31 December 2020 | www.moneymarketing.co.za
@MMMagza
@MoneyMarketingSA
First for the professional personal financial adviser
WHAT’S INSIDE
YOUR DECEMBER ISSUE
WHY EVERY WELL-MANAGED PORTFOLIO SHOULD HAVE AN ALLOCATION TO STRUCTURED NOTES There has been an increasing demand for structured products across the globe and in SA Page 14
EXPLAINING INVESTMENT FEES TO CLIENTS
GUIDING YOUR CLIENTS TO A BETTER 2021
Investors often fret when they look at their fees because the fee terminology can be confusing
Diversification can be the choice between getting the right exposure and missing out altogether
Page 19
Page 22
SA Inc stocks: Has too much bad news been priced in? has lagged. “This underperformance is not sustainable,” says Pick, adding that SA Inc companies are remarkably oo much bad news has been resilient. “These companies have been priced into some locally focussed dealing with a difficult environment for South African companies, often the last five to 10 years, as well as the referred to as SA Inc stocks. This is the coronavirus pandemic this year – yet view of Meryl Pick, Head of Equity many of them have still been growing Research at Old Mutual Investment revenue, growing profits and finding Group*. She points out that while a ways to not only survive, but thrive.” strong rebound has been seen in rand Pick sees cyclicality as the only thing hedge stocks, in Naspers and in resource that is certain in markets. “Every few stocks since the end of March, SA Inc years a crisis of some shape or form comes along and the market takes a tumble in response. Markets react, Meryl Pick, Head: Equity but markets recover. The real paradox Research, is that you can’t get the phenomenal Old Mutual investment opportunities without the Investment messiness, the confusion, and the fear. Group The market noise is the very thing that actually creates opportunity.” Seeing beyond a particular crisis isn’t easy. “It takes a bit of patience, a countercyclical sort of attitude, and perhaps a bit of imagination,” Pick says. When she considers SA Inc stocks as a broad sector, she believes that they present some phenomenal opportunities currently, that many JANICE ROBERTS Editor: MoneyMarketing
T
2030
investors in the market today haven’t seen in their careers. “Just take the banks, for example: Price-to-book multiples are back to 1980 levels. You’d have to go back pre-1990 to find banks trading at the price-to-book multiples that they are at now – and yet, these businesses are probably stronger and have bigger market share, and more robust balance sheets, than what they did back then.” Pick adds that when making investment decisions, it’s not only important to look at the macroeconomic environment but also at company specifics and how companies have been responding, either to COVID-19 in particular, or just to South Africa’s lowgrowth environment. “You then make up your mind whether those individual companies, based on their share prices, offer good value and good long-term investment opportunities, despite the macroenvironment.” She cites, as a good example of how local companies are responding to current circumstances, the case of Aspen Pharmacare, the company that has struck a provisional deal with Johnson
& Johnson to manufacture its COVID-19 vaccine candidate. “This will allow Aspen to increase volumes at its Port Elizabeth manufacturing facilities.” Turning to the construction sector, Pick says that Wilson Bayly Holmes and Raubex, “the last two construction companies in the listed space that have survived since 2010”, both have strong balance sheets. “They’ve cut costs where they could, and they are poised to benefit from government stimulating the economy through infrastructure spending, as well as the pivot to renewable energy.” Continued on page 3
The Accelerated Black Business Growth Funding project Investing for growth, jobs and transformation.
THE JOBS FUND LOGO
27four.com
Colors & Color Application
Colors CMYK: C=75% M=5% Y= 100% K = 0%
CMYK: C=10% M=60% Y= 100% K = 10%
RGB: R=65 G =173 B=73
RGB R= 203 G =115 B=34
Black
International Investment Portfolio Invest in high quality companies for more predictable investment outcomes.
Contact our Client Relationship Team on 0800 336 555 or visit www.marriott.co.za
NEWS & OPINION
31 December 2020
Continued from page 1
Pick notes that Italtile has been rolling out its of Shoprite’s main successes has been the rollout of TopT franchise and consolidating the sale of tiles and its Sixty60 delivery service app that was still in the sanitaryware in the rural market. “We still have by early phases of development when the pandemic far one of the lowest consumption of tiles per capita hit. The app was then accelerated and has become compared to global standards, and we have a large extremely popular, being rated one of the best amount of informal dwellings in the country. On a shopping apps in the country. five to 10-year view, there’s plenty of runway for a “The Sixty60 app has really taken off during the company like Italtile to consolidate a very fractured lockdown,” she says. “In my street, I see scooters sort of market.” dropping off groceries every day as Shoprite gives In the telecommunications sector, both MTN and Woolworths Food a run for their money. The Vodacom have been beneficiaries of the work-from- pandemic has driven consumers to a new channel home situation that accompanied the COVID-19 and to an innovation that Shoprite launched last year, lockdown. “Even before the with COVID-19 just accelerating pandemic, both companies digital adoption.” EVERY FEW YEARS cut their costs in response to a Shoprite is a company that has low-growth environment – so A CRISIS OF SOME taken some tough decisions. “I there’s a weak macroeconomic think a crisis does that. It sharpens SHAPE OR FORM environment, and there’s a management’s thinking, and COMES ALONG company response,” she adds. management sharpens its pencil.” The country’s hospital groups The new Shoprite management has have been facing a stagnant insured population been talking about a greater focus on returns versus for some time, and COVID-19 has knocked their purely profit growth “and we’ve seen them take occupancies. Pick points out that many elective action and not just speak about it, by announcing surgeries have been delayed. “Yet their shares their decision to exit Nigeria because the returns are priced as if the current low occupancies and are just subpar. Shoprite is looking at their property low levels of elective surgeries will continue portfolio, their regional footprint, and taking indefinitely. That is just not sustainable. These are decisions to allocate capital more smartly, to procedures that need to be done.” channel into innovations in territories where things She expects volumes to return. “We’ve seen are going well, so that they are able to emerge from this happening in the UK and we will see that in this crisis stronger.” South Africa.” In addition, local hospital groups Pick acknowledges that currently South Africa’s are expanding beyond traditional hospital-based fiscal issues are top of mind when looking at the healthcare, into primary healthcare and diagnostic markets, and with the Medium-term Budget Policy services.” Statement (MTBPS) having been given a mixed In the retail sector, Pick views Massmart – owner reception. “The COVID-19 pandemic is really a of Game, Makro and Builders Warehouse – as “a side-show. Over the medium term, we are seeing very exciting story” as the Wal-Mart parent group, better growth off a low base supported by low which owns a large stake in Massmart, has deployed inflation and interest rates. For sustainable growth Walmart insider, Mitchell Slape, to get Massmart to really come through, we need reforms.” back into shape. “Decisive action has been taken on There is, however, value to be found. “We closing Dion Wired stores and on planning ‘new certainly don’t think it’s a bull market for South look’ Game stores. These are all internal self-help Africa, where a rising tide is going to lift all boats, measures that companies are using, either to reduce but there are stock-specific opportunities,” she says. their own costs, or to gain market share, or to tap *Meryl Pick, Head of Equity Research at Old Mutual into other markets.” Investment Group, made a presentation entitled SA Macro vs For Pick, another good example is Shoprite. One SA Inc to clients and advisers last month.
WANT TO STAY INFORMED? FOLLOW US!
Follow @MMMagza on Twitter and @MoneyMarketingSA on Facebook and Linkedin.
EDITOR’S NOTE
I
t’s been quite a year. The US elections, the Brexit standoff – and of course, COVID-19. Forget the Zoom meetings, the social distancing, the wearing of masks and gripes about not being able to buy alcohol or tobacco during the highest levels of the lockdown. The saddest part of it all is that over 20 000 South Africans – and 1.3 million people globally – have lost their lives. This is by far the biggest tragedy. Yet there is hope – and light at the end of the tunnel. Last month, Pfizer and BioNTech reported that their vaccine had achieved 90% efficacy in stage-three trials (see page 12). And just before this issue of MoneyMarketing went to print, Moderna made the announcement that according to preliminary data, its COVID-19 vaccine is 94.5% effective. Of course, these vaccine trials are not complete and there are several questions still unanswered, such as vaccine safety and efficient distribution. However, we now know that we probably don’t have to live with COVID-19. And if one vaccine doesn’t work, another will, as there are many vaccines being tested with more results due shortly. It may just be possible that life will begin to become a bit more normal in 2021! On another note, it has been a privilege and a pleasure for the MoneyMarketing team to bring you monthly news and views in our print magazine, as well as daily updates on our website during 2020. While our offices will close from Christmas Eve until just after New Year, I like to believe that MoneyMarketing never closes. Be sure to keep an eye on our website over the holidays – if there is important news for investors and intermediaries, it will be there. On behalf of the MoneyMarketing team, I wish you a peaceful holiday season. Subscribe to our Janice NEWSLETTER janice.roberts@newmedia.co.za bit.ly/2XzZiMV @MMMagza www.moneymarketing.co.za
THOUGHTFUL INVESTING FOR PRIVATE CLIENTS FOR
20 YEARS.
Platinum Portfolios, celebrates 20 years of a single-minded pursuit of consistent performance. Renowned for its range of local and offshore funds, total independence and personalised service.
www.platinumportfolios.com
|
FSP: NR 641 WWW.MONEYMARKETING.CO.ZA 3
NEWS & OPINION
31 December 2020
PROFILE
VERY BRIEFLY
TUMI LOATE INVESTMENT ANALYST, 36ONE ASSET MANAGEMENT
How did you get involved in financial services – was it something you always wanted to do?
After I did academic articles at Wits University, I was allocated to the Financial Services Division within KPMG to audit. I was involved in auditing two of the five largest banks in South Africa. I gained insight into the various aspects of a banking model – how one looks at credit risk, endowment impact, and the different complex financial products the banks are involved with. Naturally, when I arrived at 36ONE Asset Management, I started looking at the banking sector and managed to pick up other financial firms and insurers. As I love this sector, I was still keen to assess it, given that it is so crucial in determining the success of a nation’s economy.
What was your first investment – and do you still have it?
My first investment was a three-year structured product I entered into with Investec. The investment was linked to the FTSE 100 Index and was offering 10 times the return of any growth in the index, with a 75% capped geared return if the index was above 7.5%. The product seemed complicated, but I liked the fact that if the index was down, they would return 100% of the capital invested (provided the index did not fall below 40%) and I also liked the exposure to internationally diversified companies. The index was above 7.5% over the three years, and I managed to make a very good return for my first investment.
What have been your best – and worst – financial moments?
One of my best financial moments relates to shares that I purchased in Phuthuma Nathi, offering an underlying
investment in Multichoice South Africa (MCSA) to qualifying black investors in 2006. I bought the shares a few years ago at a price below R90 and have been collecting dividends ever since. Not only did I manage to collect an impressive dividend yield but have also seen good capital return performance. Multichoice, in the last two years, has also looked to unlock value for shareholders: they combined the PN1 and PN2 shares for greater liquidity, offered an additional 5% stake in MCSA for free, and offered shareholders an option to exchange 20% of their shares for JSE-listed Multichoice Group (to get Africa exposure). My worst financial moment relates to an investment in British American Tobacco shares. When I purchased the shares, I had just entered the investment industry and assumed the shares were cheap by looking at historic variables. The share plummeted in late 2018 when the US Food and Drug Administration considered a menthol ban, and ESG and sustainable issues became front of mind for investors.
What do you tell investors who are worried about their investments due to SA’s current economic environment and COVID-19?
Yes, there are issues relating to unemployment, state-owned enterprises and deep-rooted fiscal issues, but investors must be careful not to panic, as this can result in investment realisation at significantly low value. Investors should carry on holding local investments that will be defensive and able to continue grabbing market share in this environment. There should also be a healthy exposure to offshore assets. These asset values are not based on fundamentals in the local economy, and do not react to the devaluing rand currency. The increase in offshore exposure, though, should be done at an opportune time – not when the local market has already experienced a significant decline, or the currency has been hard hit. Regulation 28 also offers greater flexibility – it allows for a 10% allocation to alternatives such as hedge funds. These funds are able to produce positive returns in rising and falling equity markets and can be especially valuable during times of heightened uncertainty. These funds have retail offerings and can serve to reduce investment risk, contrary to numerous investor myths.
Fiduciary services specialist Sentinel International has announced that, after three highly productive years as the firm’s non-executive Director and Deputy Chairman, Simon Turner has Simon Turner been appointed CEO. Turner’s immense depth and breadth of expertise in assisting global and local corporates in formulating and delivering on complex strategic opportunities make him “a very welcomed leader of the Sentinel Group,” according to Sentinel’s Chairman, Christopher Beatty. “Simon has already had a tremendous impact on the way we view our business, and we’re extremely excited to see what the future holds.” Turner has 25 years’ experience across Europe, Africa and the Americas in building and managing businesses. He focuses primarily on growth (including acquisitions), turnarounds, restructuring, financing (equity & debt) and geographic expansion.
Hester van der Merwe CFP® is the FPI’s 2020 Financial Planner of the Year. The award is the highest accolade bestowed on financial planners in South Africa, and it represents the very pinnacle of Hester van der Merwe the profession. Van der Merwe, who has worked at Ultima Financial Planners since 2015, “set herself apart from the competition through the depth of her knowledge, the immense detail of her financial plans and her exceptional personal commitment to her clients,” the FPI says. Van der Merwe plans to use the platform to educate and inspire women from all walks of life – “whether it’s deciding to become a CFP®, or finally having the courage to take the bull by the horns in their own financial affairs, or even just asking to be included in the household’s financial planning process,” she says.
EARN YOUR CPD POINTS The FPI recognises the quality of the content of MoneyMarketing’s December 2020 issue and would like to reward its professional members with 1 verifiable CPD points/hours for reading the publication and gaining knowledge on relevant topics. For more information, visit our website at www.moneymarketing.co.za
4 WWW.MONEYMARKETING.CO.ZA
NEWS & OPINION
31 December 2020
The differences between digital and electronic signatures
N
umerous businesses have adopted the paperless policy by taking measures to stay ahead of time, especially during the COVID- 19 pandemic and its effect on businesses. Businesses are now moving away from the traditional way of signing documents and using electronic and digital signatures. These two types of signatures may come across as being similar; however, many of their differences are centred on their level of security. Digital signatures will not allow any changes to the document; and to truly protect the integrity of a signed document, this measure is enforced through cryptography (encryption codes/ coding), to seal the evidence and bind the identity to a transaction. Conversely, a basic electronic signature can be almost anything in law, making it vulnerable to potential cyber threats. These signatures do not embed any evidence into the signed document and, as a consequence, can easily be disputed.
“As compared to digital signatures, electronic signatures do not protect the integrity of the document, so a signer can easily claim the document has been tampered with after they have signed it. In essence, the digital components of signatures make a digital signature more trustworthy than a basic electronic signature,” says Maeson Maherry, the CEO of LAWtrust. The South African Electronic
AN EXTRAORDINARY LIFE
PARTNERING WITH YOU ON YOUR FINANCIAL PLANNING LEARNING JOURNEY.
Communications and Transactions Act (ECT Act) of 2002 gives legal recognition to electronic documents, as well as that electronic documents and electronic signatures are equivalent to their paper counterparts. The Act further stipulates that any marking that is made on an electronic document with the intention to serve as a signature is legally seen as an electronic signature. “Making use of digital technology,
like digital signatures, evens the odds for every business. This means that there is a way that a small business can compete with massive businesses, because they can offer the same customer experience, and they can also offer the same channels as big businesses," explains Maherry. Bearing in mind the differences between electronic and digital signatures, using these signatures enables businesses to be cost effective by spending less money on printing, courier services, copying, faxing, storage, retrieval and destruction of documents.
