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In this newsletter:
Benchtest 09.2012, a glimpse into upcoming strategic and other company developments, the second part of notes from the Africa Cup of Investments conference, suggestions with regard to new Namfisa reporting, increased SSC contributions, more discussion on regulation 29 and some interesting media clippings. and more...

Dear reader

When we opened our doors more than a decade ago, we envisaged being a small, quality pension administrator. Recently we looked back and realised that we have grown beyond our expectations and now administer more than N$ 10 billion in assets between the clients of Retirement Fund Solutions and the Benchmark Retirement Fund. Although we have grown in size, we put you first by the simple means of measured growth. We grow and train our team at the same time as the assets we administer. By following this approach, we ensure that we can sustain our exacting level of administration, provide you with information without undue delay and provide you with the information that you need to make decisions.

This is our commitment to each of you, no matter how large your assets and the assets we administer.


Please feel free to comment: tell us what you value and how we can improve the content.

Regards

Tilman Friedrich


Tilman Friedrich's Industry Forum

Benchtest Monthly 09.2012

In September our average prudential balanced portfolio returned 1.13% (August 2.30%). Top performer is Namibia Asset Management/Coronation (1.56%); Sanlam (0.37%) takes bottom spot.

For investors the question one needs to find an answer for is how the current financial crisis and the stimulus measures will pan out. Stimulus measures will remain in place until such time as developed economies start picking up steam again and this will not be soon. Until then consumer sentiment in the developed world will remain low. Demand for our resources in the developing world, including our natural heritage, will thus remain depressed for some time to come. The economic growth government had bargained on, and which is necessary to contain our debt and sustain its servicing, will not be as rosy as hoped for. Austerity measures will not be avoidable even for us in Namibia and is likely to become a necessity as from 2013 onwards, to last for a while.

For further analyses and our views download Benchtest 2012-09, here...


RFS company news

RFS welcomes new staff member

We are proud to announce the appointment of Thomas Kaber and extend a hearty welcome to him! Thomas joins us on 1 November from Paraselene Capital Management in Cape Town where he gained valuable experience in unlisted investments. Thomas matriculated at DHPS. He subsequently obtained his Bachelor of Commerce Degree in Investment Management at the University of Pretoria and an Honours Degree in Financial Analysis and Portfolio Management at the University of Cape Town. He has shown a keen interest in the pensions industry where his thesis was on SA Regulation 28.

RFS moves on its strategies

2013 will see further concrete moves in the pursuit of a number of our strategies. Firstly, we look forward to Kai Friedrich joining the company in the first half of 2013. This will provide the impetus for our resolve to improve and expand the Benchmark product offering to group participants and will add capacity to pursue our succession plan.

The appointment of Thomas Kaber is aimed at creating additional capacity to grow the Benchmark retail client base, where investment expertise and sound financial advice is the key to creating value for our Benchmark investors. Further moves in line with this strategy will be implemented in the first half of 2013 and will be communicated in good time.


Taking Social Responsibility serious

RFS promotes an internal policy of supporting financially and by any other means necessary, staff who personally engage in social responsibility endeavours. We believe that this underscores our philosophy of sincerity in contrast to spending shareholders' money to gain maximum press coverage. In the pictures below, staff members recently visited the frail care unit of Oude Rust Home once again to bring some colour into the lives of the aged.

Oude Rust Visit 1
Frieda Venter gives a flower and a hug to an elderly resident.

Oude Rust Visit 2
The oldest are the dearest. Amei Diener hands a flower to one of the oldest residents of Oude Rust.

Oude Rust Visit 3
Reaching out. Amei Diener hands a flower to a resident of Oude Rust.

Oude Rust Visit 4
Warmth in giving. There were bright smiles for this flower given by Anna Willemse.

Compliment by an actuary

“Ich wollte Dir, bzw Amanda, ein Lob aussprechen. Amanda ist wirklich ‘auf Zack’. Unsere Fragen werden von ihr immer super schnell beantwortet und manchmal sogar bevor wir sie überhaupt gestellt haben – wir haben die Informationen [in diesem Fall] noch gar nicht angefragt, doch schon bekommen.” (Dated 30 July 2012.)


News from the market

IMN Africa Cup of Investments conference

This annual conference focusing on institutional and retail investments, took place in Cape Town on 6 and 7 September. In the previous issue we reported on some of the more interesting observations, trends and discussions presented at this conference. Here is the continuation:

Part 2

Regulatory developments:

  • FSB concerned about cost of investment management;
  • Global re-examination of costs in defined contribution arrangements;
  • FSB believes performance must be measured relative to risk;
  • FSB is a proponent of passive investment management to reduce costs;
  • FSB believes performance fees have shortfalls such as incentivising a wrong risk bias;
  • FSB disfavours investment guarantees of investment products due to their high costs;
  • FSB disfavours smoothing due to the lack of transparency;
  • SA government considering obliging pension funds to invest in infrastructure projects;
  • National Social Security System in SA;
  • Oversight of credit rating agencies to be strengthened and conflict of interest to be addressed where the company to be rated employs the rating agency (consider the auditor as frame of reference. New Bill has been drafted;
  • FSB issue a notice now requiring funds to consciously consider ESG (environment, social and governance) factors when investing.

