Africa Cup of Investments Conference 2013

Part 4

The theme of this year’s conference was “Challenging the Investment Mindset”. As in previous years it was a well organised, very interesting and informative conference that can only be recommended to anyone who has a role to play in the pensions industry. You may find the one or other topic of interest to you or thought provoking in which case please feel free to share your views with our readers.

Exchange traded products: ETF’s (exchanged traded funds) and the growth of ETN’s (exchange traded notes)
A panel discussion lead by Barbara Vincent, director of Blackrock.

In this panel discussion the following interesting statements and points were made:

• Exchange traded products are an appropriate investment vehicle due to mounting cost pressures;
• Exchange traded funds are an expensive investment vehicle for the individual investor and are therefore added to product providers investment platform which loses the cost benefit for investors;
• Holistic portfolio construction for wider investor distribution should comprise of a combination of exchange traded products and active products;
• Investors require to undergo a paradigm shift before they will move selecting an asset manager to constructing a portfolio;
• Main characteristics of exchange traded funds:
  • they present no credit risk as they are backed by physical assets;
  • they are established as a legal entity;
  • they are inappropriate for investment in commodities as they cannot hold the physical asset.
• Main characteristics of exchange traded notes:
  • they are issued by a bank;
  • the investor takes the credit risk of the issuer.
• In SA, commodity holdings are classified as offshore asset for the purpose of regulation 28.

Adviser focus: adding value thru ‘gamma’
A panel discussion lead by Anne Cabot-Alletzhauser, head of Alexander Forbes Research Institute.

In this panel discussion the following interesting statements and points were made:

• ‘alpha’ in investment terminology refers to the market and requires the investor to choose a manager or a fund;
• ‘beta’ in investment terminology refers to asset allocation and asset selection strategy of the investor;
• ‘gamma’ in investment terminology refers to putting a ‘scientific spin’ to ‘gut feel’ that is measurable (an analogy was cited: vitamins do not improve health, but those that use them are healthier because it’s the persons that are more concerned about their health);
• an adviser can add ‘gamma’ through advice.
• chasing ‘alpha’ is a ‘loser’s game’;
• 40% of manager outperformance results from asset allocation decisions;
• 90% of portfolio performance results from asset allocation;
• Thoughts on annuities:
  • should be invested using dynamic withdrawal strategies;
  • tax implications of annuitisation must be an important consideration;
  • annuity investment option should be offered that are related to the pensioner’s specific liability;
• How does the investor find an adviser that he can trust?
  • advise has to provide his client a framework that will allow the client to measure the adviser;
  • adviser fees in the UK have started to increase and are currently in the region of 1% of capital per annum.

Generational attitude to investing: preparing for longevity
A panel discussion lead by Graham Sinclair, principal at Sinco.

In this panel discussion the following interesting statements and points were made:

• For every additional year of life expectancy you need 50% more retirement capital;
• To reach young people in order to convey the dilemma of ever increasing life expectancy:
  • approach HR departments of employers and start talking to the young people to get them to make the right decision from the first day;
  • Preservation is important for young people and should be observed;
  • ‘old school’ hard copy communication is also still important for young people;
  • member options with regard to contribution levels should be meaningful and should not be too low.

Hedge fund investing in Africa
A panel discussion lead by Carla de Waal, head of alternative investment solutions of Novare Investments.

In this panel discussion the following interesting statements and points were made:

• total assets invested in SA hedge funds amount R 40 billion;
• there are 60 active hedge fund managers in SA;
• these fund typically employ long and short equity and fixed interest strategies;
• most investment capital comes from pension funds;
• SA regulation 28 now allows for a maximum 10% to be invested in hedge funds (on- or offshore);
• hedge funds are currently self-regulated in SSA but are to fit in under CISCA (Collective Investment Schemes Control Act);
• hedge funds are wrapped in a legal structure in SA;
• hedge funds are not an asset class but rather an investment strategy and offer an expanded manner for managing money;
• hedge funds offer market diversification benefits;
• management fee for hedge funds overseas is around 2% of the assets under management;
• the risk of hedge funds for the investor in on the operational level (poor management skills etc.).

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.