StanLib Asset Management’s pension funds face losses of approximately R20-million resulting from the reduced valuation of the South African government’s inflation-linked bonds after the downward revision in the official inflation rate and the government’s treatment of that revision, the group revealed on Monday.
As a result, out of a duty to protect the interests of its pension fund clients, the financial services group said it had decided to seek legal opinion once it became clear that pension funds might have to bear any losses resulting from the South African Treasury’s decision on Friday to treat the CPI adjustment as a “technical” rather than a “fundamental” revision.
If the fundamental yardstick had been used as the basis of the recalculation, the Treasury would have ensured capital values were unaffected, thereby absorbing the loss. A revision on a technical basis, however, leaves pension funds with the loss.
“StanLib Asset Management, in common with all fund managers, has a fiduciary duty to ensure the interests of clients are not compromised and to take appropriate steps to secure their rights,” it said.
“The pension funds could lose up to R700-million if National Treasury goes ahead with its decision. StanLib’s pension funds would make up approximately R20-million of this number. Stanlib is still in the process of canvassing legal opinion and will seek a meeting with National Treasury in an attempt to resolve the issue.”
Economists agree that investor confidence in the inflation-linked bonds as an asset class has been undermined by the CPI data revision and the government’s decision to saddle investors with the losses.
Statistics SA revised downward the official measure of March CPI by a full 2,3 percentage points to 10,2% y/y from 12,5% previously, while the April CPI came in at 8,8% y/y. The data was adjusted all the way back to January 2002. – I-Net Bridge