In this newsletter, we provide company news, feedback on meetings with Namfisa concerning new reporting, we review key changes to regulation 29, we provide insight into a fresh approach towards funds’ obligation to invest in unlisted investments, we draw attention to new legislation on establishing new forms of land tenure and there are a few links to very interesting articles that recently appeared in various media.
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Tilman Friedrich's Industry Forum
Benchtest Monthly 05.2012
In May our average prudential balanced portfolio returned minus 0.65% (April 1.32%). Top performer is Allan Gray (1.33%), while Stanlib (minus 1.74%) takes bottom spot, both having switched their log positions from the previous month.
Going by the general tone in Europe and recent utterances by President Obama, the likely direction of monetary and fiscal policy in Europe is one of more stimulation as the road out of the financial crisis. This implies more ‘fiscal easing’, more printing of money and more short-term capital looking for yields in developing countries such as South Africa. The scenario of declining foreign portfolio flows, a weakening Rand and rising interest rates, is therefore likely to only materialise in the next 2 to 3 years and the current Rand weakness is likely to be of a temporary nature.
For further analyses and our views download the report, here...
RFS company news
RFS welcomes new team member
Timothy Wallenstein joined us on 6 December 2011 from G-Tech Equipment where he was employed as a sales representative since July 2011. He is well known in the pension fund industry as he started to work in the industry at the end of 2005 as an administrator with Alexander Forbes. He later joined Old Mutual in December 2007 as a fund administrator and worked for Old Mutual since September 2009 as a fund accountant. At Old Mutual he was responsible for accounting services to a portfolio of large pension fund clients. Timothy has enrolled through Polytechic of Namibia for a diploma in Accounting and Finance, and has completed all his first year subjects. He is serious about concluding with his studies in the years to come.
News from Namfisa
New reporting requirements
In various correspondence with our pension fund clients we drew attention to new reporting Namfisa intends to oblige fund to provide. The reporting requires quarterly statistics and is to cover the time from the beginning of 2007 to date and quarterly reporting going forward.
In the meantime, the Retirement Funds Institute (RFIN) met with Namfisa regarding its new requirements. Namfisa explained that the purpose of requiring such information was primarily two-fold. Firstly Namfisa officials realized in dealings with foreign investors and with foreign regulators, that it is unable to offer up-to-date information and statistics on the pensions industry in Namibia. The absence of such information makes it difficult for Government to formulate policies with regard to retirement provision. Furthermore in its quest to move from compliance based regulation to risk based regulation, these statistics are essential in identifying trends and risks.
As the result of the discussions with RFIN, Namfisa undertook to engage the key parties that will be responsible to provide the statistics, being the administrators and the asset managers. Accordingly we had another meeting with Namfisa on 21 June 2012 in our capacity as administrator of a substantial share of the market of all privately administered funds in Namibia.
In our first meeting with Namfisa, the following principles received some attention:
There are three distinct parties involved in preparing the information (historic but also future), namely the principal officer and or the consultant, the administrator and the asset manager. The return should be structured in such a way that each party can complete its section. The information provided by the PO will be mostly static data.
In order to keep the costs down the information will have to be extracted from the administration systems using interrogation programs. It will take time to do this programming.
Investment information required should preferably be in the same format as per the annexure to regulation 28 reports and such reporting should obviate separate regulation 28 reporting.
The lay-out of the current annual reports required to be updated on Namfisa’s ERS (electronic reporting system) should be adapted to meet all non-investment information reporting which should obviate current annual ERS reporting.
The principle of accounting is to accumulate transactions over the course of the entity’s financial year. Accordingly, the accounting system cannot report on accumulated transactions based on a calendar year. As administrator we would only be able to provide quarterly report based on funds’ financial years. Namfisa appears to be adamant that it requires information per calendar quarter and suggested that the administrator provides transaction summaries on a monthly basis for Namfisa to carry out the aggregation itself based on calendar quarters. We would only be able to report monthly transactional information that is system coded based on fund rules or other fixed contractual transactions.
