’s School of Financial Planning & Insurance, to answer a few questions.

What study options are available?

We offer the full qualification path in financial planning. Options range from an entry level Higher Certificate in Financial Planning (NQF level 5), Advanced Certificate in Financial Planning (NQF level 6), BCom with a major in Financial Planning (NQF level 7) all the way through to our flagship qualification, the Postgraduate Diploma in Financial Planning (NQF level 8).

Milpark Education is a Recognised Education Provider of the Financial Planning Institute of Southern Africa (FPI). On completion of Milpark’s Postgraduate Diploma in Financial Planning, students are eligible to apply to the Financial Planning Institute of Southern Africa to write its Professional Competency Examination (PCE) for the CFP® Certification.

WE TAKE A VERY HANDSON APPROACH WHERE STUDENTS MUST WORK SYSTEMATICALLY THROUGH THE MATERIAL What is the recommended study path to become a Certified Financial Planner® Professional?

The statutory entrance requirement for a postgraduate diploma is a relevant bachelor’s degree. The completion of a BCom with Financial Planning is therefore an important steppingstone.

We can also admit a small number

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of students via Recognition of Prior Learning (RPL).

The RPL admission option allows access to candidates with extensive work experience, but who did not previously have the option of studying a full undergraduate degree.

How flexible, practical and relevant is Milpark Education’s offering for the Postgraduate Diploma in Financial Planning?

We have six intakes per year for this qualification meaning students can start at different times of the year, compared to the traditional one intake per year. Modules run over an eightweek period with examinations at the end of the eight weeks. With six cycles of eight weeks each a year, students can plan their studies around their personal and business needs.

We take a very hands-on approach where students must work systematically through the material.

There is a weekly assessment to help students stay on track with their studies.

There is also a subject matter specialist assigned to each module who interacts with students as an online instructor, as well as a Milpark lecturer assigned to each module, plus we have a dedicated programme manager to help students with administrative-related queries. Online classes and recordings of these classes are made available to students to allow them to study from wherever and whenever suits their own study/work lifestyle best.

We take confidence from our Alumni’s PCE results that shows the Milpark approach prepares them well for the exam. We are also very proud to hear from our Alumni on how their studies helped them get a step ahead in their own practices.

Marilize Putter, CFP® Dean: Milpark Education’s School of Financial Planning & Insurance

BECOMING A FINANCIAL PLANNER FEATURE

Take the next step in your career with an accredited qualification from the UFS SFPL Advanced Diploma in Estate and Trust Administration The School of Financial Planning Law (SFPL) at the University of the Free State (UFS) offers students the unique opportunity to acquire the necessary academic qualification and skills to become fiduciary practitioners who will be able to provide advice on a multitude of platforms, including administration of trusts, estate planning, administration of deceased estates, drafting wills, and legislative issues around the fiduciary services industry. This is the only qualification that is currently endorsed by the Fiduciary Institute of Southern Africa (FISA) as the academic requirement in the process to be awarded the Fiduciary Practitioner of South Africa® (FPSA®) designation.

The Advanced Diploma in Estate and Trust Administration is also the only South African accredited diploma that meets the academic requirements of the Society of Trust and Estate Practitioners (STEP). The Diploma puts graduates on the road to become full members of this global professional association as Trust and Estate Practitioners (TEP).

Postgraduate Diploma in Financial Planning This qualification will enable students to obtain the highest academic and professional levels of competency and to become eligible for professional membership of the Financial Planning Institute of Southern Africa (FPI). The FPI is the leading membership association in South Africa, catering for the competency needs of financial service providers, including financial planners. The FPI competence certificates of CFP® professional/ certified financial planner® professional accreditation represents the pinnacle of competence as a professional financial planner.

The CFP® professional accreditation mark is recognised in over 25 countries around the world and represents the global professional designation for the financial planning profession.

Postgraduate Diploma in Investment Planning This qualification provides students with the necessary academic qualification and skills to become experts in the field of investment planning, who will be able to provide leadership and expert advice within a multitude of financial and legal contexts, e.g. providing advice to a Board of Trustees and employees, and to manage legislative issues surrounding the investment planning industry.

This qualification will open doors to further study opportunities for individuals working in this specific environment, but who have not obtained an official degree qualification.

Postgraduate Diploma in Estate Planning This qualification intends to deliver practitioners who can act ethically and professionally, think analytically, communicate with relevant role players in the industry, interact effectively with members of the public and evaluate and apply relevant information in legislation, literature and secondary data sources to specific practical scenarios.

This qualification provides students with an academic qualification and the necessary skills to become experts in the field of estate planning. This qualification will also open doors to further study opportunities for individuals working in this specific environment, but who lack formal qualifications.

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INVESTING

31 July 2020

Discovery Invest launches global shared-value investment offering

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iscovery Invest has launched a greatly-enhanced global investment solution that uses shared value to create the world’s first exchange rate enhancer, and offers investment choices advised by BlackRock and Goldman Sachs.

“International investing is driven by the well-understood investment principle of not putting all your eggs in one basket, and it’s now more relevant than ever,” says Kenny Rabson, CEO of Discovery Invest. “By investing globally over the medium to long term, South African investors can benefit from geographical diversification, exposure to different currencies, and access to new opportunities.”

Partnering with the world’s top asset managers Discovery is making these new opportunities available to local investors by means of best-of-breed investment choices across a full range of asset classes. Advisers will have unique access to Goldman Sachs-advised share portfolios, while Discovery Global Portfolios offer riskprofiled, fully-managed, all-in-one solutions advised by Blackrock – the biggest asset manager in the world.

ESTATE PLANNING BENEFITS INCLUDE MULTIPLE OWNERS AND BENEFICIARIES “Active asset managers – together with a passive blend of index trackers – provide Discovery’s clients with a diverse holding in order to capture opportunities across the globe, and achieve sustained, strong risk-adjusted returns within a given appetite,” Rabson notes.

Efficient structuring results in competitive, investorfriendly solutions Rabson describes the enhanced Discovery Global Endowment as a competitive medium- to long-term investment solution that allows clients to buy in at much lower than the prevailing exchange rate on qualifying investment choices.

Over a period of 10 years, the currency enhancer was found to exceed all admin fees paid, making

the Discovery Global Endowment one of the most cost-effective global endowment currently on the market.

“The product’s new multicontract structure allows for greater investment liquidity, and it’s been efficiently structured to obtain an optimal tax outcome. This structure eases the administrative burden on financial advisers,” explains Rabson.

“Estate planning benefits include multiple owners and beneficiaries – allowing for the simple, safe and cost-effective transfer of investments in the event of death. Clients can also convert existing local endowments into global ones.”

Discovery Global Endowment investment options start at a minimum initial investment of US$25 000, EUR22 000, GBP20 000, or R375 000.

Addressing challenges to global investing, and enabling new growth “Following the success of our local shared-value investment model, we’ve used our learnings to fundamentally strengthen our international offering and add real value for both financial advisers and investors,” says Head of Research and Development, Craig Sher.

“We’ve also launched an intuitive new investment analysis tool that advisers can use to compare investment choices; rolled out smart verification to enable secure and seamless digital onboarding; and are building a global risk profiling tool to help advisers tailor solutions for their clients’ specific investment goals.”

Rabson concludes, “By taking strategic, tech-enabled steps to reduce or remove many of the traditional obstacles to investing abroad – complexity, a lack of options, high costs and inconvenience – Discovery is making global investment opportunities more accessible than ever. We’re excited to see how Invest International’s enhanced offering will continue to open up new possibilities for South African investors.”

Kenny Rabson, CEO, Discovery Invest

INVESTING

31 July 2020

PSG honours its top advisers and offices Adapting digitally PSG’s annual awards were held by virtual ceremony (a first for the company) in May this year due to the COVID-19 pandemic. These annual awards seek to recognise top talent in the company for their professionalism and embracing the PSG strategy.

PSG has the largest network of independent financial advisers in South Africa and Namibia, with 559 wealth advisers and 376 insure advisers as at 29 February 2020.

“Our annual awards encourage healthy competition among our network. While profitability plays a role in the award selection, the extent to which advisers embrace our trusted PSG processes and live our values are also key considerations.

These awards are also integral to encouraging PSG’s culture of clientcentricity and excellence that has earned us the reputation we have built over the last 22 years,” says Dan Hugo, CE of Distribution at PSG. “Providing excellent service to our

clients and building a great business is a team effort,” Hugo adds. “The awards are also in celebration of our clients’ success. These achievements would not be possible without their continued support and loyalty.”

Advisers are facing a challenging environment in light of COVID-19 PSG prides itself on being good at adapting to change. Hugo points out that PSG has taken to the virtual environment imposed by the recent lockdown with ease. Beyond keeping the awards on the calendar, the firm has long relied on its myPractice system to digitise its business, and this has made the transition to workfrom-home virtually seamless over the past few months.

During the lockdown period until mid-May, PSG Konsult logged 32 client and adviser webinars, issued 10 weekly client communications to just over 135 000 clients, and produced a series of 18 advice-focused communications for advisers.

Through Microsoft Teams (the firms’ preferred platform) 64 000 one-onone calls were conducted, 40 000 meetings took place, and 343 000 chat messages were exchanged between personnel. This underscores the firm’s commitment to keeping clients informed and building longterm relationships with clients.

PSG’s connected infrastructure enabled a number of business successes, even in the midst of the unprecedented lockdown. Advisers succeeded in concluding transactions digitally from the first meeting to the business implementation phase, and have been able to assist clients as though it is business as usual.

Looking forward to another successful year PSG wants to continue expanding its adviser network through both organic growth and selected adviser acquisitions. Growing its footprint will enable the firm to better serve its clients throughout the country, and is thus integral to the group’s client-

centric approach. PSG’s commitment to delivering client excellence also means competition between advisers in the firm remains fierce.

“The recent lockdown experience simply shows that PSG is positioned for the challenges of the future and is ready to continue growing its business.

“We look forward to next year’s awards, where we expect to see how our adviser offices have continued to flourish despite difficult market conditions,” Hugo concludes.

Advisers interested in being part of the PSG Konsult Group can contact Chris Liebenberg at acquisitionsteam@psg.co.za PSG Wealth Financial Planning is an authorised financial services provider – FSP 728

PSG Konsult’s top advisers and offices for the 2019/2020 year Wealth Adviser of the Year Nelis Brink, PSG Wealth R21 Employee Benefits Wealth Manager of the Year Willem Theron, PSG Wealth Tygervalley

Wealth Manager: Securities of the Year Schalk Roelofse, PSG Wealth Lowveld Stockbroking and Financial Planning Insure Adviser of the Year Deon Labuschagne, PSG Insure Centurion Short-term

Office of the Year PSG Wealth Melrose Arch Employee Benefits Office of the Year PSG Wealth R21 Employee Benefits From top, left to right: Dan Hugo, CE of Distribution at PSG, Nelis Brink (Wealth Adviser of the Year), Willem Theron (Wealth Manager of the Year), Schalk Roelofse (Wealth Manager: Securities of the Year), Deon Labuschagne (Insure Adviser of the Year), Heinrich Richter and Don Richter from PSG Wealth Melrose Arch (Office of the Year), and Nerine and Neels Brink from PSG Wealth R21 Employee Benefits (Employee Benefits Office of the Year).