Maeson Maherry, CEO, LAWtrust
Milpark’s School of Financial Planning & Insurance has again proved to be your best choice for a Postgraduate Diploma in Financial Planning. Our Alumni have achieved exceptional results in the August 2020 Professional Competency Exam (PCE) for CFP® Professional certification and earned 1st, 2nd, 3rd and 5th place in the Top 5. Register for your PG Dip in Financial Planning by contacting us on: 086 999 0001 studentservices@milpark.ac.za www.milpark.ac.za
WWW.MONEYMARKETING.CO.ZA 5
NEWS & OPINION
31 December 2020
Ensuring children have safe spaces to grow and learn
S
ince its inception in 1993, Breadline Africa – one of the biggest suppliers of converted shipping containers for poverty relief in Southern Africa – has provided 619 infrastructure units to resource poor communities, and plans to bring this total to 1 000 in the next three years, benefiting more than 250 000 children. Breadline Africa believes that every child has the capacity to do something amazing with his or her life. When a child’s imagination is unlocked, possibilities are opened up, allowing them to choose a path for their own future. This journey
is enabled through the provision of initiatives and infrastructure to support childhood development in Southern Africa. The first five years of a child’s life are crucially important for brain development. Children need good health, good nutrition and a safe, supportive environment. Availability of quality pre-schools that provide an environment where children can be prepared for primary school is one of the most effective means of breaking the cycle of poverty. In the poorest communities in South Africa, only 20% of children under four attend a pre-school. More than 50% of all pre-schools have poor infrastructure. Breadline Africa provides container or prefabricated classrooms so that children can learn in a clean, dry and safe environment. More than 80% of schools do not have a functional library and less than 20% of all children are able to read for meaning by age 10. Shipping containers and prefabricated libraries give an opportunity for children – many of whom hardly ever see a book – to come into contact with picture and storybooks and to enter the wonderful world of reading. The kitchen units placed in pre-schools and primary schools form part of the school’s feeding scheme and ensure that the nutritional needs of the child are met. Toilet facilities offer safe, hygienic facilities and clean running water. The strategic reasons for using converted shipping containers and/or prefabricated units are: they are cost-effective and quick to place; can be moved if underutilised or abused; and require minimal municipal planning permission.
Breadline Africa’s primary goal is to help children do better in school by ensuring they have safer spaces to learn in. It’s difficult to focus on learning when the roof is leaking. Temperatures drop in winter or soar in summer under tin roofs, and children are crammed into a small space. Breadline Africa replaces unsafe structures with insulated, secure and well-ventilated units. By helping fund any of these educational infrastructure units, you will ensure that thousands of children will have a safe space to grow and learn and that critical early learning and developmental milestones can be met. The gift of quality education can never be replaced. All forms of donations, from part funding donations with naming rights to full branding sponsorships, are welcomed. Tax certificates will be issued with all donations. To find out more about the exciting infrastructure programmes and future projects, please visit www.breadlineafrica.org, or email fundraising@ breadlineafrica.org or call on 021 418 0322.
Marion Wagner, Director, Breadline Africa
IMAGINE YOU COULD GIVE A GIFT THAT LASTS A LIFETIME THIS FESTIVE SEASON
Before
After
Education can change the world! Breadline Africa provides safe educational infrastructure in vulnerable communities across South Africa. During the national lockdown, Breadline Africa built the first 18 of 80 planned 30m² classrooms in the rural and under-resourced Ugu district of KZN. By helping fund one of these 18 classrooms or any of the 200 infrastructure units we have planned, you can change the lives of thousands of children who will pass through the doors of these ECD centres.
We are a Level 1 B-BBEE organisation. All donations will receive a Section 18A Tax Certificate
Please visit www.breadlineafrica.org to find out more about how you can sponsor a classroom or part thereof. fundraising@breadlineafrica.org • 021 418 0322
6 WWW.MONEYMARKETING.CO.ZA
Investec Bank Limited Acc No.: 10012399069 Branch Code: 580105
NEWS & OPINION
31 December 2020
JAMES GEORGE Compliance Manager, Compli-Serve SA
KYC compliance catches up with crypto
K
now Your Customer (KYC) procedures are still a work in progress in the cryptocurrency industry. But businesses in this space, though still largely unregulated, need to comply with Anti-Money Laundering (AML) legislation or risk facing punitive measures. KYC in crypto: Playing opposites Probably the biggest difference between crypto exchanges and traditional financial institutions is that KYC is usually applied after a user is signed up on crypto exchanges, instead of before or upfront on the traditional side. CipherTrace, a blockchain analytics company, reported that a third of the top 120 exchanges have weak KYC verification systems, while two out of three exchanges lack strong KYC programmes. This is especially problematic when considering the Financial Action Task Force (FATF) recommendation 16 requirement that virtual asset service providers (VASPs), like exchanges, collect and share beneficiary and recipient transaction data with each other when a transaction exceeds $1 000. A closer look at KYC processes Most crypto exchanges allow users to register an account without conducting a full KYC onboarding process. Most exchanges use a tiered level system to determine when a user must provide more information, which is usually in order to add or withdraw a bigger amount of cryptocurrency. Often for users with small portfolios no KYC is needed, which can lead criminals to spreading their assets over hundreds of individual accounts. In recent times, exchanges are beginning to employ at least some type of KYC protocol. KYC efforts generally fall into one of three categories. ‘No KYC’ is when an exchange allows a new user to open an account without any checks, but also limited functionality, for example not allowing withdrawals. ‘Basic KYC’ requires an uploaded ID document and photo, with a small fixed deposit and withdrawal limit, while ‘Full KYC’ is for users who want to deposit, withdraw and transfer large sums of crypto.
Why does KYC/AML compliance count? Financial businesses can mitigate risk, improve the security of their systems, protect their integrity and keep bad actors off their books, which also keeps regulators happy. All of this counts towards greater trust and reassurance for customers. Used effectively, KYC can help financial institutions replace obsolete verification systems, assist with some services like screening and registering new users, and can ensure that high-profile transactions are fully compliant. Keeping up with KYC – trends to watch Technological features that increase anonymity, like peer-to-peer exchange websites or anonymityenhanced cryptocurrencies, should be avoided. Geographical risks exist when weak or absent national security measures for virtual assets exist too. When transaction patterns are irregular or strange, criminal activity may be at play. Unusual transaction size can be an indication of fraud, for example. KYC to KYT Correct KYC implementation may assist the regulatory efforts around cryptocurrency, but it’s not enough just yet. Soon to come, Know Your Transaction (KYT) sets out to investigate origins of funds, suspicious transfers and tying these to real identities. A standardised identification protocol is still needed to facilitate compliance throughout all exchanges, but KYT should help discourage criminals from using VASPs and will separate the reputable exchanges from the ones who are less so. KYC processes, meanwhile, should be more automated and standardised to relieve administrative pressure, which also simplifies and makes for a more user-friendly process. Businesses carrying out certain crypto-asset activities must register with the FIC and comply with the relevant AML regulations. While trade-offs will have to be made, an improved KYC regime makes way for a stronger foundation and future for compliant virtual assets.
PROFESSOR RAYMOND PARSONS economist, NWU Business School
Biden victory augurs well for SA and global economy
T
he election of Joe Biden as US President-elect could eventually create an opportunity for SA to buttress its economic narrative with the US from both a trade and investment point of view. While Africa is not an immediate high priority for a new US administration that will clearly be heavily preoccupied with other domestic political and policy issues, SA is still the US’s largest trade and investment partner in Africa. Despite previous economic tensions in the relationship, political change in the US may now provide scope to reset mutually beneficial commercial relations and eliminate any friction points that may have developed. Although it is still early days, President-elect Biden also augurs well for the global economy. His track record is one of an internationalist who takes a cooperative, rather than a transactional, approach to foreign economic and diplomatic relations. Biden will want to mend fences with overseas allies. More specifically, to promote international cooperation, a Biden administration is more likely to support multilateral and ‘rule-based’ global institutions like the World Trade Organisation (WTO). THE US ECONOMY A more supportive role from the US in the WTO could create a more REMAINS AN certain and predictable framework for IMPORTANT an international trade regime which, MARKET FOR SA for a number of reasons, is presently under great stress. Whatever the current problems in the WTO, for most countries it remains the most appropriate structure to help ensure a level ‘playing field’ in world trade matters and to provide much-needed conflict management in trade disputes. It is in the interest of small economies like SA, which are heavily dependent on foreign trade, that the WTO operates effectively. Apart from the WTO, SA’s trade interests in the US are to a large extent intertwined with its status under the US African Growth and Opportunity Act (AGOA) and the trade opportunities that the American legislation has created for SA in recent years. However, since the AGOA legislation came into existence under former President Clinton, the US conditions imposed on SA within AGOA have been considerably tightened, the international economic environment has changed, and US protectionist influences have strengthened. The global pandemic and other setbacks to sectors of the US economy have enhanced bipartisan Congressional support for a more inwardlooking US trade policy, which Biden also captured in his policy platform. The US trade stance in future will be shaped by geo-political trends, US domestic economic developments and factors specific to SA. It is in SA’s interest to closely monitor these elements from now on and to ensure that any bilateral US-SA economic disputes are satisfactorily resolved. The US economy remains an important market for SA. SA exports to the US in recent years have benefited from the AGOA legislation both in terms of volume and diversity. Looking ahead, although AGOA only expires in 2025, SA must not only ensure that it makes best use of the remaining five years of the favourable AGOA trade regime, but should also begin to contemplate what might eventually replace it. We need to start thinking about what options might be explored in a post-AGOA era, including expediting negotiations around the African Continent Free Trade Agreement. Apart from maintaining good economic relations with the US, SA would also be well-advised to concentrate on strengthening its overall global competitiveness. SA’s share of world exports has been steadily declining for some years. Although AGOA is still available to SA for now in the US market, a bigger and broader penetration of global markets, especially in products with rising value and demand, is essential to growth and job creation in the years ahead.
WWW.MONEYMARKETING.CO.ZA 7
NEWS & OPINION
31 December 2020
DR ALBERTUS MARAIS Director, AJM Tax
S
ection 12J was introduced to the South African Income Tax Act on 1 July 2009, creating an incentive for taxpayers to invest in qualifying venture capital companies (VCCs) in return for an income tax deduction equal to the amount invested. In other words, a full income tax deduction was provided for taxpayers investing in these entities. In its most beneficial form, taxpayers earning income that is taxed at the top marginal income tax rate of 45% are able to invest an amount and receive a refund from SARS of up to 45% of the invested amount. This presents a significant discount on the investment, which makes it all the more lucrative. The policy behind the incentive is to encourage taxpayers to invest in active businesses in a bid to stimulate economic growth and job creation. Qualifying VCCs therefore cannot invest in any asset class, but are required to invest only in companies that conduct permissible trades. Passive investments by a VCC are not allowed; only active investments that stimulate job creation, such as in the tourism, retail or manufacturing sectors.
The sunset of section 12J is fast approaching, or is it? Since its introduction, though, is in the process of considering the the incentive was – like many others efficacy of the section 12J incentive, as contained in the Income Tax Act – it has called for detailed submissions never intended to be a permanent one on the financial information of and a sunset clause was always part of existing VCC structures. This will the relevant legislation to determine enable it to consider the impact of the that these tax deductions would incentive and whether it is worthwhile only be available for investments for it to be extended. made by 30 June 2021. This sunset Considering how the annual fiscal clause is therefore legislative cycle to come into effect works, it is interesting soon to limit IT IS INTERESTING that Government further deductions THAT GOVERNMENT has waited this long in terms of this before considering HAS WAITED THIS an extension of the highly lucrative tax incentive, unless sunset clause. The LONG BEFORE Government were to fiscal legislative cycle CONSIDERING AN introduce legislation kicks off annually EXTENSION OF THE with the national for the 30 June 2021 deadline to be budget speech, SUNSET CLAUSE extended. when Treasury While various industries, notably also publishes a number of proposed the tourism industry, are in dire amendments to the South African need of incentives to stimulate tax laws, which it intends to publish economic growth that will no doubt later the year. These proposals then yield increased tax revenues in the culminate in the draft Tax Amendment long term, the unfortunate reality of Bills published around June/July of the South African fiscal position is each year. After public consultation that incentives encouraging longand debate among Treasury, SARS term economic growth may be and tax practitioners, these draft Bills unaffordable in the short term. are then published in refined and final It is apparent that National Treasury form (typically around October of
every year), and adopted by Parliament and signed into law in December/ January of the following year. This is relevant since, if Government intends to extend the lifeline of section 12J beyond the current 30 June 2021 sunset clause, it should have done so as part of the 2020 fiscal legislative cycle, with the amendment acts becoming law in December 2020/January 2021. Failing to have done so means that an extension will only be able to be passed into law after the sunset clause has already kicked in (in other words, expected during December 2021/ January 2022). If the sunset clause is therefore to be extended beyond 30 June 2021, it will require Government to announce in the budget speech next year that it intends to introduce retrospective legislation to ensure that the sunset clause is retrospectively extended. This is not ideal, since it creates uncertainty between 30 June 2021 and when the tax amendment legislation is finally adopted. Whether Government actually pushes through with finalisation of the necessary legislation to extend the sunset clause will remain up in the air during this time.
Clarity for taxpayers on tax dispute resolution
T
Nico Theron, tax expert and author
8 WWW.MONEYMARKETING.CO.ZA
axpayers and businesses are under increased pressure as a result of the economic downturn and impact of COVID-19. On the flip side, the South African Revenue Service (SARS) is also under pressure to meet targets. A possible outcome of this doublesided scenario is, according to experts, the potential for an increased number of tax disputes in the near future, with SARS attempting to secure revenue and taxpayers wanting to reduce their tax burden. “Tax disputes have become increasingly complex,” says Nico Theron, tax expert and author of the newly released Practical Guide to Handling Tax Disputes, published by LexisNexis South Africa. “There is no single detailed analysis of the rules and, as a result, there seems to often be various
interpretations as to what the rules actually are, which makes for increasingly complex outcomes.” In some cases, this lack of clarity results in SARS misinterpreting the rules and procedures and this, according to Theron, is where taxpayers need a deeper understanding of what remedies are available to them. “In many cases, taxpayers do not understand the various remedies they have when they are not happy with an assessment or decision by SARS, and they give up the claim without launching a challenge, abandon their challenge too soon, or challenge the assessment or decision incorrectly or inadequately.” The Practical Guide to Handling Tax Disputes spells out taxpayer options, providing fair opportunity for taxpayers
to fight their case, and assisting in preventing the collection of taxes and penalties that are not due. This practical and technical guide offers various grounds for taxpayers to defend themselves against SARS, the remedies available, and tactics for dealing with the pay-now-argue-later rule that SARS typically enforces. Including relevant case law and analyses of rules covering tax dispute resolution, options available to taxpayers if SARS fails to abide by the rules, templates and dispute resolution forms, the title fills a key gap in existing literature. Taxpayers and tax professionals from lawyers, accountants, auditors and other tax practitioners will find this standalone text comprehensive in highlighting issues arising in practice, and strategies to deal with these from the taxpayer’s perspective.
NEWS & OPINION
31 December 2020
For your eyes only: POPIA essentials
T
he Protection of Personal Information Act (POPIA) has been in the making for a while, with certain aspects already introduced. It is finally set to come into full effect after President Cyril Ramaphosa said, in June, that the effective date for compliance is 1 July 2021, and most organisations will have much to do to get ready during this grace period. Privacy is a basic human right. Individuals have the right to: • access their data • change or update it • request that it is deleted • object to direct marketing • be notified if data is compromised • lay a complaint with the information regulator. Globally, data protection is in the spotlight. The European Union’s General Data Protection Regulation, which has become a benchmark for data
GOOD DATA PROTECTION PRACTICES HELP TO FOSTER TRUST WITH YOUR CUSTOMERS, STAKEHOLDERS, AND THE GENERAL PUBLIC
protection laws around the world, has been in operation for just over two years and is strictly enforced by regulatory authorities. A recent ruling by the European Court of Justice resulted in the US having to scramble to put a federal data protection law in place. Russell Nel, data protection officer at Alexander Forbes, says, “Good data protection practices help to foster trust with your customers, stakeholders, and the general public.” Under the law, one of the rights that individuals have is to be notified when their information is collected. At a minimum, they should be told: • what information will be collected • the reasons or purpose for collection and processing • to whom their information will be sent • any laws requiring such collection. Data breaches are a costly business – even if the information regulator has not issued any fines, your reputation will be damaged because of a breach, making it more difficult to attract and retain clients. Nel discusses some of the key privacy challenges corporates face: 1. Privacy is seen as a compliance matter While many organisations try to drive privacy from a compliance perspective, in reality it is much
MPHO DUIKER Candidate Attorney, Norton Rose Fulbright South Africa
Changes to the exchange control environment to promote investment
I
n the February 2020 Budget, the Minister of Finance, Tito Mboweni, stated that the current exchange control regulations will be replaced with new, less stringent regulations. On 28 October 2020, it was announced that the government will be pursuing steps to promote investment into South Africa. The following measures were announced:
broader than that. A good privacy implementation should involve all areas of a business – from business operations to risk and compliance, marketing, and particularly information technology. 2. Time and effort to comply are underestimated Organisations overseas, particularly in the UK and Europe, have had data protection laws in place in some form since the 1990s. Despite the fact that they have had two decades to prepare, many organisations are still largely unable to fully comply with these laws, and we see regulatory authorities issuing multi-million euro fines with alarming frequency. 3. Data protection never ends Data protection requires constantly re-evaluating your organisation, and the risks to personal information. Just because you are secure today does not mean you will be protected tomorrow – technology, business and the markets evolve rapidly, and you need to keep up.
responsible party will need to notify any individuals who may be affected, as well as the information regulator. “Trustees have an obligation to ensure that this information is appropriately protected.” Some things that can be done to protect information in accordance with POPIA principles: • Make sure any printed documentation is securely locked away, and shredded when it is no longer needed. • With the COVID-19 pandemic, more people are working remotely. Make sure that family, friends and children do not have access to private information or the systems on which it is stored. • Ensure laptops or computers are encrypted and that mobile devices are secured with a PIN or biometric access control. Investigate the possibility of minimising, redacting or ‘de-identifying’ data so that it cannot be used to identify an individual if it is compromised.
