Dear reader

In this newsletter we comment on the global investment markets; we report on RFS' 15 year anniversary function and the client survey; we introduce the team that is to take RFS into the future; we analyse proposed changes to the Pension Funds Act vis-à-vis housing loans and we provide a number of links to topical and relevant articles from various media.

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Regards

Tilman Friedrich

Tilman Friedrich's Industry Forum

Benchtest Monthly 09.2014

In September the average prudential balanced portfolio returned 0.25% (Aug: 0.29%). Top performer is Allan Gray (1.23%); while Namibia Asset Management (-0.58%) takes the bottom spot. For the 3 month period EMH Prescient takes top spot for the second consecutive month, outperforming the 'average' by roughly 1.3%. On the other end of the scale Momentum underperformed the 'average' by 0.60%.

Our graph of the day below depicts a few interesting trend lines. Firstly, the blue line depicts one year rolling foreign investment flows into equities. Do these flows actually impact the JSE Allshare Index? Tracking the red line which depicts a 'blown up' movement of the JSE Allshare Index relative to the blue line, a close correlation between these two trend lines becomes very evident.

When foreigners withdraw from the JSE the JSE declines and vise versa. Foreigners have evidently withdrawn their support of local equities and have taken a neutral position. Can there be any expectation of this changing soon? Our view is that this is unlikely to change soon and will not be impacted even if the SARB raised its repo rate.

Tracking the black line which depicts the one year rolling total of net foreign equity flows, net foreign fixed interest flows and the SA trade balance against the green line that depicts a 'blown up' movement of the Rand: US Dollar index one can also see a correlation between these two trend lines. A negative black trendline lifts the green trend line, meaning that an outflow of capital weakens the Rand relative to the US Dollar. We can also see a decline of these capital flows since the end of the financial crisis and a virtual collapse since October 2013.

This negative trend has been caused for one by a decline in world commodity market but most likely also by a decline in SA's competitiveness as the result of the strong Rand. The decline in commodity markets was clearly impacted by the financial crisis and since then by reduced demand for commodities from China as the result of it restructuring its economy. The Rand of course has been weakening steadily over the past 4 years.

Can there be any expectation of this to improve?

Read our full commentary, find out how these and other developments impact on our investment views and download Benchtest 09.2014, here...

Pension Funds Act amended with regard to housing loans

Section 19 (5) - housing loans

Amendment Act no 6 of 2014 amending section 19(5) has been published in Government Gazette 5584 effective 8 October 2014. Section 19(5) defines the parameters for a fund granting a loan to a fund member. The Act introduces the following changes, all other conditions remaining unchanged:

• Loans may also now be granted for the purchase of land, the erection of a property on land, or for alterations, maintenance or repair of a property on land, in respect of which a valid customary land right or right of leasehold has been granted in terms of the Communal Land Reform Act, subject otherwise to the same conditions as apply to land held under 'conventional' property rights.
• Loans shall be repayable over the shortest period of either 30 years, the remainder of the member's employable years until retirement, or the duration of the right of leasehold/ customary land right as referred to in the preceding bullet.
• Loans are capped at 90% of the amount of the benefit which the member would receive if he were to terminate his membership voluntarily at the time of taking up the loan.
• Reference to the Black (Urban Areas) Consolidation Act, as a qualifying ownership right, is removed.

It is to be noted that the Pension Funds Act only creates the enabling legal framework. A fund whose rules do not provide for granting loans may not grant loans despite the enabling provisions of the Act.

It is to be noted further that the rules of a fund may cap the maximum loan that may be granted to an amount lower than 90% of the termination benefit (i.e. not the retirement benefit or a commutation thereof).

It is to be noted that in the case of a loan granted to a member, secured only by the member having pledged his benefit, market value is no longer relevant.