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INVESTING

31 July 2020

Offshore exposure means spreading your risks

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n the current market conditions, like to invest offshore in a global offshore investing has become equity, dollar-denominated fund. The vital in diversifying an investment primary objective of the Fund is to portfolio as it offers an opportunity outperform the MSCI All Country to adequately benefit from a greater World Index over the long term. investment universe.

The Fund will invest in a When you have offshore exposure, diversified portfolio of global equity it means you’re spreading your risks and equity-related securities with – or diversifying – geographically. strong growth potential, listed on Diversification across different asset recognised exchanges worldwide. classes, asset managers, geographical Using a bottom-up and researchlocations or focused investment investment strategies process, opportunities INVESTING means that at any in both developed point in time you and emerging market OFFSHORE CAN have exposure to BE A DIFFICULT equities are considered. an element in your Investments will have LANDSCAPE TO portfolio that, when a global focus and optimally combined, TRAVERSE WITH are diversified across should act in a regions VARIOUS WAYS geographic complementary and markets.

TO ACCESS way. Your portfolio For investors that is therefore better prefer to invest in a randable to withstand fluctuating market denominated fund, the PPS Global conditions, creating smoother returns Equity Feeder Fund, which invests over the long run. directly into the PPS Global Equity But investing offshore can be a Fund, is also available on the PPS difficult landscape to traverse with Investments platform. various ways to access. Some of the

common approaches are through Introducing Capital Group opening an offshore bank account, – partnership manager for or investing in unit trusts that offer the PPS Global Equity Fund offshore asset class exposure. When Group is a well-established manager selecting unit trusts, an important with a strong performance history aspect to consider is choosing through various market cycles. Their an asset manager with extensive time-tested strategy has uncovered knowledge and experience to opportunities from changing patterns navigate the large universe of stocks of world trade for 45 years. Using a and markets available, while having bottom-up, research-driven approach a keen understanding of the global that focuses on a combination marketplace and where to find value. of early-stage and established As a multi-manager, we spend a multinationals has fared well over the substantial amount of time finding years. A multi-councillor approach to exceptional asset managers through investing helps to diversify the fund our extensive quantitative and to ensure smoother returns over the qualitative research screening and investment horizon, reducing factor selection process. We embarked on and style biases. this process to find a partnership

manager for our newly launched Offshore investing offshore solution, the PPS Global made accessible Equity Fund, as part of our PPS Investors may not have the resources or Partnership Fund range. The appetite to research offshore investment manager selection for this fund bears options. Investing in the PPS Global testimony to our process, having Equity Fund gives them access to a top partnered with one of the largest and international investment manager with oldest managers in the world. a proven track record through various

market cycles.

Accessing diversified offshore exposure via the PPS Global Equity Fund The PPS Global Equity Fund, managed in partnership with Capital Hayley Brown, Executive: Business Group, is suited for investors who have Development, PPS discretionary savings that they would Investments

#BlackLivesMatter highlights impact of inequality

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ngoing #BlackLivesMatter demonstrations around the world have further highlighted the profound impact of social and economic inequality in the US and elsewhere, says the Old Mutual Investment Group.

According to Fawaz Fakier, Portfolio Manager of the newly launched Old Mutual ESG Equity Fund, the recent protests will force investors to think about the structural issues perpetuating social inequality. “We are expecting that COVID-19 and the recent international rallying against racism will move the conversation and encourage investors to reward companies that reflect their values,” he adds.

Fakier believes that stable communities create stable economies, and rampant social inequality will negatively impact the long-term profitability of all companies. “The one lesson COVID-19 has taught us is that we’re all connected. Asset managers will increasingly need to respond to this systemic risk by seeking to only invest in companies with high social and governance scores,” he adds.

“Old Mutual is a big investor: Because of our size, we are able to engage with the management of companies on ESG issues directly. We identify issues that are of concern within the South African landscape and work together with COMPANIES THAT management to resolve them – we call it GENERATE STABLE active stewardship.”

He notes that despite the COVID-19 sellEARNINGS AND off earlier this year, sustainable funds with CASHFLOWS IN high environmental, social and governance scores outperformed their conventional A RESPONSIBLE, peers. “This is likely to generate greater SUSTAINABLE interest in these as more and more MANNER WILL investors seek to invest their money in OUTPERFORM THE companies that display a commitment to addressing this issue.”

MARKET OVER THE The Old Mutual ESG Equity Fund was launched on the 1st of June. The fund aims LONG TERM to achieve long-term capital growth by primarily gaining exposure to companies with a superior ESG score relative to their peers. The fund will target a lower carbon footprint and a higher ESG profile relative to its benchmark.

“The fund invests in South African based companies that provide investors with holistic exposure to good-quality, highly rated ESG companies with a lower carbon footprint, and aims to provide superior long-term performance, wrapped in a risk-cognisant, well-constructed portfolio,” Fakier explains.

“Our investment philosophy is that companies that generate stable earnings and cashflows in a responsible, sustainable manner will outperform the market over the long term. Our expertise allows us to exploit these opportunities as our robust investment approach is focused on the long term.

This allows us to patiently identify high-quality attractively priced sustainable companies and invest in a risk-controlled manner.”

In addition to the actively managed Old Mutual ESG Equity Fund, Old Mutual has two passive Fawaz global ESG funds: the Old Mutual MSCI Emerging Fakier, Portfolio Markets ESG Index Feeder Fund and the Old Manager, Mutual MSCI World ESG Index Feeder Fund.

Old Mutual

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INVESTING

31 July 2020

TARRYN SANKAR Head: Listed Credit, Futuregrowth

Emerging stronger: building an economically and environmentally resilient AC world

While lockdown measures have been necessary for public health, they have imposed enormous economic costs and exposed the vast inequalities in South Africa.

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he COVID-19 crisis has highlighted the imperative to create an improved local and global economy that is better able to cope with any future catastrophes.

Efforts to address the immense social and environmental challenges we currently face will be of prime importance in both the public and private sectors.

How might we use this current crisis to catalyse collective action to build more resilient economies – and how is the role of responsible investors being redefined for an after-coronavirus (AC) world? Tarryn Sankar, Head of Listed Credit at Futuregrowth Asset Management, shares her thoughts on how COVID-19 might be used as an opportunity to build economic and environmental resilience.

Crises don’t create, they reveal While the exact origin of the COVID-19 virus is yet to be scientifically established, the World Economic Forum estimates that 60% of infectious diseases originate from animals, and 70% of emerging infectious diseases originate from wildlife. Scientists have found that between two and four new viruses emerge annually as a result of human infringement on the natural world and the vast illegal wildlife trade.

Pandemics, therefore, are often a hidden side effect of economic development and inequalities that can no longer be ignored, and illuminate the devastating ripple effects when one element in an interconnected system is destabilised. Just as carbon is not the actual cause of climate change, it is often human activity – rather than nature – that causes pandemics.

The spread of the coronavirus pandemic has emphasised the global interconnectedness of all stakeholders.

Parties now have to collectively grapple with the real-time implications of how non-financial risks (in this instance, a global public health crisis caused by COVID-19) translate into significant financial risks.

The interconnectedness of climate change and virus pandemics The recent collective experience, whether in the public or the private sector, has more often been shaped by financial shocks rather than physical

shocks. The pandemic has shown just how far-reaching and cataclysmic a shock of this magnitude can be – and what we can potentially expect from future crises.

As can be seen in the Venn diagram below, climate change and virus pandemics share several defining features.

Both virus pandemics and climate change require a fundamental shift in response: from optimising primarily for the shorter-term (ST) performance of systems to ensuring, equally, their longer-term (LT) resilience through investing responsibly. As a responsible investor and custodian of clients’ funds, we have a responsibility to assess all risks, including non-financial risks, i.e. environmental, social and governance (ESG) risks when we make our investment decisions.

Transitioning from sustainability to resilience While COVID-19 represents a global growth and fiscal shock, the risks are particularly pertinent in South Africa, given elevated pre-COVID-19 unemployment rates and fiscal strain.

Locally, our main concern regarding the bond market remains the strong link between lacklustre economic growth and a weakening fiscal

position. The impact of the recent COVID-19-related events elevates this concern considerably.

Policies that are put in place to build economic resilience should have a strong focus on predominantly environmentally friendly initiatives.

The most important of these would be a systematic approach to decarbonising our energy sources, but not at the expense of a host of other social imperatives such as open markets, robust institutions, economic growth, low unemployment, education, and skills development.

In the absence of a clear virus inflection point in the near term, corporate balance sheet strength and cashflow resilience remain critical measures of credit quality across the asset classes that Futuregrowth manages.

In our view, the likelihood of continued operational disruptions as our economy re-opens and the inevitable second (and third) wave of infections mean that contingency planning, scenario assessment and risk management will remain an important element of business strategy and the robustness of our credit assessments going forward.

Investment industry To address the vast inequalities that have become painfully apparent during the crisis, we will need to redefine accountabilities. Shareholder returns at all costs will, and should, give way to basic principles, such as a company’s treatment of staff, suppliers

and customers. Society and investors will likely become more sensitive to the quality of a corporate’s response to crises and demand more accountability in future.

The investment industry, too, will need to step up to its responsibilities as long-term holders of capital.

While sustainability has at long last entered the mainstream, we are far from a world where all investors fully, meaningfully and consistently consider and appropriately price for ESG risks.

This must surely change and, when we emerge from this crisis, the AC world that awaits us demands that responsible investment is the only acceptable norm.

Conclusion During the 2008 financial crisis, sustainability shot to the top of the agenda in the investment industry. The current pandemic clearly shows that we haven’t done nearly enough since then to improve the resilience of our financial systems, economy, health services and physical environment.

This crisis is going to reshape the world fundamentally and will, no doubt, have long-lasting effects on the global economy and societal behaviour. These structural shifts could leave the global economy even more vulnerable to other crises down the line; or we could choose to build a better, more resilient economy that puts us in a far stronger position to survive the next crisis we face.

By continuing to collaborate and coordinate our actions, the public sector, private sector and communities have an opportunity to reimagine a more sustainable way forward for the world.

We believe responsible investing can play a crucial role in bringing this vision to life, while maintaining a long-term focus on investment decision-making.

It will be critical in the weeks and months ahead that we leverage the power of collaboration to ensure that the standards of engagement on these key issues are not dropped during this crisis.

This article has been adapted for third party use. The original article can be viewed on the Futuregrowth website, www.futuregrowth.co.za

Source: McKinsey, adapted by Futuregrowth Asset Management

Sources: Addressing climate change in a postpandemic world, McKinsey.

Coronavirus will have long-term implications for business leaders. Here are the top five, The Conversation.

COVID-19: harnessing the power of collective investor action for change, Principles for Responsible Investment.

COVID-19 and nature are linked. So should be the recovery, World Economic Forum.

Air pollution and case fatality of SARS in the People’s Republic of China: an ecologic study, BMC. The economics of a pandemic: the case of Covid 19, London Business School.

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HEDGE FUNDS FEATURE

31 July 2020

KIM ZIETSMAN Head: Business Development and Marketing, Laurium Capital

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here are many investments that fall under the ‘alternative investments category’, the most common of which are hedge funds, private equity, commodities, real assets, direct investments in start-ups and private companies, and venture capital. All are very different in terms of their legal structures, governing legislation, fees, tax treatment, transparency, risk and the returns that they can generate. What they do have in common, is that they are typically a lot more complex than traditional longonly unit trust investments, are generally not well understood by investors and, importantly, do offer diversification benefits. Allocating a portion of your investment to alternative investments can enhance the overall returns, reduce your risk, and should be considered as one of the building blocks of a welldiversified investment portfolio.