Privacy and data protection need to be built into operational processes, systems may need to be upgraded or replaced, and people need to be trained. Nel says that, before a data breach even happens, the trustees should review the company’s insurance policy and engage with the brokers to ensure that adequate cover is put in place once POPIA takes effect. This means making certain that insurance cover for a breach is adequate. He explains that, if personal information is compromised or accessed by an unauthorised user, the
“This is especially important when transmitting data by email, as email fraud and spoofing attacks are on the rise, especially in light of increased remote working,” says Nel.
BELINDA SUSSMAN Tax Consultant, Norton Rose Fulbright South Africa
Inward listing All remaining foreign classified debt and derivative instruments, as well as exchange traded funds referencing foreign assets, that are inward listed on a South African exchange, traded and settled in Rand, will be reclassified as domestic. In the past, these instruments were classified as foreign, and as such, institutions could only invest in them as far as their prudential limits allowed. Inward listings attract foreign direct investment to South Africa, increase market capitalisation and liquidity of South Africa’s capital markets, support the new partnership for Africa’s development initiative, and support the enhancement of foreign investment diversification through domestic channels. Loop structures The restrictions formerly placed on loop structures will be removed to encourage inward investment
Russell Nel, Data Protection Officer: Alexander Forbes
into South Africa, subject to reporting to the Financial Surveillance Department of the South African Reserve Bank (FinSurv). A loop structure arises when a South African exchange control resident holds an interest in a foreign structure that also directly or indirectly owns assets in the Common Monetary Area (being South Africa, Eswatini, Lesotho and Namibia). This reform will be effective from 1 January 2021 for companies, including private equity funds, subject to the requirement that the entity is a tax resident in South Africa. Corporate foreign borrowings South African corporates (excluding State Owned Companies) may borrow offshore by way of bond and/or note issuances with recourse to South Africa, without prior approval from the FinSurv. This is subject to reporting conditions determined by the Reserve Bank. Editor’s note: Just before going to print, National Treasury, the SA Reserve Bank and the FSCA withdrew the exchange controls circular to provide more clarification.
WWW.MONEYMARKETING.CO.ZA 9
NEWS & OPINION
31 December 2020
How the state shot itself in the foot Rushing universal health coverage through the legislature threatens SA’s already teetering healthcare sector
S
outh Africa is on course to launch its hotly debated National Health Insurance (NHI) – an ambitious but controversial plan to bring free quality healthcare to all South Africans, by pooling the resources of the public and private sectors and establishing a single state entity to procure and pay for their services. While there are no arguments against the ultimate goal of improving healthcare for the majority of South Africans in a deeply unequal society, there is widespread alarm at the sweeping reforms proposed in the NHI, which critics say could collapse the country’s entire health system. An overriding concern is that there is huge scope for corruption in a monopolistic entity that will be run by political appointees, particularly as the existing public health sector has already become a hotbed of corruption, inefficiency and mismanagement. The looting of money that was made available by government to purchase personal protective equipment (PPE) and other materials in response to COVID-19 has only reinforced those fears, and the government’s bid to identify and bring culprits to book have so far failed to restore public trust. Many of the country’s top health professionals warn that the NHI overlooks – perhaps deliberately – the crisis in the public health system, which has deteriorated rapidly over the past decade. They argue that the new entity will fail to achieve what is most important: rehabilitating public healthcare and regulating private healthcare, which is becoming increasingly unaffordable. Money paid to private medical aid schemes will be channelled into the NHI, threatening their survival. “What is on offer is a chimera,” said Aslam Dasoo, a doctor who co-convened the Progressive Health Forum, a voluntary association of health experts from the private and public sector, and a member of the ANC Stalwarts and Veterans group. In Greek
10 WWW.MONEYMARKETING.CO.ZA
mythology, a chimera was a monstrous fire-breathing the testing was carried out by the private sector, hybrid creature composed of the parts of more than particularly in the early stages of the pandemic, one animal. The word is also used to describe an and it took weeks for the hospital agreement to be illusion, or a dream that is unattainable. reached – by which time the peak of the pandemic “The noisy propagation of the concept, and the had passed. Only a handful of public sector patients extended timeline for implementation, masks the were treated in private hospitals, although the continuing deterioration of public services. At hospitals were prepared to take them. best, it will be used as a political fig leaf by a health Mkhize also said that refurbishment and building administration that is being exposed daily as not of infrastructure to handle COVID-19 patients took being up to the task it is constitutionally obliged to place “almost instantly”. That is true to some extent, perform,” Dasoo said. but it is now apparent that some of the facilities were “The role of the government must be to unnecessary and shockingly overpriced, as was much immediately and pointedly focus on rehabilitating of the PPE purchased by health departments during the public health system. You can’t do that if you’re the pandemic. going to have a fund that acts as a large medical The (former) head of Gauteng’s health department, scheme with all the language of insurance in it, and Professor Mkhululi Lukhele, was forced to resign in huge overhead costs.” October after the Special Investigating Unit (SIU) The government says that found that he failed to exercise COVID-19 both highlighted his responsibilities in the MANY OF THE the urgency of establishing the awarding of contracts to certain COUNTRY’S TOP HEALTH companies for procurement NHI and demonstrated that it would work, as the public and of goods and services that PROFESSIONALS private sectors mounted what were part of the province’s WARN THAT THE NHI it describes as “a coordinated COVID-19 response. OVERLOOKS – PERHAPS and effective response”. The SIU, tasked with “Now everyone has had an investigating allegations DELIBERATELY – THE opportunity to see that not of corruption during the CRISIS IN THE PUBLIC only is it possible to pool and pandemic, is probing PPE share resources to mitigate and related health department HEALTH SYSTEM the effects of public health tenders worth R5.08bn – shortcomings, it is absolutely necessary and the only roughly half of the Treasury’s R10.38bn COVIDlogical step in the right direction,” health minister related expenditure. Zweli Mkhize said in an interview with finweek. Many, if not most of, the products were sourced He cited, among other things, a coordinated from companies that were not licensed by the testing and tracking strategy, quick agreements with SA Health Products Regulatory Authority – the private hospital groups for pricing and accepting country’s watchdog for healthcare products. state patients, and the deployment of thousands “The pandemic raised the issue of corruption of healthcare and community care workers for a and showed us what we expected,” said Angelique nationwide screening and testing programme. Coetzee, the chairperson of the South African But the reality is somewhat different. Most of Medical Association (SAMA), an industry body for private and public sector doctors. “Unfortunately, that is a huge concern for us with the NHI. We don’t think there should be a lot of power in the hands of people in political positions.” The corporate governance model of the NHI is a political one, points out Professor Alex van den Heever, chair of social security systems, administration and management studies at the Wits School of Governance. All appointments to the board, including of the CEO, will be made by the minister of health, who also currently appoints the board and executive of the Office of Health Standards Compliance – which is the entity that will be responsible for accrediting health providers contracted by the NHI. District health management offices will be set up and establish units to receive funds from the NHI to contract with the accredited primary care providers. “The intention to contract both public and private must not end up as lip service. Strategic purchasing must be impartial and must draw on the full capability of the private sector,” SAMA said in its response to the tabling of the NHI bill in parliament last year.
NEWS & OPINION
31 December 2020
SAMA warns that the NHI must also ensure that its goal of obtaining services at the “lowest possible price” does not endanger the sustainability of service providers or the quality of care provided to patients. The contracting and payment models to be established by the NHI are so complex and precedented, questions have been raised about its capacity to manage the efficient processing of claims and repayment. There are presently no requirements for the NHI to pay claims within 30 days. Olive Shisana, chairperson of the NHI Ministerial Advisory Committee, is dismissive of concerns over capacity and change management, saying that running the NHI will not be as complex as running a big medical aid scheme – primary care packages will be standardised in terms of price and content. “We just want to know how many people come and, once you know, you multiply that by the cost,” she said. SA’s health system is badly in need of reform – only 15% of the population, or about 8.9m people, can afford private medical care using medical insurance schemes. But skilled professionals follow financial resources, and the health department says most are concentrated in the private sector. The discrepancy is even more glaring when you consider the fact that the global average of doctors to patients stands at 152 to every 100 000 – in SA, the ratio is 60 to every 100 000. An exodus of South African healthcare professionals has gathered momentum in the face of uncertainty over how they will be affected by the NHI, and presently there is no training pipeline adequate to meet the needs of the new system. Another worrying indication of NHI performance is that more than R5bn has been spent on pilot projects in the past four years, but a detailed evaluation by private consultancy Genesis Analytics was unable to conclude whether they had improved any district’s overall health because of problems with data quality. “Projects were rarely implemented or completed, due to a lack of planning and funds not being released in time, while the funds that were released were used mainly for new infrastructure without addressing critical maintenance at existing facilities,” the head of Genesis Analytics, Saul Johnson, said. Plans for the NHI have been in the works for more than a decade. Concerns over cost have been
a major obstacle and there is still no clear financial model in place, apart from an outdated estimate that there will be an annual price tag of about R256bn. During his medium-term budget last October, Finance Minister Tito Mboweni said the NHI was unaffordable and that state finances are now in worse shape because of the economic impact of the pandemic. Shisana said the project will be financed by repurposing the existing healthcare budget and the gradual removal of tax credits for medical aid, which has already begun. The state will be able to stop spending money on private healthcare for its own employees. Since the NHI Bill was finally tabled in parliament last August, submissions flooded in, and the portfolio committee on health is sitting with 32 217 hand-delivered and 32 634 emailed submissions. There has been talk of outsourcing the work, which may prompt legal challenges. Nonetheless, government is pushing ahead. “We are almost ready to go; we just need to get the bill through parliament and, as soon as it goes, we are moving. I can’t predict exactly when, but I’m hoping that before April next year we should at least have gone through the National Assembly,” Shisana said. According to Mkhize, it will probably take about nine to twelve months before the bill begins to be implemented. But Van den Heever believes the timelines are still unrealistic. “The idea that the poorly drafted bill will make it through parliament is a further stretch. They still have to process thousands of technical comments and then make amendments. The health committee lacks the technical knowledge to completely redraft the bill, which is what is required for it to reach finality without legal challenge.” Many private healthcare providers and medical insurance companies are putting their best feet forward on a path which they know is inevitable. Richard Friedland, CEO of Netcare, said that COVID-19 exposed some of the fault lines in primary healthcare, showing that noncommunicable diseases like diabetes, asthma and hypertension – the ‘co-morbidities’, which made fatalities more likely – were not under control. “I do believe that we’ve got to find an equitable way of providing healthcare for all in SA. To do that
we also need to strengthen primary healthcare. I think that the NHI is potentially a springboard for that and we stand ready to support those initiatives,” he said. Discovery Healthcare CEO Ryan Noach says that the company is “looking forward” to participating in parliamentary deliberations on the NHI bill in the final quarter of 2020. “We are seeking clarity on the potential impact of the bill on the future role of private healthcare and medical schemes. The bill creates room for differing interpretations, and we will play a constructive role in this important debate, aimed at achieving a sustainable future for private healthcare and medical schemes,” he said. This article was first published in finweek on 22 October 2020. Mariam Isa is a freelance journalist who came to SA in 2000 as chief financial correspondent for Reuters news agency after working in the Middle East, the UK and Sweden, covering topics ranging from war to oil, as well as politics and economics. She joined Business Day as economics editor in 2007 and left in 2014 to write on a wider range of subjects for several publications in SA and in the UK.
Mariam Isa
WWW.MONEYMARKETING.CO.ZA 11
NEWS & OPINION
31 December 2020
Is this the beginning of the end for COVID-19? Last month, the world received news from the American multinational Pfizer and Germany’s BioNTech of the probable efficacy of a coronavirus vaccine. The market action was substantial. Equities hurt most by the pandemic rallied, while those that benefited from COVID-19 experienced a self-off.
JANICE ROBERTS Editor: MoneyMarketing
O
n Monday 9 November, Pfizer and BioNTech announced 90% efficacy in their first interim results from the phase-three study of their COVID vaccine. They are carrying out a study of 43 500 people from different countries who have received either the full vaccine or a placebo. Of that total group, 94 people have been infected – no more than 10% in the group received the vaccine, while the other 90% were in the placebo group. The people who got the vaccine instead of the placebo were about nine times less likely to get the disease. This was a better efficacy outcome than anticipated, as most experts expected initial candidates to be 50 to 70% efficacious. “People are incorrectly calling it the Pfizer vaccine. It’s not,” says Michael Power, Strategist at Ninety One, and he’s right. The scientists who developed the vaccine, Dr Ugur Sahin and Dr Ozlem Tureci, are a Turkish-German married couple who set up BioNTech in the German city of Mainz in 2008. Both are distinguished scientists in the field of oncology and immunology in Germany. “BioNTech invented the product. I don’t want to in any way diminish the importance of Pfizer, but they are just the distributor,” Power says. “I pointed this out to CNN and they’ve corrected themselves and now use the term BioNTech-Pfizer. It’s amazing how everybody assumes this is an American vaccine – including President Trump. It’s not – and that’s a very important point to be made up front. A lot of the value that is going to be created by the process of the vaccine is going to accrue, and rightfully so, to BioNTech – a German listed company that is, interestingly, backed by a Singapore sovereign wealth fund.” Power adds that when news broke of a potentially very effective COVID-19 vaccine, Pfizer’s shares climbed 7%, while shares of the much smaller BioNTech rose 14%. “BioNTech has licensed Pfizer to represent them and to help them go through some of the regulatory hurdles, and that is an important role that Pfizer
has to play. Pfizer helped with testing but didn’t do it all; in China, BioNTech is collaborating with Fosun.” Power highlights that where BioNTech-Pfizer’s new vaccine differs is that it uses a new concept called mRNA, which was originally developed as a cancer therapy. “And why not? It’s a very legitimate concept.” The development stage for Messenger ribonucleic acid (mRNA) technology can be much quicker than other kinds of vaccines. Unlike vaccines for polio or measles, it doesn’t use a weakened virus to trigger an immune response. Instead, genetic code wrapped in microscopic droplets is injected into the body, a method that has for years faced scepticism from the scientific community. The code instructs cells to make viral proteins that prime the immune system, the concept being that the mRNA will ‘deceive’ cells into making fragments of the coronavirus, so that when the body spots it, it produces antibodies. This isn’t the only mRNA vaccine that has been developed, as Moderna in the US, CureVac in Germany, and Imperial College London are developing similar vaccines. The scientific community has cautioned against overenthusiasm at BioNTech/Pfizer’s interim findings as there are some unknowns, including the duration of vaccine-linked immunity. “The worry is that this is not a vaccine that is going to give you long-term cover, and you may need to have it again,” Power adds.
