/ 2 October 2020

Conference geared to the retirement sector’s determination to claim the future

Irfa President Enos Ngutshane
IRFA President Enos Ngutshane

The country’s R4.7-trillion retirement industry, served by industry body the Institute of Retirement Funds Africa (IRFA), is gearing up to increase its impact on the national drive to address massive economic contraction as well environmental, social and governance (ESG) issues. IRFA’s forthcoming virtual conference on November 19 and 20 is a major step in that direction.  

IRFA President Enos Ngutshane says: “Of course, we serve the entire continent, and our virtual conference will focus on change, resilience, adaptation, innovation and invention to equip delegates with knowledge and information to rethink traditional boundaries. We will examine trends and opportunities in technology, investment markets, an inclusive pensions sector, stakeholder engagement and the workplace to claim the future for our sector, the continent and greater society.”

He continues: “The retirement sector has a key role to play in the broader social and geopolitical environment and to address the need for change, resilience and innovation. It must acclimatise to the dynamic and changing conditions in which it operates and bring originality, resourcefulness and vision to the table. In doing so it will claim its rightful place in the socioeconomic landscape and influence positive and meaningful growth.”

The conference, titled The Retirement Sector’s Role in Claiming the Future, has already attracted a record number of delegates from across Africa. It will equip delegates with the necessary knowledge and information to step beyond known boundaries. 

“Importantly, we will also consider the role of the retirement sector in the broader social and geopolitical environment and the need for change, resilience and innovation in ensuring its potential contribution. To do this, we must acclimatise to the dynamic and changing conditions in which we operate. The challenge for our sector is to bring originality, resourcefulness and vision to the table. In doing so, the sector will claim its rightful place in the socioeconomic landscape and influence positive and meaningful growth.”

Ngutshane emphasises that the Institute of Retirement Funds Africa is well placed to advocate for this role: “In South Africa we have the ear of regulators across the board, including SARS, the Pensions Adjudicator and Treasury, that have, for example, asked for our input into the Draft Taxation Laws Amendment Bill. We will raise concerns about issues such as the possibility of bursaries being taxed.” 

While the institute’s first virtual conference was originally approached as a “lockdown necessity” it has, along with other regular webinars, opened a highly effective and permanent technological avenue. “Our first virtual conference is triggering a paradigm shift for future physical conferences to be opened to larger and more diverse audiences and to attract more experts. There are virtual rooms on the conference portal to kindle meaningful social interaction between participants with shared interests and the intent to network. Chat channels can facilitate real-time questions,” says the IRFA president. 

“Importantly, by leveraging on the available technology, we have not compromised on the benefits of our traditional annual conference. Our virtual platform even features an exhibition hall containing products and services of interest to the retirement sector.”

He adds: “We experience dynamic and exponential change in the economic environment, in technology and in our daily lives. The retirement ecosystem is no exception. For the sake of our sector and the economy, we must engineer innovative solutions that gear trustees and investors to do more than blindly accept consultants’ directives in board meetings. It’s a massive challenge involving ongoing education as the financial services sector undergoes exponential change, not least new technologies like blockchain that will significantly benefit funds and their members. Regulation 28 is also of huge interest.  

“In short, we will unpack how funds should take advantage of the technological edge, and experts will open the conference conversation on matters ranging from non-traditional playing fields to the creation of  better outcomes with innovation, diversity and inclusion. They will emphasise that transformation in the retirement sector and a sustained growth plan must include the marginalised.”

Ngutshane says that with R4.7-trillion in hand, it is essential that those in charge of retirement funds understand how best to channel investments that meet ESG criteria. “Investors need help to find companies with values that match theirs, and trustees must dig deeper into the empowerment and environmental credentials of companies they invest in. Micro pensions are another issue that Africa should embrace going into the future.”

He is also convinced of the importance of improved financial education in schools, and for the many women who carry the financial burden of their families. Many draw their full pension and end up broke and applying for a government pension within a few months of their retirement.

Impact investment an under-used and misunderstood investment tool 

Accountancy SA reports a growing consensus that capitalism needs to be re-imagined and, in the hunt for profits with purpose, impact investing is gaining traction in South Africa and globally.

The initial flurry to address the problem of pit toilets quickly petered out

Other sources also point to South Africa as an ideal place for sustainable investment, yet IRFA President Enos Ngutshane reveals that demand for impact investing is outpacing supply. 

