MoneyMarketing October 2024

31 OCTOBER 2024

Better financial education for all

TWO-POT RETIREMENT SYSTEM

There’s been a larger than expected rush of people withdrawing from their retirement savings. We look at how the industry has coped.

Pg 4-6

TECHNOLOGY

Technology is revolutionising financial advising by automating tasks, enabling personalised strategies, and using advanced analytics to enhance client engagement.

Pg 16-18

MEDICAL AIDS

What’s the best way forward for the medical insurance industry, with all the threats on the horizon? We investigate some of the latest developments and how they impact financial advisers.

Pg 19-21

PRIVATE EQUITY

Do private equity funds still offer better returns and resilience due to scale and stability? We take a deep dive into this asset class and its current performance.

Pg 22-24

By Unati Kamlaina Commissioner of the FSCA

Speaking at the FSCA Financial Education inaugural Summit, Unati Kamlaina, Commissioner of the FSCA, spoke of the dire need for financial education in South Africa. The Summit was aimed at elevating the strategic discussion around financial education and motivating heads of financial institutions and other relevant stakeholders to pledge their commitment towards certain financial education goals.

Financial education in South Africa has come a long way from simply being understood as offering basic tips on budgeting and saving. Today it’s about much more than that. It’s about empowering individuals with requisite skills and knowledge necessary to make informed financial decisions, protect oneself from financial missteps, and build the confidence to engage with sometimes complex financial products and services.

Without this proper educational foundation, many end up making choices that worsen their financial situation rather than improve it.

It is also about building resilience against economic challenges and, ultimately, enhancing the overall wellbeing and even economic stability of the country. We recognise that the challenges facing financial customers today – whether it is economic pressures, increasing vulnerability, or the rapid evolution of technology – demands a unified approach to financial education.

Alliances essential

It is only by working together, pooling our resources, and strategically aligning our efforts that we can ensure that financial education is not merely accessible, but also impactful. We all know that the rise in cost of living is hitting South Africans hard, with high indebtedness - all of these creating financial strain on household balance sheets.

In 2021, the Human Sciences Research Council reported that 71% of the population didn’t have emergency savings, leaving them particularly exposed to financial shocks. Additionally, millions of creditactive consumers are behind on their debt repayments by more than three months. The Covid-19 pandemic also further exposed how vulnerable many of our households are to financial shocks.

So financial education is important, particularly in this economic reality, as it assists people to go through tough times and empowers them to make informed decisions in safeguarding their financial wellbeing.

Take, for example, the new two-pot retirement system. The undoubted outcome is that without a proper understanding of the impact of early withdrawals, members of retirement funds might end up jeopardising their long-term financial security.

The temptation to dip into retirement funds early, especially when one is under pressure, could leave many South Africans with insufficient savings for their retirement years. This highlights why financial education is so crucial. People need to fully understand the impact of their choices.

Financial education is at the centre of shaping customer outcomes in the financial sector. In this context, we urge all stakeholders – retirement funds, employers, unions, and others – to intensify their efforts to ensure that their members and employees have the knowledge they need to make smart decisions.

Addressing technological innovation

Another key issue that calls for a unified approach to financial education is the subject of the rapid innovation and technological advancements in the financial sector. Whether this is through new products such as crypto, the digitisation of channels to which financial services are distributed, or the rapid use of artificial intelligence in the provision of financial services.

Sure, these new products and services offer convenience and broader access, but they also present risks, especially for consumers who might not fully understand how these innovations work. The increase in digital fraud and online scams underscore this point.

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As such, our financial education efforts need to keep pace with these innovations. We need to make sure that consumers can take advantage of these advancements without falling prey to the risks that they bring. Financial education is also essential to achieving true financial inclusion. Yes, we’ve made lots of progress as a country in promoting access to financial services, with just over 80% of South Africans now having a bank account. But true financial inclusion remains a challenge. Just having an account doesn’t mean people know how to use it effectively, as evidenced by the data from the FinScope Consumer Survey 2023, which indicates that 37% of account holders withdraw all their funds immediately upon receiving the deposit.

“Without financial literacy, even the best regulatory frameworks can fall short of fully delivering protection for financial customers”

This behaviour points to a deeper issue. Many individuals may not fully understand how to use financial products and services to meet their needs, whether due to mistrust, limited income or simply not having the right knowledge. But through adequate financial education, we can empower people to maximise the benefits of the financial services available to them and understand the key risks, and even contribute to

Ensuring proper grasp of products

Another example is the widespread use of funeral insurance, sometimes used and understood as a form of saving, and the low uptake of other forms of insurance. These are signs that many people don’t fully grasp the range of financial products that could better serve their needs. If we don’t address these with proper education, true financial inclusion won’t happen, and consumers will remain vulnerable.

Given the severity of the issues, it is quite clear that no single entity’s financial education efforts or programmes can address them alone. This is why a unified and collaborative approach is essential to effectively tackle these challenges and ensure that financial education reaches every South African in a meaningful way.

National Treasury’s policy document, which introduced the Twin Peaks model of regulation in South Africa, underscores the need for collaboration. Structures like the National Consumer Financial Education Committee and initiatives such as the Money Smart Week South Africa have been instrumental in fostering this unified approach.

However, the rapidly evolving financial sector landscape demands that we go beyond just

working together. We must commit to having clear and measurable targets if we want our efforts to have a lasting and meaningful impact. For our part, as a market conduct regulator of the financial sector, the FSCA has been actively promoting consumer education, a commitment that dates back to the time of our predecessor, the Financial Services Board.

This included the establishing of the National Financial Education Foundation to fund and enhance financial education initiatives across the country, as well as rolling out various financial education and literacy programmes. The introduction of the Twin Peaks model of regulation through the Financial Sector Regulation Act 2017 has further elevated our role, placing financial education at the core of our mandate. This is based on the recognition that financial education is not just an add-on to consumer protection. It is fundamental to it.

Empowering consumers

Our strategic approach centres around empowering consumers through direct financial education while ensuring that the financial education provided by financial institutions is appropriate and beneficial to consumers. We appreciate the feedback we’ve received from stakeholders on our financial consumer education conduct standard, which will be finalised and implemented hopefully later this year.

The intended outcome of this approach is to create empowered consumers, individuals who understand their rights, are knowledgeable sufficiently about financial products, and are better equipped to recognise fair and unfair treatment. While we are doing good work in this area, we recognise that we cannot do it alone. The role of financial institutions is crucial. These institutions are on the front lines. They directly interact with consumers and shape their financial behaviours and decisions all the time.

However, the commitment to financial education should not be reduced to a checkbox for compliance with the financial sector code, which requires 0.4 percent of annual net profit after tax to be spent on consumer education, nor should it be seen solely as a matter of corporate social responsibility or as a way of creating awareness of specific products and services. Both approaches fall short of making a meaningful impact, as they often prioritise compliance or marketing over genuine consumer empowerment.

Financial education should be embraced as a business imperative, one that, when invested in adequately, can build trust, enhance customer loyalty and ensure long-term sustainability. A well-informed consumer base is more likely to trust the financial institutions they interact with, leading to stronger customer relationships, fewer financial mishaps, and a far more resilient financial sector. I want to acknowledge and commend those institutions that have already recognised this and have adopted an

Our two main features in this issue touch on some of the most newsworthy topics in the industry right now – the rise of technology, and medical aids. While technology has been on the radar for some time now, the pace of change has accelerated over the past two years, with the rise and implementation of AI. The burning question is how best the technology can be utilised to assist financial advisers. It was a big topic of discussion at the recent Morningstar Investment Conference, and the ultimate consensus is that while AI is extremely useful in terms of taking care of mundane tasks, the role of the adviser in terms of offering curated, personal service should never be surpassed.

We’ll be covering medical aids over the next two issues, keeping you informed of all the new rates and product updates, as well as the latest happenings related to the NHI. While Health Minister Aaron Motsoaledi seems determined to push along with the current bill as it stands, President Cyril Ramaphosa has been more conciliatory in recent weeks, being open to discussions with business organisations about their objections. While a revised healthcare system is essential for the wellbeing of all South Africans, there’s a clear need for the government to get its house in order before anything can move forward.

Meanwhile, a compromise solution put forward by the Hospital Association of South Africa (HASA), which makes it compulsory for everyone in formal employment to take out health insurance, was met with mixed reactions. It’s a middle-ground option that could work for everyone… but only time will tell.

Stay financially savvy,

Sandy Welch Editor, MoneyMarketing

@MoneyMarketingSA

@MMMagza www.moneymarketing.co.za

approach that treats financial education as a business imperative.

Without the proper foundation, our collective efforts to enhance financial literacy won’t reach their full potential. As such, the education sector is key to laying this foundation by integrating financial education into the curriculum and introducing young people to financial concepts as early as possible. I want to acknowledge the important work that the Department of Basic Education has been doing in collaboration with other stakeholders to incorporate financial education into school curricula.

As we embrace a unified approach to education, it is crucial that we also tap into technology to expand our reach and make our impact bigger.

Momentum Corporate was digitally ready first. Two-Pot, no problem

It has been over a month since the two-pot system went live in South Africa, and Momentum Corporate was one of the first employee benefits providers that was ready. We not only paid claims from day one, but we did it through a fully digital withdrawal experience that aligns with our members’ financial journey.

“Momentum Corporate continues to set the benchmark in digital solutions, staying at the forefront of needs-based innovations”

This continues our legacy of innovation – starting with the launch of FundsAtWork in 2000 – which revolutionised the employee benefits industry. Since then, we’ve introduced several industry-firsts, including a self-service website for both members and financial advisers, and the automation of contributions and claims processes as early as 2004.

In week one we processed over 15 000 withdrawal requests from FundsAtWork umbrella fund members, with an average withdrawal of R15 000. These early withdrawal patterns give us insight into the demographics of our members and their financial behaviours:

46.8% of claimants are female, with 53.2% male

Most claimants (46%) are aged between

30-39, followed by 32% between 40-49 –prime ages for those managing high expenses, such as bonds, raising children, extended families and the current cost of living.

Our ambition to support our members’ financial dreams was realised from day one. We adapted our platforms in real-time to handle high volumes, offering multiple seamless ways for members to access their funds. About 69% of withdrawals were processed through our omnichannel self-service tools, including:

• WhatsApp, where we handled over 57 000 engagements since 2 September 2024

• Member portal, designed for ease of use, allowing thousands of members to submit claims and engage with their retirement funds

• Smart benefit statement, which was adapted in real-time to help +15 000 members flex their benefits, view their savings, and submit claims directly from their smartphones.

Momentum Corporate continues to set the benchmark in digital solutions, staying at the forefront of needs-based innovations that cater to the evolving demands of the employed in South Africa.

Experience the future of employee benefits.

Go to Momentum Corporate today to learn more about our digital-first solutions.

Did It FirstAnd on Time

A digitally led approach to two-pot

By Kobus Barnard CEO Allegiance Consulting

Combatting present bias in the two-pot system

At the time of writing, the two-pot retirement system has been in effect for a little more than two weeks. Despite months of preparation, client communication and education from providers, the volume of withdrawals has exceeded expectations. While partial access to retirement funds can solve immediate liquidity problems, the potential long-term damage to clients’ retirement savings cannot be ignored. This leads us to one of the biggest challenges in retirement planning: present bias.

Present bias is why clients tend to ‘treat themselves’ today at the cost of their future selves. It helps explain why approximately R4.1bn has already been withdrawn from the two-pot system in South Africa (at the time of writing). SARS were able to process quite an extensive number of applications, and they did this quite efficiently. The question is whether clients are using these withdrawals wisely or risking future financial instability.

“Financial advisers play an essential role in guiding clients through this transition, serving not only as planners but as behavioural coaches”

The temptation to access retirement funds now is understandable. With rising living costs, high-interest debts, and unforeseen medical expenses, many clients may feel that accessing these funds is their only option. However, for financial advisers this is an important opportunity to guide clients back to a long-term focus.

Understanding present bias

Humans naturally prioritise immediate gratification over future gains – a behaviour shaped by our evolutionary past, when survival meant focusing on the present. This instinct is still reflected in our decisionmaking today.

Present bias is a cognitive bias where we undervalue future rewards in favour of immediate satisfaction. Your clients may feel that tapping into their retirement savings now will provide relief from immediate pressures, but it comes at a cost that might not be obvious until years later. For example,

if a client withdraws R30 000 from their retirement savings today, they not only face a marginal tax rate (which is 36% for the current average withdrawer), but they also lose the potential for that amount to compound over the next 10 to 50 years. That R30 000 could have grown significantly, but the short-term gratification of spending now will make that future gain invisible. As an adviser, illustrating this difference is crucial.

The role of financial advisers

Financial advisers play a critical role in guiding clients who may be overly focused on short-term needs at the expense of longterm goals.

1. Reinforce the long-term vision Through goal-based conversations, advisers can help clients stay focused on their future financial roadmaps. These conversations shouldn’t just focus on numbers, but on life aspirations – whether that’s ensuring a comfortable retirement, providing for children’s education or achieving long-held dreams like travelling the world. Framing these goals with emotional resonance makes them harder for clients to sacrifice.

2. Show them the impact of withdrawing now Detailed projections can be a powerful tool. By showing clients the stark difference between withdrawing now versus keeping their funds invested, advisers can help clients understand the value of compounding growth. For example, showing the impact of an early withdrawal versus what that same sum could grow into over 10 or 20 years, factoring in growth rates and inflation, can make the longterm consequences tangible. Use tools such as Avalon’s Withdrawal PlayZone to help your clients visualise the effect. Help them see the impact.

3. Cultivating patience as a financial virtue One of the most powerful tools in an adviser’s toolkit is helping clients cultivate

patience. Research shows that people who practice delayed gratification –who can wait for future rewards – tend to make better financial decisions.