12 WWW.MONEYMARKETING.CO.ZA
Additional concerns are that the vaccine needs to be put in cold storage at -70°C (to put this into perspective, a typical deep freeze in which food is stored runs at -18°C). When thawed, the vaccine must be injected within five days. Two shots need to be administered three weeks apart, suggesting significant logistical challenges. “While there are some issues around the vaccine, we’ll be getting a slew of other vaccine results shortly, as there are around ten vaccines in what they call phasethree development. And we’ll get a lot of information from most of them before the end of the year.” The BioNTech-Pfizer vaccine is an extraordinary scientific achievement and has given the world hope that it may not have to live with COVID-19. Not only is there now evidence that a vaccine can be produced within a short timeframe, but other vaccines are being tested as well. The general mood is that if some vaccines don’t work, others will. “Everybody is just desperate to see the light at the end of the tunnel. The idea that we may get back to some semblance of normal has brought some relief – and that played out in the markets,” Power adds. What the vaccine means for investors Clyde Rossouw, portfolio manager of the Ninety One Global Franchise feeder fund, says the best-case scenario is that the world is still 12 months
away from a COVID-19 vaccine being widely available. “It’s not clear cut that a vaccine is going to lead to a nice, steady upward trajectory of economic activity as things normalise.” He is, however, keeping in mind that the investing environment could change. “We have been deliberately trying to diversify the portfolio performance away from too narrow leadership and too few drivers, if that makes sense. In other words, while we want to be a beneficiary of businesses that became competitively advantaged in a COVID world, we don’t know when a shift is going to occur.” While the share prices of companies affected most by the coronavirus – such as airline and cruise stocks – surged upon the news of the PfizerBioNTech vaccine, Rossouw believes that these stocks are “quite speculative”. “There is scope to make money in the short term. If you get an 86% move in a share in two days, you have to ask yourself the question: How much more do I want? Some of these businesses are still quite borderline as to whether they can survive from a profitability perspective.” Editor’s note: Just before this issue went to print, US biotech Moderna announced that its COVID-19 vaccine had shown 94.5% efficacy in clinical trials
Clyde Rossouw, Co-Head: Quality, Ninety One
Michael Power, Strategist, Ninety One
It’s about you and your clients’ goals – it’s personal. As a financial adviser, you know that nothing is more personal than your clients’ investments. They put their hopes and dreams on the line. And it doesn’t get more personal than that. It’s our priority to understand your advice process that helps you understand their unique hopes, fears, ambitions and dreams. With our expertise and unique outcome-based approach to investing, we can help you and your clients achieve their personal investment goals. Outcome-based investing targets a pre-agreed return over a chosen period to help make your client’s goal as achievable as possible. Even though we can bring you the expertise and cutting-edge technology, nothing can replace your personal touch. To find out more, visit momentum.co.za
Momentum Investments is part of Momentum Metropolitan Life Limited, an authorised financial services (FSP6406) and registered credit (NCRCP173) provider.
FEATURE : STRUCTURED PRODUCTS
FAREEYA ADAM Head: Retail Product Solutions, Momentum Investments
P
eople are often concerned that structured products are too complex. The truth is that it doesn’t really matter what the science behind a structure is. The important thing is that a structured product will give a client a defined return, in a specific circumstance on a specific date. This investment product – the Momentum Enhanced Growth Option – challenges conventional investment thinking that assumes higher returns are only possible through exposure to higher risk. Clients usually choose structured products when they are looking for certainty. But structured products can also help to diversify an investment portfolio because of their very different profile to actively managed funds. Clients will usually at least get their money back, unless the company backing the product defaults on its obligations. The credit rating of the issuer is therefore important, as it is an independent view of how likely it is that there will be a default. Defining a fixed term for the return profile means that there is no need for a client to take impulsive action during the term. If a client needs access to the money before the end of the term, the value will depend on market conditions at the time, and any defined returns are likely to fall away. Clients who are looking for growth through exposure to a global index, while minimising the risk of losing money, can consider investing in the Momentum Enhanced Growth Option as part of their overall investment strategy.
31 December 2020
Use structured products for certainty They have the peace of mind of a positive return at the end of the investment term, irrespective of what may happen in the market. This investment is a five-year solution offering: • Enhanced allocation – we boost the original investment amount by 3% on the trade date. The total amount allocated will share in the index growth. • The certainty of a minimum secured return at the end of the five-year term – regardless of how markets perform, the client will at least get a return of 15% over the term. • Exposure to a diversified global index with unlimited enhanced growth potential – if the index level grows by more than 15% over the term, the client also gets the growth above that, and we enhance it by the participation rate (currently 200%). PAY OFF PROFILE AT THE END OF THE INVESTMENT TERM
Why every wellmanaged portfolio should have an allocation to structured notes
T
he coronavirus pandemic ended the bull market in global equities, while introducing a new world of uncertainty for investors. Uncertainty is and will always be there – it’s often forgotten about when markets are calm, but there are consequences if investors are not prepared. One of the options is to use structured products in your client’s portfolios. For several years, there has been an increasing demand for structured products across the globe and in South Africa – this is no different. “I think this is a function of education and awareness, as well as a sign of the maturity of a particular market, and ease of access as technology enables this product set,” says Ryan Sydow, Head: Index and Structured solutions at Absa. “We work with a Chicago-based structured product fintech. Its president refers to structured products as ‘the biggest market you’ve never heard about’. This is a light-hearted comment
about the fact that, while the structured product market is big and growing, it’s largely unknown to investment professionals and investors alike. These products could and should be used more broadly than they are at present – even in developed markets.” A structured product is usually a combination of an interest rate or fixed-income-linked asset, plus one or more financial derivatives, all combined into a single bank-issued note and, according to Sydow, is meant to “complement a linear portfolio with a non-linear (or structured) exposure. “The nomenclature has evolved over time, but the key is in the word ‘structured’ – it might be about investors wanting to protect or structure their downside risk, or perhaps they want to gear on the upside as well, forgoing some protection given their views or how the rest of their portfolio is positioned.” Structured products come with a term involved, typically three or more years, and they have a different profile
14 WWW.MONEYMARKETING.CO.ZA
To get the full benefit from this investment, the client has to stay invested for the full term. All adviser and administration fees are priced into the investment and will not affect the secured return or the participation rate. Tax will apply according to endowment rules. The Momentum Enhanced Growth Option is available to individual investors and trusts with natural persons as beneficiaries, and the minimum investment amount is R50 000. It offers the potential for growth with built-in certainty – it’s your client’s personal investment, with the unstoppable force of momentum. For more information go to momentum.co.za/ MEGO. The information in this document is for general information purposes and not intended to be an invitation to invest, professional advice or financial services under the Financial Advisory and Intermediary Services Act, 2002. Neither Momentum Wealth (Pty) Ltd, Guardrisk Life Limited, Momentum Metropolitan Life Limited nor any of their subsidiaries or affiliates make any express or implied warranty about the accuracy of the information herein. The Momentum Enhanced Growth Option is a life insurance product, underwritten by Guardrisk Life Limited, a licensed life insurer under the Insurance Act and administered by Momentum Wealth (Pty) Ltd. Momentum Investments is part of Momentum Metropolitan Life Limited, an authorised financial services and registered credit provider (FSP 6406). Momentum Wealth (Pty) Ltd (FSP 657) and Guardrisk Life Limited (FSP 76) are authorised financial services providers and part of Momentum Metropolitan Holdings Limited.
to actively managed funds. “Active managers are paid to stock pick, market time and, you could argue, to manage allocations to get the best risk reward possible given their mandate. There is rarely any explicit protection offered by active managers, but there are obviously efforts going on all the time to try and mitigate drawdowns and avoid crystallising losses in those portfolios. A structured product brings explicit protection or defined risk and return, whereas active and indexbased strategies like ETFs don’t.” Sydow believes that every wellmanaged portfolio should have an allocation to structured notes. “Typical in a balanced portfolio are bonds, money market instruments, international equities and domestic equities. What we say is simply take a sliver of each of your riskier assets (equities, commodities, etc) and put a structured payoff/note referencing some asset class alongside your current holdings. They give you another lever to pull in a portfolio when your core long assets do not perform.” Aside from market risk, credit risk of the issuer is another important element to consider when investing in structured products. It’s important to check the investment grade status of the bank issuing the note. The better the bank’s rating, the less likely it is that the institution will default on its obligations.
Sydow adds that investors also need to then look beyond simply the organisation, and into what type of paper is being issued within that firm. “Most issuers will use what they call senior unsecured issuance paper, and that means in the case of a default, you’re near the front of the queue for some money back.” However, some issuers will use what they call subordinated debt, which puts you near the back with equity holders if the issuer defaults. People must be very clear on what they are buying and under what conditions repayment of capital and return could be impacted.” Absa’s range of structured products includes the Global Fixed Return and Growth Protector, the Global Growth Basket, as well as a range of hard currency notes that can be structured on a bespoke basis for as little as $250 000 per note. For more information, go to www.absa.co.za/ss or email them on aiss@absa.co.za.
Ryan Sydow, Head: Index and Structured Solutions, Absa
INVESTING
31 December 2020
KIM ZIETSMAN CFA, Head: Business Development and Marketing, Laurium Capital
2
020 will certainly go down in the history books as one of the toughest environments in which to manage money. As we close the chapter on a very challenging year for South Africa and the rest of the world, there is still significant uncertainty going into the year ahead. We like to think of this uncertainty as the ‘known unknowns’, and of course the ‘unknown unknowns’ that we could see playing out in the months ahead. Some of the key ‘known unknowns’ that are likely to drive markets, in our view, will be the availability of a COVID-19 vaccine, how it is rolled out once available and approved, and the second and possibly third waves of COVID-19 infections in the northern hemisphere as it moves into winter. In South Africa, much uncertainty remains over the trajectory of the economy and employment, but we believe the market has more than priced in the lower growth expectations, and we continue to find what we think are very attractive opportunities that should produce good returns for our clients going forward. Internationally, some interesting trends and opportunities exist, like Value versus Growth, which is getting a lot of airtime lately. Growth stocks have outperformed value for the last decade, and the COVID-19 pandemic accelerated the digitisation of the economy, pushing valuation assumptions of growth companies even higher, making the divergence between Growth and Value even greater. Perhaps the growth cycle has reached its limit and it’s time to look at value investing? And what about the rest of Africa and the opportunities that exist in the Africa eurobond market to earn high yields for investors both in USD and rand terms with moderate volatility, while offering significant diversification benefits to a South African multi-asset portfolio? How then do we capture these opportunities? The answer lies in multi-asset flexible funds. Multi-
16 WWW.MONEYMARKETING.CO.ZA
Opportunity often requires flexibility asset flexible funds have fewer constraints, dynamic asset allocation, and more optionality and flexibility. This is what investors are looking for in a flexible fund – not just a pure asset allocation fund with defined holdings for each asset class, nor a pure equity fund – rather a fund that has PERHAPS THE the ability to GROWTH CYCLE move between different kinds HAS REACHED ITS of investments LIMIT AND IT’S TIME in search of strong TO LOOK AT VALUE risk-adjusted INVESTING? returns. A flexible fund should fully benefit from whichever region and asset class offers the best opportunities. Interestingly, it is often the boutique managers that have excelled in this area, which may indicate that size of assets and, hence, the ability to be flexible and nimble, may be an advantage in managing such funds. The graph below indicates the annualised
performance of the Laurium Flexible Prescient Fund since its inception 1 February 2013 to 30 September 2020, relative to inflation, cash and equities. We have seen over the last few years how investors have chosen the safe haven of income funds, but uncertainty and risk provide the opportunity to invest in securities at levels that provide attractive long-term returns. It’s time to consider switching to flexible funds. PERFORMANCE DECLARATION FOR LAURIUM FLEXIBLE PRESCIENT FUND (LFPF) (CLASS A1): Fund
Benchmark (CPI+5%)
Annualised return since inception
+10.1% (LFPF)
+10.3%
Cumulative return since inception
+109.5% (LFPF)
+112.6%
Rolling 12 months
-0.7% (LFPF)
+8.9%
Highest rolling 1-year return (since inception)
+37.6%
Lowest rolling 1-year return (since inception)
-15.1%
Fund inception date
1 Feb 2013
Source: Morningstar Direct. Total Return Bid-Bid performance (from 1 Feb 2013 to 30 September 2020)
INVESTING
31 December 2020
The Laurium Africa USD Bond Prescient Fund: An update BY LAURIUM CAPITAL
T
he Fund was up in October with a net performance of 2.6% in US dollars and -0.5% in rand for the month. Year to date to 31 October 2020 the Fund is up 14.9% in rand, offering great diversification to portfolios. The portfolio is positioned across 23 holdings with exposure to nine African sovereigns. 83.7% of the Fund is invested in government issued eurobonds, denominated in US dollars, while 4.4% is in Egyptian T-bills, 4.0% in Ghana bonds, 2.8% USD hedged local Nigerian exposure and the 5% remainder is in USD cash due an inflow at month end. Chart 1 illustrates how the African eurobond yields contracted slightly in the month of October 2020 to 7.7%, while the EMBI and High Yield spreads have remained at their relatively low levels. We argue that eurobonds offer lower levels of risk relative to high yield, given the sovereign backing, potential IMF support and elevated levels of Africa pessimism that the market is experiencing. At these elevated yields, we see our Fund offering significant upside over the coming 12 months. As a reminder, the Fund allocation counts towards the 10% Africa SARB allowance.
The Fund is currently yielding 7.8% before fees in US dollars with a duration of 5.5 years. Asset Allocation
Weighting %
USD eurobonds
87.8%
USD Hedged Local Securities
2.8%
Local Currency Securities
8.4%
USD Cash & Cash-like Securities
5.0%
TOTAL
100%
Country Exposure
Weighting %
Egypt
21.0%
Ghana
17.4%
Kenya
16.0%
Senegal
13.9%
Nigeria
10.2%
Cote d’Ivoire
6.6%
Angola
5.4%
Rwanda
4.0%
Zambia
0.5%
USD Cash
5.0%
CHART 1: SPREADS (BASIS POINTS) OVER US TREASURY OVER TIME (2006 – 2020)
Source: Bloomberg
Source: Bloomberg
The average Moody’s credit rating of the eurobond holdings in the portfolio is B1 (B+ on S&P rating). As a reminder, the Fund is positioned for institutional and qualified individual investors. We view it as a medium term investment as opposed to a low volatility shorter term fixed income investment. We continue to offer early entrant capital on our most favourable institutional flat fee class of 0.70% (excl. VAT). The seed fee deal will be in existence for all flows via our Management Company, Prescient, up until the Fund reaches $20m in external assets. The fee will then revert to our asset-based fee scale, starting at the A-Class fee of 0.90% plus a 10% performance fee (excl. VAT) over the Standard Bank Africa ex South Africa Sovereign Bond TR USD Index. The Fund AUM has grown in the past month to over R313m. Collective Investment Schemes in Securities (CIS) should be considered as medium to long-term investments. The value may go up as well as down and past performance is not necessarily a guide to future performance. CIS’s are traded at the ruling price and can engage in scrip lending and borrowing. A schedule of fees, charges and maximum commissions is available on request from the Manager. There is no guarantee in respect of capital or returns in a portfolio. A CIS may be closed to new investors in order for it to be managed more efficiently in accordance with its mandate. CIS prices are calculated on a net asset basis, which is the total value of all the assets in the portfolio including any income accruals and less any permissible deductions (brokerage, STT, VAT, auditor’s fees, bank charges, trustee and custodian fees and the annual management fee) from the portfolio divided by the number of participatory interests (units) in issue. Forward pricing is used. Performance has been calculated using net NAV to NAV numbers with income reinvested. The performance for each period shown reflects the return for investors who have been fully invested for that period. Individual investor performance may differ as a result of initial fees, the actual investment date, the date of reinvestments and dividend withholding tax. Full performance calculations are available from the manager on request. For any additional information such as fund prices, brochures and application forms please go to www.lauriumcapital.com. Annualised performance: Annualised performance shows longer term performance rescaled to a 1-year period. Annualised performance is the average return per year over the period. Actual annual figures are available to the investor on request. Highest & Lowest return: The highest and lowest returns for any 1 year over the period since inception have been shown. Prescient Management Company (RF) (Pty) Ltd is registered and approved under the Collective Investment Schemes Control Act (No.45 of 2002).
Category
Fund
October 2020 Performance
Regional Multi Asset - Flexible
Laurium Africa USD Bond Prescient Fund A1
-0.5%
Ranked in the top decile, since inception Launched on 1 February 2013, the Laurium Flexible Prescient Fund is ranked no. 4/35 funds in the South African Multi-Asset Flexible Sector since inception to 31 October 2020, with an annualised return of 9.7% after fees (104.9% cumulative) vs average peer annualised return of 5.1% (47.2% cumulative).