 “For example, an initial flurry to address the problem of pit toilets quickly petered out. The fact is, investors have little understanding of either the needs or the opportunities presented by social ills and inadequate infrastructure.  It doesn’t help that our pensions sector is far from inclusive. One wonders why black asset managers still only sit on about half a billion of the R4.7-trillion in the pension funds investment kitty.  Surely they have a meaningful contribution to make? 

“There is also the serious problem surrounding trustees, who are indubitably aware of the crying need for impact investment in this country, but lack the confidence or knowledge to steer fund managers towards a meaningful economic transition. Believe me, I know how difficult it is for them. I was also a trustee who had to learn fast to be able to navigate the investment trajectory. But change is imperative and urgent, as much for the disadvantaged sector of our population as for fund managers, to benefit from a fast-emerging ‘new normal’ within the global financial sector.

“Accountancy SA advises that it is possible to create measurable societal benefit that yields both brownie points and financial returns. I expect this will be confirmed in our IRFA conference. And, as we look to the future,  we would do well to consider how the new generation expects both healthy financial returns and sustainable investment.

“An Economist’s Intelligence Unit report indicates that 87% of millennials believe business success should be measured by more than just financial performance, and 93% believe social impact is key to their investing decisions. They are motivated by the size of their impact and their ability to measure it.

“Welcome to the new normal.”

Stitching responsible investing into the fabric of the future

Khaya Gobodo, Old Mutual Investment Group’s MD

Khaya Gobodo, Old Mutual Investment Group’s MD, says that investing in a future that matters has never been more relevant. 

“The Covid-19 global pandemic lays bare the vulnerabilities of our societies and economies; it has wreaked havoc on the stability of existing global structures. We live in a world that is more connected than any other time in history, and this interconnectedness spans our societies, markets and environment. It is during this time of crisis, which has highlighted our global interdependencies, that the importance of Responsible Investment (RI) and its role in the asset management industry going into the future has become more apparent.”

A fundamental RI principle fostered by the group considers the impact of unpriced externalities. 

“By recognising these externalities, we essentially force industry participants and clients to consider the common wisdom of pursuing short-term returns at the expense of long-term resilience of social and environmental systems. We believe it is critical to incorporate Environmental, Social and Governance (ESG) principles into the DNA of the asset management industry, so that investment processes afford the opportunity to pursue superior risk-adjusted returns, while also positively impacting the communities and environment we operate in. 

“We drive impact related to ESG research because, in essence, what RI asks of us isn’t new. It is a resounding truth that we all know: in this journey, going it alone will not take us far. It is important that we work together as an industry, a community, a country and the world, so we may ultimately sustain our ecosystems.”

Internationally recognised awards facilitate best practices sharing

IRFA Vice-President Anthony Williams kisses the frog award he won for stakeholder engagement

IRFA’s annual Best Practices Industry Awards have over 33 years evolved from a focus on communication to six additional categories related to the retirement industry. The judging process and its outcomes are respected internationally and a record number of African entries were received this year. IRFA’s Vice-President Anthony Williams suspects that there are others who lack the confidence to participate, and should be encouraged to do so.

Williams, who is also the SABC Retirement Fund CEO, speaks from personal experience: “I understand, because I doubted I was good enough, but looking back I know my first submission — which earned me a frog as a prize for stakeholder engagement — was the springboard for 17 international and 23 local awards since. That frog produced a practice prince, and I urge you not to get left behind.”

He adds it is important to understand that the awards objective has always been to share industry best practices for the benefit of members of retirement funds, trustees and management boards. “It’s an opportunity to benchmark yourself and do better. IRFA gains an invaluable resource as it liaises with  government bodies well beyond Africa.  

“IRFA’s Best Practices Industry Awards judging process relates to global benchmarks, and the judges’ approach is to identify your strengths, not to penalise you for faults and or weaknesses. It is a sharing that has over three decades and several political and economic rollercoasters positioned our sector powerfully within the public and private sectors.”

For those who have participated in the awards, Williams is quick to warn against resting on any laurels. “We dare not be left behind, and it’s time to stop predicting ‘a new norm’ and to work smarter and better. Our post Covid-19 era will be anything but normal — largely as a result of the incredibly valuable opportunity the lockdown space has allowed for reflection, technological innovation, a sharply increased public awareness and the importance of providing for retirement. The impact of technologies like blockchain will not reach their full potential without the brave human element that is underpinned by a generosity of spirit, driven by meaningful communication and interaction.”