Advisers can reinforce this by framing savings goals in terms of psychological wins: not just the financial gain, but the sense of accomplishment that comes with sticking to a plan. Encouraging clients to see delayed gratification as a reflection of personal growth, rather than deprivation, can help shift their mindset from “I’m missing out now” to “I’m building something bigger for later”. This subtle mindset shift can be the difference between a client who withdraws prematurely and one who remains committed to their long-term goals.

Balancing immediate needs and future security

While some clients face genuine shortterm financial pressures, it’s important to balance those needs with long-term security. The average withdrawal to date carries a 36% tax burden, meaning many middleincome earners are paying a steep price for early access.

For clients who need access to their savings, consider alternative strategies, such as adjusting their budget or exploring other short-term financial products. These strategies can provide liquidity while keeping retirement savings intact. The key is to have ongoing, goal-based discussions with clients, reminding them of the bigger picture.

Financial advisers play an essential role in guiding clients through this transition, serving not only as planners but as behavioural coaches. By helping clients to avoid present bias and make informed decisions, advisers ensure that clients’ immediate needs are met without sacrificing long-term financial security. The message is clear: keep your clients focused on the future and help them achieve the remarkable lives they aspire to live. After all, tomorrow is only a day away.

Lornelle Jonas AGA(SA) Chief Executive Officer, E’lique Advisory

With over 10 years of experience in internal auditing, external auditing, financial reporting, risk management, compliance, and governance in various industries, serving in organisations such as PwC, Liberty Group Limited and FirstRand Bank Limited, Lornelle Jonas leads her own successful business.

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

When I was in Grade 9, we had to do a school project on what we wanted to become one day. I told everyone I wanted to be a doctor, but deep down, I knew that wasn’t really me. Something just didn’t click. So I started exploring other careers, and that’s when I stumbled across accounting. I was curious about the world of finance, and being in Kimberley, I was lucky enough to have a PwC office nearby. I walked in there and spoke to their HR to learn more about being a chartered accountant. That’s really where it all began for me, and once I started down that path, I knew I had found something I truly connected with.

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

I’m not sure if this would count as a formal investment, but my first experience with investing was through the JSE Schools Challenge when I was in Grade 10 at Kimberley Girls’ High School. I had chosen accounting as one of my core subjects, and while I loved what we were learning, it felt very theoretical. I wanted something more hands on. So I approached my accounting teacher, Mrs Olds, and asked if we could participate in the JSE Schools Challenge. She said if I could get some of my classmates on board, she’d allow it. I rallied my friends (who I’m still in touch with today), and we participated in the challenge. That was my very first ‘investment’, even though I don’t still hold those shares.

Tell us about your motivation to open your own company.

It was deeply personal. In 2019, I lost my 19-year-old sister in a car accident. It was a devastating time, but amid that grief, I found a sense of purpose. I wanted to create something that would make a real difference. I’ve always been passionate about finance, business and technology, and I realised I could channel that passion into helping other businesses grow and succeed. That’s how E’lique Advisory was born. It’s not just about numbers or finance for me –it’s about making an impact and helping other entrepreneurs and business owners realise their potential. I wanted to build a company that was rooted in integrity and driven by a purpose bigger than just profit.

What are you looking forward to in the near future?

Right now, I’m incredibly excited about the expansion of E’lique Advisory. We’ve just opened our UK office in London, and we held our first in-person event and launch on 29 August. Taking E’lique to London has been a key part of my long-term vision to build a truly global advisory firm. In the near future, I’m looking forward to growing our international presence and continuing to make E’lique a name that people recognise for its impact and excellence.

How do you feel about winning the Emerging Firm of the Year Award at the 2024 South Africa Xero Awards?

It feels incredibly rewarding and is a testament to all the hard work, passion and dedication my team and I have poured into E’lique Advisory over the past few years. We’ve always been driven by a vision to make a meaningful impact, and to be recognised in this way is both humbling and motivating. This award reinforces that we’re on the right path.

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

Every business faces financial challenges. I’d say one of the toughest moments we had was when we needed to tighten our cashflow management. But those tough seasons come with valuable lessons. For us, it was about refining our processes and being more selective with the clients we onboard, making sure they could meet their payment obligations. On the flip side, one of the best financial moments for us was seeing the positive shift that came from those changes. Once we got our debtor management and cashflow controls in place, it had a massive impact on the business.

What are some of the biggest lessons you’ve learnt in and about the finance industry?

The importance of resilience and adaptability! Things can change quickly, whether it’s market conditions or client needs, and being able to adjust your approach is key. Another lesson is the value of relationships. Building trust with clients, partners and even within your own team can make all the difference. Finance isn’t just about numbers – it’s about people and their stories. Helping clients navigate their financial journeys, especially during challenging times, is incredibly rewarding. It reminds me that our work isn’t just transactional, it’s transformational. Lastly,

What are you passionate about?

Empowering people, especially when it comes to financial literacy and business growth. There’s something so fulfilling about helping someone unlock their potential and see their business thrive. I love seeing the transformation that happens when people gain the confidence and knowledge to take control of their finances. I’m also passionate about creating spaces where women, in particular, can excel. As a female entrepreneur in a traditionally male-dominated industry, I’m driven by the desire to open doors for other women, whether that’s through mentorship, providing opportunities, or simply leading by example.

What are some of the best books on property/finance/investing/ leadership you’ve read?

One of the best books I’ve read on leadership is Dare to Lead by Brené Brown. It’s a powerful book about the courage and vulnerability it takes to be a true leader. I recommend it to anyone looking to lead with empathy and strength because leadership isn’t just about having authority – it’s about building trust, inspiring others, and leading with authenticity.

How the COFI Bill is providing enhanced financial transparency to the financial sector

By Glenn Hickling Head of Legal at BrightRock

The South African financial services sector has undergone sweeping regulatory reform over the past 15 years, aimed at improving the governance and accountability of financial institutions. These reforms have been crucial in securing better outcomes for the people served by the sector. The Conduct of Financial Institutions (COFI) Bill represents a major leap forward and will have far-reaching implications for all financial institutions. It further promises to transform the landscape of financial regulation in South Africa.

How COFI differentiates itself from existing regulations

A significant aim of the COFI Bill is to streamline the legal landscape for conduct regulation in the financial sector, as well as to apply the market conduct policy approach to law. This is not just a minor adjustment but a substantial shift that aims to create a uniform regulatory framework across all financial sectors.

The introduction of a comprehensive market conduct law will ensure that consistent consumer protection principles are applied, offering enhanced protection to customers of financial institutions.

A key objective of the COFI Bill is to protect customers of financial institutions, ensure their fair treatment, and promote financial inclusion, as is the case with all current market conduct regulations,

including the Policyholder Protection Rules. Nevertheless, to achieve these objectives, COFI will establish a consistent approach to understanding, applying, and enforcing the treating customers fairly (TCF) principles throughout each industry and across all regulations.

When it will come into effect?

The Financial Sector Conduct Authority (FSCA) has said it believes National Treasury’s intent is for it to be tabled for Parliament’s approval this year.

The benefits of COFI

A key aspect of the COFI Bill that’s under the spotlight currently is the Omni-Conduct of Business Return (Omni-CBR) reporting system, which aims to formalise data collection in the industry. By levelling the playing fields and moving towards an activities-based regulatory regime, the bill will assist in creating and preparing an environment that is primed for more innovation within the industry.

The Omni-CBR will be the new off-site monitoring tool developed by the FSCA, which will require financial institutions to report in detail on conduct indicators and customer outcomes, including issues such as business composition, complaints handling, and policy cancellations.

By supporting a more consistent and formalised data framework across the industry, it will allow the FSCA to compare data across industry players, quickly identify issues and outliers, and act swiftly against any institute that is failing to deliver fair outcomes.

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Promoting the Treating Customers Fairly (TCF) outcomes

A key aspect of COFI is enforcing the TCF outcomes. By providing detailed guidance on how institutions must conduct themselves to comply with these outcomes, and by supporting reporting in the industry that support careful monitoring of conduct indicators, COFI will equip the regulator to identify and remediate breaches, and to act against the perpetrators of poor market conduct. It will also equip financial institutions to better understand how their business is delivering for clients – which, ultimately, will serve to improve customer satisfaction and retention, supporting more sustainable business practices, and contributing positively to the bottom line.

The road ahead

The lack of certainty around a declaration date may lead some financial institutions to put off thinking about COFI until some future date. As is the case with any change, COFI will bring new opportunities with it, and financial institutions who embrace it will fare well in the COFI era.

A good place to start focusing on is reporting through identifying the various data sources in your business that will help you understand how you are performing in terms of customer outcomes. This should include collecting customer feedback, analysing the feedback, and implementing steps to address any issues you pick up in the process. The sooner you start gathering and interrogating this data, the better equipped you’ll be to comply with COFI.

Building societal trust can significantly improve South Africa’s productivity and prosperity

PwC South Africa Strategy& recently shared its eighth South Africa Economic Outlook report for 2024. This edition looks at the role that trust plays in society and economic development, and how South African companies can go about building trust with their stakeholders towards a more productive economy.

money, having strong safety records, and providing a high level of service quality. Companies in the hospitality and leisure industry were placed in a very close second position.

PwC’s consumer survey asked South Africans what factors most influence their trust in companies. The protection of customer data was the top feature, with a combined 92% of consumers indicating that this is very or extremely important to them. PwC’s Global Digital Trust Insights Survey 2024 also found that the loss of customer data is among the top concerns faced by South African firms related to potential cyberattacks.

Hamil Bhoora, PwC Africa Cybersecurity Leader, says, “The collection and use of first-person data for personalisation has become crucial for South African companies to maintain a competitive advantage in the marketplace. But data is considered to be a raw material. Like oil, data must be refined to become valuable. And like oil, data can also leak and, in turn, cause significant damage to individuals and organisations if it is not appropriately secured.”

Trust and prosperity: Social capital as

an

integral part of commerce and economic development

PwC’s Megatrends publications have warned that increasing inequality and other major global factors make it more difficult for people to find common ground, which plays a key role in helping to establish trust in a society. South Africa has a host of societal ingredients associated with low levels of interpersonal trust, including a history of segregation, high levels of wealth and income inequality, and elevated levels of crime, among other factors.

SouthAfrica Economic Outlook August 2024

Strategy&’s Productivity Potential Index (PPI) gives insights into the productivity that economies like ours could potentially gain by improving trust levels. In the index, trust is represented by data on the share of people agreeing with the statement ‘most people can be trusted’ in their country. According to the World Value Survey, only one in four (23.3%) South Africans believe that most people in the country can be trusted. This is only about a third as strong as the top performing countries globally.

Summary:Social trust is a deep determinant of economic progress as it fosters cooperation and encourages investment. There is also a strong positive relationship between trust and measurementsof economic prosperity. However, the Edelman Trust Barometer 2024 found that South Africa is a distrustful society. Increasing inequality and other factors make it difficult for people to find common ground that form the basis of trust in society.

There is a strong positive relationship between trust and measurements of prosperity, for example real GDP per capita. Furthermore, at a company level, the correlation between customer trust and profitability is surprisingly strong at a global level.

Surveys raiseconcerns about the impact of social inequality andthe level of societal (dis)trust

Lullu Krugel, PwC South Africa Chief Economist and Africa Sustainability Leader, says, “Social capital plays a pivotal role in economic development, serving as the bedrock upon which prosperous societies are built. Societal trust is a deep determinant of economic progress: it fosters cooperation, reduces transaction costs, and encourages investment and innovation. When individuals trust one another, they engage in mutually beneficial exchanges, leading to economic growth and development.”

The Edelman Trust Barometer 2024 classifies South Africa as a country of ‘distrust’, with our score of 49 falling just below the ‘neutral’ band (50-59) of scores. On a positive note, the country’s score improved from 47 in 2023, largely as a result of a notable increase in the surveyed trust in government.

Two out of three (67%) South African business leaders polled in PwC’s 27th Annual Global CEO Survey indicated that their organisation has a moderate, high or extreme exposure this year to the negative impacts of social inequality. PwC’s Megatrends publications have warned for years that increasing inequality as well as varying worldviews among different racial and ethnic groups, growing polarisation fuelled by social media, and other cross-national factors make it more difficult for people to find common ground that form the basis of trust in a society. This is very concerning considering that trust plays a pivotal role in economic development, serving as the bedrock upon which prosperous societies are built.

“There is a strong positive relationship between trust and measurements of prosperity, for example real GDP per capita”

Six out of 10 (62%) South Africans trust the business sector to do the right thing, according to the Edelman Trust Barometer 2024. This ranks the country 15th out of the 28 territories assessed by Edelman. Furthermore, eight out of 10 (79%) employed South Africans trust their employer to do what is right.

The Edelman Trust Barometer 2024 paints a concerning picture of South Africa as a distrustful society. The surveyassessed people’s trust in four key institutions government, business, media and non-governmental organisations (NGOs) to do the right thing. While businesses and NGOs fared best, with a majority expressing trust in these institutions, the government's standing was particularly low. Only three in ten respondents indicated trust in the government, underscoring a significant credibilitygap in public leadership. We must, however, note some improvement in the surveyed trust in government from 2023.

Figure 1: Share (%) of general South African population trusting institutions to do the right thing

Source: Edelman

There is a strong positive relationship between trust and measurements of prosperity

Increased interpersonal trust can have an outsized positive impact on South Africa’s economic productivity. South Africa’s productivity could increase by 8.3% if its trust levels rise to those seen in Olympics and Paralympics host France. Furthermore, South Africa’s productivity could increase by up to 27.1% if we reach a societal trust level comparable to that of Norway – the top-performing country on this indicator. While Norway is a world away from South Africa, the country’s values – openness, equality, and equal rights – overlap with many of the ambitions that we as South Africans have for our own country.