Fortunately, in South Africa, hedge funds have been regulated under CISCA since 1 April 2015.

The regulations offer investors looking for different investments and diversification the opportunity to invest in fully regulated products. They are designed to complement long-only funds, not replace them, for the following reasons: • Increased diversification benefits • Equity-like returns (after fees) with lower risk • Protection of capital • Diversification – better risk-adjusted returns • Highly regulated environment Like any investment looking to outperform cash,

STASH MARTINS Investment Consultant, 36ONE Asset Management

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What to look for in a hedge fund manager hedge funds are not without risk. Fortunately, hedge fund managers in South Africa have proven themselves to be more conservative than their international counterparts – there are several experienced boutique managers that have long, consistent track records to prove it.

A few things to consider when evaluating a manager: What is the manager’s skills set?

Long-only fund managers analyse stocks, make decisions to buy, sell or hold; and make sure their funds are compliant with mandates and regulations.

Hedge fund managers need to be able to do this well – and more. Hedge funds can use leverage, and other strategies such as shorting, for example. To assess these skills, you need to dig deeper than you would for a long-only manager. Managing hedge funds can be more complex than long-only funds, and so requires a different skill set.

Have the fund managers and owners invested their own money in the funds?

You want a manager who has skin in the game and is prepared to invest a large proportion of their investable assets in their own funds – it shows they believe the fund can deliver on its objective and aligns their interests closely with that of their clients.

Is the manager transparent?

How willing is the manager to share information on attribution, for instance? You should choose a

manager that communicates well with their clients, to ensure that their clients are well informed and understand the risks of their investment.

How are the hedge fund managers incentivised?

Incentivisation is key to attracting top talent and ensuring a stable, committed team. Not only are financial incentives important, but the non-financial elements, like work environment, should be fostered to create a close-knit, performance-orientated team.

What about liquidity and leverage?

When evaluating a hedge fund, you must look at leverage and liquidity. It is a myth that all hedge funds are high risk, but when there is a lot of leverage, the risk can increase. Liquidity is also really important.

Some of the hedge fund failures have been because of liquidity issues. Hedge fund managers need to manage liquidity very carefully and investors must understand the risk and liquidity of the fund.

How much should be allocated to nontraditional assets?

There is no rule – it will depend on individual circumstances. At least 15-20% of an investor’s portfolio should be invested in assets that are noncorrelated to traditional investments. Regulation 28 allows for a 10% allocation to hedge funds; internationally, we are seeing a higher and an increasing allocation to alternative investments.

Allocating a portion of savings to hedge funds can improve portfolio longevity

arkets are intrinsically volatile and, for investors making regular withdrawals, this volatility is particularly relevant. If the value of your retirement savings falls near the outset of drawing an income, the amount withdrawn will represent a bigger portion of your investment than if your savings had grown over this period. The impact is that the base continues to decline with each additional withdrawal, leaving less savings to grow. The risk involved in withdrawing money from a volatile portfolio, termed sequence-of-return risk, is lower when portfolio volatility is lower. The recent market capitulation has highlighted the value of having the right mix of portfolios in reducing this type of risk without compromising too much on longer-term growth.

The 36ONE hedge funds can produce positive returns in both rising and falling equity markets (due to their combination of long and short positions). Investing in the 36ONE hedge funds can limit the impact of market volatility on a portfolio and reduce sequence-of-return risk.

Example: An investor with a R2m lump sum invests R1m in the 36ONE SNN QI Hedge Fund (‘36ONE Hedge Fund’) and R1m in the FTSE/JSE all share index (‘ALSI’) at the start of April 2006 (36ONE Hedge Fund launch date). The table summarises portfolio values on 31 May 2020 in nominal terms:

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SCENARIO 1: LUMP-SUM SCENARIO End Portfolio Value

Since Inception Return p.a.

36ONE Hedge Fund

R8 123 300

15.9%

ALSI

R3 771 500

9.8%

Difference

R4 351 800

6.1%

Source: Bloomberg, 36ONE Research

The client would have been substantially better off if he had invested the full lump-sum amount in the 36ONE Hedge Fund, as the hedge fund outperformed the ALSI by 6.1% per year over the period.

Extending the example: Assume he invested the R2m but needs to draw R7 500 monthly, increasing at 6% p.a. The table summarises portfolio values on 31 May 2020, in nominal terms: SCENARIO 2: INCOME-PRODUCING PORTFOLIO End Portfolio Value

Since Inception Return p.a. (after withdrawals)

36ONE Hedge Fund

R5 718 700

13.1%

ALSI

R2 179 100

5.6%

Difference

R3 539 600

7.5%

Source: Bloomberg, 36ONE Research

When you compare the end values of the income-producing portfolios, the 36ONE Hedge Fund outperformed the ALSI by 7.5% a year.

This is higher than the lump sum scenario where the 36ONE Hedge Fund outperformed the ALSI by 6.1% a year. The reason for this is simply volatility. Over the +14-year period, the 36ONE Hedge Fund was substantially less volatile than the ALSI. The hedge fund also experienced much lower drawdowns during the period.

While these scenarios are simplified, they show the impact of volatility on income-producing portfolios.

As is evident, higher volatility can act as a drag on performance in income-producing portfolios and can result in clients not meeting their income objectives over the lifespan of their retirement. We are living longer, which means time in retirement is longer and therefore more money is needed. Having to draw an income from your retirement savings for longer needs an appropriate investment strategy.

DISCLAIMER: Source: Bloomberg, 36ONE Research; Performance to 31 May 2020.

The information presented here is not intended to be relied upon for investment advice. Various assumptions were made. See our full disclaimer here: https://www.36one.co.za/articles/disclaimer

HAS YOUR PORTFOLIO EVOLVED THROUGH THE TIMES? IT’S TIME TO CONSIDER HEDGE FUNDS

HEDGE FUNDS FEATURE

ALAN YATES Business Development, Peregrine Capital

31 July 2020

So what’s in a track record?

“A diamond is a chunk of coal that did well under pressure” - Henry Kissinger

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hen fund managers talk about their track record, it is usually to convey the sense that they have ‘experience’ in managing money or that their investment process produces results. The fund manager may have performed well but fared poorly relative to their peers. They might actually have a long track record of doing poorly in challenging markets. Or perhaps they have just managed to stay above water when others have performed much better over the same period.

A track record in isolation does not paint the full picture of the journey that the fund or its manager has travelled to get it to where it is.

At Peregrine Capital, we are very proud of the track record of our hedge funds – not because it tells you that we have been around for a long time but because it shows our resilience in tough markets.

John F Kennedy coined the adage that “a rising tide lifts all boats”, and in financial markets, that is often applied to bull markets. Most bull markets will see positive returns from most managers. Intuitively, it becomes easier to make money when most shares are increasing in value. But, in difficult markets, it becomes a lot more difficult to ‘lift your boat’ when the tide is going against you.

Peregrine Capital started managing hedge funds in 1998. No sooner had we accepted funds from our first few investors when the Emerging Market Debt crisis took hold. Oil prices fell off a cliff, and emerging market currencies were in freefall. Russia defaulted on its debt, and Venezuela was mired in a financial crisis. As one can imagine, this had a materially negative effect on a commodity-led, emerging market economy like South Africa. The JSE All Share Index (JSE) returned -10% for 1998. In contrast, our Pure Hedge Fund returned 61.36%.

The next iceberg arrived in 2000, in the form of the dotcom crash. In the late 90s, irrational exuberance was in full effect in US Internet stocks, and valuations had reached a breaking point.

Between March and November of 2000, most

Source: visualcapitalist.com

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Internet stocks lost over 75% of their value, wiping out $1.755tn in value for investors. 2001 and 2002 saw the US slip into recession, compounded by several US accounting scandals, including the Enron and WorldCom debacles. By the end of the stock market downturn of 2002, stocks had lost $5tn in market capitalisation since the peak. At its trough on 9 October 2002, the NASDAQ-100 had fallen 78% from its peak. While this was mainly a US issue, the JSE had felt the effects and had dropped in both 2000 (-2.64%) and 2002 (-11.15%). The Pure Hedge Fund, in contrast, returned 28.90% in 2000 and 22.29% in 2002.

And our then newly launched High Growth Fund managed one better, returning 37.40% to investors in 2000, and 31.90% in 2002.

What followed was a fantastic period for South African markets, and for five years, the tide was undoubtedly rising! Unfortunately, the global financial crisis (GFC) brought a very abrupt halt to the party, and 2008 saw the JSE Capped SWIX fall the most it had in decades, with the year closing out 23.23% in the red. Our High Growth Fund was not immune to this decline, falling 11.98% that year (half of the JSE’s fall), but our Pure Hedge Fund once again managed to produce a positive return in these horrible conditions, finishing 1.61% up for the year.

Source: The Wall Street Journal With the devastation on the GFC still fresh in investors’ minds, 2011 brought a new crisis to the fore – this time, it was Europe’s turn to shake investor confidence. Crushing austerity measures were required to deal with the debt crisis that had ballooned in the PIIG (Portugal, Italy, Ireland and Greece) nations. The corresponding flight to safe-haven assets saw emerging markets take a battering that year. The MSCI Emerging Market Index returned a negative 18.2% in dollars, and the JSE returned a negative 16% in dollars. Luckily for local investors, the ZAR had made significant gains in 2011 against the US dollar, due mainly to significant foreign capital inflows into our bond market, which resulted in the JSE being up 2.57% in rand terms. Happily, our funds were able to produce good returns for our investors yet again, with the Pure Hedge Fund returning 10.69% and the High Growth Fund ending 14.12% up for the year.

The next few years saw good returns across global equity markets, as fiscal stimulus and meagre interest rates pushed investors towards equity markets in an attempt to generate real returns. However, South Africa was beginning to feel the effects of our own political wounds, and the maladministration of the Zuma years.

This came to a head in December 2015 with the firing of Nhlanhla Nene as finance minister, and continued into 2016, with the battle raging between Jacob Zuma and Pravin Gordhan that ended with Gordhan’s axing in June 2016. Over the 2015-2016 period, the JSE was only able to return a paltry 4.58% p.a. for the two years, while global markets surged ahead. Once again, our investors were shielded from the disaster, as the Pure Hedge and High Growth Funds returned 13.44% p.a. and 15.71% p.a. respectively over the same period.

2018 was another dreadful year for stock markets. Fears of rising interest rates, reduced monetary stimulus, and global growth concerns eventually took their toll on global investor confidence. The final three months of the year were

HEDGE FUNDS FEATURE

31 July 2020

especially painful and resulted in every global asset class finishing the year behind US dollar cash.

The JSE Capped SWIX was not exempt, falling 10.94% for the year. Our High Growth Fund felt the effect of globally falling asset prices but still managed to cushion the blow for investors once again, losing only 4.13% for DIFFICULT the year. Our Pure Hedge MARKETS Fund, however, maintained its unbroken record of ARE A never having a negative REALITY year, providing investors THAT WILL with a positive return of 5.13% for the year.

FOREVER And, of course, we find CONTINUE ourselves in an incredibly TO AFFECT tough moment in human INVESTORS history right now. While the COVID-19 pandemic has extracted an incredibly painful toll on human life, it has also done immense damage to global markets.

As of 1 June 2020, the JSE Capped SWIX Index is down 16.51% for the year, and things are not looking any less complicated from here. In contrast, through the prudent management of risk and quality stock selection, our funds have both given our investors positive returns for the year thus far.

