Natalie Phillips of Investec Asset Management
A strategy often employed internationally for pension funds is to invest the core of the portfolio into passive or tracker funds, and the balance into satellite actively-managed funds.
However, Natalie Phillips, head of SA Institutional at Investec Asset Management, does not agree with this approach, particularly in the South African market at this time.
“We would suggest a reverse of this strategy, with the core of the portfolio in good actively managed funds and passive funds in a satellite role. In the South African context, investors’ patience would have been well rewarded had they followed this route, as good active funds have delivered better capital growth than simply investing in the index.”
In a low return environment, she says it is tempting to choose passive investments to save fees.
“However, it is in just such an environment that alpha — outperformance above the index — is at its most valuable, and opportunities for alpha are at their greatest due to higher return dispersion.”
She points to evidence from local multi-asset active managers with a track record of outperforming a multi-asset benchmark over the long term.
Furthermore, Phillips says active management is a way of ensuring efficient capital allocation, as asset managers invest capital where they believe it will be most productive.
Phillips points out that a risk to note with passive investing is that it results in buying yesterday’s winners.
“In a highly concentrated market like the JSE, it can result in high exposure to shares or sectors when their valuations are stretched. In 2008, for example, resources made up 59.4% of the ALSI 40 at a time when mining shares were trading at high multiples on peak earnings.”
She says it is becoming critical to add investment strategies such as private debt, where returns are uncorrelated to equity. She says liquid markets also provide a more speedy return profile, which is positive in the face of the uncertain and volatile markets.
“If you look at the unlisted credit space, be it in infrastructure or corporate credit, you can achieve a return of inflation plus 5%.
“I think one really has to be mindful of how inflation-plus is going to be achieved for members and retirement funds by allocating to diversified sources of returns. The offshore theme is pretty much played out, because most funds are at their full off-shore allocation.
“While there is renewed interest in hedge funds, they need to be offered at reasonable fees, have a proven track record and offer a differentiated return signature.
“Lastly, it is important to be selective in one’s South African equity selection, because of the downside risk as a result of the volatility we see in the market.”
Phillips believes active managers with a well-resourced team and a disciplined, robust and repeatable process outperform the market and passive managers over the long term.
Driving dialogue, harvesting knowledge
As a thought leader that gains input from its broad stakeholder base, the Institute of Retirement Funds Africa (IRFA) is a driver of dialogue and a harvester of fruitful knowledge for the retirement sector, according to Wayne Hiller van Rensburg, president and chairperson of the IRFA.
He says a reflection of this is the IRFA annual conference that focuses on both the gathering and dissemination of useful information regarding the pensions and retirement landscape, and which can rightfully claim to be the biggest pensions event on the continent, with more than 1 000 having attended the most recent.
The most recent conference had the theme “Navigating the Future” that speaks to the IRFA’s primary driving forces — interpreting the here-and-now of the pensions world and thinking about how an environment that improves pensions outcomes can be created.
“Delegates at our conferences benefit from being presented with relevant research that IRFA commissions have reviewed regarding policy and industry conditions.
“Government’s perceptions on issues related to retirement are included, as are those of many of South Africa’s neighbours. We strongly believe that no one social partner will be able to create a single catch-all solution,” says Hiller van Rensburg.
He contends that as a public benefit organisation the IRFA sees its role as a leader, a generator of dialogue and the exchange of ideas, because, unfortunately, South Africans have become consumers of policy rather than drivers.
“One of the IRFA’s main functions is to influence policy and aggregate information. For example, social protection is a constitutional imperative in South Africa, and as a society we need to define what social protection means, with all social partners working towards putting the resultant vision into action,” says Hiller van Rensburg.
“For this reason we should explore how we can achieve a sustainable and equitable solution collectively. However, many decisions that affect the pensions industry are discussed at a high level without being fed down to as many stakeholders as possible before final decisions are made.