Section 37D - deduction from benefits for housing loans for housing loan guarantee

Amendment Act no 6 of 2014 also amend section 37D of the Pension Funds Act. Section 37D defines the parameters for a fund deducting certain amounts from the benefit of a fund member. The Act introduces a change to sub section (a)(ii), (all other conditions remaining unchanged), which now reads as follows:

"A registered fund may -

(a) Deduct any amount due to the fund in respect of -

ii. any amount to which a fund is liable under a guarantee furnished in respect of a loan by some other person to a member for any purpose referred to in section 19 (5) (a), but the fund shall not be liable to such other person in an amount greater than the amount of the benefit which the member would receive if he were to terminate his membership of the fund voluntarily as at the time the guarantee is called up0n and notwithstanding that the amount originally granted might be greater."

Interestingly a part of the wording in the previous section referring to such permissible deducting being "...from the benefit to which the member or beneficiary is entitled in terms of the rules of the fund..." was removed. This may yet create arguments between a fund and a member on the basis that this section does not permit the deduction from the member's benefit, although it appears that the intention of this section remains just that.

It is to be noted in particular that in our opinion, for the purposes of a third party (employer of bank) claiming from a fund in respect of a member's housing loan, the benefit due to a member is not the gross benefit as per rules but is the net benefit after PAYE (in the opinion of Inland Revenue also after arrears taxes). A fund cannot be held liable by a third party (employer or bank), to pay over more than the member's net benefit. We believe that banks and any employer that has been granting housing loans to fund members on the basis of a fund guarantee are likely to terminate their housing schemes and will seek to call up any outstanding loans, without delay.

Section 37D - deduction from benefits for housing loans for loan granted by fund to member

Where a fund grants a loan directly to a member, it can deduct up to 100% of the member's benefit, in the event of the member having been granted 90% of his benefit and the Receiver of Revenue claiming 10% PAYE. However, should the Receiver claim PAYE at the maximum rate of 37%, any outstanding loan balance in excess of 63% of the members total benefit will have to be recovered from the member. To avoid the situation where the fund has to recover any outstanding loan balance from the member personally, loans should be limited to 63% of a member's total benefit. Note that Inland Revenue will only be able to claim any arrears tax to the extent that any amount is still due to the member after the loan has been redeemed and any PAYE deducted. "

Meet the team that will lead RFS into the future

On the occasion of our 15 year anniversary function the company's management team was introduced to the public. In the next few newsletters we will introduce the team. In this issue, meet Marthinuz Ndumetana Fabianus, Deputy Managing Director.



Marthinuz joined United Pension Administrators, then headed by Tilman Friedrich and Charlotte Drayer, fresh from school. He literally worked himself up through the ranks at UPA with lots of drive and a clear goal in sight. He left UPA at the end of 2000 to join RFS at the end of 2001,when RFS was in its infancy. He made no small contribution to growing the company to where it is today. Over the years he improved his academic qualifications and completed various courses and qualifications ending up with a Diploma in Commerce and recently a B Admin degree, both obtained from Polytechnic of Namibia. He is currently in the process of completing the Senior Management Development Programme course of the University of Stellenbosch. Marthinuz served as president of the Retirement Funds Institute of Namibia from 2005 to 2006. Besides his rock solid foundation built in our industry over the past 20 years, Marthinuz offers unique 'soft skills' that should stand him in good stead in leading the company into the future. We congratulate Marthinuz on his deserved appointment and wish him lots of wisdom and good fortune in leading RFS to greater heights!

RFS supports Groot Aub soccer team


Austin Thirion from Retirement Fund Solutions who hails from Groot Aub has taken it upon himself to arrange a presentable soccer dress to the soccer team of Groot Aub, co-sponsored by the company. 

RFS Staff movements

We would like to extend a hearty welcome to Vernon Peterson who joined us from chartered accountants, Hamilton and Partners, in May 2014. Vernon joined the Benchmark division where he is making a great contribution to the fund accounting and administration teams. He is a keen cyclist and represented Namibia 4 times in the past. He also played soccer for his school's first team for 4 years. Vernon holds a National Certificate in Accounting and Finance and he is currently studying towards a B Tech degree at Polytechnic. We look forward to have Vernon around for many years to come!

RFS celebrates its 15th anniversary

RFS held its 15 year anniversary function at Nampower Convention Centre on Friday 26 September. Here is how one of our guests experienced the evening:

"W and I would like to thank you so very much for the wonderful evening we spent with you and your team on Friday night. The event was so well planned, the entertainment tasteful, the guest speaker riveting and the food delicious. Our congratulations to  everyone involved with the planning, and thank you once again for letting us be part of your special anniversary evening."