NAMFISA appears to realize that certain static data does not change from quarter to quarter although it is nevertheless to be reported on per quarter. It intimated that such information should simply be copied over to the next quarter. This would also apply to the actuarial statistics that is only provided every 3 years.
Namfisa intimated that the quarterly reports are to be provided within 21 days of the end of every quarter. Since contributions are paid monthly in arrears on or before the 7th of the following month to be updated on the administrator’ s system thereafter, Namfisa appears to be comfortable that the quarterly information will only be as at the end of the month preceding the quarter end.
Namfisa expressed its desire to adapt its reporting requirements in order to minimize any additional costs of such reporting. It was agreed that it would arrange a follow up meeting with all administrators to discuss detail concerning the information that Namfisa indicated it would require. We believe it is essential that the asset managers should be present at such a meeting or that Namfisa needs to arrange a separate meeting with asset managers to discuss the detail concerning the reporting on fund investments.
Namfisa issues revised draft amendments to regulation 1, 26, 27, 28 and 29
In Benchtest April 2012 we provided an analysis of changes proposed in draft regulations 1, 26, 27 and 28.
Regulation 29 contains a few changes from the previous version that may be of interest:
It no longer distinguishes between Special Purpose Trust and Special Purpose Company but only refers to Special Purpose Vehicle (SPV) that covers both structures;
‘Valuation Guidelines’ as a definition has been removed.
Name reservation is no longer required.
Registrar can no longer lay down conditions for registration of an SPV.
For an SPV set up as a company, the regulation now refers to the Companies Act with regard to a number of matters (e.g. disqualification of director, annual reporting as per IFRS)
The requirements for an unlisted investment manager was changed:
Its minimum paid-up share capital has been reduced from 5% to 1% of the committed capital of its SPV.
It is at least 35% owned by Namibian citizens – new.
It has at least 3 directors – new.
Disqualification criteria for directors was removed and reference is made to the Companies Act.
The co-investment of an unlisted investment manager in an SPV has been reduced from 5% to 1% of the contributed capital of the SPV.
A new section has been added detailing the requirements for a subscription agreement.
New procedures have been introduced which the Registrar needs to follow should he intend to remove a director or trustee of an SPV, or remove an unlisted investment manager or remove officers of an unlisted investment manager.
The specific reference to a pension fund committing capital to an SPV has been removed. Presumably this would allow other entities to also invest in an SPV.
The Registrar is no longer required to approve the appointment of an auditor.
Prescriptions as to how an auditor is to certify financial statements of an SPV have been removed.
The period for an SPV to invest in unlisted investments, failing which it would have to deregistered, has been extended from 12 to 24 months.
The majority for holders of contributed capital in an SPV to decide to deregister the SPV has been increased from 2/3rds to 75%.
Regulation 29 – where to from here?
Pension fund trustees and principal officers should by now be alerted to the future requirement for pension funds to invest a minimum of 1.75% and a maximum of 3.5% of assets in unlisted investments in terms of regulation 28 of the Pension Funds Act.
Investments in unlisted entities may only be made in accordance with regulation 29 of the Pension Funds Act. This regulation requires that such investments must be made through a Special Purpose Vehicle (SPV), which vehicle is required to appoint an Unlisted Investment Manager to manage its assets.
Asset managers have been under duress of pension funds requiring them to find a solution to the fund complying with the minimum investment in unlisted entities. While some managers have already established vehicles to invest in assets that should qualify as unlisted investment, other managers have found it exceedingly difficult to get involved in this highly specialised area.
Clearly an asset manager would require a sufficiently large pool of assets to establish a viable alternative investments operation. Considering that the total prospective capital to be invested in unlisted investments by funds, other than the GIPF, would amount to only around 400 million, this would hardly create space for more than one alternative investments manager. The alternative would then be to place assets with a third party manager whose performance might eventually impact on the returns and reputation of the manager.