According to Lullu Krugel, PwC South AfricaChief Economist and AfricaSustainability PlatformLeader, social trust is a deep determinant of economic progress: it fosters cooperation, reduces transaction costs and encourages investment and innovation. When individuals trust each other, they engage in mutually beneficial exchanges, leading to economic growthand development. Trust lubricates the wheels of commerce, enabling efficient marketfunctioning and facilitating collaboration among diverse stakeholders. At a macroeconomic level, there is a strong positive relationship between trust and measurements of prosperity like, for example, real GDP per capita. Of course, this kind of correlation (as shown in Figure 2) raises questions about causation and the direction

Strategy& thereof. Does because people inequality and does higher economic environment that creates how higher in turn, drives Figure 2: Trust

Shirley Machaba, PwC South Africa CEO, says, “Our people have seen the hard work done by the country’s business sector to help rebuild the economy during some of our biggest recent challenges, including Covid-19 and loadshedding. This has boosted their trust in the private sector.”

At an industry level, PwC’s Voice of the Consumer Survey 2024 found that local consumers have the highest trust in airlines. This is quite understandable: in South Africa, airlines are perceived as operationally reliable, offering value for

Fixing the trust deficit is a far greater challenge now than it was just a few decades ago, given the growth – both locally and abroad – of economic disparity. An important first step for private businesses is recognising the trust gap. It is precisely because of this that private organisations can play an outsized role in addressing these challenges in South Africa and elsewhere.

Businesses then need to invest in the creation of trust by walking the talk on environmental, social and governance (ESG), as well as diversity, equity and inclusion (DEI) issues. To do so, companies need to measure and communicate these factors. Demonstrating an organisation’s commitment to responsible practices, transparently quantifying, and effectively communicating impacts fosters trust with stakeholders. Today, impact assessments transcend necessity – they become an indispensable tool for responsible, thriving, and resilient organisations. It is essential for South African companies to understand, measure, and communicate their overall impact on the economy, environment, and society because it promotes trust and loyalty among stakeholders.

Sources: World From a business – Encouraging entrepreneurs increased – Stimulating adherence trusting – Attracting reputation – Enhancing on trust

New appointments

Standard Bank makes some changes

Standard Bank Group (SBG) has appointed Kenny Fihla as Deputy Chief Executive of the Group and Chief Executive of The Standard Bank of South Africa Limited (SBSA). As Deputy Chief Executive of the Group, Kenny Fihla will assume responsibility both for SBSA and for the Group’s Africa Regions and Offshore businesses.

Luvuyo Masinda has been appointed as Chief Executive of Corporate and Investment Banking (CIB), to succeed Kenny Fihla.

Lungisa Fuzile, current Chief Executive of SBSA, will now take up two roles, the first being Group Head: Public Policy and Regulation. He will also assume the role of Regional Chief Executive of the Group’s Southern & Central Region of the Africa Regions portfolio.

Yinka Sanni, current Chief Executive of Standard Bank Africa Regions and Offshore, will take on

By Mike Titley

Business Development and Marketing at Laurium Capital

the role of Group Executive, leading the Group’s relationships with some of our top clients and regulators. In addition to these duties, Yinka Sanni will support Kenny Fihla in refining the structure of the Africa Regions and Offshore businesses.

Sanlam’s new leadership team

Sanlam Investments Multi-Manager has announced key changes within its leadership and investment team. Willem le Roux has been appointed as Portfolio Manager, and Preanka Naidoo has been promoted to Head of Corporate Solutions, both within the Multi-Manager team.

The Multi-Manager team has also appointed Moipone Pitso and Coco-Chanel MacMinn as Junior Investment Analysts to the Local and Global Manager Research teams. Both are graduates of the Fezeka Graduate Programme, an ASISA initiative designed to support young

black female talent and address the gender gap in asset management.

New Group Chief Executive for Schroders Schroders plc today announces that Richard Oldfield has been appointed as Group Chief Executive, succeeding Peter Harrison, with effect from 8 November 2024, subject to regulatory approval.

Our alley-docking mentality at Laurium Capital

Years ago, I heard an interesting fact that really struck home for me. Alley dock (reverse) parking is significantly safer than regular parking. This was motivated by several factors that make a lot of sense. Mining companies, oil companies and some other industrial organisations have implemented rules that enforce reverse parking. They substantiated this based on a string of accidents and fatalities that were happening in the parking yards at their sites. Given the magnitude of mining vehicles like power train haul trucks, visibility is limited at best for their drivers. They worked out that a lot of these incidents were happening early in the day when drivers reversed out of their bays, focussed on other thoughts/tasks. By enforcing alley docking, drivers reverse parked their vehicles at the end of their driving shift when they were focused and in the zone. Importantly, this meant that the next driver who arrived for their shift would have the benefit of driving out forward with clear visibility, even if they were in a rush or still focused on their last task. The benefits were instantly measurable with accidents and fatalities dropping, as well as costs both in damages and liability reducing.

I found a clear explanation on online forums as to why they implemented the policy: “Same rule in the

oilfield industry. It’s common sense really, always park so that your first move is forward when driving. It’s more natural to move forward rather than backward. Limits accidents…”

So this makes a lot of sense for mines/oilfields, but how does it help us? Aside from the obvious overlaps, the benefits continue! Alley docking allows for a quick exit, be it due to time constraints or emergency. It allows for easier exits in times of congestion, essentially anticipating future risks. It even allows for access to the front bonnet in times of flat batteries. The one benefit

that rings true for me is the ease and accuracy with which one can alley dock into a narrow bay using one’s side mirrors and reverse features – looking like a pro and nabbing a closer bay!

There is a catch, though: one needs to be organised and timeous to execute an effective alley dock. Those who tend to arrive late will never make the time to alley dock, rather swinging into an open bay and dashing to their next event. At Laurium, we are paid to manage risk daily. We are wired to arrive early, prepared and focused for our day and our appointments.

"Alley docking is just another part of our approach to life at Laurium, controlling for the controllables and reducing unnecessary risks"

Alley docking is just another part of our approach to life at Laurium, controlling for the controllables and reducing unnecessary risks. Our hedge funds and multiasset funds are especially designed to generate real returns for our clients, driven by a broad tool set and an absolute minded approach to investing.

For more information on our fund range, please visit www.lauriumcapital.com

Preanka Naidoo

Luvuyo Masinda Willem le Roux

Lungisa Fuzile Moipone Pitso

Yinka Sanni

Coco-Chanel MacMinn Richard Oldfield

The value of fixed income in multi-asset-class portfolios

The age-old saying of not keeping all your eggs in one basket rings true here. This is even more relevant in the current market, which has become more volatile due to quantitative easing, and less liquid. This has implications for asset allocation; we may prefer a certain asset class but if we are overexposed and markets correct, the downward valuation will be uncomfortable for investors. What are the diversification benefits of having fixed income assets in a multi-asset-class portfolio?

Real yields

Valuation is usually a strong argument for including an asset class in a portfolio. We know that assets can become overvalued, but if we look at the valuation of fixed income assets, most appear attractive, ranging from cash at 4% real to nominal and inflation-linked bonds in the 5% to 6% real category. As inflation falls over the short to medium term, real yields on these assets will become more attractive. From an investment perspective, if you can buy low-risk assets with high real yields at attractive prices, including them in a portfolio becomes an easy choice.

Non-correlation

Historically, bonds and equities were non-correlated, meaning their prices move in opposite directions when

markets rallied or corrected. In a post-quantitative easing world, the correlation between nominal bond and equity prices has converged, meaning bond prices fall similarly to equity prices when markets correct. There is a solution to this. However, viewing fixed income as solely nominal bonds is too simplistic.

Other fixed income asset classes warrant an allocation into a portfolio. We believe portfolio managers considering their total fixed income allocation should include assets like cash, credit, inflation-linked bonds and fixed income derivatives. Over the last three years, we’ve seen how correlated bond and equity prices have become, limiting the benefit of diversification. Portfolios owning cash, credit and inflation-linked bonds experienced far less drawdowns during market corrections than those with nominal bonds alone. Cash and credit yields are linked to the interbank rate, which rises as the central bank raises rates, protecting capital. Inflation-linked bonds protect investors against rising inflation and do not fall in price as much as nominal bonds in risk-off periods.

The fire power of fixed income Cash and short-dated instruments give a portfolio firepower. The best opportunities present themselves when markets correct. Markets sell off all assets indiscriminately and when this happens, a portfolio

Time to get active in Global Fixed Income investments

Global fixed income assets can play a more significant role in South African investors’ portfolios as fixed-interest bond yields are high around the world. South African investors have necessarily limited their exposure to global fixed-interest bonds over the past several years for two primary reasons: unattractively low yields, and the 25% offshore asset restriction for retirement portfolios under Regulation 28.

Under the 25% limit, it made sense to allocate the global allowance primarily to global equities and cash, given the upside to potential returns of the former and high risk-reduction and liquidity benefits of the latter. However, the February 2022 increase in the offshore limit to 45% effectively opened up a new world of opportunities to South African investors, and global fixedinterest sovereign bonds, in particular, can offer considerable benefits to a local portfolio.

Why global fixed income?

South African investors have several good reasons to consider adding global bonds to their portfolios, the most important being

their effectiveness in lowering the risk of local balanced portfolios. For example, a standard balanced portfolio with 60% SA equity and 40% SA bonds will experience a significant reduction in risk (as measured by its standard deviation) as increasing amounts of global bonds are added: with no global bond exposure, the portfolio’s risk is around 12.5% p.a., which falls meaningfully to around 10% once an 18% weighting of bonds is reached. This is due to both the diversification of geography, currencies and economies, and the inherent lower volatility of bonds.

Another key reason to buy global bonds is their currently high yields on an absolute basis compared to history.

Although yields have fallen from their highs, they are still at attractive levels. For example, the 10-year US Treasury yield has been trading around its 20-year average of 4.5%, after having stayed below this level since 2008. At the same time, expectations are for central banks to keep interest rates higher for longer in the face of persistent (but lower) services inflation in many countries.

By Ian Scott Head: Momentum Fixed Income

manager wants to have cash available to buy quality assets at cheap prices. One of the worst portfolio outcomes must surely be when quality assets go on sale and there is no cash in the portfolio to lock in these good opportunities. We believe that cash and short-dated assets should always form part of any multi-asset-class portfolio. Even nominal and inflationlinked bonds can be rotated into growth asset classes like equities when these market corrections occur.

The question should not be if fixed income assets warrant inclusion in multi-asset-class portfolios, but whether the correct mix of fixed income assets is in the portfolio. The second question should centre on the liquidity and duration of the fixed income assets, and thirdly, on the real rates and diversification benefits that the mix of fixed income assets will deliver to the portfolio over the appropriate investment horizon.

Momentum Fixed Income is a boutique team of specialist income investors, focused on delivering low-risk, inflation-beating returns for investors and has access to extensive expertise, research, and investment opportunities that are outside the reach of most other managers. Momentum Fixed Income also manages the Curate Momentum Enhanced Yield Fund for Curate Investments, the new global asset manager in the Momentum Group. Visit curate.co.za for more information.

By David Knee

Chief

International pressures

In fact, 10-year interest rate forecasts as priced into the US forward rate agreement (FRA) market are much higher than those of the US Federal Reserve (Fed).

This could be due to concerns over the increasing US fiscal deficit and the need for higher funding in the bond market, although the US has fewer reasons to worry than other countries. In the UK, however, the government needs to raise almost £1tn in debt over the next five years, which is equivalent to almost 40% of its outstanding debt stock. These pressures could also contribute to keeping global interest rates higher for longer.

The current environment is not an ideal environment to start cutting interest rates, especially given the elevated prices of global risk assets. Not only are stock markets hitting all-time highs, but in the corporate credit market, keen investor demand for both investment-grade and high-yield bonds has pushed spreads versus government bonds to unattractively low levels.

Co-Deputy

Investment Officer, Fixed Income M&G (UK)

Why a wrapper is worth considering

By Ettienne Bezuidenhout

Wealth Manager at Alexforbes

In an increasingly interconnected world, South African investors have access to a broader range of investment opportunities than ever before. One of the key strategies for maximising these opportunities is investing in global assets through a wrapper. An investment wrapper is a financial product or account that ‘wraps’ around investments to provide certain tax advantages or other benefits. It typically allows investors to hold a variety of assets like stocks, bonds and funds within a single structure, while benefitting from specific regulations or protections. An example would be an endowment. This approach not only diversifies your investment portfolio but also provides several financial and regulatory advantages that can safeguard and enhance your wealth.

1. Diversification and risk mitigation

One of the primary reasons for investing in global assets is to achieve diversification. By spreading investments across different geographic regions, industries and asset classes, investors can reduce their exposure to risks specific to South Africa, such as currency fluctuations, political instability or economic downturns. The Johannesburg Stock Exchange (JSE), while one of the Top 20 stock exchanges in the world, accounts for only about 0.3%-0.4% of the roughly $109tn in global stock markets. Global markets often move independently of each other. When one region’s economy is underperforming, another might be thriving. This diversification can help stabilise your overall portfolio performance, providing a buffer against market volatility.

2. Access to high-growth markets and industries

Investing globally gives South African citizens the opportunity to participate in high-growth markets and industries that may not be well represented in the local economy. For example, the technology sector, particularly in the United States and Asia, offers investment opportunities that are not as prevalent in South Africa.

By investing in global assets, you can take advantage of these growth sectors, potentially increasing your returns.

3. Currency hedging

South Africa’s currency, the rand (ZAR), is known for its volatility, which can significantly impact the value of your investments. By holding assets in stronger or more stable currencies like the US dollar (USD), the euro (EUR) or the pound (GBP), you can hedge against the depreciation of the rand. This strategy is particularly important for investors who plan to spend time or retire in countries with stronger currencies, ensuring their investments retain value when converted.

One can also use the volatility of the ZAR to determine valuable entry and exit points into global markets. The ZAR tends to over time depreciate against the major currencies, so during times of ZAR strength it may be an opportune moment to increase one’s global exposure, and subsequently benefit from the global asset growth as well as the currency movement.