UPSTREAM THINKING
Source: Morningstar (31/10/2020)
We know Investments T +27 11 263 7700 E laurium@lauriumcapital.com www.lauriumcapital.com
Laurium is an authorised financial services provider (FSP No 34142). Collective Investment Schemes in securities (CIS) should be considered as medium to long-term investments. The value may go up as well as down and past performance is not necessarily a guide to future performance. CIS’s are traded at the ruling price and can engage in scrip lending and borrowing. A schedule of fees, charges and maximum commissions is available on request from the Manager. There is no guarantee in respect of capital or returns in a portfolio. A CIS may be closed to new investors in order for it to be managed more efficiently in accordance with its mandate. Performance has been calculated on the A1 class using net NAV to NAV numbers with income reinvested. Prescient Management Company (RF) (Pty) Ltd is registered and approved under the Collective Investment Schemes Control Act (No.45 of 2002). For any additional information such as fund prices, fees, brochures, minimum disclosure documents and application forms please go to www.lauriumcapital.com.
WWW.MONEYMARKETING.CO.ZA 17
INVESTING
31 December 2020
Opportunities in private markets in difficult times
RORY ORD Head: Private Markets, 27four Investment Managers
T
he patience of both institutional and retail investors is wearing thin after several years of poor performance of listed equity markets. The JSE All Share Index is at the same level it was in 2015, meaning the bulk of investors’ equity allocations have given no return. At the same time, the pool of investible companies has shrunk, meaning that the risk investors take on through these allocations has increased. Conventional wisdom is to offshore as much exposure as possible, and most investors and retirement funds have maxed out these allocations. An alternative to consider for a smaller allocation lies in access to the thousands of companies operating in South Africa outside of the JSE. Research from Finfind done in 2018 shows that there are at least 8 000 to 10 000 companies in South Africa with at least R100m of turnover.
Companies of this size are typically successful family-owned businesses operating within a larger sector and are ripe for expansion. Private equity funds will invest growth capital into these businesses, and also provide them with strategic advice, access to networks for expansion, and provide M&A capacity to help these companies consolidate
27FOUR WILL SOON OFFER PRIVATE MARKET ACCESS IN SMALLER INCREMENTS and achieve greater scale. Black private equity funds in particular do all of this, and can also bolster the B-BBEE status of investee companies by conferring black ownership. This has been a
ALBERT BOTHA Head: Fixed Income, Ashburton Investments
T
major driver of deal activity and has contributed to the 300 to 500 deals per year completed by the private equity industry as a whole. While there are many generalist funds investing across sectors, there are also specialists investing in areas such as healthcare, education, telecommunications, renewable energy and food production. This highly focused type of investing can only be achieved in private markets. Within 27four’s private markets programme, some recently completed deals include backing a technology company creating components essential to drone delivery, private hospitals expanding access to healthcare across the country, schools providing quality education at low cost, digital tertiary education, telecommunications infrastructure and software development. The investment pipeline is no less bright, with opportunities in fibre, waste treatment, agri-processing
Chaos and clarity
he calm before the storm. The eye of the all been indulging. For those lucky enough to hurricane. Uncertainty and silence have be in the US, Japan, Germany or other zero rate long been understood to not only be countries, this has not been too much of a burden, opposites, but intrinsically linked. as continuously falling yields have softened the As the words form on the page, there is little cost of interest. For corporates, this was further that is certain in the world. While the major news reinforced by central bank support, leading to a networks have called the election for Joe Biden, historically low cost of debt for everyone involved. there are already calls for recounts and court Yet we know that once you are in this space, it is challenges. Looking at the shambles of the final very hard to leave. Even the smallest rise in rates polling, in what was described by pundits from the can lead to a doubling of the cost of debt, leading left and the right as the most existential election to unsustainable government finances and failing in the last 100 years, it is truly shocking. With companies. So, we sit with the inefficient allocation more and better data than ever before and the most sophisticated methods, this state of affairs leaves one disheartened. What was supposed to be a blue wave passed with both sound and fury, but resulted in barely a ripple. The current state of the US elections left us no more certain about our future than a week ago – especially given that it is likely that the US Senate will EVERYWHERE remain in Republican hands. WE LOOK, WE SEE Yet uncertainty and vulnerability can focus the RISING DEBT mind, stripping away the illusion that we have more than the slightest insight into what the future may hold, focusing our thoughts on what can be predicted with any degree of certainty. Everywhere we look, we see rising debt. Governments, corporates and households have
18 WWW.MONEYMARKETING.CO.ZA
and logistics. Historically, these kinds of investments have only been available to institutional investors able to commit tens of millions of rand to private equity funds. However, 27four will soon offer private market access in smaller increments. This will give investors access to a highly diversified portfolio of private markets investments through a regulated product. With all the negative news generated on a daily basis in our country, it is easy to forget that there is also a huge amount of innovation, and that the bulk of the country’s business takes place outside of the handful of companies covered in the market news each day. These companies are smaller and more agile than those in the listed markets and, with the help of private equity backing, can grow and thrive, even in tough environments.
of government finances and the continual survival of zombie companies*. The logical result is lower growth. We know that higher government debt levels (75%-100%) lead to lower growth for the countries involved – and that the higher this debt becomes, the more drastic the effect. We also know that each additional rand or dollar spent by the government has a slightly lesser effect on gross domestic product (GDP) growth compared to the previous one. We know that demographics determine destiny and that much of what is currently described as the West and central Asia is in demographic decline. Once again, lower growth and lower inflation result. It is hard to see our world rebounding into high growth and high returns. Inflation and growth everywhere are likely to remain subdued, and South Africa will be no exception. Our consumer price index (CPI) numbers are likely to hover around 3% for the rest of the year. In this world, earning 5%-9% on income funds may be much more certain than aiming for double digit numbers in other assets and both falling short, while facing volatility. If this election has taught us anything, it is that certainty is illusive, and it should be valued. * Zombie companies – Companies that can only afford to repay the interest on loans, not principle or capital expansion.
INVESTING
31 December 2020
DEBRA SLABBER Business Development Manager, Morningstar Investment Management South Africa
Explaining investment fees to clients
Debra Slabber, Business Development Manager at Morningstar Investment Management South Africa, explains how advisers should tackle the questions around investment fees from clients.
M
anaging funds and investments require time, money and expertise. As with any service provider, you are expected to pay a reasonable charge for the use of a company’s services. The same rule applies in the world of investments and fund management. The past decade has been tough for South African investors and, as a result of some anaemic returns, there has been a sharp focus on fees. While it is good to understand what you are paying for when it comes to your investment(s), the cheapest offering is not always the best offering (in Afrikaans we would say “goedkoop koop is duur koop”). So while we would encourage investors to enquire about fees, we would also encourage them not to throw the baby out with the bathwater. Not all fees are bad. Investors often fret when they look at their fees because the fee terminology can be confusing and the application can be unclear, making it hard for them to make sense of what fees they are paying and (more importantly) why they are paying it. In this article, we unpack some of the fee-related terminologies that a client may come across on statements, fund factsheets and in conversations. Let’s start with fund factsheets Most factsheets follow a similar disclosure methodology (and terminology), which makes it easier for clients and financial advisers to compare the fees of the different funds they are invested in and to make a more informed decision. It is important to note that the returns quoted on a factsheet are always net of the Total Investment Charge (TIC), meaning that returns are reported after fees have been subtracted. Total Expense Ratio (TER): TER is the global standard used to measure the impact the deduction of management and operating costs have on a fund’s value. It gives you an indication of the effects these costs have on the growth of your investment portfolio. Expressed as a percentage, a fund’s TER is usually calculated over a rolling three-year period. A higher TER does not necessarily imply a good return, nor does a low TER imply a poor return. Also, important to note is that the current TER is backwards-looking and may not necessarily be an accurate indication of the future TER. The TER charge is made up of the following costs: a) The annual management fee: This is the fee the asset manager charges for managing the fund. The cost varies greatly depending on the mandate of the fund, or rather the type of fund (for example, income funds charge lower fees than a specialist equity fund). This fee is fixed. b) Other fund expenses: This refers to the operational cost of the fund, including administrative expenses, audit fees, bank charges, custodian fees, etc. This cost is variable but often a small portion of the total cost. c) Performance-based fees: In addition to earning fixed fees, asset managers may earn a
performance-based fee if they outperform a relevant benchmark. The calculation of this varies greatly between different funds and it may or may not be capped at a certain level. Some performance fees are based on a ‘high-watermark’, which means a manager does not earn performance fees unless it is generating new outperformance above the highest previous watermark. This prevents clients from paying for performance more than once, where managers go through cycles of outand underperformance. Not all funds charge performance fees. d) VAT: Value added Tax of 15%. Total Investment Charge (TIC): If you add transaction cost to the TER, you get to a Total Investment Charge, which is the total cost for investing in the fund. Transaction cost is the cost incurred due to the buying and selling of underlying securities in the fund. Transaction cost must always be considered, but within the context of a fund’s strategy, the return being achieved, the amount of trading required, and the amount of risk being taken. The table below provides an overview of the average TICs per ASISA category.
If an adviser uses a DFM, they should be able to negotiate lower fund fees from asset managers than what a client would typically pay had the client invested directly with the fund manager. To illustrate this point, the two graphs below show what the total TIC of the various ASISA category averages are, compared to the Morningstar Managed Portfolios total TIC. In all instances, the Morningstar Managed Portfolios are cheaper.
Source: Morningstar Direct as at 2020/09/30. ASISA category average and range based on primary share class for all funds in the category
Source: Morningstar Direct as at 2020/09/30. Global Investment Fund Sector average and range based on primary share class for FSCA approved funds in the category
Next, let’s have a look at client statements: a) Investment management fee: The annual investment management fee shown is the fund’s latest available Total Investment Charge (TIC) as explained above. Further to this, there may be a separate line item for the Discretionary Fund Manager (DFM) or Category II fee, also often labelled as ‘investment management fee’. Anyone who manages an investment portfolio must have a Category II financial services provider licence, which requires more qualifications and experience than a Category I licence GOOD FINANCIAL (which most advisers hold). ADVICE CAN Advisers with a ADD AROUND Category I licence may contract 2% PER ANNUM with DFMs to IN ADDITIONAL provide investment RETURNS TO management services such as INVESTORS asset allocation, portfolio construction and portfolio management. On average, one should expect to pay between 20bps to 30bps for DFM services. (Basis points (bps) refers to a common unit of measure for interest rates and other percentages. One basis point is equal to 1/100th of 1%, or 0.01%, or 0.0001.)
b) Administrative or platform fee: This is the fee that the platform (also referred to as a Linked Investment Service Provider, or LISP) charges for the administrative duties they perform (for example, for the generation of statements). The platform administration fee varies depending on size and fund or product choice. On average, one should expect to pay about 30bps to 50bps in platform fees. c) Advice fee: This is the fee paid to the financial adviser. An adviser can either charge on a consultation basis (a fee normally charged upfront), or on an ongoing basis for the management of a portfolio (usually charged as a percentage). On average, one should expect to pay between 0.50% and 1.00% per annum for independent advice. At Morningstar, extensive research has been done over the years to show that good financial advice can add around 2% per annum in additional returns to investors. Minimising costs is something we focus on extensively at Morningstar Investment Management South Africa. Price is one of the five pillars we consider when evaluating a fund during the research process. If a fund manager charges higher fees, they will need to demonstrate that their process can produce meaningful outperformance relative to their peers.
WWW.MONEYMARKETING.CO.ZA 19
INVESTING
31 December 2020
Survey provides most comprehensive picture of local hedge fund industry to date
T
he 2019 Novare Hedge Fund Survey elicited a record response from more than 70 South African hedge fund managers who collectively manage 130 uniquely mandated hedge funds and represent 75.8% of the total hedge fund industry assets under management (AUM). Coupled with fund fact sheets that are publicly available, this enabled the collation of market-leading insights into a single, concise report that provides the most comprehensive overview of the South African hedge fund industry to date, while revealing a number of interesting industry developments. “Participation in the survey is voluntary and focuses solely on single-manager, South Africandomiciled, rand-denominated hedge funds that invest predominantly in South African financial markets,” says Jacobus Brink, Head of Investments at Novare. “We are deeply thankful for every hedge fund manager who responded, as this contributes to the quest for transparency and helps ensure that the domestic hedge fund industry is better understood by stakeholders and interested parties alike.” Key insights Some of the key insights highlighted in the survey are as follows: • Growth in industry assets Against a backdrop of volatility in both the global and domestic capital markets, the survey indicates an interesting development; that after two successive years of steady decline, the industry AUM have increased to R52.8bn during the 12-month period under review, which constitutes growth of 12%. • Large asset managers led the way Large asset managers with hedge fund investment capability and AUM of over R100bn saw a relatively high growth in hedge fund assets, followed by those with assets between R500m and R1bn. • Equity long/short funds outperformed other strategies Equity long/short funds outperformed other strategies and managed to protect capital during market drawdowns. This strategy, nevertheless, experienced a greater loss in assets, reducing its industry weight by 14%.
• Fixed income strategies maintained absolute returns Fixed income strategies maintained absolute returns throughout the period, continuing on its steady path of consistent performance since 2016 and yielding an increase in returns of 4%, from 15% in 2018 to 19% in 2019. • Positive performance all round In general, the industry performance was positive across all categories in terms of asset size and strategies. Large managers with AUM in excess of R2bn once again posted the highest returns, followed by hedge funds with AUM of between R500m and R1bn. • Increased capacity More capacity is available as the majority of funds are still below their asset peaks seen in prior years. It can be assumed that this is because of the large outflows experienced by the industry from 2017 to 2018. • Emergence of co-investments The emergence of co-investments adds another dimension to hedge fund investing and presents a new and exciting opportunity, especially at 7.2%, which is slightly higher than retail allocators.
20 WWW.MONEYMARKETING.CO.ZA
• High-net-worth individuals remain at the top High-net-worth individuals remain the most significant allocator in the industry.
INDUSTRY PERFORMANCE WAS POSITIVE ACROSS ALL CATEGORIES IN TERMS OF ASSET SIZE AND STRATEGIES Regulation and introduction of the Hedge Fund Classification Standard Another significant development in the domestic hedge fund industry in 2019, was the publication of the Hedge Fund Classification Standard by the Association for Savings and Investment in South Africa (ASISA), which aims to provide a framework within which hedge fund portfolios with comparable investment objectives and scenarios can be grouped, and to provide a clearer picture of the various strategies offered. The survey solicited views from the industry on this development, as well
as some of the other recent regulatory interventions, such as the hedge fund industry being included under the regulatory ambit of the Collective Investment Schemes Control Act. The major concern of the industry is the regulatory prohibition of a collective investment scheme to invest in a collective investment scheme hedge fund. In conclusion Interestingly, the hedge fund industry is still poorly understood as many South African investors perceive hedge funds as riskier than unit trusts when, in fact, the two vehicles have been very similar since the introduction of hedge fund regulations. The complete 2019 Novare Hedge Fund Survey can be accessed at: https://novare.com/wp-content/ uploads/Novare-Hedge-FundSurvey-2019.pdf
Jacobus Brink, Head: Investments, Novare
INVESTING
31 December 2020
Double the index A tale of two funds over two decades
C
oronation Top 20 and Coronation Optimum Growth funds turned 20 and 21 respectively in 2020. And there is much to celebrate for investors who have been invested in them since inception, as both have at least doubled their respective index returns since launch. TOP 20: 20 of Coronation’s best ideas on the JSE Since 2000, the Top 20 fund has offered investors an actively-managed, concentrated portfolio of what Coronation believes to be the best opportunities on the JSE. Because it holds no more than 20 stocks, its potential to outperform the index through disciplined stock selection is greater, but with that comes lumpy returns over the shorter term. An investor’s reward is, however, exceptional wealth creation in the long run: R100 000 invested in Top 20 at launch 20 years ago would have grown to more than R2m at the end of September 2020 – after all fees. This is double the return of its benchmark index (Figure 1). Figure 1 GROWTH OF R100 000 INVESTED IN CORONATION TOP 20 VS BENCHMARK INDEX* Outcome when invested in Coronation Top 20
Outcome when invested in the Benchmark Index
R1m
R2 million** DOUBLE the benchmark index after all fees
R1m
R1m
Performed quoted net of fees from Morningstar as at 30 September 2020 for a lump sum investment with income distributions reinvested * Splice of current and historic benchmark indices (The FTSE/JSE Capped All Share Index replaced the FTSE/JSE Top 40 Index from 1 October 2016) ** Since inception of the A-class in October 2000
According to Neville Chester, portfolio manager of Top 20 since 2007, the fund’s success is a direct result of leveraging the in-depth, proprietary research of Coronation’s investment team. “It’s the application of our intensive, long-term focused approach that has been crucial in consistently identifying undervalued ideas for the fund over the past 20 years.” Optimum Growth: Blending Coronation’s best ideas from across the globe In 1999, Coronation pioneered the worldwide flexible mandate by launching Optimum Growth. The fund provides investors with a long-term portfolio of the best investment ideas Coronation can find around the world, while aiming TODAY, WE ARE to deliver healthy AS EXCITED AS long-term real returns. WE HAVE EVER The fund is BEEN ABOUT THE unconstrained, OPPORTUNITIES so it can invest anywhere in the THAT ARE world and across all available listed AVAILABLE IN asset classes. Its THE MARKET investors therefore benefit from Coronation’s full global research effort, comprising 70 investment professionals, across all the investable asset classes. The long-term reward for staying invested in the fund has also been exceptional. It has outperformed global equities (as measured by the MSCI World Index) by 4.6% p.a. since inception. The result is a current investment value of more than double the index (Figure 2). And given the fund’s wide diversification, this performance was delivered with significantly less volatility than that of the index.
