Investments focussed on enhancing members’ wellbeing

The Transport Sector Retirement Fund (TSRF) has a market value of around R7.1-billion, which is attributable to both investment performance and its members’ contributions, according to Puseletso Mbele, investment consultant for the fund and fund manager at Novare Actuaries & Consultants.

She says another positive contributor to the investment performance of the fund has been the negotiation of a reduction in its asset managers’ fees.

“The TSRF’s assets are carefully invested in compliance with the fund’s investment policy statement (IPS) and Regulation 28,” says Mbele.

“The TSRF has very clear guidelines on risk management, procurement policies, and what it is they require from their service providers in terms of investment benchmarks.

“The fund’s investment goal is to enhance returns to members on a sustainable basis and promote transformation in South Africa without compromising returns for its members. It provided clear targets and ensures that its investments are aligned with members’ interests.

“For example, the fund is investing in Harrismith Highway Junction truck stop, because they have a direct benefit to members and align the fund’s interests with members’ interests.

“TSRF intends that over the long term the investments made by the fund should not only improve the lives of members, but make a positive difference to achieving equity in the South African economy and its sustainable development.

“For example, the fund has placed a target of 68% to 70% of its assets to be managed by black-owned investment firms. This perspective on procurement that supports Broad-Based Black Economic Empowerment extends across the board, from acquiring, catering or auditing services,” says Mbele.

She says that the fund refined its IPS and adopted a life-stage strategy in preference to the previous single investment strategy portfolio, which didn’t cater for members who were close to retirement as they risked losing accumulated gains.

“TSRF’s Board of Trustees felt it was important to have a strategy that aims to accommodate members who are close to retirement, to ensure that what they built up in their ‘accumulated pots’ is not adversely affected should unforeseen events trigger extreme market volatility.

“The fund adopted a default investment risk reduction programme that is a three-life-stage model, which will cater for all members’ interests.”

Mbele explains that the life-stages have their own respective objectives (benchmarks) to achieve: Growth Portfolio, which aims to achieve a return of CPI + 4.5% over a three-year rolling period; Moderate portfolio, that targets CPI + 3.25%; and Conservative portfolio that aims to achieve CPI+1%.

The TSRF trustees adopted the three-stage, phased approach for the implementation of the life stage model (LSM), according to Mbele.

“This is a default investment strategy where all members of the fund are initially switched according to the number of years to retirement, and then phased accordingly into the correct risk profile.

“The LSM allows the fund to reduce market risk for members as they approach normal retirement age.”

In addition to risk reduction, the LSM aims to protect members’ accumulated fund credit as they approach retirement. The risk is managed by gradually reducing the risk, seeking more conservative asset exposure as each member draws closer to the normal retirement age of 65 and above.

Mbele explains that the fund uses an asset liability modeling exercise as input in the development of its investment strategy. The asset liability modeling exercise is reviewed at least every two years, or when a drastic change happens regarding the membership profile.

The investment strategy is, therefore, based on the latest asset liability modeling report, which indicates:

  • The demographic profile of the fund beneficiaries;
  • The investment horizon of the members of the fund;
  • The required liquidity;
  • The maturity of the fund — whether the fund has stable, growing or declining membership;
  • The various categories or accounts of liabilities; and
  • The expected return and risk of various asset class categories available for the fund to invest in.
  • “Asset managers are appointed by the trustees to exercise discretion in investing the fund’s assets, which includes decisions to buy, hold and sell securities in amounts reflective of the asset manager’s investment views,” says Mbele.

    “Asset managers’ discretion is defined within the policy objectives, guidelines and strategy set out in the fund’s investment IPS and clarified in the investment mandate that the fund agrees on with the asset manager.

    “The performance objective is accomplished by maximising the portfolio’s active risk-adjusted return to enhance the total return.

    “Each portfolio that forms part of the fund’s investment strategy is assigned a benchmark that is used as a tool to measure its performance,” explains Mbele.

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    Alf James
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