Executive directors from left to right Kai Friedrich, Louis Theron, Tilman Friedrich, retired director Charlotte Drayer, Günter Pfeifer and Marthinuz Fabianus.


A beautifully decorated venue emphasises the RFS slogan - "rock solid fund administration that lets you sleep in peace!"


Marthinuz Fabianus acknowledging Charlotte Drayer's 15 year anniversary at RFS.

The success of the company is largely the result of the trust our team has been able to instill in our clients. Trust has to be earned and we have achieved this over the past 15 years, and the preceding years at UPA, without fail.

But as Tilman Friedrich correctly pointed out in his speech  "I would at this juncture like to express my sincere gratitude to all our clients who have afforded us their trust and confidence and have supported us over the past 15 years - thank you so much. Without you I would not stand here tonight!"

Read the full speech here...

Client satisfaction

At the function our guests were requested to give us a better understanding of how they perceive RFS and its services. Here are the responses to questions that address the service experience of our clients:

News from Namfisa

Statement of Investment Holdings - September update

Namfisa has still not issued the revised template for reporting due by end of February 2015. This will once again make it very difficult for funds to meet the due date. Another date for requesting extension is approaching rapidly.

Unlisted investments - September update

Just this week it was confirmed officially that Omaanda Capital as Unlisted Investment Manager (UIM) and its Desert Stone Special Purpose Vehicle (SPV) were approved by Namfisa.

However with only one SPV and its UIM approved, no fund can reasonably be expected to take a decision in this regard without it being able to weigh up between at least 2 alternatives.

A number of funds have consequently applied for extension to June 2015 and we are aware of a few funds that were granted this extension.

We urge all pension funds that have not done so yet, to now apply for extension to at least June 2015. Funds should take note that Namfisa requires such applications to be paper-based when submitted.

Funds invested in segregated portfolios will also have to make arrangements for direct investment in an SPV or SPV's by the due date.

Service or product provider due diligence

In the preceding topic we point out that funds intending to invest directly in unlisted investments need to start making arrangements for considering, evaluating and appointing unlisted investment managers.

The purpose of a due diligence assessment is to consider the key risks presented by a product or a service provider. These risks can be classified into the following broad categories:

• Poor performance;
• Risk or performance volatility not in line with expectations
• Operational failure of service/product provider
• Financial failure of service/product provider
• Regulatory non-compliance of service/product provider
• Fraud by service/product provider

The areas that need to be addressed through a due diligence assessment of the SPV and of the UIM should cover the following areas:

• Regulatory compliance
• Governance structures
• Financial soundness
• Operational reliability
• Investment management

Unlisted investment via unit trust

As we reported in our previous newsletter, Namfisa apparently intends to create the legal framework for unit trusts to become co-investors in a Special Purpose Vehicle (SPV) and that an investment in unlisted investments through an SPV will be regularised in terms of the Unit Trust Control Act.

If unit trust managers who manage pension fund moneys were to offer fully regulation 28 compliant portfolios to their client that would also cover unlisted investments, trustees should be very pleased as it would obviate the need for them to familiarise themselves with this complex topic of evaluating and selecting an SPV and its Unlisted Investment Managers (UIM) and of vetting the relevant contracts.

From our enquiries, however, it appears that not all unit trust managers will 'walk this road'. Pension funds are advised to urgently establish from their assets managers whether or not they will include unlisted investments in their unit trust portfolios. Where this is not the case, pension funds will have to start planning for meeting the obligation to be invested unlisted investments by 31 December or such extended date as may have been granted by Namfisa.

We have requested specific confirmation by Namfisa that it will indeed give notice in the Gazette of the above. Further developments in this regard will be communicated as soon as we become aware.

Media snippets
(for stakeholders of the retirement funds industry)

Bull and bear report quarter 3 2014

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...

