In this newsletter we provide some feedback on the Africa Cup of Investments Conference that always provides an interesting global overview of developments and trends in the field of investments. We highlight some complexities of investing in foreign unit trusts that trustees should be aware of. Furthermore we report on certain changes proposed to be made to the National Pension Fund section in the Social Security Act that should be of concern to pension fund trustees.
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 09.2013
In September the average prudential balanced portfolio returned 3.42% (August: 1.58%). Top performer is Metropolitan (4.32%), Allan Gray (2.40%) takes the bottom spot.
While foreign investors can still borrow extremely cheaply overseas and can still earn attractive returns on low risk investments in SA and other developing countries, we will continue to see foreign investment flows into local markets supporting local equities and a low interest rate environment.
The investor should however not expect returns much higher than the dividend yield, with very little or no capital appreciation in the medium term although in the short-term the more speculative investor may still be able to make hay while the sun shines. Ignoring the scenario of deflation, interest rates will in the medium term rise slowly and buying opportunities will arise provided one invests to maturity. As interest rates drift upwards, presenting buying opportunities in fixed interest instruments, equities will lose some of their shine.
Read our full commentary, find out how these and other developments impact on our investment views and download Benchtest 2013-09, here...
Benchmark Actuarial Report 2012
The Actuarial Report for 2012 is available.
Download it here...
Africa Cup of Investments Conference 2013
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.
James Richards, US academic and author of “Currency Wars: The Making of the Next Global Crisis” and David Murrin, UK academic and author of “Breaking the Code of History” both gave highly interesting and thought provoking presentations from an unconventional perspective.
Here are some interesting bullet points from the presentation delivered by James Rickards (author of ‘Currency Wars: the making of the next global crisis’). James is seen as a doomsday prophet by some of his critics.
Financial war games are a branch of asymmetric or unrestricted warfare and have been waged against countries such as Iran and North Korea.
Currency war III started in 2010.
The Feds worst nightmare in terms of managing the US debt levels will be a negative real growth rate together with negative inflation (or deflation). This means that tax revenues are declining while the interest rate mechanism to stimulate the economy is rendered ineffective.
The collapse of the global monetary system is considered a feasible scenario that may have the following consequences:
The monetary system will comprise of multiple reserve currencies in an unstable environment due to the absence of an anchor currency.
The world will move to a new gold standard with a gold price forecast to rise to US$ 7,000 per ounce.
Collapse of economies and social upheaval.
Hugely successful Patrice Motsepe, founder and chairman of African Rainbow Minerals one of the largest individual shareholders of Sanlam, shares his vision for the future of South Africa, that is as relevant to us in Namibia and should be heeded by our politicians and policy makers:
Read the full version of Part 1 and more interesting observations of James Rickards here...
Quality education will determine whether our children will be able to compete globally and everything in our power must be done to ensure that our children will be provided quality education.
The education system has to position the learners for the job market where in the current system thousands of graduates have the wrong qualification.
An environment has to be created where the private sector can flourish.
The global investment community is critically important for our country yet it is frightened off by actions that produce negative publicity. Labour has to be engaged to create an environment in our country that will attract foreign investors.
Investment in foreign unit trusts
Regulation 28 restricts investments in banks and in building societies to institutions registered in terms of the relevant law in Namibia. Investments in bills, bonds and securities issued by foreign governments or other institutions, requires approval of the country and the institution by the Registrar. Regulation 28 also recognises only stock exchanges registered in Namibia or within the common monetary area for the purpose of determining market value for a quoted asset.
Regulation 28 requires an exposition of a Namibian pension fund’s investments as set out in Annexure 1 to the regulation, based on the market value of the fund’s investments. Market value is to be determined in one of two possible manners:
Firstly value is to be determined by reference to its value quoted by a stock exchange licensed under the Namibian Stock Exchanges Control Act or any other stock exchange within the common monetary area.
Assets to which the first method does not apply, have to be valued in accordance with section 19(5A) of the Pension Funds Act. In short section 19(5A) stipulates that market value is:
the price which would be obtained on sale in the Republic,
between a willing seller and a willing buyer,
as estimated by a person appointed by the Namibian pension fund concerned for that purpose.
The implication of the afore going is that a Namibian pension fund cannot invest in any asset that is not listed on a Namibian licensed stock exchange or a stock exchange within the common monetary area, unless market value can be determined in accordance with section 19(5A) of the Pension Funds Act.
In conclusion, an investment in a foreign unit trust scheme is unlikely to comply with the above. Where trustees retain the investment discretion, they should give serious consideration to the above legal requirements before investing in a foreign unit trust scheme. Where trustees grant the investment manager full investment discretion , they should establish from the manager how he envisages complying with these requirements.
Coincidentally we came across an article that examines the trustees due diligence obligation when placing moneys in investments. Refer to “FAIS: due diligence guidelines for investing” below.
