In this newsletter we comment on investment markets and our outlook. We report on new and revised pension fund regulations, there is feedback on a recent Namfisa hosted industry meeting and we comment on further developments with regard to future pension fund reporting requirements. Regulation 29 has been published and this means that the obligation for all funds to invest in unlisted investments has become a reality. In this context there is an invitation to a seminar soon to be hosted on the topic of unlisted investments.
For those who take an interest in the pensions industry we also provide links to a few interesting articles.
As always, your comment is welcome, so open a new mail and drop us a note!
Tilman Friedrich's Industry Forum
Benchtest Monthly 08.2013
In August the average prudential balanced portfolio returned 1.58% (July: 2.70%). Top performer is Allan Gray (2.31%), Prudential Namibia Managed (1.11%) takes the bottom spot.
Ardent followers of our newsletter, and more specifically our comments on the world of investments will be forgiven for their conclusion that the 'fiscal easing measures' of the US Fed must be our pet topic. It's not really though, however, it probably is the one intervention by a global regulator that currently has the biggest impact on global financial markets. How does this now gel with the principle of the free market mechanism? Are we acknowledging that the free market philosophy is a relic of the past?
Fact of the matter is that players in global financial markets, and investors, are in the hands of the Fed and if you have any inside information about the next moves of the Fed you can become very rich in a very short time, obviously at the expense of someone else, those that do not have inside information.
We have seen the violent negative reaction of markets when Ben Bernanke indicated that the Fed was contemplating to taper its massive bond buying programme and we have seen the exuberance following the latest meeting of the Fed where Ben Bernanke announced that the Fed will continue with its asset purchase programme for a while.
So for the next couple of months it could still be a matter of making hay while the sun shines for the aggressive equity investors. As James Downie once observed, "in a hurricane even turkeys can fly", and this is likely to be the case even with the turkeys amongst equities while this hurricane lasts.
For pension fund investments this is unfortunately not a conducive environment because they have to be focused on the long-term and in the long-term, everything that goes up will come down and every bubble will burst some time or other.
To protect pension fund assets against the negative impact of the bursting of a bubble, the investor needs to know what assets represents a bubble. A more speculative investor (or growth/momentum investor) would still attempt to ride the bubble and to get off just in time while a conservative investor (or value investor) would rather try to avoid investing in a bubble. We certainly are proponents of the latter and this should be borne in mind by our readers when considering when, how and where to invest.
So with this background, we know that interest rates will remain low and equity will continue to be carried in the storm, but we do not know for how much longer this will continue. It is unlikely though that the Fed will consciously do serious harm to global financial markets, so it is likely to taper in initially small, later increasing steps, depending on how markets respond.
To find out how these and other developments impact on our investment views, download Benchtest 2013-08, here...
RFS staff movements
Kai Friedrich will assume the position of Principal Officer of the Benchmark Retirement Fund, taking over from Günter Pfeifer, who will join the Benchmark Board of Trustees. Günter Pfeifer will continue in his role as Director: Benchmark. Kai Friedrich assumes responsibility for our retail business lines and for Benchmark product development. The change takes effect from 1 October 2013.
Compliment from the HR Manager of a Benchmark client
"We would like to thank you for the invite to the Fourth Annual Benchmark Member Meeting. It is always an eye opener for us as a company to see what great work you are doing, but also as an individual it is a wake-up call to look at the future. Thank you for your constant support every month, especially when new challenges arise."
Read more comments from our clients, here...
Benchmark AGM announces 2012 results
Growth of N$224 million in assets under management
Steady growth. Principal Officer of the Benchmark Retirement Fund Günter Pfeifer stated that the Fund is well governed and is achieving its objectives in servicing its members.
Talking about the Benchmark Retirement Fund's 2012 results at the Fund's AGM held on 26 September 2013, Robert Grant, partner of KPMG, confirmed that the member’s investments grew by N$ 224 million during the 2012 financial year, and that the Fund had assets of more than N$ 1 billion under management for more than 6,000 members.
The Principal Officer of the Fund, Günter Pfeifer noted that the Fund is structured to provide a distinctive range of retirement investments to fulfill the requirements of a wide range of Namibian investors. He went on to say that the Fund's Default Portfolio remained a popular choice.
Talking about activities in 2013, Pfeifer said that governance and administration of the Fund continue to be key focuses, and that the Fund was implementing additional measures to further improve the member’s experience in dealing with the fund. According to Pfeifer, the new measures are expected to further enhance reporting time lines.
"The Fund has pinned its reputation on accountability to its members, and the ability to report rapidly and accurately to our members, on their individual investments, is one of the aspects that sets it apart in the market. The enhanced administration measures will shift the goalposts for Namibian pension fund administrators," he said.
He added that the Fund was in the process of drafting a Communication policy which will augment the Fund's governance structures and processes.