Source: Coronation
Figure 2 GROWTH OF R100 000 INVESTED IN CORONATION OPTIMUM GROWTH VS THE MSCI WORLD INDEX Outcome when invested in Coronation Optimum Growth
Outcome when invested in the index*
R1.1m R1.9 million** MORE THAN DOUBLE the index after all fees
R800 000
R800 000
Performed fees quoted net of fees from Morningstar as at 30 September 2020 for a lump sum investment with income distributions reinvested * MSCI World Index ** Since inception of the A-class in March 1999 Source: Coronation
Can this performance be repeated over the next two decades? “Besides being a well-resourced and experienced team by global standards, our knowledge of global stocks has continued to increase year after year, which places Optimum Growth in a strong position to continue to deliver attractive risk-adjusted returns for its investors,” says Gavin Joubert, a manager of Optimum Growth since 2005. In terms of Top 20, Chester adds that the same factors that have driven the fund’s remarkable performance remain in place at Coronation. “Today, we are as excited as we have ever been about the opportunities that are available in the market and that we are currently taking advantage of in the fund.” The information contained in this article is not based on the individual financial needs of any specific investor. Reference to specific funds should be read in conjunction with the Minimum Disclosure Documents available here: https://bit.ly/3ffAEKO To find out more, speak to your financial adviser. Coronation is an authorised financial services provider.
More investment in Africa needed
A
frica is not getting the investment needed to help the world meet the UN’s Sustainable Development Goals (SDGs) by 2030, new research from Standard Chartered has revealed. The $50 Trillion Question investigates how some of the world’s largest asset managers – with a combined $50tn in AUM – are investing at this critical time for the global economy and the environment. Emerging markets are seeing a massive shortfall in investment The research shows that almost two thirds (64%) of the panel’s AUM is invested in the developed markets of Europe and North America, while just 3% is in Africa. Asia, which includes several developed markets, takes 22%, while just 2% and 5% of the assets are invested in the Middle East and South America, respectively. The risk posed
by emerging markets was flagged as a major barrier to investment. More than two thirds of investors believe emerging markets are high risk, compared to 42% who believe the same for developed markets. More than half of the panel (53%) believe returns from investment in Africa are low or extremely low, with almost three in five investors (59%) saying they are deterred from investing because they lack in-house specialist teams. In contrast, those already investing in Africa are optimistic about the region, with 93% saying they are likely to increase investment in future. Around 54% of Africa investors said their investments had performed as well as – or better than – their developed market investments over the past three years. The figure for emerging markets overall was 88%. However, COVID-19 may have made it even harder for emerging markets to get the investment they need. Some
70% of investors believe the pandemic has widened the capital gap further. Not enough investment is linked to the SDGs The research points to a growing focus on sustainability, with 81% of investment firms now taking a disciplined approach to environmental, social and governance investment. However, this is not translating into investment in the SDGs. Only 13% of the assets managed by the survey’s respondents is directed towards SDG-linked investments. Some 55% claim the SDGs are not relevant to mainstream investment and 47% say investment in the SDGs is too difficult to measure. However, one fifth of investors admit they were not aware of the SDGs. Respondents point to regulatory changes, favourable tax treatment, evidence of higher returns, better data for measuring impact, and increased demand from retail investors
as the top five factors that might spur on more SDG investment. Sunil Kaushal, Regional CEO, Africa & Middle East, Standard Chartered, says there is still an investment gap in Africa to realise the SDGs, and this creates an opportunity to make a difference where it matters the most. “A significant surge in private-sector investment – alongside public investment and commitments – will be required to bridge the gap and hit the SDG targets over the next ten years. Right now, COVID-19 has made the imperative to act even stronger in the region. “There is no single answer to The $50 Trillion Question, but it is evident that investors need to expand their focus beyond developed markets. Africa, and emerging markets generally, offers investors a unique opportunity: strong returns combined with the chance to have a significant, positive impact in the long term.”
WWW.MONEYMARKETING.CO.ZA 21
FEATURE: LONG-TERM INVESTING LESSONS FROM 2020
INVESTING
DAVID KNEE Chief Investment Officer, Prudential Investment Managers
Moving everything offshore: A perilous call?
T
here is currently a narrative among some investors that holding local assets has always been a complete disaster for South African investors, and that now is the time to save whatever crumbs are left and move everything into the safety of offshore assets. Following are some observations on this view, which may give investors pause for thought. The question is, is this narrative fact or fiction? And either way, is the outlook as pre-determined as this bleak narrative suggests? We need to be circumspect about relying on our emotions when it comes to investment decisions; human beings are poor judges of facts because our emotions colour our interpretations and recollections of the past. Recent poor experiences can receive disproportionate attention that blurs prior history. Our feeling is that things are really bad now, they must always have been like this and are therefore likely to continue forever into the future. There is no doubt South African investors have had a grim time of it more recently, but is this a full and fair exposition of history? A quick looks tells us no. From the end of 1996 until end-August 2020, FTSE/JSE ALSI returns matched the MSCI World Index almost exactly in rand terms, at 13.0% p.a. vs 13.1% p.a. And from end August 1999 until end August 2020, the ALSI outperformed the MSCI World by 2.9% p.a. It is more recently, from 31 March 2009 (the low point for global equities during the GFC) until end August 2020, that the ALSI has lagged the MSCI World, underperforming by 5.8% p.a.
SA valuations relatively cheap So the facts show that South Africa has in the past offered exemplary returns. Could it do so again? Today we find ourselves in a similar situation as late 1999 in terms of relative market valuations. With a price-book value ratio (P/B) of 1.65X, the ALSI is offering a 40% discount compared to that of the MSCI World at 2.75X. This suggests analysts already expect a far more favourable environment for developed markets, whereas a good deal of pessimism sits in South African valuations. The distribution of potential return outcomes from this starting point favours South Africa. Of course this is not a guarantee that local equities will outperform developed markets going forward, or even that returns will be high versus their history on an absolute basis. However, it certainly challenges the notion that there is nothing on offer for investors in South African equities. Investors can seek to justify the current ALSI valuation on the basis of poor fundamentals, a hollowing out of our industrial capacity, of institutionalised graft, of policy paralysis that prevents much-needed economic transformation and reform. One must remember, however, that it is more or less impossible to buy an asset with a good story at a cheap price, and recognise that one has formed a view that this history of outperformance isn’t going to repeat. Then ask: “How hard do I want to back my view of the future relative to anyone else’s; why do I think I am better at forecasting the future than the market?” Placing all your eggs into the offshore basket, against what the valuations suggest and on the back of a view, is a big call.
22 WWW.MONEYMARKETING.CO.ZA
CRAIG ABBOTT co-head of institutional discretionary fund management, RisCura
Guiding your clients to a better 2021
I
t’s that time again, when we reflect and begin to plan our path for the new year. Safe to say, 2020 has been tough for most, and with the year being such a whirlwind of economic ups and downs, it can be worthwhile to recap some important strategies. These not only pay off for clients but are useful refreshers to keep in mind for any investors. Expected returns Making changes to investment portfolios off the back of a tough year like 2020 is not an easy decision. There is often the risk of leaning towards a more emotional choice than a rational one. That is why taking a three- to five-year view, or longer, is recommended to understand how a portfolio measures up, relative to its benchmark and its peers. Based on last year’s returns, you will be able to see how much volatility or risk is built into a portfolio, and that should provide clarity for going forward. Cost of funds Try to obtain a portfolio that allows you to generate alpha, while remaining mindful of costs. Passive funds are cost-effective, but often buying the market beta does not allow you to generate growth alpha. Having too many portfolios that are blended, on the other hand, can also be expensive, depleting any alpha after costs. Often a blend of passive and active funds can be structured through an active multi-managed portfolio, but price sensitivity should remain. It is also important to understand how your performance fees work, when they are taken and how they are benchmarked, as these count as an additional layer of costs, deducted from the return.
Change is as good as a holiday There are a wide range of portfolios that still offer a ‘vanilla strategy’, built when it was appropriate. Today, many investors are still in the same portfolios, with little change in their investment exposure. They need access to alternatives that can enhance the value of existing investments. For example, exposure to China has increased recently, given its optimistic growth outlook. Alternative asset classes, impact investing and ESG are all essential considerations for a robust investment portfolio. Combating too much choice Too often individual members that make their own investment choices (for example, in an employee pension fund) will go by brand to make their selection. It is difficult to choose an unfamiliar name, especially when there are many choices available. This is why it is always advisable for an independent financial adviser (IFA) to guide the process of understanding the different funds, their performance, expectations and risks. A multi-managed option could provide a solid foundation as it encapsulates many different managers, which provides diversification through style, manager, stock selection and geographical location. Diversification can be the choice between getting the right exposure and missing out altogether. Keeping the above in mind, while ensuring the correct exposure according to risk profile is factored in, will go a long way this year and beyond.
FEATURE: LONG-TERM INVESTING LESSONS FROM 2020
31 December 2020
RAYHAAN JOOSUB Head: Multi-Asset and Asset Allocation, Sentio
Long-term investing lessons during the COVID-19 crisis
T
he COVID-19 crisis this year in spectacular fashion, despite the wreaked havoc on global economy being in terrible shape. So, economies and financial clearly one of the lessons is that the markets alike. However, while global equity market leads the economy – economies are still in the grips of but that is only partly true. Liquidity the crisis, financial markets have drives financial markets and central made a remarkable recovery since banks understand the important the lows in March linkages between of this year. So, what financial markets and were the lessons CENTRAL BANKS the real economy. Harsh that we can take lessons were learnt post WERE EXTREMELY the global financial from this amazing QUICK IN development? crisis in 2008 and UNDERSTANDING central banks will now Liquidity and do ‘whatever it takes’ THE GRAVITY OF financial to support financial markets markets in order to THE CRISIS Let us first avoid the ‘second round understand the reasons behind effects’ into the real economy. In the this amazing market rally. For one, graph below, we show the importance central banks were extremely quick of financial liquidity, which tends to in understanding the gravity of the lead equity markets. A clear lesson crisis and therefore reacted quickly here is that once a crisis does ensue, by cutting rates and launching an it’s probably too late to sell. In fact, aggressive QE policy. This liquidity volatility is your friend during a crisis, supported financial markets with and you should rather take advantage credit spreads narrowing and equity of the attractive prices of risk assets to prices rallying off their March lows add to your portfolio.
Sentio_MM_Dec 2020_V2.pdf
C
M
Sentio Capital Management (Pty) Ltd is an authorised FSP.
Source: BCA, Bloomberg
1
2020/11/02
09:32
Source: Sentio Capital Management
Appropriate investment strategy But how do you deal with the large portfolio drawdowns and the volatility that these ‘Black Swan’ events bring about? Well, the first thing you need is an appropriate investment strategy that is well designed to your financial goals in terms of required returns, but also the strategy must be wellsuited to your temperament, as this becomes crucial when markets are falling. If your investment strategy is too aggressive, you will not be able to stomach the losses and invariably cut your losses at the bottom, which will lead to disastrous consequences for your long-term financial goals. This is because the initial market recovery, post a large sell-off, is most often the strongest period for equity markets. Missing out on those periods of market recovery can lead to very sub-par investment returns in the long term. Strategic asset allocation So, what makes a good investment strategy? Broadly, it involves
designing a strategic asset allocation benchmark that is appropriate to your required returns and risk tolerance. This strategic allocation must effectively give you exposure to the risk premiums available in the market to achieve your return objectives, but must also be adequately diversified to provide you protection during troubled times and thus minimise the impact of market drawdowns on your portfolio. The graphic above shows the average returns of assets during normal and crash markets, and shows the benefits of foreign bonds, foreign cash and derivative hedges in order to diversify a South African equity portfolio during troubled times. Designing the strategic asset allocation requires a good mix of return-generating assets and diversifying assets in order to balance your return and risk objectives; and this strategy should be followed in a disciplined manner, irrespective of market conditions. This will force you to buy into weakness and sell into strength – and avoid costly errors like selling at the bottom of markets.
BUY INTO WEAKNESS. SELL INTO STRENGTH.
Y
CM
MY
CY
CMY
K
A majority black-owned asset manager.
WWW.MONEYMARKETING.CO.ZA 23
FEATURE: LONG-TERM INVESTING LESSONS FROM 2020
MARK LOVETT STANLIB Head of Investments
31 December 2020
Investment lessons from 2020
2
020 will forever be associated with the COVID-19 pandemic. It necessitated some fundamental changes in behaviour, some of which will be only temporary. However, there are certain areas where structural and more permanent change will occur. I will explore these under five broad themes. 1. Geo-political issues • Reversal of globalisation trends This is undoubtedly the most significant risk that we face as a result of COVID-19. Our central view should be that we can no longer rely on globalisation as a tail wind for economic growth and financial markets. During this crisis, some of the dependencies associated with globalisation became painfully evident, including no/limited access to domestic manufacturing capacity in key segments of the economy, as well as long supply chains and high regional dependencies. National vs globalisation
DURING THIS CRISIS, SOME OF THE DEPENDENCIES ASSOCIATED WITH GLOBALISATION BECAME PAINFULLY EVIDENT
24 WWW.MONEYMARKETING.CO.ZA
debates will take place against the backdrop of a substantial increase in domestic unemployment, adding to the pressures on halting or reversing some of the trends. • Anti-China sentiment Another substantial risk for global economic growth is a sustained period of anti-China sentiment, particularly if the COVID-19 post-mortem identifies that China lacked transparency on the initial virus outbreak. This risk is primarily at the geo-political level but may also spread to the consumer if the postmortem reveals that China fell short of its moral obligations. • Addressing neglected country risks The COVID-19 pandemic has embarrassed several countries in their lack of preparedness for a potential crisis. Post the crisis, there will be a reassessment of the domestic capability to deal with a wider collection of future risks and not to be too reliant on internationallyfunded organisations. • Tax systems will need to change All countries will face significant fiscal pressures. For example, in SA the long-term fiscal consequences of COVID-19 will be enormous, raising questions about government’s achievable priorities. Apart from reducing expenditure, governments will have little choice
but to look at both corporate and income tax regimes to address the fiscal deficits. • Radical financial remedies become mainstream The unprecedented monetary and fiscal response to the crisis will raise questions about whether such policies should become more permanent in nature and enter mainstream political debate. Issues could include Modern Monetary Theory, Debt Forgiveness and Universal Basic Income (UBI). 2. Disruptive technologies become mainstream • Growth in internet-based transactions The lockdown associated with the COVID-19 pandemic has provided an enforced re-appraisal by individuals and corporations of the type of transactions that can be undertaken online. COVID-19 has accelerated that acceptance curve. Individuals and corporations have literally been forced to move to internet-based transactions. • Payment Technologies (including security) Payment technology is already a massive market but the combination of the proliferation of commercial sales channels plus a continued move away from cash transactions (hygiene) could supercharge growth rates.
