Driving empowerment for an inclusive economy
The Transport Sector Retirement Fund is committed to the ongoing transformation of South Africa’s economy to become more inclusive, by supporting service providers in the investment process that contribute significantly to the targeted economic empowerment of black South Africans.
“The fund does not believe in incubation but in black talent managing and investing on its behalf, now, especially since only 4% of the assets under management in South Africa are controlled by black managers, which is not acceptable,” says Joe Letswalo, principal officer at the fund.
“We believe that Black Economic Empowerment (BEE) is not a tick-box compliance issue, but a business imperative for the growth and redress of the inequalities in our society,” adds Letswalo.
The fund policy is to have not less than 60% of its domestic assets managed by black owned and controlled investment management companies, as defined in the Financial Services Charter and the Broad-Based Black Economic Empowerment (B-BBEE) Codes of Good Practice.
Letswalo reports that as of June 2017, 68% of the investment managers that the fund is invested with are black owned asset management companies and managed by black professionals.
“We selects asset managers who: represent the demographics of the country; aspire to improve the lives of all South Africans; have the skill and capabilities in their respective asset classes; have set performance targets in respect of BEE; are conscious of their in-house procurement process, while also being mindful of the environment that they operate in relative to social and corporate governance.
“When the asset managers were appointed in 2013, eight of them were level one BEE contributors; however some of them have had their BEE rating reduced due to their growth and new BEE requirements as per the new BEE codes.
“Nevertheless, even though some of the managers have had their ratings reduced, the fund has retained them, as they are black owned and controlled, and their codes were reduced because they had grown, which signifies growth for the fund and further supports our transformation agenda.”
Letswalo says the ideal scenario is that the fund appoints an asset manager that is a level one BEE contributor, but over and above that an asset manager that has black portfolio managers, investment analysts, research analysts and graduate interns involved in all matters relating to the managing of the funds’ assets.
“Where that proves to be a challenge, the fund considers the factors individually and decides on whether to appoint the asset manager or not, as the first obligation for the fund is to generate returns on behalf of its members.”
The Transport Sector Retirement Fund is the first anchor to a black female owned and controlled private equity investment firm. This is the first black female owned firm to be registered with the Southern African Venture Capital and Private Equity Association.
Letswalo says the investment firm focuses on the industrial and consumer services sectors, and will only consider investing in companies that:
“As a fund, we realise that to grow our economy we need to empower companies that are focused on growing the country’s SMMEs, as these create more jobs than the big businesses.
“Asset managers are appointed by the trustees to exercise discretion in investing the assets of the fund. The discretion includes decisions to buy, hold and sell securities in amounts reflective of the asset manager’s investment views. Such discretion is defined within the policy objectives, guidelines and strategy set in the fund’s investment policy statement, and are clarified in the investment mandate that the fund and asset manager agree on.
“The asset manager is expected to invest the fund’s assets with the same care, skill, prudence and due diligence under the circumstance prevailing, that an experienced, professional asset manager acting in a similar capacity and fully familiar with such matters, would use in the investment of like assets with like aims.”
Letswalo says the fund integrates into its investment decisions environmental, social and governance (ESG) issues as a way of being a socially responsible investor, promoting good corporate governance, positive social and environmental impacts in the counterparties it invests in.
“The fund annually monitors how its voting rights of investments have been followed and if the conduct of the counterparties it invests in agree with the fund’s ESG objectives.
“Furthermore, to ensure that managers adhere to the Code for Responsible Investing in South Africa (Crisa) and United Nations Principles for Responsible Investing principles, our investment committee conducts manager report visits, during which the investment managers are interrogated on their investment philosophy and processes, by requesting managers to provide examples of investment cases for a stock selection.”
Crisa provides guidance on how the institutional investor should execute investment analysis and investment activities and exercise rights so as to promote sound governance.
There are five key principles:
1. An institutional investor should incorporate sustainability considerations, including ESG, into its investment analysis and investment activities as part of the delivery of superior, risk-adjusted returns to the ultimate beneficiaries.
2. An institutional investor should demonstrate its acceptance of ownership responsibilities in its investment arrangements and investment activities.
3. Where appropriate, institutional investors should consider a collaborative approach to promote acceptance and implementation of the principles of Crisa and other codes and standards applicable to institutional investors.
4. An institutional investor should recognise the circumstances and relationships that hold a potential for conflicts of interest and should proactively manage these when they occur.
5. Institutional investors should be transparent about the content of their policies.