Pfeifer also announced that he would step down as Principal Officer of the Fund with effect from 1 October 2013. The role, he said, will be taken over by Kai Friedrich. Pfeifer will now focus on executive management of the Fund, and will join the Board of Trustees as an additional member.
The current Benchmark Board of Trustees consists of Harald Müseler (Chairperson), Marthinuz Fabianus, Tilman Friedrich, Martin Moeller and Afra Schimming-Chase.
At the AGM, Sara Herbert of NMG Consultants issued a caution to retirement investors approaching retirement age. She said that investors should carefully consider adopting a too conservative approach during the late stages of investing for retirement, as this strategy might have a negative impact on the accumulation of their retirement capital.
IJG's Head of Research, Romé Mostert, gave a presentation on the short-term outlook for the Namibian economy, indicating that he expected an upturn towards the beginning of 2014. This should bode well for the investments of retirement members who are required to invest at least 35% of their assets in Namibia.
Download the Annual Report here...
News from the market
Seminar to be hosted on unlisted investments
Knife Capital, which is the company that manages the venture capital fund of astronaut Mark Shuttleworth offers a 2-day course in Namibia. They are currently offering the program very successfully in South Africa in partnership with the University of Cape Town.
The program will be hosted at the Auditorium of Bank of Namibia on the 4th and 5th of November 2013.
For more details, and direct booking download the document here...
Should you require an agenda, please do not hesitate to contact T Friedrich at 061-231590.
News from Namfisa
Notes of the industry meeting
with the retirement funds industry
by Zaskia Ochs, manager audit and compliance at RFS
The most recent pensions industry meeting with Namfisa took place on 16 September. Zaskia Ochs attended the meeting and compiled notes that should be of interest and of concern to pension fund trustees and service providers.
Download the notes here...
New reporting requirements for pension funds
In our previous newsletter we commented on the new reporting requirements. We believe that these will increase costs for members by 20%, as funds will be under pressure to appoint a professional principal officer and professional trustees. Most funds outside the GIPF will not be may not be viable anymore and the industry, that is currently regulated and supervised by a whole department within Namfisa is likely to decline from around 90 to less than 10 private funds. Do we still need a regulator if there will be no industry anymore? And this is just the beginning, matters will get worse when the FIM Bill turns into law.
As you will learn from our notes, Namfisa surprised us with a few statements made at the session. To clarify we posed a three questions to Namfisa on matters of concern to the industry. The questions and the response from 'the horse's mouth' are quoted below, for principal officers and trustees to take note:
Q: You will be aware that the proposed quarterly ERS return essentially duplicates the regulation 28 return. Is it the intention that both will have to be submitted parallel?
A: The intention is not for the quarterly return and the Reg 28 return to be submitted parallel, if the two returns are a duplicate of each other. We will communicate the appropriate returns to be submitted by industry in due course.
Q: The industry was advised that it will be given 9 months from the date of Namfisa having formally issued the requirements concerning the future quarterly ERS reporting. You will be aware that the proposed lay-out and information requirements have not been finalised yet. As per the latest framework, substantial changes will be required to IT and administration systems and procedures. 9 months should give reasonable time to effect the required changes to the administration support systems. However to require reporting in April 2014 for the first quarter of 2014 with the holiday season lying ahead will be very ambitious and probably not achievable and will also not observe the 9 months suggested by Namfisa. Can you confirm when the final version of the future quarterly ERS reporting framework will be communicated with the industry and whether Namfisa will observe the 9 months' notice period, plus say one additional month to cater for the holiday season?
A: Once the quarterly return has been built and tested on the ERS, we will communicate the quarterly reporting framework to industry, as well as consider an adequate timeframe for the submission of historical data.
Q: An article in the latest monthly Benchtest newsletter, should be of interest. It presents a glimpse of the prospective implications of the latest set of quarterly reporting requirements in store for the pension funds industry. Has Namfisa carried out its own calculations of the cost impact of these requirements on the member and his/her retirement benefit and taken a view on the likely impact these will have on our industry?
A: We have considered the impact that the quarterly reporting requirements may have on funds, members and industry, and it is our opinion that the value derived from quarterly monitoring is justified.
For those readers that missed last month's newsletter, here is our summary of what Namfisa is envisaging all funds to report on a quarterly basis, according to the latest draft that can be downloaded here...
Regulation 28 and 29 published
Gazette number 5205 was published in the week ending 6 September 2013 (according to the covering mail). This gazette introduces new regulations 1, 26, 27, 28 and 29 in terms of the Pension Funds Act and regulation 15 in terms of the Long-term Insurance Act. The Gazette is dated 31 May 2013 and was signed on 25 April 2013 by the Minister of Finances. It directs that the new/revised regulations come into effect on the date the gazette is published.
As the date of the gazette (31 may 2013) is earlier than the date on which it was issued to the public, confusion reigns supreme as to when pension funds and long-term insurance companies are required to comply. Unfortunately the legislator has not yet given any direction that carries any statutory relevance.