He concludes: “My dream stakeholder relationship motto going forward is to be giving and loving wherever we are, whatever it costs, for as long as it takes, and for whenever it is needed.  It is time to stop being fearful. Tata Ma Chance and enter the 2021 IRFA’s Best Practices Industry Awards.”

The business of business is changing dramatically

One cannot think of a more germane time than now to puncture the theory that the only social responsibility a corporate has is to increase profits within the rules of the game, according to Premal Ranchod, Senior Manager Research Analyst, Alexander Forbes Investments.

He advises: “By focusing on our future, we need to prioritise tomorrow by concentrating on environmental, social and governance (ESG) factors. A recent Mecer survey of global talent trends revealed how companies are rebooting balance, purpose and profit. This is spurred by the younger generation’s concerns, government directives, investor requirements and business leadership. In short, the new decade starts with a refreshed mandate. 

“Furthermore, executive demand for ethical products has risen 40% in two years and 75% of companies that have ESG metrics embedded into the CEO’s agenda report revenue growth rates of more than 6%. Not surprisingly, 72% of CEOs with ESG responsibilities believe their organisation is change-agile.”

This year, Ranchod reminds us, we have witnessed leadership being summoned across government, corporate, public health services to take action — and the average citizen. “We collectively grapple with the new normal, and tap into emotional quotient balances and sharpen toolkits so that we are able to respond respectfully.” 

These findings convince the research analyst that a company should have the following in its quiver:

Strong appreciation for ESG factors to be linked to strategies and operations. 

A capital allocation response plan that yields a stronger workforce and client base, and an intangible value add is preparation for recovery after Covid-19. 

Dividends and share buybacks that in the longer term will have the market placing greater weight on the strength of a business model.

A comprehensive, practical, yet evolving plan to address business disruption should be underpinned by a balanced, diverse board, able to address softer issues such as employee engagement and morale. Stakeholders must look for evidence when assessing if companies have window-dressed their responses.

Retrenchments, salary adjustments, and executives’ compensation plans will have to be assessed in light of the cash reserves in place and legislative environment in a country.

Ranchod concludes:  “In the post-Corona era, companies will be measured by their agility and flexibility, how they embrace trust and value employee loyalty. Business preparedness will be an agenda item on management committees.”

He offers two more nuggets: “Firstly, the clarion call for climate change strategy and a company’s response to the United Nations’ Sustainable Development Goals. Secondly, the companies of tomorrow will add long-term value, not by marketing ESG and philanthropy, but by linking their strategy intricately to externalities that affect the business. 

“Consider Covid-19 your dry run. Business is unusual.”

Let’s mobilise the long-term savings pool to restore economic health

It could take 10 years for the economy to recover and the long-term savings industry has a key role to play, says Natalie Phillips, Deputy MD, Africa at Ninety One.

“Hence the introduction of the Ninety One SA Recovery Fund, in association with Ethos Private Equity. There are good companies across all sectors with funding needs that cannot be provided by the banks or the state, so we intend raising R10-billion via two closes. This will be underpinned by a commitment to measure the social return of the impact initiative. We believe it offers an attractive return.”

Warning that the country is set to experience the worst recession in living memory, she advocates for a significant financial response involving all pools of capital and equal to 15-20% of GDP. This is because the government has limited capacity, and local equity and debt issuances are running well behind other markets.

This calls for a different level of client conversation in today’s economic climate. “We are encouraging large institutional allocators to consider unlisted investments in a locked-up structure — a clear departure from their standard decisions. Hopefully these are just the first steps for the savings industry, in considering other asset classes that can have a more direct and positive impact on the country’s future. 

“Given the urgency of the economic situation, we are encouraged by a strong response. Ultimately we hope to have a fund size of R10-billion. It’s a once-in-a-generation challenge to underpin quality businesses, protect the nation’s productive capacity and preserve thousands of jobs while supporting the South African tax base.”

Member development and cross-border alliances are crucial to IRFA’s strategy

A sturdy membership base and strong links across the continent will encourage good practice, alternative investment and socioeconomic growth, according to Thomas Mketelwa, Executive Committee member and lead for the Institute of Retirement Funds Africa’s membership development drive. Mketelwa, who describes himself as both an activist and serial volunteer, sees IRFA as being positioned to “lead the dialogue” in a consultative and positive way for the benefit of members of retirement funds across the continent .