The High Growth Fund is up 1.6% for the year, and the Pure Hedge Fund is doing even better, up 4.5%.

Difficult markets are a reality that will forever continue to affect investors. That said, our track record has proven that even in trying times, the Peregrine Capital funds are an exceptional place to be invested. Our performance is driven by our unique investment process, developed over the past 21 years, coupled with the close alignment of interests that exists between our fund managers and our investors. And the results speak for themselves.

If you aren’t invested with us yet, perhaps you should be.

Important disclosure information: H4 Collective Investments (RF) Proprietary Limited (“H4”) is a registered and approved manager of collective investment schemes in hedge funds. Peregrine Capital Proprietary Limited (“Peregrine Capital”), is an authorised Financial Services Provider (FSP 607) under the Financial Advisory and Intermediary Services Act, No. 37 of 2002 and has been appointed by H4 as the investment manager of the portfolios. Collective investment schemes are medium to long-term investments. The value of participatory interests or the investment may go down as well as up. Past performance is not necessarily a guide to future performance. Collective investment schemes are traded at ruling prices and can engage in borrowing and scrip lending. A schedule of fees and charges and maximum commissions is available on request from H4 or Peregrine Capital.

Peregrine Capital High Growth H4 QI Hedge Fund: Performance fees are payable on positive performance using a participation rate of 20%. A high watermark is applied, which ensures that performance fees will only be charged on new performance. There is no cap on the Rand amount of performance fees. Peregrine Capital Pure Hedge H4 QI Hedge Fund: Performance fees are payable on positive performance, in excess of the hurdle, using a participation rate of 20%. A high watermark is applied, which ensures that performance fees will only be charged on new performance. There is no cap on the Rand amount of performance fees. Neither H4 nor Peregrine Capital provides any guarantee with respect to the capital or return of a portfolio. H4 retains full legal responsibility for the portfolios.

H4 has the right to close the portfolios to new clients to manage them more efficiently in accordance with their mandates. The performance calculated and shown is that of the portfolio. Performance has been calculated using net NAV to NAV numbers with income reinvested.

The investment performance for each period shown reflects the net return for clients who have been fully invested for that period.

Individual investor investment performance may differ as a result

of initial fees (if applicable), the actual investment date, the date of reinvestment of distributions and/or distribution dates and dividend withholding tax. Where periods of longer than one year are used in calculating past performance, certain figures may be annualised. Annualised performance is the average return per year over the period. Actual annual figures and investment performance calculations are available on request. Where investment performance has been shown by way of an illustration (a) investment performance is for illustrative purposes only (b) the investment performance is calculated by taking the actual initial fees and all ongoing fees into account for the amount shown and (c) income is reinvested on the reinvestment date. The performance history is contained in the portfolios’ minimum disclosure documents, which are available on request from H4 or Peregrine Capital. Full details and the basis of all awards mentioned are available from H4 or Peregrine Capital. All return figures are from Bloomberg and Peregrine Capital Factsheets.

All fund returns are quoted net of all fees.

The calculation of all net returns from February 1st 2000 until November 30th 2016 are for the unregulated Peregrine High Growth Fund, thereafter the data relates to the regulated Peregrine Capital High Growth H4 QI Hedge Fund. The calculation of all net returns from July 1st 1998 until November 30th 2016 are for the unregulated Peregrine Pure Hedge Fund, thereafter the data relates to the regulated Peregrine Capital Pure Hedge H4 QI Hedge Fund. The ‘JSE Capped Swix All Share Index’ referenced is the index from December 2016 to date, before that the JSE All Share TR Index is used. The Pure Hedge Fund does not have a benchmark and does not contribute towards the return of the ASISA SA Multi Asset - Low Equity Category. The data for the ASISA SA Multi Asset - Low Equity Category and CPI is provided for comparative purposes. The High Growth Fund does not have a benchmark and does not contribute towards the return of the ASISA SA Multi Asset - High Equity Category. The data for the ASISA SA Multi Asset - High Equity Category and Capped SWIX is provided for comparative purposes.

Fund Name

Inception date

Highest annual return

Lowest annual return

Rolling 12 month return

Peregrine Capital High Growth H4 QI Hedge Fund (‘High Growth Fund’ above)

Feb 2000

53.01% (2004)

-11.98% (2008)

-0.38%

Peregrine Capital Pure Hedge H4 QI Hedge Fund (‘Pure Hedge Fund’ above)

Jun 1998

67.90% (1999)

1.61% (2008)

6.68%

FTSE/JSE Capped Swix All Share Index

Feb 2000

47.25% (2005)

-23.23% (2008)

-17.93%

ASISA South Africa MA High Equity

Feb 2000

27.49% (2004)

-8.24% (2008)

-4.41%

ASISA South Africa MA Low Equity

Jul 1998

40.59% (1999)

-10.69% (1998)

0.34%

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HEDGE FUNDS FEATURE

31 July 2020

RAYHAAN JOOSUB Co-founder & Head of Multi Asset, Sentio Capital Management

Hedge funds shine The role of multi-asset hedge funds through to improve risk-adjusted returns investment gloom What makes a fixed-income hedge funds, is the good hedge fund? relatively high correlation these It goes without saying that a good single strategies have displayed hedge fund needs to achieve good relative to their underlying performance relative to its stated markets. These high correlations objectives or benchmark. However, with asset market performance at Sentio we believe it’s just as leads one to question the very important to ask the question, “How merits of these hedge fund was that performance strategies as they achieved?” It’s not effectively become A GOOD HEDGE just good enough high beta leveraged having a high return FUND NEEDS TO plays and defeat if the amount of risk ACHIEVE GOOD the very purpose taken to achieve that of the ‘hedge’ in PERFORMANCE hedge funds. return is excessive, as this speaks to the Compounding RELATIVE TO unsustainability of the problem in ITS STATED those returns.

South Africa OBJECTIVES OR recently has We believe that a good hedge fund, in been the highly BENCHMARK addition to generating concentrated good returns, needs to fulfil two nature of the positive performing characteristics, which speaks to the stocks over the past few years, quality of those returns: due to South Africa’s macro1. Those returns need to be economic challenges and the recent relatively uncorrelated to the COVID-19 crisis, which has made natural beta of the underlying it difficult to build diversified hedge asset market like the equity or fund portfolios in the equity longbond markets short space. Hence, managers have 2. Those returns need to display been taking ever-increasing risks positive asymmetry, hence to generate the same level of return providing some measure achieved in the past. As a result, of capital protection in any asset market shock, like we down markets, and upside have seen in March 2020, leads to participation in rising markets. severe drawdowns and negatively skewed, highly kurtotic return Problems with singleprofiles, which is the antithesis of strategy hedge funds what hedge funds are all about.

The problem with single-strategy We have also witnessed this funds like equity long-short phenomenon Sentio_Multi-Strat Hedgeor Fund_MM July 2020.pdf 2in fixed-income 2020/06/11 09:14

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hedge funds, which have recently displayed negatively skewed, fat-tailed return profiles. This occurred during the Nene-gate crisis in November 2015, as well as the recent COVID-19 sell-off in March 2020. Market-neutral strategies have also depicted similar poor return profiles during periods of elevated volatility or higher correlations.

Multi-asset hedge funds are a better solution We believe that multi-asset hedge funds are a more sustainable product, in order to mitigate against the issues of single-strategy hedge funds. The ability to generate uncorrelated returns, using a multi-factor approach, together with relative value strategies across various asset classes, reduces the need to maintain unsustainably high beta exposure to any particular asset market and, thus, leads to better risk-adjusted returns. Focusing on multiple asset markets and multiple strategies also allows the fund managers to generate returns for the fund, even if one or two asset markets or strategies are going through periods of poor returns or high instability.

This results in high-quality risktaking and improved risk-adjusted returns from multi-asset funds, versus single-strategy funds that are forced to chase returns in a narrow and concentrated universe.

“

Hedge funds are showing their mettle as markets continue to experience significant volatility, uncertainty and poor performance across asset classes due to the coronavirus pandemic,” says Marthinus van der Nest, head of Amplify Investment Partners.

“By their nature, these funds are geared towards producing relatively superior risk-adjusted returns, regardless of market conditions,” he adds. “The proof has not always been in the pudding, but recent statistics have validated their raison d’être, and rewarded investors for their faith in an often overlooked and misunderstood asset class.”

Van der Nest notes that an equally weighted portfolio of four of Amplify’s Fixed Income Hedge Funds returned 9.20% growth for the year to end April 2020, against a 10.4% decline in the JSE All Share index, and a 5.14% decline in the All Bond index. Over a year, the blended portfolio grew 18.1% against the All Share’s decline of 10.78% and a marginal growth in the All Bond index. Over three years, the picture is similar, with the blended portfolio showing 13.5% annualised growth compared to the All Share’s marginal 1.08% growth and the All Bond and STeFI growth of just over 6%.

SUSTAINABLE RETURNS REGARDLESS OF MOVEMENT.

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Visit our website to find out more about our multi-strategy hedge funds.

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www.sentio-capital.com

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

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A majority black-owned asset manager.

INVESTING FOR THE LONG TERM FEATURE

31 July 2020

Fresh thinking – actual investors High-frequency trading and high fees dominate investment discussions, but what about the industry’s wider social purpose?

Stuart Dunbar, a partner at Baillie Gifford, makes the case for actual investing.

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hat is investment for? For Baillie Gifford, the job is about putting clients’ money into innovative, growing companies. We think the best way to generate strong returns for these clients is to invest in entrepreneurial businesses that give customers what they want or need and provide answers to society’s wider problems. That’s what actual investing is all about.

Although it’s simple to describe, it’s hard to do. The 24-hour news cycle, the proliferation of market noise, seemingly infinite data and the short-term thinking of the modern investment industry: all combine to obstruct the clear line of sight and the rational judgement that actual investing demands.

So, too, does the sterile ‘active’ the future. The new ways of analysing versus ‘passive’ debate, which has market movements that absorb much contributed so much to misguided of the investment industry’s attention conventional wisdom about what don’t tell us much about important active investing should be about. Most developments in the real world, notable is the false premise that being for example how plummeting gene active must involve frantic activity. sequencing costs are combining with Much of that activity is based on big data to revolutionise the healthcare abstract concepts such as regional industry. Instead they have helped allocations, sector positions, factor promote a focus on cost, rather than weights and mean reversion. on value for money.

To actual Such anomalies investors, fixating on have fed the rise of MOST NOTABLE these factors to gain passive investment, advantage is more which provides lowIS THE FALSE about speculation cost market access PREMISE THAT than it is about and can offer better genuine wealth performance after BEING ACTIVE creation. It is partly fees than many active MUST INVOLVE a function of the IT managers. But, by FRANTIC ACTIVITY definition, passive revolution, which has bamboozled investing is not industry players and commentators about thoughtful allocation of capital by adding extraordinary processing to innovative companies because it power, capacity and speed. Investment involves buying all the companies in pseudo-science ushered in by everthe index indiscriminately. faster communication and number Against this background, crunching has helped create conditions Baillie Gifford aspires to challenge where competing for returns has conventional wisdom, to think become more important than finding independently, to think creatively the companies that will create value in and to think long term. Armed with

ANET AHERN CEO, PSG Asset Management

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he COVID-19 pandemic has undoubtedly derailed markets and economies across the board. It is raising questions about the viability of many industries and businesses that have been part of our everyday lives until now. There have been precious few places for investors to hide, and the impact on investor portfolios has been severe.