Behavioural finance – some interesting observations
(presentation by Meir Stratman, US professor of Finance)

  • Recognise the difference between expressive (I have status) and emotional (I feel proud) benefits vs. utilitarian (high return at low risk) benefits of goods and services (e.g. as analogy, why give a rose for Valentine’s day instead of the equivalent monetary amount?), the ‘feel good’ benefit is very important in customer psychology;
  • Investors want high status and proper respect;
  • Investors’ goal is to be freed of fear (downside protection) and to have hope (upside potential);
  • Socially responsible investing is one way of combining expressive, emotional and utilitarian benefits;
  • A successful adviser needs to –
    • Know himself and his client;
    • Know science (be an expert) and teach his client;
    • Be his client’s financial physician, i.e. ask, listen, empathise, educate, prescribe and teach.
  • Knowing and teaching your client entails:
    • Client is aware of the emotional drivers fear and exuberance and their impact on decision taking;
    • Judgment errors emanating from overconfidence;;
    • Confirmation errors (i.e. looking for evidence to confirm your judgment rather than to disconfirm);
    • Herding errors (i.e. if everyone does it, it must be the right thing to do).

This will be continued in our next newsletter.

News from Namfisa

New quarterly reporting requirements – October Update

Namfisa recently issued a new template for future quarterly reporting by pension funds. This report comprises of a summary section, a signature section and 9 data sections. It makes reference to information to be provided by the Principal Officer, the asset manager and the administrator and attempts to separate sections according to the likely source of the information.

We suggest that funds coordinate with their service providers with regard to any areas in the template where they will require assistance and that they then liaise with Namfisa with the view to settle on a final version that can be compiled at the least possible cost to the fund, based on the contributions from their service providers.

Until such time as the template has been finalised, it would be premature for the contributors to this report to start developing and adapting systems and procedures for the purpose of this report. Follow this link to more specific recommendations…


Law and legal snippets

Social Security Act

The Villager reported on 17 October that the salary ceiling for the purposes of the MSD fund has been raised from N$ 6,000 to N$ 9,000. Since MSD benefit caps were already raised to N$ 9,000 (sick leave) and N$ 10,000 (maternity leave), an increase in contributions was to be expected. Read the report here...

Regulation 29 – where to from here?

The final draft of regulation 29 would currently require that every Unlisted Investment Manager (UIM) has to establish a Special Purpose Vehicle (SPV) through which the assets of its pension fund clients will have to be channelled into unlisted investments. This SPV has to be managed by the Unlisted Investment Manager (UIM) and the regulation goes to great lengths to install good governance principles in such a structure that is burdened with potential conflicts of interest.

Following are some of our main concerns with the proposed arrangement, considering that this is a new asset class presenting substantially higher risks than conventional publicly listed and controlled asset classes:
  • The ability of pension funds to manage and control their investments in their own best interests is impaired.
  • Being divorced from management and control of one’s assets militates against the principle of ownership and trusteeship.
  • Costs and risk for the industry are likely to be substantially higher as the result of the proliferation of SPV’s.
  • Each SPV will face its own challenges with regard to liquidity.
  • Consistent valuation of assets will be difficult to achieve.
  • Investors will have to incur additional costs in accounting for their unlisted investments separately from their conventional investments.
  • Investors will have to incur additional costs in consolidating and reporting on their investments to Namfisa.
Regulation 28 envisages a maximum total investment in unlisted equities of 3.5% of assets. Based on total industry assets of roughly N$ 80 billion, this would be equivalent to N$ 2.8 billion.

Interestingly, it was reported recently that the GIPF intends to invest 15% of its total assets of N$ 54 billion in unlisted investments. This is the equivalent to N$ 8 billion and is nearly 3 times the envisaged total of N$ 2.8 billion. The contribution of the balance of the industry will only be somewhere between N$ 450 million and N$900 million.

Interesting media snippets

Pros and cons of investing in a retirement fund vs. investing in a unit trust

In the Money Marketing newsletter of Media24, the author concludes that an investment in a retirement fund can generate as much as four times the capital of an investment in a unit trust, if the same amounts were invested in the same portfolio via these two vehicles, over a period of 25 years. Read the article here...

Don’t dismiss guaranteed annuities as the ugly duckling

In this article that appeared in Media24’s Money Marketing newsletter, Niel Fourie of the actuarial Society of South Africa explains why guaranteed annuities have their place in the market. Prospective retirees are well advised to read this article before finalising their retirement arrangement.

Don’t give up on active fund managers

A topical subject of regulators, media and in industry circles is active vs. passive investment management (index tacking). We also made reference to this in our review of the recent IMN Africa Cup of Investments conference. Taking the JSE Allshare Index as an example for index tracking and looking at our performance graphs for September 2012, it is shown that in all but the 1 year period, the average active manager has matched or outperformed this index. Of course this disguises the effect of asset allocation across different asset classes, but who would attend to that aspect in index tracking? In this article in the Wallstreet Journal Conrad de Aenlle makes a case for active management.


And finally...

A South African woman has set a precedent with a sick note from a sangoma which was allowed by the court. Apparently she was being tormented by her ancestors. Read the article here...
tilman-friedrichTilman Friedrich is a qualified chartered accountant and a Namibian Certified Financial Planner ® practitioner, specialising in the pensions field. He is a member of the legal and technical committee of RFIN. Tilman is co-founder, shareholder and managing director of RFS, retired chairperson, now trustee, of the Benchmark Retirement Fund.

 

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