Thomas Mketelwa, Executive Committee member and lead for IRFA’s membership development drive

“I grew up as a volunteer,” he says, “volunteers change people’s lives, they want to be with people and are not purely driven by a profit orientation”. He notes: “It is about restoring balance to the ‘trust deficit’ Retirement Fund members are currently experiencing on the pending legislation and industry developments, some of which would appear to be distancing employers from members of their pension funds.”  He cites “the current push” for umbrella funds and annuities favouring big life companies as having an impact on the number of employer nominated trustees and fund management boards.  

“We need to simplify things,” says Mketelwa of his role and intentions as an IRFA board member, “we need to decode the complexity of the industry and create platforms for better understanding. It is my task to extend IRFA’s influence beyond the traditional South African platforms, for knowledge sharing, for learning and for investment beyond our borders. IRFA is an established not-for-profit industry association, and its work can influence growth and change. It can build platforms to encourage a continental focus, leading to seamless outcomes and strategic partnerships for the benefit of all. Our member mandate is to support ESG, responsible investment and governance. As the legislators deal with open free trade agreements in the continent, the retirement industry must also align itself by being a seamless, one continent, one retirement industry.”

Mketelwa mentions several initiatives planned by IRFA, aimed at increasing local membership. “We are currently enhancing and updating our databases, encouraging lapsed members to once again be part of our exciting progress, and more importantly, evaluating and improving our benefit offering aligned to sector needs. 2020 has seen IRFA working with all stakeholders to expand and grow, building on existing relationships and increasing collaboration and understanding across the board to turn challenges into opportunities.  Challenges such as the current drive towards reducing the number of funds needed, an understanding of member concerns and the human element being replaced by call centre interactions,”  he observes. Another challenge he feels that IRFA should lead the dialogue on is “understanding pending legislation around prescribed assets, while considering the social and economic impacts and the best interests of members of retirement funds”.

In terms of creating opportunities, the capacitating of trustees and increasing member confidence in management boards is crucial, and ensuring that trustees see themselves as accountable to members of retirement funds, regulatory bodies and governance structures.

Mketelwa concludes: “Another major opportunity for the industry is in the alternative investment space. This is the time for democracy in action.”

Should pension funds be used by the state?

Reports of government plans to compel pension funds to invest in state assets and projects have caused alarm among investors. While ANC economics chief, Enoch Godongwana, assures that prescribed assets will not be used as a policy tool, what should investors make of this?

Many believe that boosting spending on infrastructure will grow the economy and that Regulation 28 of the Pension Funds Act needs to be changed so pension fund trustees have greater freedom to invest in infrastructure projects. But Allan Gray portfolio manager Sandy McGregor disagrees: “Pension funds are already investing in infrastructure through debt. The problem is rather a lack of suitable projects.

“State institutions tasked with infrastructural development have been crippled by gross mismanagement and endemic corruption. Most public sector institutions have become un-investable without a government guarantee. Where the private sector took the lead, such as in the mobile phone network, renewable energy, commercial property and private housing, there has been significant continuing investment, for which finance has been readily available.” 

McGregor adds: “The way to get investment going again is to fix state institutions involved in infrastructure and give them greater freedom to recruit private sector skills and resources to fulfil their mandates. Viable projects can be financed by banks, pension funds or other savings institutions.”

Given the shortage of suitable projects, regulations compelling pension funds to hold a proportion of their assets in infrastructure may force them to make inappropriate investments, so he welcomes Godongwana’s assurances.

“It would be a wasteful application of South Africa’s inadequate savings and come at a cost: lower economic growth and reduced pensions. Solutions could include tapping internationally available concessional finance to reinvigorate parastatals such as Transnet and SANRAL, and a business-friendly environment would promote private investment.”  

Trust is earned

A Coronation statement says: 

When Coronation opened its doors  back in 1993, we committed wholeheartedly to the future of South Africa, despite the uncertain times we were living through. Fast forward to 2020 and times are even more uncertain as the world learns to cope with the impact of the global Covid-19 pandemic. 

As South Africa grapples with the twin crises of the health emergency and the devastating effects of the economic lockdown, now more than ever it is important for businesses to step up as corporate citizens to build and grow a sustainable and inclusive economy — one that uplifts the lives of all South Africans.

We invest the savings of millions of South Africans and a portfolio of global clients, a responsibility that we take very seriously. This is why, since the start, delivering excellent long-term performance to our clients has been at the heart of our culture and remains our unwavering focus. 

