trusts
Shaun Harris
Only R0,5-billion flowed into foreign unit trust funds over the past quarter – a figure that does not represent the huge appetite local investors have built up for offshore investment. Over the previous quarter, R2,2- billion was invested in international funds.
The reason for the slowdown is many of the funds listed in the foreign general equity sector have been closed to new business as their management companies have reached the ceiling of their asset swap capacity.
In terms of Reserve Bank regulations, unit trust management companies may only invest 15% of their South Africa-based assets offshore. Many of these companies are owned by large life assurers or banks, but have to define their asset swap capacity according to their own balance sheets – considerably smaller than those of the large institutions.
It’s a problem that is frustrating fund managers and investors. One benefit of investing in a rand- denominated foreign fund is that it does not come off an individual’s foreign exchange allowance.
Earlier indications from the Reserve Bank were that the restrictions would be eased, but that was before last year’s collapse of the rand. The general consensus among unit trust companies, and large parts of the pension and retirement fund industry, is that the limit needs to be raised, perhaps to around 30%.
However, the Reserve Bank is not budging, and signals of asset swap relaxation seem mixed.
“Some people are very optimistic, saying the restrictions will be reviewed and that it’s only a matter of time before all the foreign funds can open again,” says Fanie Lategan, CE of Sanlam Unit Trusts. “But then other sources say the Reserve Bank will not relax the restrictions.”
Sanlam reopened its Europe Growth Fund for new investments earlier this month, after securing additional capacity of R80- million through strong inflows into other Sanlam unit trusts. But that money will probably be used up quickly and the fund will have to close again. Growing investment assets is a temporary solution to the asset swap problem.
Association of Unit Trusts executive director Colin Woodin says meetings have been held with the bank to motivate an increase in the industry’s asset swap limits, but it might still be some time before this can be achieved.
Carmen Maynard, Liberty Life director and MD of Liberty Asset Management, expects that the ceiling will be raised “sometime next year” for all South African institutions, possibly up to 20% of local assets.
Even that, though, won’t offer much more scope for asset swaps. Considering that general investment advice is to have at least 30% of investment assets offshore, that’s at least how much the ceiling should be raised by.