Saturday, March 23, 2019 UTC

AGF Magazine - March 2019 issue

  • We focus on fixed income opportunities in both public and private markets. Read on to find in which fixed income instruments and in which African markets to invest on pp. 10-11. In addition, Ashley Benatar of Ashburton Investments shares his views on benefits and risks of investing in mezzanine debt on p.22.
  • We speak with Jérémie Ceyrac, Head of Equity, Responsible Investments at Proparco to learn more about the French development institution, financial products on offer, recent investments in Africa and African impact investment scene (pp. 13-15).
  • This month’s market feature focuses on Nigeria. Sven Richter, Fund Manager, Drakens Capital, writes about his recent trip to the West African country and his observations. “While Nigeria is attractive as an investment destination, the GDP growth is a disappointment for a county that we expect to be one of the leaders in Africa,” he says (pp. 16-17).
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Analysis > Markets

RisCura launches Delegated Investment solution for pension funds

Anna Lyudvig
March 13, 2019, noon
304

Word count: 908

RisCura has launched a delegated investment solution for smaller pension funds in South Africa. David Potgieter, Head of Delegated Investment at RisCura, says that the new Delegated Investment service is aimed at reducing the burden of cost and administration as well as time constraints faced by many trustees.

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RisCura has launched a delegated investment solution for smaller pension funds in South Africa. David Potgieter, Head of Delegated Investment at RisCura, says that the new Delegated Investment service is aimed at reducing the burden of cost and administration as well as time constraints faced by many trustees.

Furthermore, the Financial Sector Conduct Authority, the South African regulator, announced last year that it wants the number of standalone pension funds to shrink dramatically by March 2019, adding to the compliance requirements faced by smaller funds.
 
Potgieter explains that the regulator’s move partly reflects that smaller funds are finding it difficult to comply with ever stricter regulatory and governance requirements, particularly since the ‘default’ regulations came into effect in September 2017.

“Trustees simply don’t have the governance bandwidth, for want of a better term. The move is also to try to reduce the burden of cost on the ultimate member, a conclusion predicated on the assumption that smaller funds are more expensive for members than larger funds,” he says.
 
“As a result of these and other factors, some trustees are considering shutting down their standalone funds and moving their members into a pooled solution such as an umbrella fund. While this is certainly one option, it might not be suited to every fund and the needs of their members,” he adds.

Engaging with members and getting them to take control of their retirement outcomes is one of the main challenges faced by all retirement funds, says Potgieter. 

“This challenge is made easier when trustees share their work lives with their members and are accessible to engage on outcomes that they themselves share with those members,” he says.

He points out that one of the solutions to doing just this on the investment side, is ground that has already been broken in jurisdictions where the regulation is ahead of that of SA, like the UK. There the concept of delegated investment solutions is one which took hold in the late 2000’s. It allows funds to remain standalone and retain the benefits that brings, whilst reducing the burden of governance and compliance and lowering costs to members.
 
“In this solution, trustees retain full control of their fund’s strategic direction, assisted by the delegated investment service provider, who carries out member and fund risk profiling, asset-liability modelling, and provides an Investment Policy Statement (IPS) and relevant trustee training, as required,” he says.

In RisCura’s solution, setting the strategy (strategic asset allocation) is done on an advisory basis in conjunction with the trustees, while the implementation is done on a discretionary basis with asset managers selected by RisCura. 

“To enable the implementation of the all-in-fee, the fee basis with the managers is a flat basis point fee with no performance fees. All clients, regardless of size, benefit from the same institutional pricing RisCura has negotiated with the managers,” says Potgieter.
 
“The solution is typically of interest for trustees remaining involved in the oversight of their fund, but have limited governance bandwidth to fulfil both their fiduciary duty and manage the operational aspects of the investments of their pension fund,” he adds.

He stresses that the Delegated Investment solution is not a true Fund of Funds in that it is a not product with a pooling mechanism where investors can invest into. 

“Rather it is a solution we offer to clients to implement on their own balance sheet, and combines all the typical services involved in the advice and management of the investments that a fund would require, into a single solution and with a single all-in-fee.”

According to Potgieter, RisCura’s first client went live in January 2017, but “we did not do a specific launch to the market, just started presenting it as an option in RFP processes where appropriate. We began talking to clients about this solution in the last quarter of 2016”.

“Currently we have five clients with a total AUM of R793m, all South African based. This solution would be close to a typical Fund of Fund solution, but without the Employee Benefit administration included,” he says.

When asked if the solution is only available for South African pension funds, Potgieter says: “We can implement the solution for the offshore portion of their investments on the exact same basis, but for their local assets we may need to create a hybrid solution, where the all-in-fee applies to the international and SA domiciled assets, while the local assets form a part of the solution, but at a separate fee arrangement. The reason for this is that the local managers may not agree to the fee basis that allows a single all-in-fee.”

The regulatory changes in South Africa call for innovation from service providers. And, modern advisors are answering that call by providing alternative solutions for trustees to preserve best outcomes for their members and meet the changing industry needs.
    
Momentum in SA, as an example, has recently introduced a similar solution, called Momentum Outcomes Based Investing, which has also been available in the UK under the name Fiduciary Management. 

“The differentiator for us is that RisCura is well known and has a strong track record with our Investment Consulting service to large funds that are typically looking for innovation and professionalism. We have used this to form the basis of our Delegated Investment service, such that funds of all sizes can benefit from our experience (and large fund pricing),” he concludes.
 

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