But it doesn’t stop there; we have continuously used our resources and influence to lead transformation in the South African financial services sector and society as a whole. Since inception, we have played a significant role in driving diversity in our industry through our recruitment process, growing and developing black businesses, and in supporting disadvantaged communities through our CSI programmes.

Transforming the industry

Pre-dating BEE legislation in South Africa, we have contributed to driving real change in the local financial services industry through business development and training. This includes the establishment of three independent black businesses, namely African Harvest Fund Managers, Kagiso Asset Management and Intembeko Investment Administrators.  

Since 2006, we have allocated over R300 million in brokerage to black stockbrokers through the Coronation Business Support Programme. We have also funded and trained 120 black IFA practices through the ASISA IFA Development Programme and 92 black analysts through the Vunani Securities Training Academy.

Driving transformation at Coronation

As a proud South African business and a Level 2 B-BBEE contributor[1], we are passionate about a diverse and inclusive workplace. We have recruited, trained and retained exceptional black and female talent across our business. Of our employees, 56% are black and 50% are female, while 78% of our Board of Directors are black.

Of our total assets under management, R228 billion[2] is managed by black investment professionals.  Additionally, many of our senior leaders are black, including our CEO, CFO, COO, Head of Institutional Business, Head of Fixed Income and Head of SA Equity Research.

While there are still strides to be taken, we take pride in what we have achieved and will continue to build trust and deliver on our long-term commitments to our stakeholders. 

We are more than just a business. We are a responsible corporate citizen who is committed to the future of South Africa.

To read more about how we support and
invest in our country for the long-term,
visit www.coronation.com.
[1] As measured by the revised Financial Sector Code
[2]As at 30 June 2020

Understanding alternative or developmental impact 

Against the backdrop of increased interest in alternative or developmental impact investments, Futuregrowth’s Angelique Kalam, Manager: Sustainable Investment Practices, addresses some complex issues. 

Futuregrowth’s Angelique Kalam, Manager: Sustainable Investment Practices

“Regulation 28 of the Pension Funds Act now affords higher allocations to alternative investments, which are usually unlisted and without official rating. All these should not be regarded as separate asset classes as they need to fit within an already defined asset allocation strategy. These classes can involve debt, equity or property, and commonly form the building blocks for developmental impact investment mandates. Typically long term in nature, they act as a natural asset/liability match for retirement funds and must provide investors with sound commercial risk/return attributes.”

On project bonds, she notes how financing of infrastructure projects has become more difficult, with stricter regulations on banks and their lending requirements since the global financial crisis. Some retirement funds with fixed income mandates only allow investments in a listed form. Against this backdrop the JSE and The Association for Savings and Investment South Africa have liaised to create access project bonds as an alternative form of financing. These will allow infrastructure-related projects to source funding from a new pool of capital via the JSE’s listed debt portal. 

Despite their “listed” nature, they carry the same level of risk as a typical “unlisted” project finance transaction.

“So, by providing access to a sustainable vehicle to fund initiatives in the infrastructure and development space, pension funds invested in impact funds are able to gain exposure to sectors such as energy, healthcare, transport, education, SMME development and housing, to name a few.”

Kalam warns, however, against impact washing, whereby investors are lured by clever marketing that camouflages the underlying impact of their investments — or lack thereof. “As a first step, pension funds should define their social and developmental mandate before making an allocation into impact investments. The steps include clarifying their objectives and the outcomes they want to achieve, without compromising on sustainable risk-adjusted returns for their underlying beneficiaries.”

Sectors that facilitate diverse impact include those that address South Africa’s infrastructure backlog and a lower historical deployment of capital. Most are aligned with the government’s National Development Plan (NDP) goals and contribute to the economic and social development of South Africa, which, in turn, stimulates job creation.

“The entire market has access to listed assets on an exchange, but these are limited to what is available. The unlisted market, on the other hand, can provide investors access to a broader selection of assets, across a variety of infrastructure and developmental sectors. These include transport, water, renewable energy, education, healthcare, affordable housing, agriculture and SMMEs. Some may be in a niche market, difficult to replicate and have little competition,” she advises.

Impact measurement

In addition to earning appropriate risk-adjusted returns, investors require compensation in the form of tangible social or developmental outcomes or impact. Although measurement can be highly subjective, this can be minimised with tangible criteria.

“For example, metrics for an affordable housing investment could include the number of homes built, jobs created, and the extent of ‘green’ building materials or technology used in the construction. It is possible to align impact and developmental objectives with concrete outcomes that are measurable and that do not compromise financial returns, when they are identified upfront. Not all types of impact are created equal. For example, providing low-income housing has a higher impact than holding a listed parastatal bond.”

