Shaun Harris
There is an estimated R20-billion to R25- billion’s worth of blocked rands in South Africa, capital held in the country in terms of existing exchange control regulations and mainly belonging to emigrants in Australia, Israel, the United Kingdom and Canada.
For most of these people their blocked rands are a largely passive investment, which means the value of the capital is reducing in real terms as the rand devalues. And it’s a frustrating position to be in, with blocked rands likely to be one of the last mechanisms of South Africa’s exchange control regulations to be lifted.
But there is something you can do about blocked rands. The capital cannot be removed physically from South Africa, but blocked rand holders can protect the value of their cash in the country and earn income offshore from it.
Marriott Asset Management took a look at the problems confronting blocked rand holders earlier this year and came up with a two-fund package to allow blocked rand holders to hedge their capital in South Africa and earn a high-income yield offshore.
The two are the Marriott Global Income Fund, a South African registered unit trust fund (which means investments don’t erode your annual R500 000 forex limit) invested in United States, UK and European bonds, and the local Marriott Income Fund.
The basic idea is that the local fund provides an average yield of about 16% in South Africa, while the offshore fund earns a yield of about 8% on global bonds. This provides a hedge against rand depreciation in South Africa and an income stream that is paid directly to investors offshore.
Investments – the minimum is R100 000 into both funds – can be split 50:50 offshore and onshore, though Marriott Asset Management’s MD Simon Pearse recommends a split of 70% into the local fund and 30% into the global fund, which was launched in March.
The global fund is managed by Marriott Singer, a joint venture between Durban- based Marriott and Singer & Friedlander, the London merchant and investment bank.
Apart from the obligatory 5% cash holding requirement, the global fund is fully invested in foreign bonds – about 40% in US dollars, 40% in the Euro and 20% in pounds.
Offshore marketing of the fund is done by Pioneer International, the former division of Old Mutual.