Despite how uncomfortable the market mayhem makes us feel, it also provides the opportunity to build great future portfolios – provided we can distinguish noise from material information and overcome emotion to act rationally and take a longer-term view.

The dangers of a ‘smoother’ ride It is conceivable that the biggest investment risk facing the individual investor right now is capitulation. Investors seeking a smoother ride by switching to cash or buying popular stocks at any cost may find that this ‘safe’ approach will in fact prove to be riskier over the longer term.

Governments across the globe have slashed interest rates to counteract the impact of the COVID-19 pandemic on their economies. The result is that ‘safe’ assets have become even less likely to outperform inflation for the foreseeable future. In addition, higher volatility means portfolio hedging has also become more expensive. Equities remain the place to build your long-term wealth.

We typically find the best opportunities for our

research showing that startlingly few stocks have created most wealth over long periods, we believe that the job of actual investors is to seek out these outliers. We do this by forging links with those with more knowledge and more expertise than we have. We embrace uncertainty and are open to the possibility of being wrong.

The best way for us to serve clients is to stay focused on backing companies for the long term, ignoring the shortterm noise of the market.

As with all investments, capital is at risk. The views expressed in this article are those of the author and should not be considered as advice or a recommendation to buy, sell or hold a particular investment. They reflect personal opinion and should not be taken as statements of fact, nor should any reliance be placed on them when making investment decisions. Baillie Gifford Overseas Limited is registered as a Foreign Financial Services Provider with the Financial Sector Conduct Authority in South Africa.

Stuart Dunbar, Partner, Baillie Gifford

There are always opportunities for patient investors investors are in areas where valuations are lower due to fear and uncertainty, and which present the potential for mispricing. In the long run, the price you pay for an asset relative to its worth remains the greatest predictor of long-term returns. When prices fall across the board, quality securities become available cheaply, along with the rest. Those who can look past the turmoil can build robust portfolios for the future at bargain prices. There are always opportunities for patient investors.

Remove emotion by focusing on your process When it comes to sifting through these opportunities, taking emotion out of the equation is crucial. Following a trusted process and focusing on the fundamentals are key. COVID-19 has had, and will continue to have, profound impacts on many industries. Each market crisis accelerates the change that an industry already on a weak footing needs to make. We saw this with the demise of CDs in the early 2000s – an industry already under pressure had to reinvent itself or die. Current examples are home delivery, content streaming and services relating to working from home. However, share prices spike quickly to reflect this and good businesses that are under temporary pressure, but able to survive and adapt in the long run, are being discarded by panicked investors. This creates severe mispricing.

Some sectors will be more affected than others, and

some management teams will fare better than others.

It is impossible to predict when and how the market will reward specific shares or sectors. But we know that in the long run, well-managed companies will continue to do business and grow over time.

So how do you accurately evaluate a management team? One solution is to focus on finding the ‘footprints’ of past decisions – what management have done historically, rather than what they say they will do in the future. For example, consistently conservative accounting policies and comprehensive disclosure provide footprints that say something about the character of the senior executives. Other valuable evidence can come from evaluating company balance sheets, and how shareholder capital is applied. One of the most challenging, yet most important, aspects of assessing an investment is to assess the quality of management teams, and it is imperative that an investment process should cater for this.

More than ever, a long-term outlook matters We firmly believe there are good opportunities to be found despite the current economic and market turmoil. The current environment provides fertile ground for the mispricing of investments, and thus for building great future portfolios – but only for those who are able to separate process from emotion, and are patient enough to wait.

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INVESTING FOR THE LONG TERM FEATURE

BERNARD DROTSCHIE Chief Investment Officer, Melville Douglas

31 July 2020

Predicting the investments market can be difficult

W

e entered 2020 against a backdrop of a global economy that was expected to show steady improvement as the year progressed, and investment markets set to deliver another year of positive returns.

These forecasts swiftly changed due to the outbreak of COVID-19. This global pandemic lead governments around the world to enforce strict measures to contain the spread of the deadly and highly infectious virus in their attempt to ‘flatten the curve’.

The isolation measures enacted across the world have created an external shock to global trade, resulting in a swift and sharp negative reaction in investment markets, the likes of which have not been seen since the 1930s, with global equities at one stage down 30% in the quarter. Since the lows experienced in March, investment markets have rebounded strongly, given the swift response by fiscal and monetary authorities who, at the time, made it very clear they would do ‘whatever it takes’ to provide a buffer against the economic fall-out from the crisis. More recently, the measured reopening of many economies has played an important role in calming investors’ worst fears. At the end of May, the domestic All Share Index is ‘only’ down 10% and has recovered more than two thirds from its lows.

15 Years (2005/06/01 - 2020/05/31)*

Investment

% Return p.a.

Standard Deviation %

Risk Adjusted Return

Balanced Portfolio

11.8

9.3

1.3

FTSE/JSE All Share TR ZAR

12.3

15.4

0.8

FTSE/JSE All Bond TR ZAR

8.3

7.6

1.1

STeFI Call Deposit ZAR

6.8

0.5

14.3

FTSE WGBI USD

10.0

15.7

0.6

MSCI ACWI NR USD

13.3

13.8

1.0

* 15-year numbers are annualised rates of return.

Do not try to ‘time’ the market. It is a well-known fact that spending time in the market is significantly more profitable than attempting to take short-term views, partly because the majority of returns are obtained in the period immediately after markets have bottomed (does that sound familiar?). Missing out on a few of the top trading days has proven to be costly for investors.

The charts are instructive and illustrate why it is so difficult to try and ‘time’ the market and still achieve an optimal return. A buy-and-hold strategy provides the most favourable outcome for long-term and patient investors. For instance, if an investor missed out on the top five trading days since the advent of the financial crisis, the difference in accumulated return (light blue line) to a simple buy-and-hold strategy (golden line) would have been 44%, and even worse missing out on the top 10 trading days (red line) would have resulted in a difference of 87% in performance.

And finally, although volatility (standard deviation) is generally perceived to be a MSCI GLOBAL EQUITY INDEX: BUY-AND-HOLD STRATEGY VERSUS MISSING THE TOP 5 AND 10 DAYS OF TRADING

These events serve as a good reminder to overconfident investors that forecasting is indeed very difficult in practice. Who could have foreseen that a virus breaking out in one of China’s large cities could have such devastating effects on global investment markets and result in the deepest global recession since WWII? Nevertheless, irrespective of how nerve-wrecking the current episode has been, opportunities always present themselves for patient investors who can hold their nerve. Benjamin Graham once famously said that “the market is like a voting machine in the short term, but in the long run, the market is a weighing machine”.

‘Mr Market’ tends to overreact in the short term to news flow and is obsessed with which investments are popular or not. Whereas in the long run, fundamentals determine the true intrinsic value of the underlying investment.

Another lesson highlighted from this year’s extreme volatility in investment markets is that investors should remain patient and not deviate from their longterm investment goals. In practice, this is easier said than done partly because we are emotional creatures and run the risk of overreacting when the environment deteriorates. Therefore, it is important to get the strategic asset allocation right upfront, as this forms the basis for all investment decisions.

There are too many examples of investors taking on too much risk when markets are performing well, only to reduce the exposure to risk assets (such as equity) after the market has already corrected at discounted prices. The importance of prudent diversification, the ‘only free lunch’ for investors, across asset classes, regions and currencies cannot be over emphasised as it provides the necessary stabilisation for portfolios during extreme events.

The table illustrates the return of a typical Balanced Portfolio (45% ALSI, 25% MSCI ACWI, 5% Global Aggregate Bond Index, 20% ALBI and 5% ZA Cash) alongside each of the underlying asset classes. The outcome from this analysis is that although domestic and international equities have outperformed a balanced portfolio over the past 15 years (as one would expect), the return profile (as measured by standard deviation) of a balanced portfolio is significantly more stable and predictable, which results in a superior risk adjusted return (Return/Std Dev) for investors. It is also perhaps worth highlighting that the balanced portfolio (as defined above) this year has generated a positive return against a negative return of -10% from the local bourse.

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good measure of the riskiness of investments, we view risk rather as the permanent loss of capital. In other words, only when investors are forced to realise an asset at times of extreme market stress or when an investment has gone ‘bad’ will investors incur a permanent loss of capital. Investors should also take note that the probability of incurring a loss reduces significantly as the investment time horizon increases – a stern reminder that investment in equities require an extended time frame.

PROBABILITY OF NEGATIVE RETURNS ON THE S&P500 1927-TODAY

All figures correct as at the time of writing

that look your client gets when you decide to take it off.

Offshore, that is.

Talk to us to find out how our truly offshore investment platform can make your life as an adviser, a whole lot more exciting.

You focus on your clients while we take care of business.

PURPOSE BUILT. Adviser inspired. quazar.co.za • INN8/OFF/002

www.INN8.co.za.

INVESTING FOR THE LONG TERM FEATURE

31 July 2020

Start of a bull rally or more volatility to come?

We live in an eventful era. During these tough economic times, it can certainly feel like the glass is half empty. The disconnect between the current economic environment and the recent rally in equity markets has left many people scratching their heads. Is this the start of a strong bull market, or merely a slight recovery from the aggressive sell-off we saw in March 2020?

T

he world was overturned in March when outbreaks of COVID-19 started accelerating and affecting most markets across the globe.

This saw almost one-third of the world’s population going into lockdown and many companies coming to a complete standstill.

During this time, most financial markets sold off aggressively due to the uncertainty around the effect on businesses both locally and abroad. This resulted in some of the most aggressive local and global sell-offs seen in history and, in turn, also resulted in one of the fastest sell-offs in history.

With this being said, in the weeks post 18 March, markets have also seen some of the strongest returns, resulting in most equity markets clawing back most of their losses.

So, the question begs, is the sell-off/risk-off trade done?

Let’s look at previous sell-offs and their subsequent recoveries in the South African equity market, namely 1998 (emerging markets), 2003 (technology) and 2008 (financial crisis), as well as 2020.

The graph below demonstrates the four abovementioned crises, the time the sell-offs started and the period it took for all capital losses to be recouped.

In other words, if an investor invested R100 on the day the sell-off started, the graph below shows how long it took (measured in days) the investment to reach the bottom (lowest amount) along with the subsequent recovery (in other words, how long it

took for an investor to get back to the initial R100 investment). The X-axis signifies the number of days and the Y-axis the change in the value of the initial R100 investment. share’s return is based on the business’s profitability, From the graph, it becomes clear that the most which is difficult to predict. In uncertain market recent sell-off was one of the most aggressive environments, like the current one, investors tend sell-offs, but the rebound has also been one of the to be especially pessimistic about how businesses quickest. will perform, which can result in an overreaction So, is it the end? Unfortunately, it is unlikely. (to the downside) in the share price.

Remember that share prices reflect the future So, why would you want to own equities when earnings expectations of companies. So, while there is so much uncertainty? Because you’re likely prices of shares might have adjusted, companies to be rewarded with a higher return over the long haven’t realised earnings yet. There might still be haul if you can remain calm and stomach the some further headwinds that the market will have volatility and noise. to digest as companies release their earnings results When your portfolio’s value has declined and the real impact of the lockdown is realised. amid this volatility, you might think that you’ve From the graph, we can see that taken on too much risk. However, it can take anything from 190 to you shouldn’t necessarily conflate BUT WITH 600 days to make up previous volatility with risk. Risk could be losses. You can get cycles during a better defined as the permanent loss VOLATILITY 12-month time frame that feel like of capital (which is realised if you COMES they should actually be playing out exit at a low point) and the chance OPPORTUNITY, over the course of 12 years. that you won’t meet a financial goal.