4. Tax efficiency and regulatory benefits of using a wrapper

Investing in global assets through a wrapper can offer significant tax advantages. Wrappers can help defer taxes on investment gains, allowing your investments to grow without the immediate impact of taxes on dividends, interest or capital gains, especially when utilising roll-up funds. In some cases, wrappers can also provide a more favourable tax treatment when the funds are eventually repatriated to South Africa. For instance, when investing in global assets directly, capital gains is levied only on the actual capital gain of the asset, not on the exchange rate, as it would be if one invests in a ZAR-denominated global feeder fund.

Moreover, investing through a wrapper can simplify compliance with the South African Reserve Bank (SARB) regulations on foreign investments. South Africans are subject to exchange control regulations, which limit the amount of money they can invest abroad. Wrappers often provide a legal and structured way to maximise these allowances while remaining compliant with local laws.

5. Estate planning and wealth preservation

A well-structured global investment portfolio can be a powerful tool for estate

planning and wealth preservation. By holding global assets in a wrapper, you can protect your wealth from potential local economic crises and ensure that your assets are efficiently passed on to your heirs. Many wrappers offer estate planning benefits, such as bypassing local probate and situs processes, which can be very time-consuming and costly.

Cash in a foreign bank account could very well be subject to either or even both processes, which could severely delay and substantially increase the cost of winding up your estate. It may cause many grey hairs for your heirs, a situation that can easily be avoided through the prudent use of an appropriate wrapper.

Probate is the legal process through which a deceased person's will is validated and their estate is administered. It involves proving the authenticity of the will, paying any debts or taxes owed by the estate, and distributing the remaining assets according to the terms of the will or, if there's no will, according to state law.

Situs tax refers to the principle that a tax is levied based on the location of the property or asset being taxed. In other words, it pertains to the tax obligations that arise from where an asset is physically situated or where a transaction takes place.

6. Protection against local political and economic instability

South Africa has faced political and economic challenges in recent years, from fluctuating economic policies to concerns about political stability. While the country has many strengths, these factors can introduce risks that affect local investments. By diversifying globally, you create a safety net that insulates your wealth from local uncertainties, providing peace of mind and financial security.

Investing in global assets through a wrapper is a prudent strategy for South African citizens looking to diversify their portfolios, protect their wealth and capitalise on global growth opportunities. By leveraging the benefits of diversification, currency hedging, tax efficiency and estate planning, you can enhance your financial security and achieve your long-term investment goals. As always, it is advisable to consult with a financial adviser to tailor your investment strategy to your individual circumstances and ensure compliance with all relevant regulations.

Adding value to income

Raihan Allie, Portfolio Manager at Truffle Asset Management, gives an overview of the current fixed income trends.

The fixed income universe has grown and evolved. What are some of the more interesting instruments, and why are they advantageous in the current environment for a relatively low-risk fixed income fund?

Inflation linked bonds (ILBs) are piquing our interest. In the past, we’ve advocated a preference for nominal bonds over ILBs, largely because of the inherent inflation risk premia embedded in a nominal bond. Significant underperformance versus the fixed rate government bonds means ILB’s present value in the form of attractive real returns (approximately 4.5%), with limited downside on a relative basis. At current pricing levels, investors should be able to earn similar returns to the fixed rate bonds, while hedging inflation. The inflation risk premia has significantly compressed, offering cheap insurance.

The macro-economic environment has been uncertain and markets volatile recently. Following a protracted cycle of high short rates, where is the opportunity in the fixed income market?

The current macro-economic environment broadly favours investing into fixed income instruments. Inflation is the biggest erosion of value for this asset class. In most regions we’re now experiencing falling inflation rates, implying strong real returns on fixed income instruments. Global growth also appears to be slowing down, dampening return expectations for equities, and narrowing prospective returns versus fixed income. Furthermore, changes in yield curves are approximately 90% explained by expectations of short-term interest rates. A declining interest rate environment would more likely than not result in lower yields across the curve, further advancing the price of bonds.

Have you seen the role of fixed income shifting over the last year?

The recent rate-hiking cycle has driven concerns about generalising correlations and the diversification benefits of different asset classes. It’s important not to fall into the trap of static assumptions based on history. Over the last year, the role of fixed income investments has shifted from more of a diversification play globally to one that now also includes a return play. Investors are afforded attractive real yields in hard currencies, which have not been prevalent for over a decade. We’re past the stage of artificially low interest rates.

Truffle has a strong track record in managing the award-winning Truffle SCI* Income Plus fund. You’ve recently launched a multi-asset income fund. Can you provide a brief outline of this fund?

The fixed income component of the Truffle SCI* Enhanced Income fund is managed in line with other fixed income mandates as we aim to build from a robust proven investment strategy. We have the flexibility to enhance return on the multi-asset income mandates through increasing duration and adding exposure to risk assets such as equities, property and preference shares. While this does add some risk and volatility, we select assets carefully. Truffle’s open, dynamic team-based approach means we leverage the success of the broader investment team in selecting stocks and property. We focus on choosing assets with strong cashflow, and high dividend yields. Our aim is to manage this fund to deliver an enhanced income return with an added focus on growing capital.

*SCI - Sanlam Collective Investments

By Francois du Toit, CFP® PROpulsion

The dark side of technology in financial planning

In today’s fastpaced financial world, technology has become an indispensable tool for financial planners, advisers and wealth managers. However, as with any powerful tool, technology comes with its own set of challenges and potential pitfalls. As an experienced professional in the financial planning profession, I’ve seen first-hand how misuse or neglect of technology can impact our practices and client relationships. Let’s explore some of the common mistakes we make and how to avoid them.

The ostrich approach

One of the most significant risks in our profession is simply not using technology at all. It’s tempting to stick with what we know, especially when we’ve been successful in the past. However, the financial landscape is changing rapidly, and client expectations are evolving just as quickly.

By avoiding technology, we risk falling behind our competitors and failing to meet our clients’ needs. Imagine trying to create detailed cashflows without the aid of sophisticated software or attempting to comply with ever-changing regulations using paperbased systems. It’s not just inefficient; it’s practically impossible in today’s environment.

To overcome this, start small. Identify one area of your practice that could benefit from technological enhancement, such as client communication or information management. Research available solutions and implement them gradually. Remember, it’s not about overhauling your entire business overnight, but about taking steps towards a more efficient and effective practice.

The square peg in a round hole

Perhaps even more dangerous than not using technology is using the wrong technology. I’ve seen practices invest heavily in complex systems that were ill-suited to their needs, resulting in wasted resources and frustrated staff.

Before implementing any new technology, it’s crucial to clearly define the problem you’re trying to solve. Are you looking to streamline your client onboarding process? Improve your risk assessment capabilities? Enhance your reporting? Once you’ve identified your specific needs, you can research solutions that address those challenges.

Don’t be swayed by flashy features you’ll never use. Instead, focus on finding technology that integrates well with your existing systems and aligns with your practice’s goals and values.

The robot takeover

While technology can significantly enhance our efficiency and capabilities, it’s essential to remember that financial planning is, at its core, a human-centred profession. I’ve witnessed practices become so enamoured with their technological tools that they’ve lost sight of the personal touch that clients value.

There are certain aspects of our work that simply can’t be automated. Empathy, nuanced understanding of a client’s goals and fears, and the ability to provide reassurance during market volatility are all uniquely human skills.

Use technology to enhance your client relationships, not replace them. For instance, use data analytics to gain deeper insights into your clients’ financial behaviours, but deliver those insights through personal conversations. Let technology handle the numbercrunching, freeing you up to focus on building trust and providing personalised advice.

The shiny object syndrome

In our eagerness to stay current, it’s easy to fall into the trap of adopting new technologies simply because they’re trendy. I’ve seen practices invest in blockchain solutions or AI-powered chatbots without a clear understanding of how these tools would benefit their clients or improve their operations.

Before jumping on the latest tech bandwagon, ask yourself: What problem will this solve? How will it improve our service to clients? Is it compatible with our existing systems and

processes? If you can’t answer these questions clearly, it might be wise to hold off on that investment.

The half-hearted adoption

Implementing new technology is only half the battle. I’ve observed many practices falter because they didn’t invest sufficient time and resources in training their teams to use new tools effectively.

When adopting new technology, budget not just for the software or hardware, but also for comprehensive training programmes. Consider appointing ‘tech champions’ within your team who can provide ongoing support and encouragement to their colleagues.

Remember, the most sophisticated technology in the world is useless if your team doesn’t know how to leverage it effectively.

Practical steps for success

To harness the power of technology while avoiding its pitfalls:

• Regularly assess your technological needs and capabilities

• Develop a clear technology strategy aligned with your business goals

• Prioritise cybersecurity to protect your clients’ sensitive information

• Invest in ongoing training and support for your team

• Use technology to enhance, not replace, the human elements of your service

• Stay informed about technological trends, but be discerning in your adoption

• Seek feedback from both your team and your clients about technological implementations

• Remember, technology should be our servant, not our master, in the noble pursuit of helping our clients achieve their financial goals

Stay curious and raise the bar!

The key to reinvention readiness

By Edna Eason Technology Lead for Accenture Africa

Two years ago, Accenture warned that organisations failing to embrace data, artificial intelligence and technology would risk being left behind by their competitors. A year later, this prediction came true as organisations ranked technology as the most disruptive force in organisations in 2023, and rocketed to the top of the corporate agenda. This means that if you are not thinking about how your organisation should shift with the rapidly evolving world of technology, you are already behind. A sense of urgency is paramount, particularly as South Africa falls behind its global counterparts. But what drives this transformation? It begins with constructing a solid technological foundation on which all technological advancements are built –the digital core.

Why a digital core matters

Accenture defines a digital core as the driving force underpinning an organisation’s unique reinvention ambitions. It is composed of distinct yet continuously interacting technologies, including digital platforms, data and AI. This core is supported by a digital foundation that features composable integration – systems that can be easily connected and customised for flexibility –a cloud-first infrastructure that uses online storage and processing over external servers, a continuum control plane that provides operations visibility across the digital landscape and security by design.

Security is paramount

Security is a critical component, safeguarding data and systems from threats and unauthorised access to maintain trust and functionality. Powered by Generative AI, these technologies – digital platforms, data, AI, etc. – link systems and automate data maintenance, breaking down silos and facilitating interoperability with minimal human involvement. These separate elements must connect and interact seamlessly to create a holistic digital ecosystem that enables dynamic, efficient, and scalable operations.

The age of reinvention

Organisations that are miles ahead on their transformation journeys are called Reinventors. In 2023, these technological trailblazers made up 8% of companies surveyed, investing heavily in their technological capabilities. They embrace a new way of working, breaking down organisational silos and using data and AI to their full advantage – an attitude we call ‘reinvention readiness’. Today, 83% of organisations are following their lead and are speeding up their reinvention efforts. These organisations are reaping the benefits and growing at a rapid rate. Reinvention strategies have one thing in common: a strong digital core. How can organisations embrace ‘reinvention readiness’? It hinges on mastering a trio of critical tenets. Only 3% of companies surveyed have cracked this code and, as a result, have experienced significantly higher performance, with a 60% boost in revenue growth and a 40% increase in profitability.

The three tenets

The first tenet, which we have already explored in depth, is the establishment of a robust digital core. Organisations must customise their digital core to fit their unique requirements and adhere to industry-leading standards, ensuring it includes all the crucial elements discussed above and facilitates seamless integration.

The second tenet involves maximising the impact of technological investments by increasing annual spending on innovation by 6% or more. These investments must go beyond maintenance and toward innovation. High ‘flip size’, or the rate at which IT spending shifts towards innovation, correlates with better performance. By cutting inefficiencies, optimising cloud costs, and automating operations, companies can redirect savings into redesigning processes, launching new products, and exploring new markets. Proactively managing technical debt, the third tenet of reinvention readiness, is also crucial. Companies should allocate around 15% of their IT budgets to address technical debt, ensuring their systems remain current and effective. While AI and generative AI are an essential part of a strong digital core, they can introduce further technical debt if not properly overseen, leading to issues like poor interoperability and inaccurate responses. Balancing the remediation of technical debt with forward-looking investments allows companies to keep their tech systems up to date while fostering continuous improvement.

The importance of a strong digital core cannot be overstated. However, only 13% of executives surveyed are ‘extremely confident’ that they have the right data strategies and the core digital capabilities in place to effectively leverage generative AI. Confidence in embracing this new way of working can only come from forging the right partnerships and seeking expert advice.

“A sense of urgency is paramount, particularly as South Africa falls behind its global counterparts”

By Clyde Rossouw Ninety One Head of Quality

Moving at warp speed

Capturing structural growth potential is not easy, but in uncertain markets, it’s essential. Today, investors are eager to understand more about the potential opportunities in Artificial Intelligence (AI).

Ninety One Head of Quality, Clyde Rossouw, explains why exposure to higher quality companies can successfully position investors for an AI-driven future.

AI – or machine learning – is not new. Humans have been automating work for nearly 300 years, with the industrial revolution supporting the transition from creating goods by hand to using machines. What has changed in recent years, however, is the explosion in the amount of data and computing power available, allowing researchers to build far more powerful models than previously thought possible.

AI will soon be able to do many things we thought only humans could do and do many things that humans simply cannot do. However, the difference between ‘tourist’ users and those that have been trained to use AI is profound. Proficiency at prompting is key; much like accessing a database, speaking the appropriate query language is vital to ensure accurate results.

AI is no longer just a tech story

From an investment perspective, AI use cases have been relatively narrow and focused on the technology sector – the advent of targeted adverts, for instance – with the large incumbent tech firms the main winners to date. But open source – code that is more widely available – has allowed companies across many more

Ninety One, Bloomberg, Based on analysis by Morgan Stanley. Semiconductors – based on equally weighted performance of ARM/ QUALCOMM, Devices & Infrastructure based on equally weight performance of Apple/Samsung, Software & Services based on equally weighted performance of Alphabet/Amazon, all in USD relative to MSCI ACWI, Feb 2010 – Jun 2016.

sectors to make advances, and governments are also investing as they view AI as an engine of growth. Major tech firms are investing heavily to capture some of this growth potential, as illustrated by their respective capex expansion.