Owning a bit of everything may be your best investment strategy

"Leading asset managers lack conviction about which investment markets will deliver good returns in the future and, as a result, say diversification is key in the current difficult environment. At a recent Morningstar investment conference in Cape Town, Sandy McGregor, a portfolio manager at Allan Gray, said that, after more than 20 years in investment, he has never known a time when investment professionals were as perplexed as they are now, because they lack conviction about the global markets. Investors need to find the "new game", McGregor says, but the "new game" is not in South Africa. Foord says he would not take an all-or-nothing bet on offshore versus local, and investors need to consider their circumstances, including their investment time horizons and whether their future liabilities will be local or offshore. But, he says that Foord's worldwide flexible fund, which can allocate freely between local and offshore markets, has 70 percent of its portfolio invested offshore. Foord says his best investment bet currently is Chinese equities listed on the Hong Kong stock exchange, because earnings prospects are good and prices are cheap."

If you would like to read what the opinions of SA investment experts are under prevailing market conditions, read this article by Laura du Preez in Personal Finance of 27 September here...

Five things to consider when selecting a unit trust

Here is some advice on what you need to consider when you select a unit trust you invest in, as many small and medium sized Namibian pension funds typically do:

• Don't underestimate accessibility and transparency
• Don't ignore the size of the fund
• Don't give past performance a cursory glance only
• Don't ignore costs
• Don't put off obtaining professional, independent advice.

Read the full article by Glacier Research in Cover of 29 September 2014, here...

Media snippets
(for investors and business)

Director's dissent: where your undue silence will be used against you

"Whilst there may be a variety of reasons for the collapse of organisations, one of the most over-looked areas for organisation's inability to perform optimally - and hence its failure - may be found in directors who fail to take a stand against issues they know is undesirable or even detrimental for the organisation and then remain silent on the issue.

Remaining silent in the board room may be enough to cause the organisation serious loss or damage...

Why do directors refrain from dissenting?

• Lack of knowledge
• Lack of preparation
• Lack of interpersonal skills

What qualities do directors need to fulfil their role effectively?

• Independence
• Informed and involved
• Initiative."

This is a must read for anybody who serves on a board of directors (or trustees for that matter). Download the article by Terrance M Booysen and reviewed by Deloitte here...

Do this one thing every day to get on the fast track

Don't we all have the same experience when we get to work every day, and before you realise, the day is over - and you still have not done that one thing you wanted to, and should have done?

Read this useful advice by Bernard Marr, best-selling author, keynote speaker and consultant in strategy, performance management in LinkedIn, here...

Marc Shuttleworth recoups and gives away his millions

"Earlier this week the Supreme Court of Appeal (SCA) handed down a judgment in favour of IT billionaire Mark Shuttleworth, ruling that the 10% export levy that he had paid the South African Reserve Bank (Sarb) in order to export a large slice of his fortune, amounted to a "tax", and was not lawfully levied. It ruled that the money had to be repaid to him - with interest.... Shuttleworth wants to "ensure this decision becomes of benefit to everyone". He told Moneyweb: "I will commit the funds returned to me today by the SCA to a trust run by veteran and retired constitutional scholars, judges and lawyers, that will selectively fund cases on behalf of those unable to do so themselves, where the counterparty is the state. The mandate of this trust will extend beyond South African borders, to address constitutional rights for African citizens at large, on the grounds that our future in South Africa is in every way part of that great continent."

Read the article by Tony Beamish in Moneyweb of 14 October 2014, here...

Investment income: don't stray too far away

"The low interest rate environment, coupled with a stock market that is trading at very high index levels, is causing great anxiety for retired investors who need to generate an income from their investments. Unfortunately, this is also an environment that is ripe for scammers who offer solutions such as guaranteed income or capital with very high growth rates. If you are an investor looking for income, you should not stray too far from shares, listed property and government retail bonds."

Read this interesting article in Moneyweb of 14 October 2014, here...

And finally...

"Opportunity is missed by most people because it is dressed in overalls and looks like work."
~ Thomas Edison

Tilman Friedrich is a qualified chartered accountant and a Namibian Certified Financial Planner ® practitioner, specialising in the pensions field. Tilman is co-founder, shareholder and managing director of RFS, retired chairperson, now trustee, of the Benchmark Retirement Fund.