Once you start digging into the ESPECIALLY FOR Even though a portfolio that is heavily historical numbers, you begin to tilted toward equity might bounce THE PATIENT realise the equity market is even around in volatile environments AND SENSIBLE more unsystematic than advertised. like this, your total portfolio asset Surprisingly, huge up and down allocation might not be overly risky.

INVESTOR moves happening in the same year By reducing your exposure to more is not out of the ordinary. volatile or ‘risky’ assets such as equities, you could Investments with more cyclical equities (such as significantly limit your portfolio’s potential return airlines, banks and energy companies, to name but over the long run. If you have decades left to invest, a few) are typically more volatile. That’s because a a lower return could prevent your money from multiplying at the necessary pace to reach your investment goals.

It’s easy to overplay the significance of volatility because it means we can address the overwhelming feelings of anxiety that occur in times of market stress. But with volatility comes opportunity, especially for the patient and sensible investor.

Ultimately, equity market gains have offset shorterterm losses during market turmoil, and market volatility can be an opportunity to buy equities at a low price.

Eugene Visagie, Client Portfolio Manager, Morningstar Investment Management, SA

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SAVINGS MONTH FEATURE

31 July 2020

Get money smart with #waystosave July Savings Month webinars

J

uly is Savings Month in South launch webinar featuring awardAfrica, and this year the focus is winning personal finance journalist firmly on finding #waystosave and and author Maya Fisher-French; adapting financial plans as we face financial journalist, speaker and the challenges 2020 brings. The South entrepreneur Arabile Gumede; CEO African Savings Institute (SASI), in of Just One Lap and host of the Fat association with Absa, will focus on Wallet podcast, Kirstia van Heerden; financial education throughout July, medical practitioner, broadcaster and bringing together financial experts to social activist Dr. Sindi van Zyl and provide tangible insights on savings Group Head of Wellness at Absa Dr in the #waystosave Webinar Series.

Lesego Rametsi. #waystosave is an initiative of the SASI Chairperson Prem Govender South African Savings Institute (SASI) says, “As we deal with the impact in association with Absa. of COVID-19, we need to be well The pandemic has pivoted many equipped to make decisions such into digital communications, and as taking payment holidays or SASI is no exception. SASI acting accessing savings. Now more than CEO Gerald Mwandiambira says, ever, we need to focus closely on our “We’re focused on finances and get expert building a savings advice.” Govender NOW MORE THAN culture in South cites Wave 2 of the Africa and we’re EVER, WE NEED TO Statistics SA surveys, excited to be able which indicates that FOCUS CLOSELY ON respondents are to reach large audiences through OUR FINANCES AND increasingly accessing this free webinar GET EXPERT ADVICE savings due to reduced series as we share income as a result of knowledge from South Africa’s lockdowns. While more than half of leading personal finance experts to respondents said that their income help people make smarter money has stayed the same since the national choices. The environment is very lockdown started, 25,8% reported a challenging at the moment, and we’re decrease in their income, mostly due addressing relevant and topical issues to business closures. 75% of those including rebuilding your finances with reduced incomes have reduced post COVID-19, bouncing back from their spending to compensate, and retrenchment and saving through half accessed savings to close the stokvels. We invite people to come on income gap. While 14,6% used this journey with us and tackle money UIF claims, one in three relied on challenges, head-on.” extended family members, friends The #waystosave website includes and/or their communities for support. a full online learning platform which The Financial Stability Review will launch as the webinars progress published in May by the SA during July, including challenge quiz Reserve Bank says that household formats. Those who register and finances remain under pressure, complete the challenges could win in line with challenging R10 000 in a tax free savings account. economic and employment Cash is also up for grabs during the conditions. Credit extension webinars and a total of R20 000 will be given away, with several awards of Prem Govender, R1 000 in each webinar set to boost Chairperson, SASI the savings of those who participate. and Gerald Hosted by SASI acting CEO and Mwandiambira, Acting CEO, SASI personal finance author Gerald Mwandiambira and SASI Chairperson Prem Govender, the webinars kick off on 8 July at 19h00 with the

to households increased faster than disposable income in 2019, reflecting a trend change. This increase in lending and how households are using more of their disposable income to service debt are key concerns for the savings rate. The composition of household debt has also moved increasingly towards higher-cost forms of financing.

“Households are spending the highest amount of their disposable income on servicing debt since 2016,” says Govender. “In our increasingly tough economic environment we need to find ways to avoid the credit trap.

We must fundamentally stop living beyond our means and drive a savings culture to break the cycle of intergenerational debt.”

Thami Cele, Head of Saving and Investments at Everyday Banking, Absa Retail and Business Banking, says that while saving in the current environment may seem very challenging, it’s important to have a holistic understanding of your financial situation and focus on what you can do. “It’s time to arm yourself with the knowledge to access tools and make sound saving and investment decisions.

South African

Savings Institute The #waystosave approach is designed to last beyond July Savings Month and will help people to access the expertise and help they need to get on a solid financial footing and prosper.”

Mwandiambira, SASI acting CEO, says it’s important for South Africans to look towards developing innovative savings alternatives and reinforcing positive savings behaviour.

“Cultivating a culture of savings and promoting alternative savings solutions in all spheres remains the focus of SASI and our dedicated partners. Let’s find our #waystosave – it’s never too early to start.”

#waystosave BUILDING FINANCIAL RESILIENCE

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SAVINGS MONTH FEATURE

31 July 2020

WESLEY FUNG Director, Paradigm Shift Financial Solutions

July savings challenge – advice from SASI experts and partners Step one: Set clear financial goals You need to plan your short-term goals (less than five years) where saving money is more important than growing it. This can be settling debt and putting an emergency fund in place or saving for an overseas holiday. Your medium-term goals (five to ten years) require you to balance the security of your money with growing its returns. This may include making provision for your children’s education or buying a car.

Your long-term goals (more than ten years) are where the returns on the money you have accumulated count most – here we’re talking retirement planning or settling your homeloan.

Step two: Track your spending and create a realistic budget You must have a very clear picture of how much money you earn, what you spend it on and how much can be saved. It also helps to cut expenses. Part of this budget exercise is to face the harsh reality of the dent debt makes in our cashflow situation.

Step three: Get rid of toxic debt As far as expenses in your budget go, there is a huge difference between a food bill and debt repayment. Hopefully, your debt had a very relevant purpose initially, but repaying it at a high interest rate makes an ugly dent in a monthly budget. Focus on one debt at a time, concentrating first on those with the highest interest rates.

Step four: Plan for risks Build up your savings by having an emergency fund available for the next time you face some unexpected nasty financial surprise. This is where insurance also becomes a critical tool in your financial plan: it gives you the opportunity to transfer the risk.

Step five: Start saving You have identified your goals, used your budget to determine and free up excess funds by getting rid of debt and managing your expenses, and covered your risks as best as possible. Now the only thing left is to do is invest your surplus funds to reach your financial goals and dreams.

#waystosave BUILDING FINANCIAL RESILIENCE

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South African

Savings Institute

Just because you don’t have ‘wealth’ doesn’t mean you don’t need a wealth manager

W

ith the recent global understanding of a potential client’s pandemic wreaking havoc situation and outlook on personal on financial plans the world finance and subsequently provide a over, the financial advice business is suitable form of wealth management being forced to adapt. The pandemic advice. This advice doesn’t only cover has clearly shown us that putting away where to invest, but how best to utilise for a ‘rainy day’ is no longer a ‘pie-incashflow in order to put the client the-sky’ concept but something that in a position to create long-term, needs to be taken more seriously. pandemic-proof financial stability.

Life can be chaotic and For this relationship to flourish, unpredictable, and wealth managers and securing a financial their clients need to THE RECENT future by ‘trying to save’ work together – and is no longer enough. if a wealth manager REALISATION These days, anyone isn’t doing their very OF THE IMPACT can invest their money best to listen and anywhere at any time, understand their OF COVID-19 and for those wanting client’s situation ON PERSONAL to learn there is a range first before rattling FINANCIAL PLANS off on investment of blog posts, podcasts and YouTube videos plans or strategies, it WILL REQUIRE that explain how to start won’t be a mutually A MAJOR achieving financial goals fruitful, long-term PARADIGM SHIFT relationship. and ultimately financial freedom. Yet, in reality, The recent many find themselves in a situation realisation of the impact of COVID-19 that general advice isn’t always able on personal financial plans will require to cover: never-ending debt, the need a major paradigm shift as wealth for money to help parents, or finding managers re-assess what it means to that little something extra to subsidise assist their clients to save for a rainy an academic course or a side-line day, the next pandemic, or whatever business. we opt to call it from this point on.

Now more than ever is the time As always, I stress the importance of to consider partnering with a wealth encouraging clients to stick to the plan manager, regardless of one’s ‘wealth’ – that we have co-crafted, which will because it’s only with a holistic view of carry them through tough times like a client’s lifestyle that wealth managers these without derailing their future can offer guidance on how to manage financial lives. money.

Maybe if we had all saved a little Upon meeting a new client, it’s better, the situations many of us find imperative that wealth managers ourselves in right now would not be as take the time to gain an intimate hard hitting to us or the economy.

SAVINGS MONTH FEATURE

31 July 2020

JASON HINTON Retail Business Development, Prescient Investment Management

Successful investing is not about the one-stock wonder

S

uccessful investing is about getting easy wins and watching them compound over time. In the words of Warren Buffet, “I don’t try to jump over seven-foot hurdles, I look for one-foot hurdles that I can step over.” At Prescient Investment Management, we believe that simplifying investment products and playing to our strengths make for a successful longterm investing experience with the Prescient Balanced Fund (the ‘Fund’).

The Fund was launched in May 2014 with the primary objective to combine the best attributes of active and passive management. This has resulted in a ‘best of both worlds’ offering, giving investors highly efficient market exposure. In this article, we focus on two of the components that we believe constitute the best of both worlds proposition, being a) equity management and the Prescient process that constrains tracking error and manages exposure very close to the benchmark, and b) low costs.

and called the group Stock Pickers. In this group, we excluded all the funds with less than R200m in assets, the passive funds, and those with specialist mandates – like Shari’ah funds, for example.

We then compared the general equity funds of the Stock Pickers to what we believe an illustrative, yet appropriate, market index is, based on the information at hand. This market index was defined as a composite consisting of 50% All Share Index and 50% SWIX All Share Capped Index after fees. The objective is to understand how the active equity funds of the Stock Pickers performed relative to the market index over the sharp sell-off from 18 February to 19 March, and then over the subsequent recovery period.

Investors often want to time the market, but as proven many times before, the only strategy that works over the long term is time in the market. This realises the power of compounding. Unfortunately, this effect is too often mitigated by high fees...

Prescient understands this. The Fund’s management fee is therefore only 0.30% excl. VAT, while the Total Investment Charge (TIC) is only 0.50%. Below is an illustration of the meaningful difference in ultimate value a 1% fee difference can make over a savings horizon, based on the assumptions shown under the two scenarios.

Source: Prescient

The first step is to test the thesis that active stock picking results in alpha over passive portfolios, on average. The thesis states that active stock picking results in downside protection during market crashes and this leads to long-term outperformance.