We find that investors typically overestimate technology in the short term and underestimate it in the long term. Valuations can therefore become disconnected from reality, as we saw most famously with the dotcom crash, and are arguably seeing today. With AI, financial markets are shooting first and asking questions later. Companies perceived as being at risk of disruption, e.g. those running outsourced call centres, have been derated significantly, regardless of their earnings dynamics. In contrast, companies that are helping governments and businesses to implement AI today are seeing a re-rating.

There are many companies caught in the middle – at times viewed as victims of disruption and at times viewed as opportunities to tap into the AI theme – with market valuations oscillating accordingly. Looking further ahead, we think that uncovering the picks and shovels, in addition to select software businesses that can monetise their products through subscription models,

AI Cycle Relative Returns (%)

Source: Ninety One, Bloomberg. Semiconductors – based on equally weighted performance of Nvidia/AMD, Cloud Providers based on equally weighted performance of Microsoft/ Amazon, Software & Services based on equally weighted performance of Adobe/Salesforce, all in USD relative to MSCI ACWI, Oct 2022 – Jun 2024.

will lead to the best outcomes for investors. Infrastructure companies are often persistent winners, as they are businesses that will benefit regardless of the ultimate destination. So far, for instance, returns have been concentrated into semiconductors – the likes of Nvidia1 which sells graphic processing units (GPUs) – but if history is a guide, returns are typically shared out over the longer term.

This is our approach to AI at Ninety One, while sticking to the quality characteristics that define our universe. A company must have high quality profits, attractive growth rates, superior profitability and low leverage for us to consider inclusion to our portfolio. Encouragingly, many of our holdings are exploring and investing in exciting ways to use AI, be it in payments and fintech, health and beauty, or within the software space itself.

A few companies in the top 10 of our Global Franchise portfolio2, where we have meaningful positions and where AI is an even stronger theme, are worth highlighting. These include Microsoft as a clear leader in generative AI; Azure AI, which provides key cloud-based infrastructure and services for AI models; the monopoly provider of mission-critical equipment used by computer chip manufacturing companies, ASML; AI pioneer, Alphabet; and Google Cloud Platform, which provides infrastructure and services for AI models and, and through its own AI tool, Gemini, is integrating AI solutions across a wide range of applications.

Overall, therefore, we believe we have meaningful exposure to the AI theme. Importantly, we believe this exposure to be higher quality, more diversified and more sustainable than a concentrated bet in stocks entirely dependent on AI spending where performance has run hard recently.

¹No representation is being made that any investment will or is likely to achieve profits or losses like those achieved in the past, or that significant losses will be avoided. This is not a buy, sell or hold recommendation for any particular security. The portfolio may change significantly over a short space of time.

Figure 1: Hyperscale Capex (US$m)

Source: Ninety One, Bloomberg ¹

Figure 2: Is AI growth sustainable? Mobile Cycle Relative Returns (%)

Source:

Healthcare’s blank cheque safety net pushes up costs

By Craig Comrie Chairman of the Health Funders Association

(HFA)

Almost nine million people covered by South African medical schemes are financially protected for maternity, emergency and chronic conditions as part of the required basket of benefits called Prescribed Minimum Benefits (PMBs). The safety and peace of mind of accessing these services in the private sector remains invaluable to a significant portion of South Africans.

No one who belongs to a medical scheme can ever run out of these PMBs, which medical schemes are bound by law to cover. Medical schemes belong to members, and part of the deal when you join a medical scheme is that you are covered for these essential services when you need them most – irrespective of how much you have personally contributed to monthly membership fees. Depending on the medical scheme option you are on, you may have access to many more benefits according to your need – but be assured that even PMBs offer a reasonably wide set of benefits that members can rely on.

Pressing issues to be addressed

More than half of medical scheme members have a monthly household income below R30 000, meaning that accessing private hospitals for major health events without health cover would otherwise be out of reach for many without incurring unmanageable debt. Indications from countries across the world show that unforeseen healthcare costs remain the number one reason for personal bankruptcy. Medical inflation, driven by both supply and demand, is unfortunately driving up membership costs too, as schemes need to match contribution increases to expected claims. This is exacerbated by regulatory incompleteness, including that there are effectively no price ceilings for providers and

“In contrast to the State’s current roadmap as described in the NHI Act, people accessing healthcare rightfully want the freedom of accessing treatment options”

that schemes have very limited abilities to manage the variables that result in above inflationary price increases.

An ageing medical scheme population brings an increased prevalence of chronic conditions and this, along with a declining ratio of doctors to care for the population, means prices will continue to rise. The longawaited regulations, such as a mechanism like risk equalisation, can alleviate some of the price pressures on many schemes that carry a higher burden of disease than others. The HFA is actively engaging with the Council for Medical Schemes (CMS) on a review of the PMBs, which is required to be done every two years to keep the PMBs relevant to medical needs and improve affordability. This has unfortunately not taken place yet, and we hope to support this industry initiative to help all scheme members.

Accessing the best healthcare

Over and above the basic benefit plans options providing for PMB cover, within each medical scheme the separate benefit options that offer more extensive benefits must be self-sustaining – in a nutshell, this means that the additional cover some members opt for each increase annually, and higher claims will likely drive above-inflation increases for 2025.

Much as medical schemes may try to keep individual member contribution increases to a minimum, it is the quality of treatment and ease of access to healthcare that people value most. It’s the times when our families are in desperate need, such as being critically injured in an accident, where medical schemes become priceless. Hardworking

South Africans should be able to access the best healthcare they can afford for their families, and the current model legislated in the NHI Act threatens to remove this right to cover rather than promoting it to more people, thereby removing the funding obligation from the government purse.

While we strive to collaborate with the Government on workable solutions that will make access to advanced medical treatments more equitable in the future, medical scheme funding keeps many healthcare practitioners home in South Africa – and these solutions include creating sustainable investment cases for world-class health facilities such as hospitals, while alleviating pressure on the public healthcare system.

In contrast to the State’s current roadmap as described in the NHI Act, people accessing healthcare rightfully want the freedom of accessing treatment options where costeffectiveness is not the only deciding factor. The HFA will continue to protect this right of choice, and our desire is to assist more South Africans in benefiting from medical aid cover until the NHI is equipped to provide a similar quality and breadth of service.

Scheme members are reminded that their benefits are not immediately affected by the NHI Act, which will only be the case once NHI is fully implemented, which by all accounts may be decades away.

More accessible and affordable healthcare

Discovery Health and Auto&General have added enhanced benefits to current day-to-day private healthcare offering, Flexicare, at a more affordable rate starting from R350 per month. “Flexicare is now available at a new affordable price point, from R350 per month, making it on average between 13%-19% more affordable than other equivalent products,” Maria Makhabane, Chief Growth Officer at Discovery Health explains.

Flexicare offers high value healthcare at an affordable price Flexicare, which is administered by Discovery Health and underwritten by Auto&General, was introduced in 2017 with the aim of bridging the gap by making private healthcare cover available at an affordable premium. Flexicare is available to corporate employers and individuals, who can purchase this health insurance for themselves, their household employees or other employees who may be working with them.

“We are seeing a promising uptake of the product, with a 77% growth in members over the past 30 months. Flexicare currently provides primary healthcare to more than 120 000 members,” says Makhabane.

Currently, Flexicare is funding nearly 22 000 GP visits per month – so one in every five Flexicare members are consulting with a GP each month. One in 10 members are also getting a script filled per month.

Nurse visits and digital clinic consultations

Flexicare funds primary healthcare at an extensive national network of more than 12 000 providers. Members can easily locate their nearest healthcare provider through the Flexicare website, app or WhatsApp channel. “Early this year, we introduced new partners and providers to further increase accessibility to primary healthcare. We’ve incorporated a network of nurse-led, digitally enabled primary care clinics as part of a new partnership with Intercare, Netclinic and Unjani Clinics.”

Members can start their healthcare journey using a Flexicare clinic with digital capabilities to facilitate a virtual GP consultation

and, if necessary, an onward referral to a physical GP consultation.

Introducing Flexicare and Flexicare PLUS

Members can choose between two Flexicare plan options – Flexicare and Flexicare PLUS – both offering a basket of primary healthcare benefits.

Here’s a breakdown of benefits available on each plan option:

From R350, the Flexicare plan gives members access to:

Unlimited face-to-face consults with a network GP when referred by a network nurse or online consultation with a GP Unlimited network clinic or online GP consultations

A defined list of procedures in a network GP rooms, when referred by a network nurse

• A defined list of prescribed acute medicine

HIV treatment, counselling and education

Over-the-counter medication from a network pharmacy of up to R150 per policy per year

Basic radiology and pathology (GP referral required)

Two pregnancy scans, relevant blood tests and supportive prescribed medicine within the network

Cover for an annual flu vaccine from a network pharmacy

Cover for an annual wellness screening at a network pharmacy

• Access to Netcare 911 road ambulance services for emergencies.

From R469, Flexicare Plus members have access to all above benefits PLUS these additional benefits:

• Unlimited face-to-face consults with a network GP

Cover for a defined list of 27 prescribed chronic medicines

• Fillings, extractions, pain and sepsis scaling at a network dentist

An annual eye test, and a new frame and lenses every two years at a network optometrist

Over-the-counter medication from a network pharmacy of up to R440 per policy per year.

Flexicare is also available to consumers through Clicks, and Clicks Clubcard members can earn 10% cashback.

A necessary ‘evil’: Understanding medical aid increases

By Jeremy Yatt Principal Officer of Fedhealth Medical Scheme

It’s almost that time of year when South Africans await (with a certain amount of trepidation) the announcement from their medical schemes as to what their contribution increase for the following year will be.

With this in mind, Jeremy Yatt, the Principal Officer of Fedhealth Medical Scheme, shares some insights to help medical aid members understand what medical schemes have to consider when determining increases for the next year.

Says Jeremy, “Many people are concerned about how much medical aid contributions increase by every year, not quite understanding why it’s so much more than inflation, and why schemes feel the need to implement annual increases.”

Firstly, it’s important to understand that medical schemes are not-for-profit entities, so any increase implemented is the bare minimum schemes believe they require. There is absolutely no merit in making medical aid members pay more than they absolutely have to. Schemes do, however, need to stay commercially viable or solvent. If they keep losing money, they will ultimately go into liquidation and their members will be left high and dry.

When determining the annual medical aid increase, schemes mainly consider two factors: age and medical inflation.

As we age, we tend to require more healthcare. For example, older people need certain health screenings like mammograms or prostate checkups, and procedures when our bodies start failing us, such as hip replacements. Medical schemes look at how their membership ages, and if they cannot attract enough younger members to balance out the higher healthcare needs of their older members, this can drive contribution increases.

Exciting new chapter for Fedhealth and Sanlam

It was recently announced that Fedhealth Medical Scheme will become an integrated, Sanlam-endorsed open medical scheme. This collaboration will enable Fedhealth to develop an improved value proposition, which will unlock new opportunities for the scheme, our members and all our broker partners. As such, we look to the future with great excitement, and we cannot wait to embark on this journey in 2025!

Another consideration is medical inflation. Many modern medical treatments and procedures increase in cost at a rate higher than the Consumer Price Index (CPI). This is driven in part by the Rand Dollar exchange rate, as well as the high cost of new medical technology. New laparoscopic hernia repairs, for instance, have done away with the need for surgery – which generally means faster recovery, but are more expensive than older methods. This drives costs for medical schemes, and helps to determine the increase for the following year. A team of actuaries analyses the costs incurred by schemes, and calculates what the increase should be for the scheme to cover claims in the following year should the trends continue. Understanding the factors behind medical aid increases goes a long way towards choosing the perfect fit medical aid cover that’s customisable to your unique health needs and budget. More than ever, it pays to do your homework. Visiting fedhealth.co.za is a good place to start!

Want

a HOSPITAL PLAN, but like the idea of having DAY-TO-DAY

SAVINGS in your back pocket?

For those of us who are relatively healthy, a good hospital plan is quite sufficient as medical aid cover. But what about those times when you need extensive dental work or a new pair of glasses? Wouldn’t it be reassuring to have back-up day-to-day savings at your fingertips?

Well, with Fedhealth’s flexiFED 1, 2, 3 and 4 hospital plans you get affordable, quality medical aid cover from R1 716 p/m that can be perfectly tailored to your health needs, PLUS a flexible day-to-day savings back-up plan any time you need it.

You only pay for the Fedhealth Savings you use – interest-free over 12 months, and if you don’t use it, you don’t have to pay back a cent. It really is a back-up plan!

Fedhealth Savings available to you as a back-up plan: FED 1 Day-to-day funds

M+AD M+AD M

M+AD+CD

M R6 540 R11 664 R16 188 R18 576

M+AD+CD

M+AD+2CD R9 828 R18 588 R23 100 R26 004

M+AD+2CD FED 2 FED 3 FED 4 Day-to-day funds

M+AD

M+AD+CD

M R11 220 R21 492 R26 004 R29 988

M+AD M+AD+CD

M+AD+2CD Day-to-day funds Day-to-day funds

M R15 012

M+AD+2CD

R28 716 R33 240 R37 752

What’s more is that our flexiFED 1, 2, 3 and 4 hospital plans are packed with a series of unique benefits paid from Risk to give you even more value for money, like:

Want to save an extra 10 or 25% each month?

Remember, on our flexiFED options you can also save 10% or 25% on your monthly medical aid contributions by choosing the GRID network or Elect excess variants – which is no small change!

For tailor-made hospital plans that give you optional day-to-day savings in your back pocket, choose a flexiFED option from Fedhealth!