“Furthermore, decisions are made in stakeholder groups that may not always understand the complete picture, such as the separation between policy, implementation, and the effect on society, which can result in reforms being made and then government backtracking, and that often results in uncertainty,” explains Hiller van Rensburg.
He says the provision and presentation by the IRFA of the results of research and the aggregation of dialogue enables industry stakeholders to learn from their peers and experts and make a positive impact on the people they serve and represent, whether they are a members, trustees, government or regulatory officials, or representatives of businesses offering services to retirement funds.
“We are working at creating more learning opportunities for our members, so that they can acquire the skills necessary to manage funds, and for the general public to understand what their benefits are,” says the IRFA’s president.
“We provide our members with a broad range of retirement input, including: specific regulatory and skills developments; insight regarding the big pensions picture and how pensions fit into the global and national economies; what role pensions play in social security; how each of the stakeholder groups can and should participate in making the current pensions outcomes better; and how pensions should be transformed to create better societies in future.”
The release of the recent second draft of the proposed Default Regulations is an example of successful retirement reform, according to Hiller van Rensburg, as it has taken into account learning from across the globe, behavioural finance, and how people can make the most appropriate decisions. This is one of the best possible things that could have happened in a financial environment where financial literacy and skills are low.
The second draft intends to implement regulations that aim to lower charges and improve market conduct in the retirement industry by ensuring that retirement savings of South Africans are invested in a prudent and cost-effective manner, and that members get better value for their money, with the ultimate goal of them being able to retire more comfortably.
The national treasury has re-emphasised, through these default regulations, that fund boards have the responsibility to protect the interests and investments of pension fund members during and post the accumulation stages. The second draft also establishes an improved balance between principles and rules.
The default regulations form part of reform programme to deliver better customer outcomes across the financial sector. However, Hiller van Rensburg says the fact that it is happening in a situation in which only a relatively privileged few who are members of a retirement fund are affected, means it is not addressing the broader societal problem of social security.
Another example of the IRFA’s work to drive dialogue around policy and harvest useful knowledge for the retirement sector is the institute’s focus on best practices, which is an important issue, as the establishment of the most effective practices delivers better outcomes.
Hiller van Rensburg explains that the IRFA was given a mandate by its membership to conduct research into best practices, which has identified both local and international standards. However, it went further and asked South African retirement fund practitioners and leaders what they thought best practices should be.
The IRFA’s findings from best practices research that includes King IV and its impact on retirement funds have been a rich source of information for members interested in making the right socioeconomic business decisions.
A third example of how IRFA drives dialogue is regarding the rights of disabled workers and vulnerable beneficiaries, and the need for transformation in the South African financial services industry.
The institute has also presented information for the benefit of the industry on the Financial Sector Charter Council BBBEE Voluntary Dispensation for the top 100 Retirement Funds and Umbrella Funds in South Africa, as well as on the BEE.conomics Survey 2016 by 27four Investment Managers.
Hiller van Rensburg says the IRFA is also involved in ongoing discussions with investment professionals as well as conducting research into investment management styles in the industry, as these can impact on investment outcomes.
a thought leader that gains input from its broad stakeholder base, the Institute of Retirement Funds Africa (IRFA) is a driver of dialogue and a harvester of fruitful knowledge for the retirement sector, according to Wayne Hiller van Rensburg, president and chairperson of the IRFA.
He says a reflection of this is the IRFA annual conference that focuses on both the gathering and dissemination of useful information regarding the pensions and retirement landscape, and which can rightfully claim to be the biggest pensions event on the continent, with more than 1 000 having attended the most recent.
The most recent conference had the theme “Navigating the Future” that speaks to the IRFA’s primary driving forces — interpreting the here-and-now of the pensions world and thinking about how an environment that improves pensions outcomes can be created.
“Delegates at our conferences benefit from being presented with relevant research that IRFA commissions have reviewed regarding policy and industry conditions.