FEATURE: LONG-TERM INVESTING LESSONS FROM 2020
31 December 2020
• Remote working Another long-term trend that I expect to accelerate post-COVID-19 is the corporate acceptance of remote working. It will have major implications for certain critical industries. There is likely to be a long-term reduction in the demand for office space as well as a more immediate boom in technology associated with remote working - both physical infrastructure and supporting software. • Growth in AI and Virtual Reality Related to the debates above, I expect there will be increased recognition and utilisation of AI and Virtual Reality tools. It remains to be seen if successful utilisation of virtual reality can undermine the stranglehold that physical location-based businesses have on areas like training, events and conferences – a huge and extremely expensive component of corporate budgets. • Growth in streamed entertainment During the lockdowns, individuals were forced to find in-home entertainment as a replacement for traditional activities. While this is likely to be largely a temporary enthusiasm, some extremely well-established streamed activities will be able to use the COVID-19 experience as a platform for even stronger growth going forward. 3. Behavioural changes • Hygiene The effect of the COVID-19 crisis could be longer-lasting in hygiene and social distancing. A desire or even requirement for personal space – particularly in an indoor environment – will become embedded. This will challenge high-volume, low-cost business models where utilisation rates are crucial. Demand for hygiene-related products will remain elevated for an extended period. • Sharing economy business models more challenged Several global businesses and brands were established on the back of the growth in the sharing economy, such as Uber or Airbnb. With hygiene concerns, there must be doubt about whether their historical growth rates can be maintained. Any slowdown could have material implications for business valuations in the public and private capital markets.
COVID-19 has spotlighted is remote learning. There are also opportunities for remote application in the corporate world, where location-based training is still a huge expense that could be transformed with the adoption of professional remote provision. • E–financial services The COVID-19 crisis, and particularly the corporate lockdowns, are magnifying the debate about an acceleration in the potential disintermediation of traditional financial services adviser/ physical contact models, to be replaced by platforms or remote AIorientated business models. It is likely that advice will remain a crucial part of the client relationship but may need to evolve with a focus on specific specialist skills. • E-fitness Lockdowns severely restricted people’s ability to exercise in a traditional way. Individuals have responded by exploring new home fitness opportunities – whether simple recorded fitness videos or the much more sophisticated multi-media orientated fitness-based products. • Moderation in regulatory barriers to new technology Prior to COVID-19 there was significant governmental, regulatory and media pressure to exert more control over large technology companies. In the war on COVID-19, large technology companies are suddenly seen as part of a solution rather than a problem. The effective dissemination of information and leadership in contact tracing are seen as opportunities for redemption for the technology companies. 5. Business challenges A few issues associated with the post-COVID-19 world may challenge the ability of some companies to return to recent margin and ROCE peaks. Strategic asset allocation debates
could look to challenge equity with better riskadjusted asset classes elsewhere in the capital structure (e.g. credit or separate asset classes like Infrastructure). Apart from taxation, below are some of the issues that will face businesses globally: • Business held more accountable to different stakeholders - I believe this will be the most significant post-COVID-19 business challenge, as bail-outs that have benefited the whole business community will raise the expectation that business should support a broader base of stakeholders, including governments and employees. Future dividend payments, and certainly share buybacks, will be scrutinised.
ANOTHER SUBSTANTIAL RISK FOR GLOBAL ECONOMIC GROWTH IS A SUSTAINED PERIOD OF ANTI-CHINA SENTIMENT • Challenge to real-time supply chains - After product and component availability was highlighted in several areas, the super-efficient, real-time global supply chains that industry has relied on may be replaced with logistics that has some slack for business continuity. Future supply chains will probably need some flexibility, which would hurt profit margins. • Assessing the permanence of changes In 2020, COVID-19 has undoubtedly driven a dramatic and sudden shift in financial systems and societies worldwide. The extent and depth of this impact still remains uncertain and is likely to be individual to each nation. Assessing whether changes across these many themes, both locally and globally, will be sustained is critical in steering our investment decision-making.
4. New routes to market • E–healthcare COVID-19 will not only accelerate wellestablished growth trends but also catalyse emerging trends to become mainstream, such as e-healthcare. Consumer acceptance of remote diagnosis, engagement and even consultation during the lockdown will accelerate the attraction of e-business models focused on efficiency, immediate access and remote monitoring. • E–education The other significant opportunity that
WWW.MONEYMARKETING.CO.ZA 25
FEATURE: LONG-TERM INVESTING LESSONS FROM 2020
31 December 2020
DR ADRIAN SAVILLE Chief Executive, Cannon Asset Managers
Investment lessons from a terrible, horrible, no-good, very bad year
I
n a speech marking the 40th anniversary of her accession, Queen Elizabeth said, “1992 is not a year on which I shall look back with undiluted pleasure. In the words of one of my more sympathetic correspondents, it has turned out to be an annus horribilis.” By gilded standards, it had been a horrible year for Britain’s royal family, with a fire at Windsor Castle, the tragedy of family suicide and, just a few days after the Queen’s speech, the separation of Prince Charles from Princess Diana. Yet, if those were the standards by which a horrible year was measured, 2020 has reset the bar, with the world hammered by a deadly pandemic, communities ripped by police brutality, plunging global growth, the loss of hundreds AN ANNUS of millions of jobs, HORRIBILIS protests and corporate DOESN’T HAVE collapses. However, this year TO BE AN has not been awful by INVESTMENT all measures. The S&P HORRIBILIS 500 is 5% higher in November than it was in January and the gold price is up almost $500/ oz, making for a bonanza for gold miners. Tesla, Zoom, Fiverr and Shopify have thrived, as have pharma, healthcare and biotech businesses such as BioNTech, Livongo Health and Immunovant, which between them have added 250% to their market cap. Others have experienced the full force of the annus horribilis, with the magnitude of bankruptcies ranked by assets in 2020 towering over 2008. Collapsed companies include carrental company Hertz, oil-and-gas business Chesapeake Energy, and retailers JCPenney, Neiman Marcus and J. Crew. Meanwhile, listed South African real estate has lost half its value in 2020, futures contracts for crude oil fell into negative prices in May before recovering somewhat to a much-depressed level, and owners of Turkish and Brazilian bonds have lost a quarter of their capital.
26 WWW.MONEYMARKETING.CO.ZA
But this awful year is passing, and tough times will become better. This is not to suggest that 2021 will mean complete repair; some things will remain deeply entrenched or may even have worsened because of the pandemic. Social exclusion, economic inequality and partisan politics are cases in point. There also are economic, social and financial risks in a second wave, which could be most pronounced in Europe. But, overall, the signs point to recovery, and with this in the frame, the experiences of the annus horribilis offer at least three valuable investment lessons for building future-proof portfolios: 1. Prepare to be surprised First, forecasting is a dangerous activity. This doesn’t mean you shouldn’t think about the future. Instead, know that the future will be filled with unexpected shocks and surprises – sometimes good, sometimes bad, but always unknowable ahead of time. The implication is that investments should not be built for the known or the widely anticipated. Rather, they must be built to withstand the harshest and worst circumstances. To quote Nassim Nicholas Taleb, “To not foresee a tsunami or a crash is forgivable; to build something fragile is not.” On this, one of the most powerful protectors of investments against the unknowable future is portfolio diversification. 2. Be guided by principles – not crowds Second, while following the crowds may feel right or seem sensible, rather choosing to focus on sound investment policies and principles will prepare you for times of stress. Notably, investing is ultimately about owning good assets that have been bought at the right price, and then holding the line though periods of economic stress. Of course, there is a key caveat that was perhaps best summed up by American economist Paul Samuelson when he quipped in an interview with journalist Austin Kiplinger, “When events change, I change my
mind. What do you do?” If circumstances translate into broken businesses or defunct business models, then holding the line isn’t discipline – it’s folly. 3. Choose wisely Third, investing is as much about what you own as what you don’t own. Consider Catherine Wood’s ARK Invest, well known for its exceptional record in cutting-edge themes, whose successful investments in leading innovators have also flagged industries and sectors most at risk of disruption. For example, investments that you will not have wanted to own in 2020 are bricks-and-mortar retailers and travel businesses. Beyond 2020, Catherine Wood raises flags over the likes of “linear television, branched banking, physical retail and traditional transportation”, with unyielding demand switching to “streaming, e-wallets, e-commerce, electric vehicles and autonomous transport technologies.” Firms like Jack Ma’s Alibaba and related Ant Group, with widely successful retail platforms, mobile payments, branchless banking and platform insurance, fit this bill. But alongside disruptors, diversification insists that we also invest in ‘stayers’ who have navigated 2020 in fine form. This includes countries such as Vietnam, New Zealand, Taiwan and Singapore, which have stood out as antifragile, as well as companies such as the Hong Kong-headquartered Mandarin Oriental Hotel Group (M.O.), which reinvented the luxury hotel experience during lockdown with an innovative staycation programme and ‘room service’ delivery to nearby homes. This meant that while many hotel businesses have come under acute pressure in 2020, the M.O. share price has remained flat over the year – not exactly a stratospheric return, but a good result compared to the generally sad circumstance of the leisure industry. This is the type of business we want to own. And it’s these basic principles that mean an annus horribilis doesn’t have to be an investment horribilis.
RETIREMENT
31 December 2020
The impact of retirement reform in SA
C
hanges to retirement benefits a pension (annuity) from a registered for provident fund members insurer when they retire. However, – initially meant to come in pension fund members must use at least five years ago and now scheduled for two thirds of their retirement benefit to next March – will see tax uniformity buy a pension, unless the total benefit is for all who contribute towards less than R247 500.” retirement. These changes, in terms of the Taxation Laws Amendment Act, How retirement reform will also encourage greater savings, affects members something South Africa desperately From 1 March 2021, retirement needs as it seeks to crawl its way out of benefits from provident funds will be an economic hole. treated in the same way as pension Dolana Conco, regional executive, funds for the part of the benefit based consulting at Alexander Forbes, says, on contributions. Conco explains “One of the aims of retirement reform what the changes for provident fund is to create a uniform retirement fund members are: system for all types of retirement savings 1. Provident funds will have the same vehicles, such as pension, provident and annuitisation rules as pension funds: retirement annuity funds. This will allow This means that members will have to all members to receive buy a pension (annuity) the same tax treatment of from a registered the money contributed, insurer with at least THE CHANGES and how benefits can be thirds of their ARE BENEFICIAL two paid at retirement.” retirement benefit, FOR MOST Alexander Forbes unless the total benefit Member Watch analysis is R247 500 or less. RETIREMENT shows that about 50% of 2. Vested rights will FUND MEMBERS apply. Retirement members retire with less than one fifth of their savings will be ringfinal salary to live on in retirement. fenced as follows before the new Many reforms have been legislation takes effect: implemented over the last few years, • Any provident fund balance saved but it has been a long journey for before 1 March 2021, plus the future this next vital step. “The changes are growth on this until retirement, beneficial for most retirement fund won’t be affected and can be taken in members, and encourage greater cash on retirement. savings for retirement and address • Members who are 55 years or older issues in the retirement system,” adds on 1 March 2021 will not be affected Conco. by this change at all if they stay a “Currently, provident fund members member of the same provident fund can take their retirement benefit as a full (or provident preservation fund, as cash lump sum and do not have to buy proposed in the draft Taxation Laws
Stretching the retirement cents further
I
t’s well known that medical advancements, together with healthier diets and lifestyles, mean people are living longer, which brings an increased risk of clients outliving their retirement savings. There’s also the added complication that investment markets, traditionally a safe haven for the retirement pot, are becoming more volatile. Liberty has redesigned and updated its offerings to cope with these trends in investment markets and changes in retirement lifestyles. “Today’s economic climate is more challenging than ever due to its effect on the investment markets and the cost of living. The idea is that we can now offer the features and benefits clients find the most valuable and offer them as stand-alone add-ons,” says Henk Appelo, Liberty Investment Product Developer. The Liberty Living Annuity, formerly known as the Liberty Bold Living Annuity, has been redesigned
Amendment Bill) until retirement. This means that the retirement benefit will be treated in the same way as it is currently being treated when these members retire. If these members transfer to another fund, they will still have vested rights, but contributions and growth on this to the new fund will require them to buy a pension with two thirds of their retirement benefit. The benefit of this change is that funds will be able to transfer members’ savings tax efficiently. Conco suggests that employers who have multiple retirement funds consider consolidating these funds, as pension funds, provident funds and retirement annuity funds will be harmonised in the tax treatment of contributions and the retirements benefits at the time of retirement. Consolidation requires many other factors to be considered. One such example is understanding the implications on vested rights when transferring provident fund members who are 55 or older on 1 March 2021.
with the core idea being to offer more choice to clients, while simplifying existing ones. One of the features is its Income Enhancer Benefit. This is designed to provide an additional layer of security against the client running out of money. “Clients have the option to commit a percentage of their investment to a bonus pool when they pass away. In exchange, they will receive a bonus pay-out when other contributors pass away. In essence, this benefit enables individuals to get bonuses as they grow older to help offset living longer than expected and potentially running out of money,” says Appelo. “This means that if they have two or more qualifying Liberty investments, we will group their combined investment values to reduce the overall platform fee. The higher the combined value of their investments, the lower the aggregated platform fee,” explains Appelo. The Living Annuity maintains its High Water-Mark Guarantee optional feature, which lets clients invest more aggressively with the aim of enjoying higher potential returns, while keeping downside risk at bay. “A High-Water Mark Guarantee protects your investment from falling by no more than 20% of the highest value reached at the end of every three months.
Other factors include: • the size of the funds • potential cost savings or cost implications • Section 14 transfer requirements • deregistration • liquidation requirements of the transferor fund, and so on. “The changes to ensure further harmonisation between pension funds, provident funds and retirement annuity funds take effect on 1 March 2021. It is important for trustees to start implementing project plans to get ready for these changes. Amendments to rules, communication to members, and fund consolidation will be some of the matters to consider,” says Conco.
Dolana Conco, Regional Executive: Consulting, Alexander Forbes
It is based on the value of your investment at the end of every quarter. If, at this point, your investment has reached a new high, your guarantee increases to take this into account. So you can lock in your growth and protect against drops. Even if the markets go down, your investment is protected, thus creating a safety net during market downturns,” says Appelo. “Financial advisers and fund managers are always looking for fresh strategies to accommodate the retirement realities of clients. With the Income Enhancer Benefit and High-Water Mark Guarantee options, you can tailor a policy in a number of ways to ensure that your client can benefit from growth and the full value of their investments in the long term,” he says.
Henk Appelo, Liberty Investment Product Developer
WWW.MONEYMARKETING.CO.ZA 27
RETIREMENT
RISK
LOUIS THERON Head: Investments and Annuity Products: Liberty Corporate
Understanding preservation options when every cent counts
A
mere 6% of retirement fund members choose to preserve their savings when leaving their employers. The other 94% of members choose cash and must restart their retirement savings journey, often from zero. In this time, when the impact of the COVID-19 pandemic has placed enormous financial strain on families, it has never been more important for members to preserve their retirement savings. Yet, in challenging times, the important decision members have to make when choosing to preserve their funds cannot be underestimated. In an attempt to improve preservation levels, Regulation 38 of the Pension Funds Act has required all retirement funds to make in-fund preservation available since 1 March 2019. This allows a member who has left their employer to retain their savings in the fund while no longer contributing into the fund. Some important differences exist between in-fund preservation and traditional ‘out-of-fund’ alternatives like preservation funds and retirement annuities. Understanding these can make a notable difference to a member’s retirement journey. In-fund preservation options typically charge lower fees Regulation 38 specifically requires that, inside a fund, a preservation member continues to have access to the same list of investment portfolios at the same or a lower price. Fees could be substantially higher for some out-of-fund alternatives. The picture below illustrates the compounding effect that lower fees have on a member’s preserved savings leading up to retirement. Assuming the same investment growth and advice fees for both options, this example shows that the accumulated preserved retirement savings of a 22-year-old member can be 53% higher (i.e. the blue line is above the red line) as a result of the underlying fees charged. The red line assumes an annual investment management fee of 1.5% and the blue line assumes 0.35%. In current economic times, with investment performance under pressure, lower fees can add substantial value to a member. In-fund preservation options do not require transfer forms To choose in-fund preservation can be as simple as ticking a box. As the member remains in the fund, they do not need transfer documentation such as recognition of transfer and Section 14 documents. The COVID-19 pandemic has made face-to-face consultations with members difficult for financial advisers and product providers, so having a more seamless preservation process can benefit all parties. Partial withdrawals and advice fees Out-of-fund preservation options allow members to make a partial withdrawal from their preserved retirement savings. This can be at inception or a once-off before retirement. For in-fund preservation, the preserved member remains a fund member and, as such, is not allowed to make a partial withdrawal until a claim event happens, such as retirement, death or withdrawal. Both in-fund and out-of-fund preservation options allow a member to pay negotiated advice fees to their financial adviser. In the case of in-fund preservation, it is up to the fund trustees to approve the facilitation of any advice fee payments as an expense from the fund. With an out-of-fund preservation option, legislation dictates the usual commission and ongoing adviser fee limits. In current economic times, it is important to carefully consider any payment from a member’s preserved retirement savings against the value gained from doing so, and the longer-term impact it has on the member’s ability to retire comfortably. A financial adviser can assist a member to better understand these trade-offs.