Speak to your broker or visit fedhealth.co.za

The attractions of the smallmid private equity segment

By Viswanathan Parameswar Head of Private Equity

Investments Asia at Schroders (left)

Eufemiano

Fuentes Perez

Data Scientist at Schroders and Verity Howells

Investment Research

Manager Private Equity at Schroders

As the private equity market has grown over the past few decades, large funds have attracted an increasingly large share of overall limited partner (LP) capital. Investors have gravitated towards large private equity funds under the assumption that they offer better returns and resilience due to scale and stability.

Our analysis shows that small and mid-sized private equity funds have, in fact, outperformed their large counterparts with more robust and persistent returns through time. Moreover, with the small- and mid-segment contributing most opportunities in private equity, we believe investors should not overlook this valuable portion of the market.

Small and mid-sized funds - favourable fundraising dynamics

We have analysed data from over 64 000 private equity funds and 400 000 deals in buyout, growth and venture capital from 2000 to 2023 (for the purpose of performance analysis, we have excluded fund vintages beyond 2017, where performance is likely not stable. Single-deal funds and funds of funds excluded. Deals below $1m are excluded). We classify the small and mid-sized segment as funds under $500m and $2bn respectively, and deals under $50m and $200m respectively. The data presented hereafter encompasses all regions and strategies, unless otherwise stated.

Over the last decade, fundraising by large

funds has far outpaced deal flow, resulting in higher competition and thus entry multiples for large deals. Large deal flow has grown at 1.6x, while fund raising from large funds has grown at 14.9x. Small and mid funds, by contrast, have experienced 2.7x growth in annual deal flow over the last decade, while annual fundraising has grown at just 2.4x.

Not only is the pace of fundraising growth much higher in large funds, fundraising levels are already far above the long-term trend, according to the Schroders Capital Fund Raising Indicator (FRI). The FRI is a Schroders Capital proprietary model that shows the areas of the private equity market that are above or below long-term fundraising levels. The long-term trend is based on fundraising levels adjusted for inflation and excludes business cycles. Excessive amounts of capital leads to more competition for deals, higher prices being paid and, ultimately, likely worse returns.

We currently observe that fundraising in European and North American large buyout funds is 100% above the long-term trend, compared to only 40% above trend in small and mid buyout funds.

The ‘long tail’ of private equity Historically, the small and mid segment of the market has offered far more investment opportunities in both funds and deals. According to Preqin data from 2010 to 2023, there have been 50x more small and mid funds in the market than large funds, and 17x more small and mid-deal opportunities than large deals. In other words, the small and mid segment makes up the bulk of the ‘long tail’ of private equity, accounting for 98% of all funds in market and 94% of all deals.

Entry multiples are more attractive in small and mid-sized deals

Tracking EV/EBITDA multiples over the long term shows a consistently wide discount between mid-market and large buyout deals (which today stands at around 5-6x). This can in part be explained by the more favourable dry powder situation in the mid-market. But this is also due to higher perceived risk in small and mid-sized deals, where smaller companies may be less diversified and professionalised. Small and mid-sized deals are also often sourced through proprietary networks rather than through competitive auctions.

Small and mid-sized funds have delivered higher returns than large funds

On average, small and mid-sized private equity funds have outperformed large private equity funds on a net total value paid in (TVPI) basis for vintages after 2005 and on a net internal rate of return (IRR) basis for vintages after 2009. The outperformance is also demonstrated consistently across different geographic regions and investment strategies. Across Asia, North America and Europe, small and mid funds delivered higher net returns than large funds between 2000 and 2018. Small and mid venture, growth and buyout funds also outperformed their large counterparts.

Despite their attractive return profile, small and mid funds present a different risk profile compared to large funds. To assess this, we compared the inter-quartile ranges (IQR) of small and mid funds to that of large funds. Small and mid funds showed a wider IQR with higher top quartile and lower bottom quartile performance than large funds. A practical consequence of this finding suggests that LPs should apply rigorous due diligence and fund selection skills when selecting small and midfund portfolios.

Small and mid-fund returns – more resilient through economic cycles and more persistent through fund vintages

We assessed returns by fund size during two recessionary periods: the Great Financial Crisis (2007-2009) and Dotcom bubble (2001). We found that small and mid funds delivered higher returns than large funds in terms of both net TVPI and net IRR.

Small and mid funds are also better at maintaining good performance over subsequent fund vintages than large funds. In 2022, we conducted research that showed evidence of persistence of returns in small and mid funds, but not in large funds. The research showed that the persistence of returns is greatest among small funds, strong and significant among mediumsized funds, but weak among large ones. In particular, 36% of small and mid private equity funds that were top quartile in one vintage were top quartile in the GP’s next vintage. This is only 22% among large funds.

Broader, more attractive opportunity set

Investors have traditionally favoured large private equity funds. However, small and midsized funds have outperformed their large counterparts across different regions, investment strategies, and economic periods. This can be partly attributed to the fact that companies targeted by small and mid-sized funds often transact at lower valuation multiples. They also offer greater potential for operational value creation, and are attractive prospects for larger private equity funds or strategic buyers seeking ‘tuck-in’ investments. Particularly in an era where large private equity funds are flush with capital, we believe the small and mid-sized segment offers a broader and more attractive set of investment opportunities.

By Tshepiso Kobile CEO of The Southern African Venture Capital and Private Equity Association (SAVCA)

Achieving national policy objectives

South Africa’s National Development Plan: Vision 2030 (NDP) serves as a blueprint for progress. Among the most prominent markers of progress are eliminating poverty, reducing inequality, supporting job creation and boosting the country’s competitiveness in the global arena. In this regard, the collaborative efforts of the public and private sectors, as well as the valuable contribution of South Africa’s private equity (PE), private debt (PD) and venture capital (VC) investor community is vital in fulfilling one of the NDP’s key pillars: sustainable investment and growth.

PE and VC investment as a key economic solution

In South Africa, economic growth has been slow for a protracted period. This prolonged downturn has seen the country’s investment rate remain persistently weak, with government investment being in sharp decline since 2014/5.

Accelerating investment, while ensuring that all members of our society are meaningfully included, has therefore become an urgent policy priority, but the state cannot realise this goal on its own. To meet the investment challenge, different players are needed at different parts of the investment ecosystem.

Banks and traditional finance providers tend to offer funding to relatively low-risk businesses. But, in a socioeconomic climate in which most ventures in need of funding are early-stage micro- and small businesses, intervention from VC investors who can recognise growth potential, and are willing to take on higher risk, is imperative.

This, according to Tshepiso Kobile, CEO of The Southern African Venture Capital and Private Equity Association (SAVCA), is indicative of the role that VC and PE play in filling a gap in the investor mix, going beyond provision of capital and offering active ownership, mentorship, market access, growth and expansion opportunities.

“VC and PE are tried-and-tested models to provide aspiring entrepreneurs a ‘foot in the door’ and local businesses much-needed growth capital – thus supporting highgrowth firms that are crucial for economic activity, job creation and innovation,” she said.

Last year, SAVCA commissioned research firm Intellidex (now Krutham) to perform an analysis of the role PE and VC play in supporting and delivering on national policy objectives. The results speak volumes on how effective the asset class is at ensuring resilience in investee companies through enhanced governance and transformation, whilst also improving the competitiveness and export intensity of South African businesses.

“Intervention from VC investors who can recognise growth potential, and are willing to take on higher risk, is imperative”

Catalysing job creation

South Africa’s record-high unemployment rate represents a monumental challenge –the country’s socioeconomic future depends on developing sustainable solutions to this problem. It is therefore notable that PE and VC investee firms tend to experience

employment growth that is significantly higher than the national average.

According to the report, this job-creation potential became most evident during the pandemic years, when lockdown regulations dealt a deafening blow to the nation’s employment levels. Over this period, national employment growth found itself in the red at -4.2%, while employment growth within PE investee companies stood at 4.2%, an 8.4% difference.

These findings suggest strongly that private equity investee companies can absorb shocks better than companies in the general economy. “These results are also a clear indication of the ability of the industry to stimulate the economy while also supporting national job-creation objectives – the two go hand in hand,” said Kobile.

Speaking to this point, Kobile referenced the reported outcomes of one of SAVCA’s members, which currently has 60 of these high-impact businesses in its portfolio.

Collectively, they delivered revenue of R11.6bn in 2022, growing at 78% over the year and raising R8.2bn private capital over the same time. Together, they employed 18 600 workers at the end of 2022, growing headcount by 39% over the year.

Enabling financial inclusion

PE and VC also make an important contribution towards the government’s policy priority of fostering financial inclusion by giving underrepresented and minority groups access to finance.

Traditionally, business owners who run micro-enterprises and small businesses have struggled to access funding – many still do not have access to formal financial accounts in their business’s name and require more than debt products.

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This has presented a serious barrier to entry for micro-entrepreneurs and stands in the way of their ambitions to expand their products and transform their businesses into profitable ventures. This is where PE and VC come in, with PE focusing largely on expansion and development.

Spurring economic empowerment through transformation

Since South Africa’s first democratic election in 1994, empowerment has been top of the agenda. The guiding policy is reflected most clearly in the Broad-Based Black Economic Empowerment Act and the associated charters that drive transformation in various industries. The financial sector is one such industry, and private equity firms have a specific dispensation.

Evidence gathered by SAVCA indicates that private equity firms have a significant impact on improving the BEE performance of the companies within their portfolios.

According to the survey, investee companies reported significant improvements in several factors, namely ownership (up by 54%), management control (up by 38%), skills development (up by 68%), enterprise and supplier development (up by 71%) and

socioeconomic development (up by 63%).

Furthermore, there are several criteria that must be met by a private equity firm before its ownership of an investee company is seen as being held by black people. These requirements create incentives both for private equity firms to improve their black and female ownership and leadership, and simultaneously drive transformation as well as diversity, equity and inclusion in their investee companies. This, in turn, demonstrates the material role of PE firms in promoting black empowerment and diversity in the economy.

Igniting the engines of innovation

South Africa has aimed to develop a national system of innovation since 1996 when the first white paper on science, technology and innovation was published. In 2019, a revised white paper, published by the Department of Science and Technology, asserted that the establishment of this system would rely heavily on fruitful and cooperative partnerships between the public and private sectors.

The study assessed a sample of investee companies to determine the impact that PE investment had on their performance and operations. One finding was that 81% of investee companies introduce new products

Private equity can unlock value for stakeholders

By Benka Nakos Executive: RMB Corvest

Successful entrepreneurs usually seek to expand the business, but often find making a decision around the right funding can be challenging.

Private equity offers the possibility of getting a partner on board with both the finance and the business sense to make your company prosper. Entrepreneurs are not only required to back their own vision, but also to innovate in the marketplace –where this level of engagement demands the ability to seamlessly make difficult choices. “This is where private equity can unlock value for shareholders. Both entrepreneurial ventures and private equity entail a certain amount of risk, and you will have to share with your partner how your business operates because they will be taking on all the risks with you,” says Benka Nakos, executive: RMB Corvest.

A good private equity partner usually brings on board more than just liquidity for the business, making sure you select the right partner for the business is of strategic

importance in achieving the business’s goals. “Where entrepreneurs hold such confidence in their vision that they are prepared to jeopardise a significant portion of their own capital in their business, private equity partners and senior debt-lenders will respond in kind with greater assurance and commitment,” explains Nakos. This includes maximising returns through developing the right strategy, optimising efficiencies and enabling growth.

“We operate slightly differently to most private equity firms in that RMB Corvest is an on-balance-sheet funded private equity firm, which means there are no exit timing pressures on us, making us an ideal long-term partner,” says Nakos. Able to focus on solutions that are designed to improve cashflows, streamline processes, optimise working capital and secure assets over time to ensure steady growth. Providing investment in companies that are looking for capital to expand, restructure operations, enter new markets or finance a significant acquisition. Our team has a large reservoir of knowledge and experience in various sectors.

RMB Corvest first provided BEE finance in 1998: nine years before BEE codes were officially established

and services post the investment. While there are no baseline figures to compare this to, it does indicate a high rate of innovation post-investment.

The 2024 SAVCA Venture Capital Survey found that ICT has consistently remained a dominant sector, with the five sectors that attracted the greatest number of VC deals in 2023 comprising Software and related (31%), Fintech (16.4%), Online Markets and E-commerce (11.1%), Business Products and Services (6.4%), and Medical Devices (4.7%). Support towards these tech-driven businesses is critical in achieving our aspirations of a digital economy.

“South Africa, inherently, has access to a burgeoning pool of entrepreneurs with world-class ideas that address our societal needs. We’ve seen examples of this in innovative disruptors like TymeBank, which has grown to serve seven million lowerincome, previously ‘unbankable’ individuals. This represents an immensely valuable asset for our country, and we therefore stand to lose out significantly if this talent leaves the country. Retaining and growing this talent base is critical in building the next generation of successful businesses,” concludes Kobile.

and implemented. We value BEE transactions that involve local businesses with good growth potential. RMB Corvest works with many BEE parties and offers fully funded BEE solutions to companies wanting to become compliant.

A high demand for liquidity is providing additional impetus for private equity deals. “Debt markets continue to be onerous to access, and many companies are choosing to rather use equity as a means of generating much-needed liquidity to fund expansion and/or working capital,” says Nakos. RMB Corvest is always looking to invest capital into high growth sectors across South Africa.

How do you know if you are ready to discuss private equity for your business?

If you have founders wanting to retire, shareholders wanting to exit, management wanting to become shareholders, have a new market/geography you are looking to enter, want to make an acquisition, wish to introduce BEE compliance, or simply want to crystalise some value – then you are ready!

“A good private equity partner usually brings on board more than just liquidity for the business”

The future of active equity investing

is systematic and unbiased

By Rademeyer Vermaak

Head of STANLIB

Systematic Solutions

The STANLIB Systematic Solutions team’s unique combination of accounting and engineering skills provides the necessary flair to approach active equity investing in a completely different way from traditional equity portfolio managers.