We carved out a subset of funds from the ASISA Multi-Asset High Equity category (i.e. balanced funds)

Source: Morningstar

The forecasts are based on reasonable assumptions, are not guaranteed to occur, and are provided for illustrative purposes only. Returns are not guaranteed.

From the above diagram, we can deduce that, on average, the Stock Pickers did deliver some alpha on the downside but lagged during the subsequent recovery.

However, during this whole volatile period, there is little evidence of any active alpha on average produced by the Stock Pickers, according to our analysis.

Jack Bogle, Founder of Vanguard, once said, “If you pack 1 024 gorillas in a gymnasium and teach them each to flip a coin, one of them will flip heads ten times in a row. Most would call that luck, but when that happens in the fund business, we call him a genius!”

The ultimate objective is to achieve the highest average return, given the highest risk you are prepared to accept. Take on too little risk and you might not make headway on your journey to financial independence; take on too much and investing can become an uncomfortable rollercoaster ride.

We looked at some of the key attributes Prescient Investment Management encompassed in the Prescient Balanced Fund and believe that highly efficient market exposure is a clear roadmap to investment peace of mind.

About Prescient: Prescient Holdings (Pty) Ltd is a diversified, global financial services group with a 21-year track record of providing solutions to our clients in Asset Management, Investment and Platform Administration, Retirement Solutions, Stockbroking and Wealth Management. As at 31 December 2019, the group had R98.4bn client assets under management (AUM) and administered R478bn client assets (AUA), split between asset admin (R328bn) and unitholder admin (R150bn). Prescient has established operating businesses in the following main jurisdictions: Prescient has successfully operated for 21 years in South Africa, 12 years in Ireland & the UK and 6 years in China.

Prescient Management Company (RF) Pty Ltd (the manager) is approved under the Collective Investment Schemes Control Act (No.45 of 2002). Prescient Investment Management (Pty) Ltd is an authorised Financial Service Provider (FSP 612) under the Financial Advisory and Intermediary Services Act (No.37 of 2002). This document is for information purposes only and does not constitute or form part of any offer to issue or sell or any solicitation of any offer to subscribe for or purchase any particular investments. Opinions expressed in this document may be changed without notice at any time after publication. We therefore disclaim any liability for any loss, liability, damage (whether direct or consequential) or expense of any nature whatsoever which may be suffered as a result of or which may be attributable directly or indirectly to the use of or reliance upon the information. There are risks involved in buying or selling a financial product. There are no guarantees provided. Collective Investment Schemes in Securities (CIS) should be considered as medium to long-term investments. The value may go up as well as down and past performance is not necessarily a guide to future performance. CIS’s are traded at the ruling price and can engage in scrip lending and borrowing. A CIS may be closed to new investors in order for it to be managed more efficiently in accordance with its mandate. Performance has been calculated using net NAV to NAV numbers with income reinvested. There is no guarantee in respect of capital or returns in a portfolio. Prescient Management Company (RF) (Pty) Ltd is registered and approved under the Collective Investment Schemes Control Act (No.45 of 2002). For any additional information such as fund prices, fees, brochures, minimum disclosure documents and application forms please go to www.prescient.co.za.

Total investment charge (TIC): The TIC is equal to the sum of the unit trust›s total expense ratio (TER) and transaction costs, where available. The TER is the unit trust’s total expenses calculated over the past three years expressed as an annualised percentage of the average value of the unit trust.

Reaching R1 billion via a balanced approach Investors are looking for calm amid the Covid-19 storm, and they are finding it in the Prescient Balanced Fund.

The Fund, which recently passed the R1 billion mark, offers investors the best of both worlds. It combines active and passive management into a multi-asset portfolio that is agile, yet sturdy enough to ride out even the most turbulent market conditions.

In managing the Prescient Balanced Fund, Prescient Investment Management plays to its strengths and delivers investors a consistent, long-term investment experience – no matter what the markets are doing.

Disclaimer: Prescient Investment Management (Pty) Ltd is an authorised financial services provider (FSP 612). Collective Investment Schemes in Securities (CIS) should be considered as medium to long-term investments. The value may go up as well as down and past performance is not necessarily a guide to future performance. CIS’s are traded at the ruling price and can engage in scrip lending and borrowing. A CIS may be closed to new investors in order for it to be managed more efficiently in accordance with its mandate. Performance has been calculated using net NAV to NAV numbers with income reinvested. There is no guarantee in respect of capital or returns in a portfolio. Prescient Management Company (RF) (Pty) Ltd is registered and approved under the Collective Investment Schemes Control Act (No.45 of 2002). For any additional information such as fund prices, fees, brochures, minimum disclosure documents and application forms please go to www.prescient.co.za. Please be advised that there are representatives acting under supervision.

www.prescient.co.za Prescient Investment Management is an Authorised Financial Services Provider (FSP 612)

Prescient IM 2020 Money Marketing Ad_revised.indd

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RISK

31 July 2020

‘No insurer can afford to offer widespread pandemic coverage within standard policies’

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pecialist claims preparing company, Insurance Claims Africa (ICA), is alleging that local insurance companies are frustrating legitimate claims by businesses following COVID-19, insisting that the virus is a declared notifiable disease – but can any insurer afford to offer widespread pandemic coverage within standard policies? The answer from the industry is a clear ‘no’.

In a statement, Santam says it is committed to supporting its clients through the COVID-19 pandemic and playing a significant role in the economic recovery of the country.

“To date, we have committed more than R400m in COVID-19 funding to provide relief through premium reductions, premium refunds, as well as direct support to insurance industry business partners and key government initiatives. Due to the unprecedented impact of the pandemic on economic activity, we have received a number of claims and enquiries about the extent to which businesses are covered by their short-term insurance policies.”

Against this backdrop, Santam says it’s imperative to offer clarity

on the full scope of its ‘Contingent Business Interruption’ insurance and ‘Cancellation of Bookings’ cover with specific reference to COVID-19.

More so in view of the widely held perceptions that short-term insurers will cover all claims linked to the lockdown and COVID-19.

OUR CONTINGENT BUSINESS INTERRUPTION AND CANCELLATION OF BOOKINGS POLICIES DO NOT COVER PANDEMICS “As with the majority of our counterparts in the short-term insurance industry locally and globally, our Contingent Business Interruption and Cancellation of Bookings policies do not cover pandemics. The reality is that no insurer can afford to offer widespread pandemic coverage within its standard policies; the premiums would be too high and it would become unaffordable for the majority of businesses.”

At Santam, a small minority of its

business policyholders have chosen to buy cover that includes protection against contagious or infectious diseases.

“In these cases, this protection is very specific and covers businesses for interruptions as a result of the outbreak of a disease at a local level. Our policy wording is quite clear in that it states that a business needs to be directly impacted by a disease such as COVID-19 in order for the cover to respond. If a policyholder can show this to be the case, then we will pay their claim.”

Santam says that what it is seeing is that a number of its policyholders were forced to close their businesses at the start of the national lockdown. “The national lockdown is not a peril that is covered by our policies and so they would not be able to make a successful claim for this event. It is a requirement in terms of the policy that the business is directly affected by a case of COVID-19.

For example, if a policyholder ran a hotel and one of their workers became infected with COVID-19, forcing them to close their operations, then they would have a claim for as long as it took them to clean their premises and return to operations. The intention was never to

provide cover for widespread pandemics or a national lockdown.”

Santam adds that it expects to pay many claims related to COVID-19. “As a company we pride ourselves in doing ‘Insurance Good and Proper’, and all claims that meet the definition of loss described in our policies will be settled quickly. We are very aware that some of our clients will be disappointed when they discover they are not covered against the lockdown. We will treat all claims in a fair manner, and where we are liable, we will not hesitate to settle.”

Editor’s note: Just before going to press the FSCA issued insurance companies with a new guideline regarding COVID-19 business interruption claims.

The FSCA’s head of the supervisory division of insurers, Makgompi Rapasha, has concluded that claims made by certain policy holders are valid and must be honoured. The guideline makes provision for claims where businesses can provide proof that a COVID-19 case had been reported in the workplace or within a defined radius of its premises and this led to the closure of the business before lockdown.

How new drunk driving law will affect car insurance

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DRIVERS WON’T BE ALLOWED TO DRINK ALCOHOL AT ALL

he days of having a beer after work and driving home will soon be over – and that’s not just because of the lockdown restrictions. Once South Africa’s strict new drunk-driving laws have been passed, drivers won’t be allowed to drink alcohol at all.

Currently, it’s still legal to get behind the wheel if your bloodalcohol level is under 0.05g per 100ml. The new bill adopts a zerotolerance approach to drunk driving by setting the legal blood-alcohol limit for drivers at 0%.

This has serious implications for South African drivers. If you’re involved in an accident after having even a single drink, you won’t just find yourself on the wrong side of the law, but it can also have a major impact on your insurance, warns King Price’s customer experience partner, Wynand van Vuuren.

“Insurers have the right to refuse to pay accident claims if the driver’s blood alcohol level is over the legal limit.”

This clause is included in almost every car insurance policy in

28 WWW.MONEYMARKETING.CO.ZA

SA. Previously, it was difficult to determine whether people were over the legal limit, and whether their driving ability was in fact impaired.

“The new zero-tolerance approach removes this grey area,” says Van Vuuren. “If you break the law by driving with alcohol in your blood, your insurer will have no obligation to meet your claim.”

If you’re guilty of this offence, it’s also likely that your premium will increase significantly, as you’ll be considered a higher risk. In the worst-case scenario, if you’re convicted of drunk driving or have your licence endorsed or suspended, your current insurer may cancel your policy, and you may find it difficult to get car insurance at all in future.

While the new law will potentially reduce the number of accidents caused by drunken driving, it won’t immediately affect premiums, says Van Vuuren. “If we see fewer accidents due to fewer drunken driving incidents in the longer term, though, we may see premiums coming down due to lower claims costs for insurers.”

The new law won’t see existing polices being altered, as most policies already stipulate that drivers must abide by the law. Therefore, the 0% legal blood alcohol limit will apply as soon as the new law comes into effect.

The bottom line? Once COVID-19 regulations are relaxed to the point where social gatherings are allowed again, people will have to make sure they have another form of transport if they have a drink or two, says Van Vuuren. “King Price clients can add the king’s cab service, which gets the driver and their car home safely when it’s not a good idea to drive. It’s a small additional cost for major peace of mind. Or make Uber your friend, or get a designated driver. But make a plan. It’s just not worth taking the risk of getting behind the wheel.”

Wynand van Vuuren, Customer Experience Partner, King Price

RISK

31 July 2020

CHRISTIAAN STEYN Head of Business Insurance, MiWay

Accelerating change is the new normal

I

t would be safe to say that every are now doing substantially less single business has been affected by mileage than usual. the outbreak of COVID-19. Not only With less vehicles on the road, the are there new regulations governing the insurance industry has also had to way businesses operate, but regulations adapt to these changes by adjusting also keep changing. Businesses have premiums to reflect the changed had to adapt and demand flexibility and risk. It is important for insurers to concessions from their insurers and help business clients build financial other business partners. resilience in the current economic If COVID-19 has taught us anything, climate, without compromising risk it is that you can never be too prepared mitigation. More and more insurers when it comes to adapting to and are going out of their way to address taking advantage of change. Agile the implications of low mileage for businesses that have been able to react personal insurance premiums but very swiftly and reinvent few have considered this themselves have been provision for business MANY ARE able to move from ‘tried insurance clients. This DISCOVERING and trusted’ models to is why MiWay Business new ones that allow their THAT SOME OF Insurance offers varying business to thrive. Across levels of discounts THE NEW WAYS based on each vehicle’s all sectors, companies THEY HAVE have had to think average monthly differently about every mileage. Business BEEN FORCED aspect of the way they vehicles that drive less TO ADOPT run a business – anything than 1 000km a month from adjusting their office could qualify for a MAY BECOME seating arrangements and discount of up to 30%.