Questions to be asked include:

• How is the social or developmental impact of the fund measured for the underlying investments, and what criteria or indicators are used to measure the impact?

• How do you assess what is high impact vs low impact?

• Are the underlying investments linked to the Sustainable Development Goals (SDGs), and how is this reported?

• How many jobs have been created by the underlying issuers?

• How much local content is utilised in the design and development of the projects?

• What is the equity holding by BBBEE and/or the local community in the projects?

Manager track record

In a low-return environment, impact investments can offer a good alternative to traditional investments in a diversified portfolio. Kalam insists one must choose an experienced investment manager, who has the skills to both assess the risks and correctly price them.

“Investing in unlisted assets is complex, due to the additional layers of work that require highly specialised skills. We recommend that investors who choose alternative assets as part of their portfolio mix always invest with partners who have a proven track record in managing investments in this asset class. Appropriate questions include:  what is your demonstrable track record in managing complex alternative assets and impact mandates? What is the size of the investment team, and what are the relevant skills of the various team members?

Kalam reminds that the risk and return assessment on a listed asset versus an unlisted asset is almost the same. “The only difference is that a higher liquidity premium would be added for an unlisted asset, which could result in a higher required rate of return over the life of the investment. Importantly, one needs to ascertain the expected rate of return for the fund and if the underlying investments are risky, for example, for debt funding, what is the probability of default?”

While it is not the role of ordinary pensioners to be directly responsible for national development, except through the normal capital investment process, pension funds can contribute to development by partnering or co-investing with development financial institutions (DFIs). 

“Institutional investors can choose how to deploy their money and the type of projects they wish to invest in, thereby responsibly targeting an appropriate risk-adjusted return to compensate for the related risk. An important consideration is what percentage of the fund is allocated to DFIs  and SOEs.”

She cautions that investors often wrongly think that if an asset is more liquid it is less risky. “If you were invested in African Bank shares or bonds before 2014, you would know that liquidity does not eliminate business risk, and it is only beneficial when you can exit an investment before it sinks. Hence the importance of ascertaining the minimum and maximum liquidity limits of the fund, how liquidity is managed, and how this impacts the deal pipeline.

A long-term view

Investments in both unlisted and listed assets require a long-term view, more so with unlisted assets, due to the illiquid trading nature of these investments. There is no formal mechanism for trading unlisted assets and, due to their niche or developmental character, it may take longer to sell them. These investments may also need time to reach their optimal value.  

It therefore means that investors need to ascertain the fund’s investment horizon and where the various deals sit within the current cycle. The decision could affect whether there is a waiting period or ramp-up phase before client monies are deployed, so ask your manager if  there is a ramp-up period for a pension fund’s access. The final aspect is, historically, how quickly the client’s money can be deployed in the fund, and the reasons for any anomalies.

Futuregrowth Asset Management is a licensed discretionary financial services provider.

Retirement industry in a volatile time

Enos Ngutshane, IRFA President, assures the public that he is geared to steer members and the sector through this volatile period, which includes impending legislation to address prescribed assets, low returns and strong calls for societal upliftment and development. 

IRFA President Enos Ngutshane

He elaborates: “As a sector, we need to consult, engage and share knowledge for the benefit of members and pensioners.  We also need to educate the public on how to achieve better retirement outcomes. I believe the industry is often misunderstood, and if we work together as bodies to achieve a unified understanding we will make a real social and economic difference.”

Talks are already underway with, among others, BATSETA, a non-profit organisation focusing on the interests of principal officers, trustees and fund fiduciaries, as well as the Financial Planning Institute, National Treasury, the Financial Services Conduct Authority and the Chartered Financial Analyst Institute. Ngutshane says IRFA is well positioned to lead this dialogue and is working towards achieving a meeting of minds among stakeholders, while fostering sound relationships with regulators and opinion makers. The focus will be to consult, engage and share knowledge.

IRFA Vice-President Anthony Williams concurs: “One of the prime challenges is to put members and pensioners at ease. So incoming legislation needs to be communicated and explained in a manner that informs and defuses panic. The sector must maintain stability while investment markets are in flux, to be able to continue to improve the lives of members and pensioners and ensure that assets are well guarded. IRFA will continue to play a prominent role.  We will focus on strengthening the bonds between all role players in the sector, both in South Africa and North of our borders, as we transform the African retirement world into a retirement village.”