Read the full technical analysis setting out the complexities of investing in foreign unit trusts here…
RFS festive season dates
Our office will be closed starting Monday 23 December and will reopen on Thursday 2 January 2014.
Our clients will be advised of arrangements for the period up to the office closure to ensure that all day-to-day business is processed in time. As a matter of course this will require that due dates for submission of documentation will be earlier than normally.
We humbly request all clients to assist and cooperate to avoid any last minute emergencies and most importantly, your understanding and indulgence!
Compliment from a customer
"Many thanks … we can always rely on top service from Retirement Fund Solutions…. no matter what. Please know that this is truly appreciated.”
Read more comments from our clients, here...
News from our regulators
Social Security Commission issues draft of new Employees Compensation Act
The Social Security Commission recently issued a draft Employees Compensation Act that is to replace its predecessor legislation, Act 30 of 1941 that was known as Workmens Compensation Act and later ‘re-styled’ Employees Compensation Act.
Proposed changes to Social Security Act
Things were very quiet around the National Pension Fund for quite some time. Social Security recently issues draft amendments to the Social Security Act for comment. The draft inter alia proposes changes to the framework for the National Pension Fund in formulating a regime for exempting ‘employees’ as defined in the Act from membership of the National Pension Fund in section 21(1).
Interestingly, an enquiry with Namfisa revealed that the pension funds regulator was not consulted and is not aware of the proposed changes although they will impact on pension funds and the manner in which they are regulated.
Section 21 (1)
This section grants the Minister the powers to exempt by regulation upon application for accreditation any ‘pension fund’ and ‘any scheme’, latter by implication considered to be the equivalent to former. This opens the door to ‘schemes’ to be accredited under the National Pension Fund that enjoy no recognition or supervision under the Pension Funds Act. Since pension funds are also subject to their own law and a supervisory authority it can be foreseen that ‘schemes’ will sprout as the preferred alternative to a pension fund as this will obviate the need to maintain a pension fund that is subject to strict legal requirements and regulatory supervision. We believe that only pension funds registered under the Pension Funds Act should be considered for accreditation and that all reference to ‘scheme’ be removed.
Subsection (ii)(aa) states the following “When considering whether to approve or disapprove an application for accreditation by a pension fund or scheme the Minister shall give effect to the criteria for accreditation as well as requirements and provisions contained in regulations under this Act relating to membership of the National Pension Fund and of any other pension fund;” The underlined text is of concern to us. It implies that the Social Security Act can lay down requirements and provision with regard to membership of any other pension fund. This is concerning because other pension funds are now prospectively subjected to the requirements of the Pension Funds Act and the Social Security Act. This is bound to lead to conflicts and inconsistencies between these two Acts and will negatively impact on the viability of funds registered under the Pension Funds Act.
The reference to ‘solidaristic principles’ in subsection (ii)(bb) as being a requirement for pension funds (or ‘schemes’) to meet in order to be considered for exemption, is subjective and prone to ambiguity that places a burden of interpretation on the Minister that the Minister may find difficult to apply. It is bound to negatively impact on the viability of funds registered under the Pension Funds Act. If anything, objective criteria should be defined for this purpose.
Subsection (cc) sets as criteria for other pension funds an “appropriate investment strategy and acceptable governance criteria”. This is bound to lead to conflicts and inconsistencies between these two Acts and will negatively impact on the viability of funds registered under the Pension Funds Act. Setting of any such criteria should be the firmly within the domain of the Pension Funds Act.
News from the market
Conversion of Allan Gray Namibia Investment Trust
Allan Gray Namibia office advised that it has submitted an application to register a management company for managing unit trusts to NAMFISA. Namfisa review is still on-going. Internally Allan Gray Namibia office had targeted to go live on 1 November. With recent developments with the review process it is now targeting 1 February 2014.
Allan Gray Professional Indemnity Cover
In our recent circular to clients we advised of service provider cover levels as confirmed to us. Allan Gray Namibia advised of a cover level of N$ 5 million. Following our enquiry in this regard Allan Gray confirmed that the group, including its Namibia office has additional group cover for Crime Protection and Fidelity of R 1billion for the period to 28 February 2014.
Momentum & Metropolitan merger
Following the merger between Momentum and Metropolitan, the employee benefits operations of Momentum and Metropolitan will henceforth operate under the Momentum brand.
Download the notification here...
(for stakeholders of the retirement funds industry)
SA Ombudsman holds broker liable for loss
In the case reported in this article, a broker was held liable to make good the loss incurred by a client on the basis that the brokers records could not prove that she has provided the client with alternatives and with sufficient information on the product the client invested in.
Read the article by Jonathan Faurie in FA News of 15 October 2013 here...
FAIS: due diligence guidelines for investing
“Recent presentations by the FSB focussed on the need for FSPs to ensure that they place client investments in reliable funds. The challenge for us was that we were seldom, if ever, required to do so before, and there are precious few guidelines as to how one has to go about doing this.
The recent determination by the FAIS Ombud, concerning a Bluezone investment, was scathing in its comments on the lack of homework done by the advisor before placing the client’s funds in this particular scheme.”