PERMANENT managing production It is an opportunity disruptions to the changing customer for an insurer to tailor an existing habits and consumption. product to provide peace of mind and In the process, many are lower premiums – more importantly, discovering that some of the new though, it demonstrates the kind of ways they have been forced to adopt cooperation we need to shock-proof may become permanent. our business ecosystems.

All these changes have affected, and As South Africa moves towards will continue to affect, how businesses lower levels of lockdown, we will operate. Some businesses have had continue to learn lessons and adapt. to adjust their operations in order to Businesses must regroup and recover manage more deliveries (restaurants, at each stage of the unexpected. The e-commerce, retail stores), but in keys to survival will be how well you many circumstances, business vehicles have planned for change, and how have stood idle due to supply chain responsive your ecosystem of business disruptions impacted by lockdown partners and suppliers is to a rapidly regulations. Many business vehicles changing business environment.

COVID-19 inspiring innovation in shortterm insurance sector: Survey

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esults of a survey conducted amongst 1 200 Old Mutual Insure (OMI) and Elite brokers provides rich data on just how significantly the COVID-19 crisis and, especially, the national lockdown has impacted the short-term insurance industry.

Of interest is a range of positive innovations that brokers believe lockdown is likely to leave in its wake. “These unexpected learnings are likely to benefit the industry long after lockdown is lifted,” says Christelle Colman, Managing Director of Elite Risk Acceptances.

Significantly, COVID-19 lockdown has brought home, now more than ever, the need to save. Black swan events like the current global pandemic illustrate “that nothing can be taken for granted. The unforeseen is ever present. And the best preparation for the unforeseen is savings,” says Colman.

Survey results also indicate how the COVID-19 lockdown has highlighted the need for both individuals and businesses to embrace change, especially technological change. Lockdown has forced many brokers and their clients to “rapidly introduce technology and new ways of working that they had previously been dragging their feet on”, Colman adds.

Many of these rushed changes have improved efficiency and productivity.

“Utilising digital platforms saves time. Working from home has also reduced overheads in many instances,” she states. Interestingly, only 13% of brokers faced challenges ‘keeping staff motivated and focused’. In fact, much of the qualitative data pointed to staff preferring to work from home where they believed they were much more motivated and productive. This points to the “possibility of remote working arrangements becoming more permanent – even after lockdown is lifted”, she notes.

That said, 33% of brokers surveyed reported that ‘speed of doing business’ was a challenge in lockdown. 32% reported that ‘staying connected with clients or staff ’ presented difficulties. 22% of brokers reported that they were struggling with claims response times.

Nearly half of brokers polled (48%) reported that lockdown has had a medium to high negative financial impact on their business. Slightly less than half (46%), however, believed that it is too soon to tell how large a negative financial impact lockdown is having. Many brokers believed that the full impact of the crisis would only be visible once June collections were in. Most brokers, however, had already experienced various degrees of unpaid premiums and policy cancellations.

Brokers were, however, appreciative of the payment relief options provided by insurance companies like OMI and Elite. These relief measures appear to have been a great help to both them and their clients.

The most common client concerns reported by brokers included: getting discounts on premiums, payment holidays, applicability of existing covers in lockdown, the impact of lockdown on the market, eroded investment values, and temporary policy cancellations. Brokers also reported that clients were anxious about when they would be able to meet with their brokers, as well as how long lockdown would continue before things returned to normal. There had also been a lot of requests for reduced covers.

Looking ahead Looking to the future, brokers were generally of the belief that the long-term impacts of COVID-19 lockdown will prove to be a mixed bag of positive and negative impacts.

On the positive front, brokers generally believed that the current crisis has led to the acceptance of doing business differently, has normalised remote work, reduced the need for and cost of office space, increased the use and efficiency of virtual meetings, and promoted the use of digital platforms and social media. Lockdown has also assisted many businesses, prioritised marketing, improved competitivity and shifted focus much more squarely onto retaining existing business while exploring new business opportunities.

Less positively, brokers either report or predict loss of income and commissions as the economic Christelle impact of COVID-19 lockdown reduces customers’ Colman, ability to afford insurance. Clients are also a lot Managing more price sensitive. This means that in future Director, Elite Risk policies will, inevitably, “cover less and exclude Acceptances additional benefits”, predicts Colman.

WWW.MONEYMARKETING.CO.ZA 29

RISK

31 July 2020

The importance of keeping cover in place

I

n 2019, the average duration of an income protection claim at FMI (a Division of Bidvest Life Ltd) was 71 days. While many may believe this to be too brief for any permanent financial setback, when compared to the financial loss felt by all South Africans during the COVID-19 shutdown, it’s clear that the impact of being unable to earn an income for as little as two months is enormous. It shouldn’t take a pandemic to truly appreciate the value of having the right insurance policies in place.

Not surprisingly, in times of financial strain insurance policies are usually the first to be cut. Yet there couldn’t be a more important time to keep these lifelines in place. The heightened chance of falling ill in this current context only compounds the magnitude of risks South Africans face on a daily basis, which is all the more reason for customers to be vigilant about keeping their policy.

As individuals start to return to work and resume their monthly earnings, yet another financial setback due to illness or injury would be felt all the more keenly after this economic downturn.

Of course, there are other options available to those who need it. Designed to relieve some of the financial strain our policyholders are experiencing, while still enabling them to preserve their policies, FMI’s grace period allows customers to keep their cover in place for up to 60 days after missing a premium payment. And our reinstatement option

30 WWW.MONEYMARKETING.CO.ZA

means they can reduce their cover and premiums on certain benefits while money is tight, and increase their cover back to the original amount on the next policy anniversary once they’re more financially comfortable – despite any potential health changes or if they’ve claimed.

Three ‘life’ lessons to hold onto right now: The importance of income protection: A 30 year old male, for example, has a slim 15% chance of dying before the end of his working career. In contrast, he has a 91% likelihood of being unable to work for more than 14 days during his working years. Income protection is the insurance policy that provides for your lifestyle today, ensuring your financial comfort when times of injury and illness strike1.

Income protection is not only for serious risk events: While some of our claims have been serious, longterm cases, the most common events are knee replacement surgery, heart attack, hernia repair, spinal fusion, hysterectomies and hip replacement.

It happens more often than you think: According to FMI’s 2019 Claims Stats, the biggest risk any individual will face throughout their working career, no matter their age, is a temporary injury or illness. In fact, a third of our policyholders claim on

their income protection policies.

Life insurance doesn’t have to be the intangible drain that many customers come to resent. The nature of the risks we face on a daily basis mean that the majority of customers will almost certainly need to submit a claim and reap the benefits of a financial pay-out when an injury or illness occurs. With the right insurer, and a solid income protection policy, this could be a relationship that keeps on giving, especially in times of financial strain and uncertainty.

For advisers, in times like these the most important step is to communicate with your clients. It’s important to reach out to those who may be experiencing financial difficulties before they default on their policies. A lapse could make it more difficult for a client to qualify for the same cover again, especially if their health changes, and it might be more expensive if they are older. One way to ease the financial burden for clients who only have lump sum cover in place, is to consider switching to income benefits. Income benefits are typically more affordable than the lump sum equivalent and cover your clients not only for serious illnesses, permanent disability or death, but for temporary illness and injury as well.

1

FMI Risk Reality calculator, 30 year old male, non-smoker

EDITOR’S BOOKSHELF

31 July 2020

A WOMAN MAKES A PLAN ADVICE FOR A LIFETIME OF ADVENTURE, BEAUTY, AND SUCCESS

BY MAYE MUSK

BOOKS ETCETERA

SOUTH AFRICA BEYOND COVID-19: 30 EXPERTS ON TRENDS, CHANGE AND RECOVERY PIETER DU TOIT (EDITOR)

When Maye Musk decided to make grey hair glamorous, she became an international model and a worldwide speaker in her sixties – a far cry from the young divorcée living living and working in Durban to make ends meet to provide for her three children.

Things have not always been easy for the mother of South African-born entrepreneur Elon Musk. She struggled emotionally and financially as a single mother to Elon, Kimbal and Tosca, battled weight issues, and she had to restart her life and her practice as a dietician in numerous new cities over and over again.

In her compelling memoir, Maye shares hard-earned wisdom and frank, practical advice on careers (“the harder you work, the luckier you get”), family (“let those you love go their own way”), health (“there is no magic pill”), adventure (“make room for discovery, but always be ready for anything”), and more. With an indomitable spirit, Maye overcame her hardships with a nononsense attitude and the firm belief that while one cannot control everything, you can always make a plan.

In the aftermath of the worldwide outbreak of COVID-19, 31 of South Africa’s top analysts, economists, academics and journalists* try to chart a way forward, identify our biggest stumbling blocks, and offer solutions for when the virus subsides.

When reports emerged from China in December 2019 about a seemingly incurable virus, few South Africans took notice. But less than three months after those reports, in March 2020, South Africa went into a full lockdown. Life as we knew it ground to a halt. Schools were closed, businesses were shuttered, a curfew imposed, freedom of movement curtailed and hospitals prepared for an unprecedented health storm.

The spread of COVID-19, the disease caused by the novel coronavirus, has forced the world and South Africa to reconsider how society works. Can the economy continue to function as it has for the past century, and how can it be reconfigured to be more inclusive? In a post-state-capture country, what must citizens expect and demand from their government? And how can we bridge societal cleavages – many caused by our unjust past – so that we emerge a stronger nation beyond COVID-19? *Contributors include Thabi Leoka, Koos Bekker, Ann Bernstein, Dawie Roodt, Isaah Mhlanga, Qaanitah Hunter, Thuli Madonsela and many others

BEZONOMICS

BY BRIAN DUMAINE Amazon is the business story of the decade. Jeff Bezos, the richest man on the planet, has built one of the most efficient wealth-creation machines in history. Amazon’s tentacles are squeezing industry after industry and, in the process, upsetting the state of technology, the economy, job creation and society at large. So pervasive is Amazon’s impact that business leaders in almost every sector need to understand how this force of nature operates and how they can respond to it.

Saying you can ignore Jeff Bezos is equivalent to saying you could ignore Henry Ford or Steve Jobs in the early years of Ford and Apple. These titans monumentally changed how we do business, redefining the rules on a global scale. Bezos is the new disruptor on the block. He has created a 21st century algorithm for business and societal disruption. He has turned the retail industry inside out, is swiftly dominating cloud computing, media and advertising, and now has his sights trained on every other domain where money changes hands and business is transacted.

But the principles by which Bezos has achieved his dominance – customer obsession, extreme innovation and long-term management, all supported by artificial intelligence turning a virtuous-cycle ‘flywheel’ – are now being borrowed and replicated. ‘Bezonomics’ is for some a goldmine, for others a threat, for still others a life-shaping force – whether they’re in business or not.

Brian Dumaine’s Bezonomics answers the fundamental question: how are Amazon and its imitators affecting the way we live, and what can we learn from them?

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