Friedrich said the company celebrated its fifth anniversary with 8,000 members and N$ 1,3 billion under administration. At that stage, the company had a staff complement of 15. In 2009, when it celebrated its 10th anniversary, the company had a staff of 41 to administer N$ 6 billion on behalf of 21,000 members. On its 15th anniversary, Friedrich said the company has a staff complement of 59, and administers assets of N$ 14.5 billion on behalf of 35,000 fund members.
Company Founder and Managing Director Tilman Friedrich spoke about the establishment, history and successes of Retirement Fund Solutions.
On the topic of the Benchmark Retirement Fund, which was established by RFS to administer pension investments on behalf of individuals and smaller entities, Friedrich said the fund has grown apace, and administers investments of N$ 1.5 billion for 8,000 members.
Friedrich attributed the growth of the company to its emphasis on governance and compliance to give trustees peace of mind. He said that Namibian pension funds want the assurance that due care and skill is applied to the management of their business, and that strict compliance with Namibian laws and regulations is observed, while the administration of their fund’s business is conducted in a manner which is responsive to the needs of the fund and its members.
In this regard, he said RFS has made a significant investment in technology with the acquisition of a disaster recovery site that will further strengthen its governance and offer peace of mind to its clients to a level typically only offered by large companies. He said the fact that the company’s IT infrastructure is not tied into a foreign parent network, or dependent on foreign expertise or support gives RFS the ability to be responsive to local requirements in terms of governance and compliance.
However he also noted that fund management and administration are driven by 'people helping people', and that RFS places a major emphasis on development of its human capital. He stated that the company supports individual development through formal and informal education, and that its in-house expertise provides a key competitive edge with ongoing on-the-job training so that staff can respond to the changing regulatory environment.
The RFS executive management team FLTR: Louis Theron, Günter Pfeifer, Sharika Skoppelitus, Hannes van Tonder, Tilman Friedrich, Frieda Venter, Kai Friedrich and Marthinuz Fabianus.
New role for Charlotte Drayer
Charlotte Drayer, Retirement Fund Solutions' first employee, who went on to become a Director of and shareholder in the company, has reached retirement age. Instead of retiring, she will take on a new role which will focus on development of products and systems. She remains a shareholder, but has decided to step down from the Board of Directors.
Charlotte Drayer joined Retirement Fund Solutions on 1 October 1999, and based on her conviction that the company would be a success, worked for seven months without a salary as the company grew its revenues.
Speaking at the 15th anniversary dinner, Deputy Managing Director Marthinuz Fabianus said that Drayer was the first person in Namibia to provide an 'A - Z' pension fund administration service.
Friedrich said the company' strengths are based on several additional factors.
He said that the administrator has rigid quality standards that are benchmarked against international best practices. This, he said, is supported by ongoing training and development of staff.
Friedrich went on to say that quality of service is attained particularly through personal involvement of the owners of the company in day-to-day client service. This ensures that potential problem areas are identified before they occur, contributing significantly to client satisfaction.
He also said that the company's empowerment policy is to develop individuals for upper tier management from within the company, and pointed out that six members of staff now hold shares and directorship, while an additional 17.5% of shareholding in RFS is assigned to other staff, as the result of which every permanent staff member now benefits from the wealth the company creates.
Keynote speaker Lynn Baker gave a lively speech on the topic of Executive Presence at the event.
On the topic of value, Friedrich said that the company has a policy of actively communicating regulatory change to clients, and assisting with development of knowledge to enable clients to make complex decisions regarding pension funds and investments through its monthly Benchtest newsletter.
Talking about the future of pension funds administration in Namibia, Friedrich returned to the topic of the regulatory environment. He noted that Namfisa, the regulator of pension funds in Namibia, is implementing new regulations at a rapid rate. These changes, he said, have require pension fund practitioners to consider not only compliance to the letter of the law, but also the needs of funds and their members. Responsive regulation, he said, will grow the financial sector by requiring administrators to expand their range of services.
Friedrich concluded by saying that the company would continue to grow as the financial services sector grows, but would continue with its sustainable approach of measured growth, to ensure that clients receive the level of excellence to which they are accustomed.
What risks should we be concerned about?
First consider what risks one is facing. These are:
- Systemic risk
- Prudential risk
- Advice risk
- Market risk
- Volatility risk
- Currency risk
- Scam risk
- Lost opportunity risk
- Liquidity risk
- Investment risk
Does a combination of manager address all these risks?
Combining more than one manager will reduce the prudential risk that something can go horribly wrong with one organisation. It will reduce the volatility of performance because the volatility of each managers will differ from that of other managers. It will also reduce the scam risk, the liquidity risk and the investment risk of capital loss and underperformance. It will not impact on the advice risk, market risk or lost opportunity risk. Advice risk and lost opportunity risk will need to be managed at fund level, while market risk needs to be addressed by spreading investments across different markets e.g. local and offshore market.
What is an optimal number of managers one should combine?
Evidently a combination of more than one manager within a single investment mandate of a fund does reduce most risks funds face when placing their investments. However will it suffice to engage only two managers or should one engage more than two manager? This is a tricky question and really depends on the skills of the trustees and their objectives.
How bold are the trustees in taking active decisions?
If the trustees are totally averse to actively engage in investment decisions and are comfortable with average returns, the answer is, ‘the more the merrier’ as each additional manager further dilutes the risks, approaching the answer very simplistically. There are of course much more sophisticated methods such as the efficient frontier model that will indicate that little further value is added after a certain number of managers have been combined and from where on one would actually produce negative outcomes.