As the article points out, where an established institution is used, this is not such an issue but where a product provider provides access to a wide range of unit trust portfolios, the least a trustee should do is to ascertain that due process is applied by the product provider and that the product provider assumes full responsibility for any failure.
Read the full article that appeared in Insurance Gateway of 30 September 2013 here...
Retirement fund trustees must be diligent
An article by Bruce Cameron in Personal Finance of 4 August
Retirement fund trustees must diligently check all claims made on the death benefits of members who die before retirement, to ensure that their savings are properly allocated to the members’ dependants.
In a recent determination, Pension Funds Adjudicator Muvhango Lukhaimane warned that trustees must not simply accept a claim, even if it is made in the form of an affidavit, at face value.
Trustees must consider the following factors when making an “equitable distribution” among dependants:
The age of the dependants;
The relationship of the dependants with the deceased;
The extent of their dependency;
The deceased’s wishes as stated on a beneficiary nomination form and/or in a last will; and
The dependants’ financial situation, including their potential to earn an income in the future
Read the full article here…
How government is telling you to invest
An commentary by Magnus Heystek in Moneyweb of 4 August
“If you asked the average South African - if there were such an animal - whether we were a predominantly free-market economy or a socialist one, the answer would almost automatically be a nod for the former.
However, that would be ignoring the rapid inroads by government and its regulators into almost all aspects of our daily living. There is almost no sphere of human activity were we are not regulated in one way or the other, in many ways far more intrusive and authoritarian than what we voted to change almost 20 years ago.”
This is a perspective from south of the Orange River – will our regulator be wiser?
Read the full article here…
Fund ordered to pay R 250,000 lost through delay in transfer
A report in Insurance Gateway
The unreasonable delay by a retirement fund in transferring members from one fund to another as instructed by the employer caused investment losses of more than R250 000.
The Pension Funds Adjudicator Ms Muvhango Lukhaimane ordered Corporate Selection Umbrella Retirement Fund (first respondent) and Liberty Group Ltd (second respondent) to reimburse the investment returns lost by Obo Speciality Metals (Pty) Ltd.
Read the full article here…
Bull and bear report quarter 3 2013
The Bull & Bear report that is produced from a survey conducted by Sanlam’s Glacier Research, collates the performance expectations of leading South African Asset Managers over the coming 12 months. Asset Managers are asked to comment on expected performance for various asset classes and sectors, currency levels, commodity prices and the performance of selected global markets. These viewpoints are subject to change in line with changes in economic and market conditions.
Download the article here...
(for investors and business)
Whither the Rand: R6 or R12?
A commentary by Magnus Heystek in Moneyweb of 30 September
The Rand exchange rate is a key determining factor for many business people and for pension funds alike. Forecasting the exchange rate correctly can make the difference between huge profits or huge losses.
Read the article here...
SA bond market could fall further
By Jean-Pierre du Plessis, Fixed Interest Strategist at Prescient Investment Management in Money Marketing of 10 October 2013
One consequence of developed economies seemingly picking up speed is that global interest rates are likely to revert to more ‘normal’ levels. This could direct investments away from South Africa, resulting in further losses in our bond market. Because foreigners own about 35% of our market, we are heavily reliant on international capital flows. One consequence of this has been the sell-off seen in the bond market where the risks Prescient highlighted previously are still playing out. The short end of the interest rate curve has moved as well, and several rate hikes are now being priced in.
Read the article here...
Five results of refusing to raise the US debt ceiling
An article from Bloomberg in Moneyweb of 7 October 2013
This articles lists the following consequences:
Global markets will see the U.S. government as grossly and dangerously incompetent.
Forced spending cuts will kill the economic recovery.
The U.S. government might actually default on its debts.
A default could trigger a global crash.
The government’s fiscal problems will only get worse.
Read the article here...
Why the US Fed won’t taper QE
An interview in Moneyweb of 6 September, with James Rickards, author of ‘Currency Wars: The making of the next global crisis
Here is an extract of what he said to Hilton Tarrant:
“..one thing you need to know about Fed forecasting – they have the worst forecasting record of any institution I can think of, any central bank or any private forecaster. Every year the Fed gives a one-year forward forecast. In ’09 they gave a forecast for 2010, in 2010 they gave one for 2011, etc. The last four years they’ve been wrong all four times by a lot – meaning one or two percentage points of growth, which is orders of magnitude when you are talking about GDP. So there’s no reason to have confidence in the Fed forecasting.
The actual economy is doing very poorly. My feeling is they are not going to taper because they’ll be tapering into weakness and the economy’s very weak. But it's a close call. I’d be the first one to say it could go the other way. If they do taper, they’ll be tapering into weakness, as I say, and I expect they would increase asset purchases some time by mid-2014...”
Read the interview as reported in Moneyweb here...
“The stock market is designed to transfer money from the active to the patient.” – Warren Buffet
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.