IRFA Vice-President Anthony Williams

Explaining the continental retirement landscape, Ngutshane adds: “IRFA can certainly facilitate the discourse on retirement outcomes. We are currently networking and benchmarking with industry colleagues from neighbouring states and hope to contribute to social security, while a recent Pensions SA benchmarking study yielded invaluable insights into how the African retirement sector perceives the role of industry bodies such as IRFA, as well as the required support services. Advocacy and lobbying top the list of education and knowledge transfer between all countries.”

Williams says that as IRFA draws together all stakeholders for the ultimate benefit of the members of funds, its primary role is a cohesive one. Both consider it important to encourage people to invest in the future and look forward to utilising IRFA’s expertise and experience.

As Ngutshane concludes: “It is important to contribute, as there is limited knowledge about the retirement industry.”

Leaders who bring invaluable expertise and experience to the boardroom

Enos Ngutshane is an authority in corporate governance, local government, rail safety, occupational health and safety, and has worked for Gauteng Government as Deputy Director General (HOD), Wits Business School as lecturer, and for the South African Foundation for Public Management as CEO. He was also a trustee and a chairperson of the PRASA Provident Fund for many years.  

His milestone achievements include the establishment of the Public and Development Management Programme Faculty at Wits University, strategic business re-engineering, human capital development, large-scale change and transformation, policy development and implementation, public transport management, pension fund investments and corporate governance. 

Anthony Williams serves as the Vice-President of the IRFA management board. He is also Chief Executive Officer of the SABC Pension Fund, recognised locally and internationally for excellence.

On Regulation 28 and the need for investment best practice 

IRFA stakeholders were recently requested to identify topics for its information and education services, and the three highest rated relate to sectoral- and fund-specific governance and investment practices. Information on investments and investment practices is crucial to trustees who want to make informed and appropriate investment decisions for the retirement funds they manage.

Wayne Hiller van Rensburg,  IRFA Past President and Executive Officer, reports: 

Regulation 28 to the Pension Funds Act sets the maximum limits for investing in the various asset classes. Specifically listed are shares on the Johannesburg Stock Exchange or foreign exchanges, government and corporate bonds, including bank deposits. Any trustee can tell you that when deliberating on investment options available to their funds investment managers and asset consultants, these often include discussions on some of the lesser-known asset classes such as private equity or commodities. 

Wayne Hiller van Rensburg, IRFA Past President and Executive Officer

As IRFA we actively look for opportunities to provide information or lobby where appropriate. One such opportunity has presented itself in the heated debate around prescribed assets and changes to Regulation 28. In essence, prescribed assets would mean that any retirement fund would be forced to invest a minimum of its overall assets in a specific asset class. To give effect to this debate, Regulation 28 would have to be amended and the minimums introduced. In South Africa prescribed assets were in force until 1989 and a large percentage of a fund’s assets had to be invested in government bonds.

The current discussion on prescribed assets focuses on funding much-needed infrastructure projects. Historically, investments in infrastructure projects have been catalysts for greater economic growth. An important question is whether forcing retirement funds to invest in such project are to the benefits of members. At the request of National Treasury, which indicated that there is no policy decision on changing the regulations governing retirement fund investments on investing on infrastructure,  IRFA reached out to its stakeholders and asked their opinion on whether changes to Regulation 28 should be made to introduce minimum investments in infrastructure. 

They do not favour any form of forced minimum investment in infrastructure, or for that matter in any other asset class. What the survey revealed is a need for Regulation 28 to take into account changes to the investment market since its last revision was in 2011. A further finding was that providing more clarity on the types of asset classes or investments retirement funds could make, would be of value to the funds.

A particular need appears to exist for clarity as far as infrastructure investments are concerned. Many funds already have some form of infrastructure investment, which is often housed under asset classes such as private equity or bonds. Providing clarity on what is meant by infrastructure investment would give trustees a common reference point from which to work. Further assistance can be provided by making it clear whether infrastructure is an asset class on its own or should be included in other asset classes such as private equity or bonds. Once trustees have a better understanding of what infrastructure investing is, they will be able to make informed decisions on whether this is an asset class they should be including in their funds’ investment portfolios.

Chaotic secular change is key to current status  

For a glimpse of the future it is useful to understand what led to the current status quo, says Ruen Naidu, Head of Macro Strategies at Argon Asset Management.