Rademeyer Vermaak, Head of STANLIB Systematic Solutions, says that the performance of the STANLIB Enhanced Multi-Style Equity Fund is entirely uncorrelated to its peer group, which makes it an excellent core holding in a portfolio.

The Systematic Solutions team boasts a wide range of backgrounds and skills, with engineers, accountants, mathematicians, CFAs, CAs and Chartered Alternative Investment Analysts. Together, they represent 190 years of experience. “The majority of SA equity managers have an accountancy background,” Vermaak says. “We build upon accounting fundamentals by applying a disciplined engineering mindset.

smooth, consistent alpha profile through the cycle, which makes it unnecessary for clients to make timing decisions.

Focus on liquidity pays off

The STANLIB Enhanced Multi-Style Fund has an eight-year track record and has been consistently in the top quartile of the relevant Morningstar category, while in the bottom quartile on costs. The return on equity (ROE) of the Capped Swix benchmark was 11.81% at end-June 2024, while the fund’s return was 18.67%. Over three years, the fund has generated 2.93% of alpha (outperformance against the benchmark) and over five years it has generated 2.18% of alpha.

“Our insights come from company financial statements, not management stories. We follow a detailed, disciplined, data-rich portfolio construction process”

Accountants have the skills to analyse financial metrics but not to manage the huge amount of data that is now available and extract insights from it, as engineers do.

A disciplined approach

“The old way of portfolio construction is heuristic, and a bit fuzzy in stock selection and blending. It results in what we believe is a sub-optimally diversified portfolio, prone to management bias, erratic performance and investment decisions that are not always clear and transparent,” Vermaak says. “Our insights come from company financial statements, not management stories. We follow a detailed, disciplined, data-rich portfolio construction process with robust risk management. You can only manage risk well if you can measure it well. And we follow the same philosophy through good and bad times.”

The process does not pursue one of the traditional style categories of value, quality or growth. Instead, it invests at the intersection of all three, resulting in a blended, wellbalanced portfolio supported by a robust risk framework. This process can generate a

As an example of the multi-style process, Vermaak cites how the managers reached the decision to overweight AVI and underweight Tiger Brands, two JSE-listed food producers. AVI scores higher on quality and growth but lower on value. Although AVI rates as more expensive than Tiger Brands, the price is justified by its higher ROE and analysts’ greater confidence in its ability to deliver consistent earnings. The Systematic Solutions team performs the same exercise on every stock in its universe. Although Vermaak says it is broadly concerning that there have been so many delistings from the JSE in recent years, most of those were small, illiquid stocks. The team’s process screens at the outset for liquidity, so its focus is on the JSE’s largest, most liquid stocks.

Avoiding the value traps

“It doesn’t matter how many stocks are in the universe – we always know which ones we prefer and which ones we don’t,” Vermaak says. Under two scenarios, the portfolio will underperform the benchmark, he says. The first when the market behaves in a way that is irrational, e.g. when Covid-19 impacted financial markets in March 2020. “The best thing to do then was to buy US tech stocks, and the second-best thing was to do nothing,” he said. “We stuck to our process and had recovered the drawdown within three months.”

The second scenario arises because the team avoids value traps, i.e. cheap companies with low growth

prospects. That means it does not hold takeover targets, which can outperform in the event of a bid, for example SA Breweries or Anglo American. Those events can trigger periods of underperformance. A year ago, the STANLIB Systematic Solutions team took over management of the STANLIB Equity Fund on the retirement of the previous manager, Herman van Velze. It has applied its investment philosophy to the 60% of the Equity Fund with domestic exposure. The 40% offshore component uses the STANLIB Global Select Fund, which is sub-managed by JP Morgan Asset Management (JPMAM). The Enhanced Multi-Style process harmonises with that of JPMAM. Both managers use bottom-up stock selection and robust risk management (with both stock and sector constraints) to construct portfolios better than the benchmark with no single style bias.

Top performer

Over the past year, the STANLIB Equity Fund has outperformed its benchmark by 6.3% and is starting to make up its previous underperformance. The rand has been relatively stable against the dollar over the past year, so offshore exposure has not made a big difference. “We believe the STANLIB active equity approach is important because it is disciplined and repeatable, unemotional, unbiased and rational,” Vermaak says. “It is style-diversified and generates alpha throughout the macro cycle. “We pick stocks that are consistently better than the benchmark and buy them at decent valuations. Our alpha is uncorrelated, and we have generated long-term top-quartile performance. The team is leading the way into the future of active equity investing.”

How should investors allocate to Chinese equities?

By Kirsty McLaren Investment Director,

The debate around how investors should allocate to China has grown in recent years. Should they continue to include it as part of a global emerging market (EM) equity allocation, or carve the country out from EM and allocate on a standalone basis?

There are pros and cons to both approaches, each of which may carry greater weight depending on an investor’s objectives and constraints. As such, both have validity, but what’s crucial is that the decision on which path to take is made following an informed assessment.

What is driving the debate around how to allocate to China?

China is by far the largest component of EM benchmark indices. As of the end of March 2024, it accounted for about 25% of the MSCI Emerging Markets Index; the next biggest markets being India at 18%, Taiwan at 18%, and South Korea at 13%.

Standalone China funds have become more popular with investors, particularly in the last few years since the domestic market became more easily accessible to foreigners. Today, standard practice is to include China within a global EM allocation. However, more recently, many

EM ex China strategies have launched.

There are two key drivers behind this:

1. China’s size has prompted a desire from some investors to allocate to a specialist manager, while allowing a broad EM manager to focus on delivering ex China returns.

2. Asset owners’ desire to take control of their China allocation and therefore China risk themselves.

There are benefits to both approaches

The fundamental question is whether the investor wants to retain direct control of their China allocation. Do they have a strong investment view on China? Do other factors drive a need for greater control? A single allocation to EM including China minimises the costs to the investor in terms of search, monitoring and fees compared to an EM ex China plus standalone China approach. It also unifies risk management across EM equities.  However, for a large, sophisticated investor with extensive resources, whether EM ex China plus standalone China is a more expensive approach than a standard EM including China net of fees hinges on two key factors: 1) whether a specialist China manager outperforms a broad EM manager within China over the investment horizon, and 2) whether the investor’s decision making in under/ overweighting China is superior to that of the broad EM manager.

There is also a third option for investors with a segregated mandate who are concerned about the dominance of China within EM. They can customise their benchmark and cap the allocation to China.

Key characteristics of China’s stock market

Since the gradual opening of China’s domestic stock market in 2014 to foreigners, the Chinese stock market has become one of the biggest in the world and offers a large and liquid opportunity set. Measured by market capitalisation in US dollar terms, Shanghai is the fifth largest exchange in the world, behind the NYSE, NASDAQ, Euronext and Japan, and Shenzhen is in seventh place. Both the Shanghai and Shenzhen Stock Exchanges host more than 2 000 listed companies.

China’s stock markets are dominated by domestic investors, with foreigners holding around 10% of the listed equities on each exchange. As the figure below shows, there are a wide selection of stocks available across the market cap spectrum.

High retail investor participation an opportunity

Owing to capital restrictions, China has a large pool of trapped domestic capital. Individuals in China typically have three investment choices – they can put their money into banks, real estate, or the stock market. This, along with a nascent institutional asset management industry, means that retail trading activity proliferates in China. At times it has accounted for up to 80% of the total domestic market volume. As retail investors often have shorter time horizons than other investor groups and may overreact to news flow, this can result in stocks being significantly over- or undervalued for periods of time.

The high participation rate of retail investors reduces the overall efficiency of the market and provides opportunities for more sophisticated investors with rigorous investment processes and longer investment horizons to generate alpha. Despite some recent challenges, China’s domestic equity market has historically been a fertile ground for institutional investors to generate alpha.

State-owned enterprises impact market efficiency

As the figure below shows, the share of SOEs in China is much higher than in the rest of Asia, and the controlling shareholder may have priorities other than maximising shareholder returns. An active manager may be able to anticipate when the state’s interests will be aligned with minorities and when they will diverge.

Emerging Market Equities at Schroders

China approaches compared

Rising regulatory activity

The last few years has seen a flurry of regulatory activity in China. Several factors have been behind this, including a desire to ease rising inequality, to bring legislation in line with the pace of innovation (primarily in tech and e-commerce), as well as a need to move towards technology self-sufficiency off the back of geopolitical issues. Broadly speaking, the main thrust of regulatory activity has been on antitrust, issues of inequality, gig economy labour practices, etc. This has wide-ranging impacts for sectors such as property, healthcare, education, financial services, and e-commerce. Generally, regulation drives uncertainty, which in turn drives a higher risk premium and potentially the suppression of returns.

Sustainability reporting

Although ESG reporting requirements in China are currently minimal[3], China has stated its desire to eventually adopt mandatory ESG disclosure requirements. Listed companies have been encouraged to disclose ESG information since 2018. As of mid-2020, 1 021 Shanghai and Shenzhen-listed companies published annual CSR/ESG reports, up from 371 companies in 2009[4]. Among larger companies, disclosure is better, with 86% of CSI 300 constituents (the 300 largest and most liquid A-shares) publishing ESG reports in 2020. This positive trend, together with the addition of mandatory disclosure requirements, should help investors to gather higher-quality data and better incorporate ESG

“Since the gradual opening of China’s domestic stock market in 2014 to foreigners, the Chinese stock market has become one of the biggest in the world”

considerations in their investment process.

Chinese A shares clearly present a rich opportunity set, albeit one that comes with multiple challenges for foreign investors, who are still very much minority participants in China’s domestic stock market.

How does EM ex China compare to EM?

Our analysis of the impact of removing China from the EM universe is based on a comparison of the MSCI EM and MSCI EM ex China indices.

After China, the three largest countries in EM are India, Taiwan, and South Korea. As shown in the figure below, they are the main share gainers in a shift to MSCI EM ex China, accounting for an aggregate 64% of that index compared to their 48% share of the MSCI EM index. When China is excluded, the index weight of North Asia falls from 60% to 47%.

As shown in the below figure, on a sector basis, EM ex China has a greater exposure to IT, due to the higher weight of South Korea and Taiwan and, due to the absence of the Chinese internet companies, lower exposures to consumer discretionary and communication services.

China represents a large pool of stocks. As shown in the below figure, excluding China

from EM removes securities across the market spectrum but does not change the shape of the index. But it does notably shrink the numbers of very large and very small stocks with the number of index stocks falling from 1 374 to 671; a fall of 51% once China is excluded from EM.

Relative performance is significantly influenced by China’s poor performance in the last three years. On a three-year basis to end March 2024, EM ex China has returned 22% per annum compared to MSCI EM’s -5.1%. On a longer time horizon, China has done better. Over 10 years, the annual returns have been 4.2% and 2.9% respectively. And since the end of 2000, the annual returns have been very similar, with EM ex China returning 8.1% compared to MSCI EM’s 7.6%.

What does this mean for investors?

Many investors have been reassessing their approach to investing in China. In part this is prompted by disappointing recent performance and ongoing headlines around US-China tensions and concerns around deglobalisation. The inevitable slowing of Chinese economic growth, as the investmentled model that has been so successful over the last two decades reaches a natural limit, has also been a factor. Recognising China’s dominant size in EM, some investors have begun to question whether they should have a separate allocation to a specialist China manager rather than rely on a single allocation to an EM manager who includes China. In our view, both approaches have validity. So long as the investor is aware of the pros and cons of each approach, they can make an informed decision that accommodates their own preferences.

Weight

MSCI EM versus MSCI EM ex China – sector exposures

Bridging the skills gap in the insurance industry

This year, GENRIC Insurance Company Limited’s IISA Youth Accelerator programme selected 20 promising young individuals who not only embarked on shaping their future career in the insurance sector, but also achieved a significant milestone – the first ever 100% pass rate in the programme’s history. The aim of the programme is to develop and nurture the new talent and skills that the insurance industry desperately needs, while also tackling the pressing issue of youth unemployment in South Africa.

Melanie du Plessis, Head of Human Capital at GENRIC Insurance Company Limited, explains that the programme goes well beyond being a ‘training initiative’. “It’s about equipping young people with the necessary skills and knowledge to actively contribute to building a more robust and inclusive insurance industry in a world where risk is rapidly evolving and escalating. A key factor in the exceptional 100% pass rate lies in the mentorship programme that was implemented, where eight expert mentors were assigned to guide and support the participants,” explains Du Plessis.

These mentors were key in helping candidates bridge the gap between theoretical knowledge and practical application, preparing the participants for real-world challenges in the insurance industry. More significantly, it provided candidates with a turnkey view of the entire value chain of an insurance business.

GENRIC’s Mentor Day saw its executive team presenting key aspects of what goes into building and sustaining a successful insurance business in South Africa:

• Cornel Schoeman, Chief Operating Officer, introduced strategic management concepts and discussed their influence on marketing strategies

Werner Strydom, Chief Financial Officer, highlighted the critical role of the Finance Department within the company and the broader insurance sector

• Stuart Forbes, Chief Risk and Compliance Officer, offered an in-depth exploration of risk management and compliance, focusing on the essential practices that safeguard both the company and its partners Martin Rimmer, CEO of Sirago Underwriting Managers, introduced the participants to the world of Gap Cover and Health Insurance

• Christopher Mulder from The Graduate Institute of Financial Sciences (GIFS) delivered an insightful presentation on how the Fourth Industrial Revolution (4IR) is transforming the insurance industry, and emphasised the importance of maintaining a human touch in an increasingly digital world.

“The success of the IISA Youth Accelerator Program is a testament to GENRIC’s ongoing commitment to growth, self-development, and personal mastery. It’s also pivotal in addressing the widening talent gap that the insurance industry faces globally, driven by factors such as an ageing workforce, difficulty in attracting and retaining new talent, evolving in-demand skill sets, digital transformation, and changing customer expectations and needs,” says Du Plessis.