28 WWW.MONEYMARKETING.CO.ZA
31 December 2020
DONALD DINNIE Director, Norton Rose Fulbright
D&O insurance and reflective loss claims
A
t common law, when a wrong is done to a company only the company can sue for the damage caused to it. That does not mean that the shareholders of the company may not consequentially suffer any loss (what is known as a reflective loss). Any negative impact the wrongdoing has on the company is likely to affect its asset value and the value of its shares. The shareholders, however, do not have a direct cause of action against the wrongdoer. The company alone has the right of action.
DIRECTORS OWE A FIDUCIARY DUTY TO THE COMPANY AND NOT ITS SHAREHOLDERS A shareholder cannot recover damages merely because the company in which they are interested in has suffered damage. They cannot recover a sum equal to the diminution in the market value of their shares or equal to the likely diminution in dividend because such a loss is ‘merely a reflection of the loss suffered by the company’. This common law position has been confirmed in two recent judgments, the Supreme Court of Appeal case of Hlumisa Investment Holdings (RF) Limited and Others v Leonidas Kirkinis and Others, and the Gauteng High Court judgment of De
Bruyn v Steinhoff International Holdings N.V. and Others. In both cases, the question was whether section 218(2) of the Companies Act 2008, which states that ‘any person who contravenes any provision of this Act is liable to any other person for any loss or damage suffered by that person as a result of that contravention’, provided shareholders with a statutory right of action and changed the common law prohibition against a reflective loss claim. The courts said the company’s existence as a separate legal person, and the fact that it is the company that has a right to recover damages for the loss, deprives a shareholder of any such claim. The person who can sue in terms of section 218(2) to recover the loss is the one to whom harm was caused. In both cases, the loss was occasioned to the company and that is the entity with the right to claim. Shareholders may pursue a derivative action under section 165 of the Companies Act if the company refuses to act to protect its rights. Compensation, which is then due to the companies, would benefit the shareholders. The law remains that directors owe a fiduciary duty to the company and not its shareholders, and that those shareholders cannot claim from directors for any reflective loss suffered. The common law in that regard is not altered. This will have a limiting effect on potential claims under Directors & Officers insurance policies.
TBWA\HUNT\LASCARIS 926709
Caring matters most when your client’s business has had to change everything.
Offer them corporate benefits they can rely on for their employees’ financial well-being. Businesses with corporate benefits can support their employees better, with access to value-added services* like well-being counselling, personal financial planning and advice, when unexpected things happen. Give them the peace of mind that even though the present may be disrupted, they have the reassurance of a secure future with their risk and long-term investment planning needs being met. We can’t predict the future, but together we can plan for it. Liberty’s corporate benefits are supported by more than 10 000 employers**. Email lc.contact@liberty.co.za for more details on how Liberty can partner with you in tailor-making Umbrella Fund Solutions, to help your clients care for their greatest asset.
2018 BUSINESS LONG TERM INSURANCE CATEGORY WINNER
Liberty Group Limited (Reg. no. 1957/002788/06) is an Insurer and an Authorised Financial Services Provider (FAIS no. 2409). Terms and Conditions apply. *Value-added services are provided by a third party service provider. **The employers referred to in the ad are Liberty’s corporate clients that participate in our umbrella funds and risk schemes. For more details about benefits, guarantees, fees, tax, limitations, charges, contributions or other conditions and associated risks, please speak to a Liberty Financial Adviser or Broker or visit our website.
RISK
31 December 2020
GEORGE KOLBE Head: Momentum Life Insurance Marketing
Income protection: The best of both worlds
J
ust as a monthly income gives clients a feeling of control and certainty that they are in a position to fund their lifestyle and manage their expenses, so too must income protection provide clients with certainty that their monthly income is protected and will continue when disaster strikes. Momentum Myriad’s new Complete Income Protector Benefit delivers on these requirements in the most concrete way possible. The goal of income protection is to ensure your clients continue to receive a monthly income should they become temporarily or permanently disabled; with the objective that their financial position remains the same before and after an event. The Complete Income Protector Benefit creates the opportunity to combine the best features of income disability and lump sum disability in a unique industry-first solution. For clients who require a long-term disability income, this benefit provides peace of mind that they will continue to receive a monthly income when they can no longer perform their occupation due to a temporary or permanent disability, or suffer from a defined illness or impairment. This benefit is ideally suited for clients who earn a salary, commission or fees, and who do not have a group income protection benefit.
This rider benefit was designed to provide the best features of both income disability and lump sum disability at an affordable price. When selecting this rider benefit, a client has the flexibility to commute a part, or all, of their future monthly income protection pay-outs to a lump sum payout whenever they choose to, once a permanent disability claim is assessed and approved.
Imagine a scenario where two clients paid the same premium and qualified under the same claims criteria. It is often considered unfair that a client who is terminally ill and passes away a year after becoming disabled only received pay-outs for a period of 12 months, while a client who is unable to work due to a musculoskeletal injury receives payouts until the benefit expiry date, which might be many years after the disability event. Alternatively, clients can select a lump sum disability benefit that provides a full capital pay-out in the event of disability. Fairness is achieved as there is no link between the likely life expectancy and the payout. This benefit is typically more expensive compared to a monthly income benefit, as the cover typically increases as your clients approach retirement. The capital that is needed to provide an income until retirement age typically reduces as your clients near retirement age, so potentially less cover is required. A further challenge with this scenario includes your clients taking the risk of managing the investment and drawdown of capital responsibly to ensure that the capital lasts long enough. Also, when lump sum benefits are selected, your clients’ financial planning must include adequate cover for an extended period, and this requires detailed financial analysis.
One size does not fit all Current market choices allow your clients to only choose between two extreme options when it comes to protecting their income, in the event of a disability. They can choose an affordable income protection benefit that indemnifies them against a loss of income, or a lump sum disability benefit that provides a capital pay-out in the event of disability. Both have certain advantages and drawbacks. With income protection benefits, pay-outs will continue for as long as your clients are disabled and will cease at the selected benefit expiry date or in the event of their early death. However, this indemnity approach does come with some sense of unfairness.
Reinventing income protection With Momentum Myriad’s new Permanent Disability Enhancer, available as a rider benefit to all our Complete Income Protector Benefits, your clients can now get the best features of both an income protection and a lump sum disability benefit at an affordable, extra cost. By adding this rider benefit to your clients’ Complete Income Protector Benefits, they will have the following choices when it is determined that they are permanently disabled: • Option 1: Your clients can select to receive the regular income up to their benefit expiry date. However, should your clients pass away before the benefit expiry date, we will convert
Permanent Disability Enhancer Benefit Myriad adds another layer to income protection that will provide your clients with even more income certainty by introducing the Permanent Disability Enhancer Benefit, as an optional rider benefit, that can be added to the Complete Income Protector Benefit.
THE GOAL OF INCOME PROTECTION IS TO ENSURE YOUR CLIENTS CONTINUE TO RECEIVE A MONTHLY INCOME SHOULD THEY BECOME TEMPORARILY OR PERMANENTLY DISABLED
30 WWW.MONEYMARKETING.CO.ZA
the outstanding monthly pay-outs to a lump sum and pay it to their beneficiaries, or into their estate. Alternatively, because your clients are able to convert to a lump sum at any stage after a successful claim, they will also have the opportunity to convert a portion, or all, of the income into a lump sum amount at any stage prior to their death. • Option 2: Your clients have the option to convert the full, or part of, their future income protection pay-outs into a lump sum pay-out. In addition, your clients can exercise this option at claims stage or any time thereafter. They can even exercise the option multiple times, for as long as they have not yet converted 100% of their future disability income. Truly the best of both This new solution empowers clients to insure themselves against a loss of income, with the claim certainty of having access to a regular income payout with no exposure to investment risk, and with the comfort that pay-outs are guaranteed until the selected benefit expiry date. Also, if a client qualifies to commute their income to a lump sum pay-out but decides to rather receive a monthly pay-out, the monthly pay-out will not be subject to any financial reassessment against active income or other income disability benefit pay-outs. Clients’ financial needs can change in a heartbeat, especially if they become disabled. When the Complete Income Protector Benefit is combined with the Permanent Disability Enhancer rider benefit, your clients have the ultimate flexibility in choice when replacing their income, as it combines the best features of income disability and lump sum disability. They will have the advantage of cover for temporary and partial disability that is not provided by lump sum benefits, while also having the option of lump sum pay-outs if they qualify for a claim on the Permanent Disability Enhancer Benefit criteria – something that is not normally available on income protection benefits.
EDITOR’S BOOKSHELF
31 December 2020
CLOSING THE GAP BY TSHILIDZI MARWALA
THE RHINO CONSPIRACY BY PETER HAIN
Closing the Gap is an accessible overview of the fourth industrial revolution (4IR) and the impact it is set to have on various sectors in South Africa and Africa. It explores the previous industrial revolutions that have led up to this point and outlines what South Africa’s position has been through each one. With a focus on artificial intelligence as a core concept in understanding the 4IR, this book uses familiar concepts to explain artificial intelligence, how it works, and how it can be used in banking, mining, medicine and many other fields. Written from an African perspective, Closing the Gap addresses the challenges and fears around the 4IR by pointing to the opportunities presented by new technologies and outlining some of the challenges and successes to date.
BILLION DOLLAR LOSER: THE EPIC RISE AND SPECTACULAR FALL OF ADAM NEUMANN AND WEWORK BY REEVES WIEDEMAN
Peter Hain was born in Kenya and raised in South Africa, moving to the UK in the 1970s where he became a leading anti-apartheid activist. He served in Tony Blair’s government in a number of cabinet roles and today he is a member of the House of Lords. This year, Hain produced his first novel, a riveting read that describes the illegal rhino horn trade in South Africa and the political apparatus in the country that helps perpetuate rhino poaching. The book follows the poaching gangs who resort to extreme levels of violence to hunt down valuable rhino horns. Battling to defend the dwindling rhino population, a veteran anti-apartheid freedom fighter is forced to break his lifetime loyalty to the ANC as he confronts corruption at the very highest level. The veteran and his colleagues are hell bent on catching the poachers and exposing their trade but first they must establish the truth. The stakes are high. Has Mandela’s ‘rainbow nation’ been irretrievably betrayed by political corruption and cronyism? Can the country’s ancient rhino herd be saved from extinction from state-sponsored poaching?
In its earliest days, WeWork promised the impossible: to make the American workplace cool. Adam Neumann, an immigrant determined to make his fortune in the United States, landed on the idea of repurposing surplus New York office space for the burgeoning freelance class. Over the course of ten years, WeWork attracted billions of dollars from some of the most sought-after investors in the world, while spending it to build a global real-estate empire that Neumann insisted was much more than that: an organisation that aspired to nothing less than ‘elevating the world’s consciousness’. Moving between New York real estate and Silicon Valley venture capital, Billion Dollar Loser lays bare the internal drama inside WeWork. Based on more than two hundred interviews, this book chronicles the breakneck speed at which WeWork’s CEO built and grew his company along with Neumann’s relationship to the world of investors, including Masayoshi Son of Softbank, who fuelled its chaotic expansion into everything from apartment buildings to elementary schools. Culminating in a day-by-day account of the five weeks leading up to WeWork’s botched IPO and Neumann’s dramatic ouster, Wiedeman exposes the story of the company’s desperate attempt to secure the funding it needed in the final moments of a decade defined by excess. Billion Dollar Loser is the first book to capture the highly leveraged, all-blue-sky world of American business in President Donald Trump’s first term, and also offers a sober reckoning with its fallout as a new era begins.
SUBSCRIBE TO
BOOKS ETCETERA
SUDOKU ENTER NUMBERS INTO THE BLANK SPACES SO THAT EACH ROW, COLUMN AND 3X3 BOX CONTAINS THE NUMBERS 1 TO 9.
GET A 12-MONTH SA SUBSCRIPTION FOR ONLY R494! (SA postage only, including VAT)
EDITORIAL EDITOR: Janice Roberts janice.roberts@newmedia.co.za LAYOUT & DESIGN: Julia van Schalkwyk SUB EDITOR: Anita van der Merwe
ADVERTISING ADVERTISING SALES EXECUTIVE: Mildred Manthey Direct: +27 (0)11 877 6195 Cell: +27 (0)72 832 5104 mildred.manthey@newmedia.co.za
DISTRIBUTION & SUBSCRIPTION Felicity Garbers felicity.garbers@newmedia.co.za
PUBLISHING TEAM GENERAL MANAGER: Dev Naidoo PUBLISHING MANAGER: Sandra Ladas sandra.ladas@newmedia.co.za PRODUCTION MANAGER: Angela Silver angela.silver@newmedia.co.za ART DIRECTOR: David Kyslinger
MANAGEMENT TEAM CEO NEW MEDIA: Aileen Lamb COMMERCIAL DIRECTOR: Maria Tiganis BRAND STRATEGY DIRECTOR: Andrew Nunneley CHIEF FINANCIAL OFFICER: Venette Malone CEO MEDIA24: Ishmet Davidson © Copyright MoneyMarketing 2020 Published by New Media, a division of Media24 (Pty) Ltd.
Contact Felicity Garbers
Email: felicity.garbers@newmedia.co.za Tel: +27 (0)78 758 6227
JOHANNESBURG OFFICE: Ground floor, Media Park, 69 Kingsway Avenue, Auckland Park, 2092 Postal Address: PO Box 784698, Sandton, Johannesburg, 2146 Tel: +27 (0)11 877 6111 | Fax: +27 (0)11 877 6198 HEAD OFFICE: New Media House, 19 Bree Street, Cape Town, 8001 Postal Address: PO Box 440, Green Point, Cape Town, 8051 Tel: +27 (0)21 417 1111 | Fax: +27 0)11 877 6198 newmedia@newmedia.co.za
Printed by
, a division of Novus Holdings
Unless previously agreed in writing, Money Marketing owns all rights to all contributions, whether image or text. SOURCES: Shutterstock, supplied images, editorial staff. While precautions have been taken to ensure the accuracy of its contents and information given to readers, neither the editor, publisher, or its agents can accept responsibility for damages or injury which may arise therefrom. All rights reserved. © MoneyMarketing. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, photocopying, electronic, mechanical or otherwise without the prior written permission of the copyright owners. © MoneyMarketing is not a financial adviser. The magazine accepts no responsibility for any decision made by any reader on the basis of information of whatever kind published in the magazine.
WWW.MONEYMARKETING.CO.ZA 31
Winning the Top Advice Broker reflects our priorities as a business: to empower our clients to reach their global investment goals, to retire with dignity and to leave a lasting legacy.
Sasfin Wealth comprises Sasfin Securities (Pty) Ltd, JSE member; Sasfin Asset Managers (Pty) Ltd, FSP No. 21664; Sasfin Wealth Investment Platform (Pty) Ltd, FSP No. 45334; Sasfin Fiduciary Services (Pty) Ltd; and Sasfin Financial Advisory Services (Pty) Ltd, FSP No. 5711. This advert is general in nature and is not advice. Sasfin Wealth accepts no liability for errors or changes. As clients are responsible for their decisions, they should obtain independent advice before taking any action.