Ruen Naidu, Head of Macro Strategies at Argon Asset Manageme

“Over four decades we have seen the coincidence of unprecedented secular eras — changing demographics, globalisation, the ‘dollarisation’ of the global economy, falling interest rates, and new technological innovations,” says Naidu. “As the baby-boomer generation entered the workforce, globalisation trends resulted in the incorporation of cheap emerging market labour forces. These, with the preceding hiking cycle by Fed Chair Paul Volcker, combined to form a falling trajectory of inflation.”

Lower inflation led to lower interest rates. “With the global monetary system buttressed by the dollar fiat currency, debt levels surged. At the end of the Great Financial Crisis, the explosion of central bank balance sheets helped prevent a breakdown of the global financial system, but resulted in widening inequality. At the time, fiscal policy moved in the opposite direction and tightened.” The economic policy response to Covid-19 has been a combination of fiscal and monetary expansion. 

“The so-called ‘helicopter-money’ policies have finally arrived in developed market economies. These make economic sense in an environment of private sector deleveraging, but are a slippery slope. While policymakers try to push risk into the future, they are bringing forward future returns.

“Historically, deleveraging from such high debt levels was achieved either by inflating the debt or by deflationary defaults. The global economy currently sits on the precipice of chaotic change at the end of a secular cycle. While it is difficult to predict what the outcome will be, the previous four decades offer a template of outcomes that are unlikely to be repeated over the next secular period.”

Transport industry’s retirement fund changing the landscape

Truck stops are being built in four provinces after the resounding success of the one built near Harrismith

South Africa’s transport sector is an ever-evolving industry, bringing dynamic mobility to our society as it supports the movement of goods and people. In this endeavour market-forces, socioeconomic and political impacts, as well as people-centred concerns all play a vital role in the sustainability of the sector, says Principal Officer Joe Letswalo.

“In the current fluid and fast-changing economic environment, the Transport Sector Retirement Fund (TSRF) aims to be a constant factor in their members’ lives, whether they are still gainfully employed or retired. In doing so, the fund considers a vast array of influences to deliver not only financial stability to its members, but also to help transform our country and the lives of its people.” 

Established in 1991, three years ago it successfully transitioned to the TSRF,  a non-aligned, standalone industry fund encompassing the broader transport industry. It  principal objective is to provide retirement savings, as well as additional death, disability, and funeral benefits on a defined contribution basis. 

“We are single-minded in our efforts to find innovative ways to grow our members’ retirement assets, and to provide them with excellent returns and long-term financial security,” Letswalo says.

The TSRF is committed to facilitating economic transformation in South Africa, says its Principal Officer Joe Letswalo

“Our shareholders are our members. Thus, apart from creating sustainable futures for them, the Fund is also committed to facilitate economic transformation in South Africa. In this regard, our board of trustees considers infrastructure development as an important asset class — one which we believe provides direct benefits to our members, and which assists to drive economic development, empowerment and job creation.” 

Some investment projects include the development of good quality, safe and efficient transport hubs and truck stops along major freight and logistics routes. For example, TSRF has a direct investment in the Highway Junction Truck Stop near Harrismith in the Free State. This successful joint venture is the first multi-brand facility of its kind in Africa, a concept now being expanded to four more sites near Cape Town, East London, Colesberg and Musina. 

Other infrastructure partnerships include shopping centres in Soshanguve, Philippi, Daveyton and Bloemfontein, and two new mixed-use property developments, near Sebokeng in the Vaal Triangle and in the Western Cape, near Simon’s Town. 

Letswalo adds: “Spatial development projects assist with poverty alleviation, ensuring access to property as an asset for wealth creation. We believe our impact investment strategy is setting the tone for boosting economic growth, maximising investment returns and ensuring ESG principles on sustainability are met.” 

The investment strategy is for younger members to invest in more aggressive growth-oriented portfolios, while older members nearing retirement invest in more defensive capital-protecting portfolios.

Assets under the Fund’s management increased are at just under R8-billion this year. “We are cautiously pleased with the Fund’s performance, despite the state of the global economy, and the impact of Covid-19 on returns, although we are expecting a slight decrease in yields during this financial year as a result of the general retraction of our economy,” concludes Letswalo.

TSRF receives top honours from IRFA

The overall Gold Standard Award was awarded to the TSRF in 2019 and 2020 for excelling in governance; transformation; stakeholder engagement and education; investment practice; trustee development; and financial management and reporting. The Fund was also singled out for Best Practice Awards for its Investment Practices and Transformation (2019); and for Stakeholder Engagement and Education (2020).