Despite numerous recommendations about the advantages of investing overseas, many South African pension funds are still holding well below the 10 percent of their assets in foreign investments that the Reserve Bank permits.
One of the reasons may be difficulty in securing suitable asset swaps; another may be the gradual process of persuading pension fund trustees of the need to diversify assets internationally.
Legislation passed in October last year provided for the investments South African pension funds can make overseas.
According to Andre Swanepoel, deputy executive officer: provident institutions at the Financial Services Board (FSB), the regulations provide that pension funds can hold all 10 percent of their assets that they are currently allowed to invest offshore in equities in designated countries, as long as the fund's overall equity allocation does not exceed the regulated limitations. Locally, pension funds have to follow regulation 28, which lays down that at most 75 percent of assets can be held in equities.
The legislation designates countries with regulated stock exchanges where local retirement funds may invest up to their exchange control limitation without application to the FSB. The list excludes countries where there are no regulated stock exchanges as well as certain financial instruments. Pension funds wanting to make investments in those areas will have to apply to the FSB.
However, what the FSB would lay down as a recommended limit for a retirement fund to hold offshore is still under discussion. Whatever decision was reached would have to involve the Reserve Bank. Some in the asset management industry would argue 25 percent is the maximum prudent limit for a South African fund to hold offshore while others believe it should be as high as 40 percent.
Still on the subject of pension funds, the FSB, Life Offices' Association and Institute of Retirement Funds have formed a committee to look at the subject of members of retirement funds being able to make individual investment choices, a practice more common overseas than in South Africa.
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The Public Investment Commissioners (PIC) has named the four asset management teams who won the tender advertised last year to manage the Isibaya Fund, the PIC's new unlisted share and debt portfolio to finance community and empowerment projects.
The four teams are Real Africa Asset Management, Infinity, Capital Alliance Asset Managers and Norwich Investments. Together these teams have formed a consortium to manage the fund, PIC head Badie Badenhorst said.
It is envisaged that Isibaya will ultimately be about R3 billion in size, with the managers drawing down the funds as suitable investment opportunities arise.
Badenhorst will be retiring from the PIC at the end of this week. A successor has not yet been named.
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The next new unit trust company to make its debut is likely to be Capital Alliance Management Company, which intends to launch four funds on February 2.
These will be a general equity fund focusing on high growth stocks, an index fund tracking the Johannesburg Stock Exchange's financial and industrial index, a balanced fund and a black empowerment fund.
Andrew Bradley, MD of Capital Alliance Management Company, says another four unit trusts will be launched this year, mainly specialist in nature, and international funds are also in the pipeline.
Bradley says the company intends to structure its charges attractively, not by undercutting all its competitors and provoking a price war, but by being innovative.
Once deregulation of charges is introduced, the company's intention is that its unit trusts will charge an annual management fee, no initial charge and an exit fee that will be phased out the longer the investment is held. For investors holding their funds for five years or longer, exit charges will be zero.
Capital Alliance Management Company has employed Barry O'Mahony, formerly of Appleton, to market its unit trusts.
Capital Alliance Asset Managers has also recently taken on Andrea Bridgett, formerly of Deutsche Morgan Grenfell, as a dealer.