There’s a scam (and a scammer) for everyone

From ‘Yahoo Boys’ who operate online to the seemingly innocent man or woman on the street, scammers are everywhere, and their tactics are becoming increasingly sophisticated.

Dave Barber from Walking with Winners says, “You wouldn’t be able to spot a scammer in the street. They don’t have a distinct appearance, like being covered in tattoos and wearing thick gold chains, while offering you a brilliant investment opportunity. Scams are also not chance encounters. Scammers do their best to fit into society and in this way can gain your confidence.”

According to the Southern African Fraud Prevention Service (SAFPS), 2024 fraud statistics showed a 32% increase in reported fraud incidents in the previous year. Banking fraud contributed to 45% of these incidents, followed by the microfinance sector at 19% and retail at 14%.

With the country’s fraud landscape rising to alarming levels, knowing what to look out for to avoid being scammed is vital. From banking fraud and ‘money muling’ to corporate scamming and cybercrime, the list of ways people fall prey to predators is seemingly endless.

Scams and their targets

Victims of impersonation fraud increased by 54% last year according to 2024 Fraud Statistics. Momentum Insure has seen a marked rise in policyholders deceived into sharing their policy information by fraudsters posing as insurance employees and even brokers.

Scammers are identifying potential targets through their social media posts, and in this way can gather a wealth of information on them, from where they shop to where they work. This is why it’s so important to keep social media profiles private and secure.

Based on recent news reports, a prominent group that has come to be known as the ‘Yahoo Boys’ are also becoming an increasing danger, operating on platforms like WhatsApp, Facebook and TikTok and dealing in scams that amount to hundreds of millions of dollars. Their tactics include romance fraud to trick unsuspecting victims into falling in love with them, as well as preying on the vulnerabilities of the elderly.

Most people have heard of social engineering attacks like spoofing and phishing that are used to coerce people into sharing OTP pins and internet banking login information. Now, vishing has also become a popular scamming technique among cyber criminals. Preying on the elderly in most cases, fraudsters will contact their intended victims over the phone pretending to be from their bank and alerting them to fraud taking place on their account that requires the victim’s immediate action. In this way, scammers can get OTP pins and banking details directly from the account holder.

People get sucked into emails they receive and promises made to them over the internet. When you hear what scammers can accomplish, not through the barrel of a gun like one might imagine, but with their words and making people believe something that is false, it’s exasperating.

The world of scamming has grown exponentially, indiscriminately targeting South Africans and preying on their vulnerabilities. Watch Momentum Insure’s Circle of Safety https://www.youtube.com/@ momentuminsureseries on YouTube to arm yourself with the right information. Follow the scams conversation on Momentum Insure’s social media channels.

By Funeka Ngewu Momentum Insure Head of Claims and Claims Support

Repositioning for two insurance brands

Hollard’s new brand strategy

Hollard Insurance Group, the largest privately owned insurance company in South Africa, has lifted the veil on plans to reposition its brand. “Since its foundation in 1980, Hollard consistently pursues a better way to do insurance across various markets and specialist categories, providing businesses and ordinary people with reliable and competitive solutions,” says Willie Lategan, Hollard Group CEO. “Today, through Hollard International (HINT), we have access to 10 markets on the continent. We also have global backing from Tokio Marine. We are an insurer with a long-term vision, we believe in partnerships, and having an impact in the markets in which we operate. As we continue to drive our growth in sub-Saharan Africa, through HINT, we believe in driving profit through purpose, as well as enabling more people to create and secure a better future,” he adds.

Explaining the new brand repositioning, Hazel Chimhandamba, Group Chief Marketing Officer at Hollard, says it will give impetus to the company’s objective of leveraging its relationships with intermediaries, retailers, and strategic partners. This brand repositioning focuses on enhancing the capabilities of its intermediaries to better serve the end customer. Chimhandamba adds that human-to-human engagement remains crucial to increasing the uptake and penetration of insurance among its target segments.

“Insurance is about the great unknown, and our new brand campaign is designed to encourage our customers to step boldly into that great unknown. As a brand, we challenge extractive insurance practices. Insurance is generally catastrophised and our view is that for insurance to be accessible, it needs to be positioned differently,” she says. “At the heart of our brand repositioning, which will be defined by the campaign payoff line ‘Insure your unsure’, we seek to reinvigorate our brand by taking the doom and gloom out of insurance and bringing in some levity – after all, we take what we do seriously, without taking ourselves too seriously,” says Chimhandamba.

Through HINT, the Hollard Group has established access in several African countries, including Mozambique, Namibia, Botswana, Ghana, Zambia, Lesotho, Kenya, Uganda, and Tanzania – offering a broad range of short- and long-term insurance solutions.

Santam ushers in a new era

106 years after entering the market, and well into its tenure as South Africa’s largest short-term insurer, Santam has launched its new brand repositioning that will see the business refresh its strategic positioning in line with a brand-new concept: “Living in the moment, not in the worry.”

Nondumiso Mabece, Head of Brand at Santam, explains this repositioning is the first step into a new era for the country’s leading short-term insurer, and speaks to a fresh approach to insurance, with Santam at the forefront. “For over 100 years, we have centred our product and service offering around safeguarding the things that are important to our clients. Now, well into the information age, many South Africans are rethinking what it means to have financial protection for their assets. This repositioning is the first of many exciting developments that we have planned for the brand and for our clients – the individuals, businesses and corporates – who trust us to deliver on our values.”

This new outlook will see Santam championing what it means for insurance to be one of the ways in which people can feel free to seize the day, live without fear or worry, and live liberally – knowing that the things

“Human-to-human engagement remains crucial to increasing the uptake and penetration of insurance”

that support their lives and livelihoods are properly protected.

“Life in the fast lane can be very demanding. The everyday stresses of running businesses and households can sometimes feel like a mental and emotional burden that is compounded by the need to secure your assets and build long-term financial wellbeing. Our role is to provide the sense of security that people need to grow, to make moves, to dream big and to plan bigger – no matter what life throws your way. Knowing that the valuable things you own – whether that be your home’s contents, your business’s equipment or your personal belongings – are protected against the unexpected, is what people need to focus on the freedom of living. Our new slogan: ‘This is Freedom’, captures this important message,” says Mabece.

Shifting gears towards new horizons

The rebrand accompanies a renewed drive by Santam and its team of executives to ensure that the brand embodies everything it means to be ‘future-fit’. With this brand repositioning, Santam will continue to fulfil its long-term vision of driving growth within various segments by increasing its availability to clients through a wide range of platforms.

The next few weeks and months will see the rollout of this refreshed strategy, with the aim of strengthening Santam’s leadership position within South Africa.

“Even though Santam has cemented a legacy and is widely regarded as one of South Africa’s most recognisable household names in insurance, this doesn’t mean Santam is a legacy brand. In fact, the exact opposite is true. Leaning on our advanced data and analytics capabilities, we now understand more about South African customers than we ever have – including what they expect from an insurer and how we can best serve their needs,” says Mabece. “Santam is building a business for the future while servicing our existing and new clients. This repositioning will ensure that the Santam brand will remain top of mind for South Africans who are looking for a trusted short-term insurer.”

Addressing bias in insurance data

By Josefin Rosén Trustworthy AI specialist at SAS’ Data Ethics Practice

Addressing bias in insurance is a critical industrywide priority, particularly given its profound impact on the underwriting process. With industry experts predicting that discrimination will become a significant regulatory concern from an AI perspective, it is imperative to adopt an ethical and responsible approach to AI sooner rather than later.

Data is the cornerstone of all AI systems, which learn from the data they are trained on. Therefore, it is crucial that the data used is relevant, fair, accurate, representative and of high quality. For instance, when developing AI for automated decisionmaking, the system typically learns from historical data, often originating from a previously manual process where human decision makers made similar decisions. While the AI may learn to replicate these decisions, it also inherits the biases embedded in the data from those human decision-makers. The risk is that while an individual’s biased decision may affect a single case, an AI system can scale this bias across thousands of decisions per minute, rapidly amplifying the impact if not properly managed.

Moreover, seemingly innocent variables can inadvertently act as proxies for sensitive information, introducing bias into AI systems. For example, a postal code may serve as an unintended proxy for ethnicity, particularly in regions with a history of segregation, where specific ethnic groups are concentrated in certain areas. As a result, even if ethnicity is

not explicitly included as a variable, the use of postal codes can introduce unintended bias, leading to unfair outcomes in AIdriven models.

Different approaches

Trustworthy AI begins before the first line of code, and it requires an intentional, holistic approach where supporting technology is crucial, but also where people and processes are important to consider. At SAS, we are using an AI governance model within our own organisation that we also use for advisory purposes. The model has four pillars:

1. Oversight, which essentially brings humans into the loop. We have established an interdisciplinary executive committee that guides the organisation through AI ethical dilemmas, from sales opportunities to procurement decisions.

2. Controls, where the focus is on regulatory activities around the globe and the establishment of AI-specific risk management methods within the organisation.

3. Culture, where we focus on coaching and training our employees to cultivate a global culture of well-intentioned individuals committed to upholding the principles of trustworthy AI. This is an important aspect since trustworthy AI progresses in tandem with the pace of cultural change.

4. Platform, which overlays and supports the technology and capabilities that are necessary to be able to innovate responsibly at every stage of the AI lifecycle, from data to decision, and to develop and deploy AI that is truly trustworthy. This includes solid data

management and data governance, bias detection and mitigation, explainability, decision audibility, and model monitoring, given that AI models can degrade over time.

Enhancing the analytical lifecycle

As emphasised earlier, there is no good AI without good data – the quality of AI is directly tied to the quality of data it processes. One innovative approach to overcoming data limitations is the use of synthetic data. This allows organisations to bridge gaps where real data might be scarce or unusable due to privacy concerns. By generating synthetic data, insurers can ensure their models are more inclusive and representative of diverse populations. Moreover, synthetic data is often more cost-effective than gathering actual demographic or behaviour-based information, making it an attractive option for insurance leaders who need to make predictive decisions efficiently and affordably.

In addition, AI offers significant potential to enhance insurance operations. When deployed responsibly, AI can improve fraud detection and provide customers with targeted risk-prevention strategies, reducing the likelihood of false claims. By training these models on large datasets that reflect the characteristics of real fraud cases, insurers can better identify anomalies and suspicious patterns, ultimately protecting both the company and its clients.

The path forward

“There is no good AI without good data, the quality of AI is directly tied to the quality of data it processes”

The integration of trustworthy AI in the insurance industry is not just a technological imperative but a moral and ethical one. As AI continues to evolve, insurers must remain cautious, ensuring that their systems address bias and operate transparently and fairly. The four pillars of the AI governance model referenced above provide a robust AI governance framework for achieving this goal. By fostering a culture of responsibility, implementing strong regulatory controls, ensuring human oversight, and leveraging advanced platforms, we can build AI systems that not only drive innovation but also uphold high standards of ethics and fairness.  As the industry moves forward, it is essential that all stakeholders – regulators, companies, and consumers – collaborate to ensure that AI is used as a force for good. Through careful planning, a solid AI governance model, and a commitment to trustworthy AI principles, we can create a future where AI enhances the insurance industry, fostering trust and delivering fair outcomes for all.

SARS’ available tax incentives to boost small and medium-sized enterprises

By Morné Janse van Rensburg Managing Director of tax specialist firm Hobbs Sinclair Advisory

The South African Revenue Service (SARS) provides a series of tax incentives and relief measures for small to medium-sized enterprises (SMMEs) to support their growth and sustainability. These measures are designed to reduce the financial burden on SMMEs and promote economic development, job creation, and investment.

Speaking in an interview, Morné Janse van Rensburg, Managing Director of tax specialist firm Hobbs Sinclair Advisory, highlighted the importance of these incentives for small businesses, emphasising the need for their adoption. “Surprisingly, many business owners are not aware of all the tax incentives available to them, or do not put in the minor effort to make use of them. What may seem like a laborious exercise can be well worth it,” he stated. “It is often beneficial to reach out for professional assistance, which can pay for itself tenfold through the tax savings made.”

Key Tax Incentives for 2025:

Small Business Corporation (SBC) Tax Rates

Small Business Corporations (SBCs) will benefit from no income tax on the first R95 750 of taxable income, with progressive tax rates applied to income above this threshold. This offers a significant reduction in the overall tax burden compared to standard corporate tax rates.

Turnover Tax

Turnover Tax is a simplified tax system only available to sole proprietors, partnerships, companies, or close corporations with a ‘qualifying turnover’ of less than R1m per year. These types of entities are called micro businesses. Turnover Tax is calculated against the turnover of a business as opposed to a percentage of profit, which reduces the administration burden on business owners as there is less of a need to keep a detailed record of expenses and to work out or construct which are deductible for tax purposes. Registered Turnover Taxpayers are also exempt from Dividend Withholding Tax (DWT) on dividend distributions of up to R200 000 per year. Dividends in excess of R200 000 are subject to DWT at the standard rate of 20%.

Employment Tax Incentive (ETI)

To encourage the employment of young job seekers aged 18 to 29, the ETI allows employers to reduce their PAYE (Pay-As-You-Earn) liabilities. This incentive can be claimed for up to 24 qualifying months per employee, effectively reducing the cost of hiring young talent.

Urban Development Zone (UDZ) Allowance

The UDZ tax allowance offers accelerated depreciation for capital investments in designated urban development zones, promoting investment and economic development in these areas.

Learnership Allowance

Employers engaged in learnership agreements with employees can claim additional deductions, fostering skills development and training within businesses.

In closing, Janse van Rensburg commended the revenue service, saying, “SARS’ tax incentives offer a significant step-up towards fostering a more supportive environment for SMMEs. By reducing the financial strain and encouraging investment, these measures will help small businesses thrive and contribute to the overall economic growth of South Africa.”