“Government’s perceptions on issues related to retirement are included, as are those of many of South Africa’s neighbours. We strongly believe that no one social partner will be able to create a single catch-all solution,” says Hiller van Rensburg.
He contends that as a public benefit organisation the IRFA sees its role as a leader, a generator of dialogue and the exchange of ideas, because, unfortunately, South Africans have become consumers of policy rather than drivers.
“One of the IRFA’s main functions is to influence policy and aggregate information. For example, social protection is a constitutional imperative in South Africa, and as a society we need to define what social protection means, with all social partners working towards putting the resultant vision into action,” says Hiller van Rensburg.
“For this reason we should explore how we can achieve a sustainable and equitable solution collectively. However, many decisions that affect the pensions industry are discussed at a high level without being fed down to as many stakeholders as possible before final decisions are made.
“Furthermore, decisions are made in stakeholder groups that may not always understand the complete picture, such as the separation between policy, implementation, and the effect on society, which can result in reforms being made and then government backtracking, and that often results in uncertainty,” explains Hiller van Rensburg.
He says the provision and presentation by the IRFA of the results of research and the aggregation of dialogue enables industry stakeholders to learn from their peers and experts and make a positive impact on the people they serve and represent, whether they are a members, trustees, government or regulatory officials, or representatives of businesses offering services to retirement funds.
“We are working at creating more learning opportunities for our members, so that they can acquire the skills necessary to manage funds, and for the general public to understand what their benefits are,” says the IRFA’s president.
“We provide our members with a broad range of retirement input, including: specific regulatory and skills developments; insight regarding the big pensions picture and how pensions fit into the global and national economies; what role pensions play in social security; how each of the stakeholder groups can and should participate in making the current pensions outcomes better; and how pensions should be transformed to create better societies in future.”
The release of the recent second draft of the proposed Default Regulations is an example of successful retirement reform, according to Hiller van Rensburg, as it has taken into account learning from across the globe, behavioural finance, and how people can make the most appropriate decisions. This is one of the best possible things that could have happened in a financial environment where financial literacy and skills are low.
The second draft intends to implement regulations that aim to lower charges and improve market conduct in the retirement industry by ensuring that retirement savings of South Africans are invested in a prudent and cost-effective manner, and that members get better value for their money, with the ultimate goal of them being able to retire more comfortably.
The national treasury has re-emphasised, through these default regulations, that fund boards have the responsibility to protect the interests and investments of pension fund members during and post the accumulation stages. The second draft also establishes an improved balance between principles and rules.
The default regulations form part of reform programme to deliver better customer outcomes across the financial sector. However, Hiller van Rensburg says the fact that it is happening in a situation in which only a relatively privileged few who are members of a retirement fund are affected, means it is not addressing the broader societal problem of social security.
Another example of the IRFA’s work to drive dialogue around policy and harvest useful knowledge for the retirement sector is the institute’s focus on best practices, which is an important issue, as the establishment of the most effective practices delivers better outcomes.
Hiller van Rensburg explains that the IRFA was given a mandate by its membership to conduct research into best practices, which has identified both local and international standards. However, it went further and asked South African retirement fund practitioners and leaders what they thought best practices should be.
The IRFA’s findings from best practices research that includes King IV and its impact on retirement funds have been a rich source of information for members interested in making the right socioeconomic business decisions.
A third example of how IRFA drives dialogue is regarding the rights of disabled workers and vulnerable beneficiaries, and the need for transformation in the South African financial services industry.
The institute has also presented information for the benefit of the industry on the Financial Sector Charter Council BBBEE Voluntary Dispensation for the top 100 Retirement Funds and Umbrella Funds in South Africa, as well as on the BEE.conomics Survey 2016 by 27four Investment Managers.
Hiller van Rensburg says the IRFA is also involved in ongoing discussions with investment professionals as well as conducting research into investment management styles in the industry, as these can impact on investment outcomes.