In our newsletter of January 2013 we elaborated on the content of these regulations.
The regulations set the interest rate on direct housing loans at BON repo rate plus 4%, i.e. 9.5%. We will implement this rate to clients with direct housing loans as from 1 September 2013.
Funds that do not submit any returns or information as required by Namfisa face a penalty of N$ 500 per day of being in breach. Funds that are in breach of regulation 28 face a penalty of N$ 1,000 per day of being in breach.
Regulation 28 sets revised prudential investment guidelines and a number of caps on specified assets and asset classes. Funds are now required to submit a report as required by Namfisa within 90 days of every quarter end, in our current understanding as from the quarter ended 30 September 2013. Funds are required to invest in accordance with the prescriptions of regulation 29, a minimum of 1.75% in unlisted investments, in our current understanding by 31 August 2014.
Regulation 29 sets the conditions for investing in unlisted investments.
Regulation 15 of the Long-term Insurance, is a replica of regulation 28 and its annexure.
(for pension fund trustees and service providers)
The Fed taper capers: what you need to know
A commentary by Glenda Kwek in Sydney Herald Business Day of 18 September
For those readers that take an interest in this topic, here is a fairly palatable exposition of this 'animal' that has had such an impact on global financial markets. What will happen going forward and how will this impact on you? Read this article...
(for investors and employers)
How South Africans spend their money
An article by Ingé Lamprecht in Moneyweb of 16 September
Policy makers should take a hint from this interesting analysis of how government intervention impacts spending patterns and society. Here an interesting observation - "South Africans spend 4 times more on alcohol than on out of pocket healthcare, over one and a half times more on clothes than on education and about the same on DStv subscriptions as on retirement annuities.
Read the article here...
FSB warns against investing with Ledimar
Just in case one of our readers has been approached or is considering to invest in this institution or has already invested, here is a link to a warning issued by the FSB, SA equivalent of Namfisa, from investing in or conducting financial service business with Ledimar. The article appeared in Moneyweb of 20 September 2013.
The income and growth challenge
An article by Pieter Koekemoer of Coronation Fund Managers that appeared in Sanlam's Funds on Friday
"Investors who are near or already in retirement face the most challenging of investor needs: simultaneously investing for both immediate income and long-term growth. This creates the difficult financial planning trade-off of ensuring that a retiree's post-retirement income is sustainable over the full period of his/her retirement, without compromising more than is necessary on their standard of living in the first half of their golden years."
In this interesting article, the author addresses the different annuity products available to retirees; life expectancy and the longevity risk pensioners face; headline CPI versus pensioner CPI statistics and the related risk; the 'sequence of returns risk' and the importance of avoiding capital losses in the early stage of retirement. Download the article here...
Five things to look for in a turnaround
This article by Keith MacLachlan senior research analyst at Thebe Stockbroking appeared in Moneyweb on 26 September.
He elaborates on the following 5 factors one should look for in a successful business turnaround:
Solvency: The less debt you have, the more time for the turnaround you get.
Liquidity: More cash coming in than going out keeps you in business.
Profitability: Pricing power makes for easier turnarounds.
Turnaround plan: A bad plan is better than nothing, but a good plan is the best.
Management: Are they committed and convinced?
Read the full article here...
Bill Gates recently gave a speech at a High School about eleven (11) things they did not and will not learn in school. He talks about how feel-good, politically correct teachings created a generation of kids with no concept of reality and how this concept set them up for failure in the real world.
Rule 1: Life is not fair - get used to it!
Rule 2: The world doesn't care about your self-esteem. The world will expect you to accomplish something BEFORE you feel good about yourself.
Rule 3: You will NOT make $60,000 a year right out of high school. You won't be a vice-president with a car phone until you earn both.
Rule 4: If you think your teacher is tough, wait till you get a boss.
Rule 5: Flipping burgers is not beneath your dignity. Your Grandparents had a different word for burger flipping: They called it opportunity.
Rule 6: If you mess up, it's not your parents' fault, so don't whine about your mistakes, learn from them.
Rule 7: Before you were born, your parents weren't as boring as they are now. They got that way from paying your bills, cleaning your clothes and listening to you talk about how cool you thought you were: So before you save the rain forest from the parasites of your parent's generation, try delousing the closet in your own room.
Rule 8: Your school may have done away with winners and losers, but life HAS NOT. In some schools, they have abolished failing grades and they'll give you as MANY TIMES as you want to get the right answer. *This doesn't bear the slightest resemblance to ANYTHING in real life.
Rule 9: Life is not divided into semesters. You don't get summers off and very few employers are interested in helping you FIND YOURSELF. *Do that on your own time.
Rule 10: Television is NOT real life. In real life people actually have to leave the coffee shop and go to jobs.
Rule 11: Be nice to nerds. Chances are you'll end up working for one.
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 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.