In view of these difficulties an interesting idea was recently aired that pensions funds should establish an industry sponsored SPV to pool the capital commitment towards unlisted investments, either through or with the assistance of the Retirement Funds Institute. In this way, participating funds could exercise direct control over the unlisted investments, liquidity should be enhanced through a single vehicle and it should be easier to set standards for processes and valuations, while creating a more viable entity.
We suggest that principal officers should table this idea as soon as possible, with the view to funds taking an early decision that will guide their principal officer and investment managers on how they need to respond to this challenge.
New drafts of Namfisa Bill and FIM Bill circulated
Revised drafts of the Namfisa Bill and the FIM Bill were recently circulated by the Minister of Finance. A final consultation session will take place on these bills on Wednesday 11 July. A review of key changes will follow in a next edition of this newsletter.
Law and legal snippets
The Namibian Constitution and Administrative Justice
If you are aggrieved by an act or decision of a public body or official of such body, consider your rights in terms of Namibia’s supreme law, our constitution.
Article 18 of the Namibian constitution deals with ‘administrative justice’. It requires that “Administrative bodies and administrative officials shall act fairly and reasonably and comply with the requirements imposed upon such bodies and officials by common law and any relevant legislation, and persons aggrieved by the exercise of such acts and decisions shall have the right to seek redress before a competent Court or Tribunal.”
Withholding tax revisited
PricewaterhouseCoopers provides an update on Withholding Tax rates, DTA relief, Withholding Tax on services and other developments in the statutory environment in its Tax First Namibia Newsletter, June 2012. Download the newsletter here...
The Flexible Land Tenure Act
The object of this Act is to create new forms of title to immovable property; to create a register for these forms of title and registrars to register these forms of title; to provide for the nature of the rights conferred by these forms of title; and to provide for matters incidental thereto.
Pension funds granting housing loans to members or providing guarantees to a bank to provide housing loans to members, should take cognisance of this new law which was promulgated as Act no 4 of 2012 per Government Notice 142 in Government Gazette no 4963. This Act provides for two new types of land tenure, namely the ‘starter title right’ and the ‘land hold title right’.
A review of this Act to the extent that it may be relevant to pension funds will be provided in a coming edition of this newsletter.
Coronation closes portfolios to new clients
Coronation Fund Managers (Coronation) recently announced the closure of all Balanced and Absolute Mandates to new institutional clients with effect from 31 December 2012. In line with that announcement and due to the fact that Coronation is Namibia Asset Management’s (NAM) technical partner, NAM likewise announced that it will not accept new mandates from new institutional clients effective 31 December 2012.
Clients considering a review of their existing managers should take note of this ‘window period’ for signing up with NAM, only until the end of this year.
Compliment from a former fund member,
received in June 2012
Thanks so much for quick and good service. I never received such a quick and good service. I really appreciate it.
It is the second time that I received that type of service from you. I really appreciate it. Keep up the good work.
Interesting media snippets
What makes a valid will
An article, first published in Personal Finance Magazine, a publication of Independent Newspapers, exemplifies a number of key factors that you need to observe when you make your will. Read more on a topic that is neglected too often, here...
Whose estate is it anyway?
Tiny Carrol, a fiduciary specialist with Sanlam says, "I often say to clients that “Estate planning is like dealing with a backache – sometimes all it requires is a visit to the Chiropractor for an alignment to feel some relief.” In the same way, an estate planning process involves the alignment of your estate planning instruments for your benefit during your lifetime and the benefit of your ultimate beneficiaries." Read more in the article published by Money Marketing, here...
Tilman Friedrich is a qualified chartered accountant and a Namibian Certified Financial Planner® practitioner, specialising in the pensions field. He is a member of the marketing committee of ICAN and a member of the legal and technical committee of RFIN. Tilman is co-founder, shareholder and managing director of RFS.