The Namibian environment sets narrow confines
Being realistic about this within the confines of the Namibian environment, most funds are too small to employ one segregated investment mandates, let alone engaging more than one manager on a segregated mandate but have to invest via unit trusts. Since unit trusts are regulated by dedicated legislation and are subject to statutory supervision, the prudential and scam risks are already reduced to a significant extent and probably require very little additional attention of the trustees.
Due care and skill requires active engagement
Due care and skill would probably require of a board of trustees to engage actively in investment decisions and to achieve results better than the average for their members. This means that they will have to think carefully about how to combine managers and how many managers to combine. Given the wisdom of engaging at least two managers, a successful combination of two managers has the best chance of out-performing but of course also has the best chance of under-performing. The greater the trustees’ confidence in the ability of the selected manager to outperform, the fewer managers need to be combined and vise-versa.
What are your performance objective for combining managers?
The question then is what objectives do trustees have in combining different managers? The objective can be one of the following:
Choosing managers that are likely to outperform the average manager in the long-term. Such a combination may lead to all managers under-, and out-performing the average at the same time. The trustees need to be clear on this and be comfortable with the consequence thereof, particularly in times when all managers under-perform the average. This is obviously the ideal combination given the conviction that all managers should out-perform in the long-term. Unfortunately in Namibia, only very few managers have a long-term history of out-performing the average. The other managers have all had extended periods of either out-, or under-performance, or have no long-term performance history. Performance history therefore does not render any significant level of conviction for any of the managers outperforming the average in the long-term.
Above average performance
Choosing ‘core’ manager/s that is/are likely to out-perform the average in the long-term and an/other non-core manager/s that is/are likely to produce returns mirroring those of the average as closely as possible. The expectation of the non-core manager/s is to cushion any significant under-performance of the ‘core’ manager/s. Performance history should show which manager’s/s’ performance has most closely mirrored the average over the long-term.
Choosing managers with an opposing investment philosophy and style (i.e. value vs growth). If all managers on each side of the spectrum were to perform equally well and equally poorly during periods advantaging and disadvantaging their investment philosophy and style, the combined performance of these managers should mirror that of the average. Again the realities of the Namibian environment are that there are very few if any managers that can clearly be placed on either side of the spectrum making it questionable whether the hedged performance strategy can be employed successfully.
Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.
15 September 2014 at Kalahari Sands Hotel
By Kai Friedrich
Matters arising from the previous meeting
Quarterly Pension Fund Reporting
Namfisa is currently in the process of revising the quarterly SIH template in order to address all issues raised on the previously circulated template. For this they have established a work group, consisting of Namfisa employees as well as of representatives of the asset manager industry. They have set themselves a target of 30 September 2014 to finalise this project. Namfisa was confident that this target would be met.
Pension Fund Backed Housing loans (PFBHL)
Namfisa indicated that the new legislation on PFBHL has been approved by National Assembly and is now with the National Council for review. After that the President will sign this legislation into law.
Tax related issues
The comments previously sent to the industry by the Directorate of Inland Revenue on issues raised at a prior industry meeting were noted by Namfisa. No further discussions on this topic arose.
No new developments on the FIM Bill have been noted.
Registration of Special Purpose Vehicles and Unlisted Investment Managers
To date no SPV’s or UIM’s have been approved by the Regulator. Although Namfisa could not indicate how many were in the “pipe-line” for review and approval, as this falls within another department at Namfisa not present at this meeting, they mentioned that one SPV and one UIM, administered by the same asset manager, have complied with all requirements and should be registered at the next licencing committee meeting.
A discussion arose regarding Namfisa’s view on granting industry-wide extension on compliance with Reg 29 requirements. Namfisa’s view was that funds need to apply in writing for extension in order to provide Namfisa with reasons as to why extension is granted. In their view, even though no or only limited SPVs / UIMs have been registered, funds are still required to comply with legislation. Thus funds are obliged to apply for extension i.t.o. s33 of the Pension Funds Act.
Other SPVs / UIMs applied for registration but still needed to provide Namfisa with outstanding documentation requested by Namfisa.
Circular of Approved Bonds (items 4 & 5 of Annexure 1 to Regulation 28)
Namfisa provided some overview of a draft circular that they sent to RFIN on 20 August 2014 in which they provide certain guidelines on Bonds that need to be approved by Namfisa before an investor can invest in these. This includes the country as well as the institution that needs to be approved by the Regulator in certain cases. In this regard Namfisa uses ratings by the three biggest international rating agencies as guidelines.
Thus countries or institutions with a rating of higher than BB+ / Ba1 only may be considered for investment in their bonds. Investors are also expected to perform due diligence procedures on these bonds, although Namfisa does not want to provide guidelines as to what due diligence procedures entail. In their view they do not want to place restrictions on which due diligence procedures need to be performed and thus rather do not want to provide guidelines.
Implementation of prescribed application forms
For easier administrative procedures of the regulator Namfisa has drafted some prescribed application forms, e.g. for fund registration, appointments of PO’s etc. These will be circulated to industry soon for comment.
Disclosure of costs
Namfisa raised a discussion as to whether costs to funds and members are adequately disclosed. A few pros and cons were raised by industry on this matter, especially when it comes to disclosing too much information to members. Industry was in agreement that all costs need to be adequately disclosed, but the level of detail provided to members in particular should be limited in order not to raise any confusion or uncertainties.
It was noted by industry that in fact trustees should be adequately equipped for their duties as trustees in order to communicate appropriately with members. This can only be achieved if trustees know their fund and their duties.
Namfisa internal staff movements
Namfisa informed the industry that the manager: Pension Funds, Mr Ryan Louw, as well as the senior analyst, Mr Silas Naobeb, have moved to the RPS (Research,Policy and Statistics)department, also within Namfisa, as Policy Advisor and Policy Analyst respectively.
A financial analyst, and a legal officer: Provident Funds, have been appointed in the meantime.
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