31 July 2017 | www.moneymarketing.co.za
First for the professional personal financial adviser
YOUR JULY ISSUE
JULY IS NATIONAL SAVINGS MONTH
INTERMEDIARIES APPLAUD SA’S TOP BRANDS
GLOBAL POPULATION GROWTH – A PROBLEM OR OPPORTUNITY
The FIA announces the 2017 FIA Awards winners
Crisis always has the potential to create opportunity
A key focus of this year’s savings campaign is to promote savings literacy
Hedge funds can no longer be ignored
edge funds can no longer be ignored by institutions, individuals or corporates – indeed by all potential investors – and should no longer be seen as the rebel of the unit trust family. That’s the word from Eugene Visagie, Head of Hedge Fund Investments at Novare. “Instead, advisers and investors would benefit from a well-equipped understanding of hedge funds and their investment benefits,” he adds. Investors that are currently invested in hedge funds remain very positive and have maintained the regulatory maximum exposure within their investment portfolios.
“For new investors, certain misconceptions still linger around hedge funds, especially regarding transparency and fees – both of which should really not bear a concern in the South African environment. “The South African hedge fund industry is very transparent and accessible to retail investors with increased oversight and regulation from the Financial Services Board (FSB). Despite the misconception that hedge funds are risky investments, South African-based funds are in fact relatively conservative.”
Visagie says investor education surrounding hedge funds remains key, not only to address concerns and possible misconceptions but regarding the benefits of hedge funds. Adding a portion of one’s assets to hedge fund investments can complement a well-diversified portfolio by enhancing capital preservation, lowering the overall volatility, as well as maintaining strong risk adjusted returns. Under the new regulation, hedge funds have become more accessible to a broader investor base and have been classified into two categories – retail investor hedge funds (RIHF) which have more stringent regulation requirements, and qualified investor hedge funds (QIHF).
Continued on page 2
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T +27 11 263 7700 E firstname.lastname@example.org 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. 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.
NEWS & OPINION
NEWS & OPINION
31 July 2017
EDITOR’S NOTE Continued from page 1
“Retail hedge funds are available to the general “Proof points that contradict common public, whereas it is only qualified hedge funds hedge funds myths are often overlooked that are suited for a selected investor base with due to the historic nature of hedge funds certain restrictions,” Visagie explains. keeping a low profile and gaining publicity Given the new regulation that has been put on the odd occasion when a blow-up or in place to make hedge funds more accessible fraud case causes news headlines.” to the broader retail client base, it is important Although hedge funds invest in the that investors understand that hedge fund same asset classes as traditional unit trust investments do have unique risks – as with funds, the difference is that they can take any investment vehicle. advantage of a wide range of investment “Hedge funds can play a vital tools and thereby generate role in a diversified portfolio other sources of return. HEDGE FUNDS but investors would bode well to “Hedge funds tend to have HAVE BECOME be well educated before making low correlations to traditional an allocation. The best route MORE ACCESSIBLE portfolios of stocks and for a new investor would be to bonds, therefore, allocating TO A BROADER consult a well-informed, hedge an exposure to hedge funds fund savvy financial adviser can be a good diversifier.” INVESTOR BASE that can advise them sufficiently Visagie says that in regarding which fund would be best suited to an environment where traditional their investment needs and risk profile. approaches to investments have Select institutional investors in South Africa underperformed, the advantages that have been using hedge funds very successfully in hedge funds offer can no longer be their portfolios for several years. With the new ignored in a well-balanced portfolio. hedge fund regulation allowing retail investors “The recent flurries of financial market to invest into these funds, it creates new events, and persistently challenging global opportunities for both hedge fund managers as economic conditions have meant that even well as retail investors. large portfolios across various markets “Under the new regulation, hedge funds and industries have struggled to generate will be accessible to a broader investor base, returns in excess of inflation.” however, we are faced with an industry that is still in the process of transitioning and adapting For more on hedge funds, see pages 15 to 18. to the regulated environment before the effect will truly be noticed. “Bearing in mind that hedge funds were not always available to the public, the growth of the industry was kept at bay to a certain extent. Amidst this challenge, the 2016 Novare Hedge Fund Survey found the hedge fund Eugene Visagie, industry had experienced uninterrupted and Head of Hedge tremendous growth in assets of 118.3% over the Fund Investments, past five years.” Novare Visagie says many South African investors still perceive hedge funds as the riskier investment when compared to unit trusts. In fact, the two vehicles are birds of a feather.
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ill UK Prime Minister, Theresa May stay or go? One simply doesn’t know and it’s difficult to bet either way. What is known, however, is that May has no one but herself to blame for the performance of the Conservatives in last month’s UK general elections. May failed to engage the public and she also failed to present a coherent vision to the British people, relying on scaring the electorate with grim warnings about the consequences of voting for the Labour Party. This didn’t work. Investors don’t appear to be worried. Both the London Stock Exchange and the gilt market have shrugged off the news. However, what is hard to understand is the outright glee of the Labour Party. Anyone would think that Jeremy Corbyn’s party had actually won the election. As Rupert Myers, writing in the Telegraph says: “Nobody won this election, but the objective truth is that the Conservative Party performed the least badly.” Myers is correct when he states that while Labour may have beaten shamefully low expectations, one shouldn’t forget why those expectations were so low in the first place: “Corbyn is bad at parliamentary party management, and bad at leading an opposition. He has just spent two years failing to hold the government to account. He’s a surprisingly good campaigner, but once the surprise wears off, Labour’s result is still barely better in seat numbers than Gordon Brown managed.” The Corbynites’ smugness is embarrassing with their worship of their leader bordering on the delusional. As Myers points out: “Without Tony Blair, Labour haven’t won an election in 43 years, and they have failed again with their great socialist hope running on a manifesto which toned down his left-wing politics. The lesson to be drawn from this election is not that the British public are about to vote for full socialism, but that a watered-down version of Corbyn’s beliefs failed to win as many seats as Blair managed twelve years ago, after the start of the Iraq war.” Well said. Janice email@example.com @MMMagza www.moneymarketing.co.za
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4 NEWS & OPINION
31 July 2017
PROFILE ALEX TERBLANCHE, HEAD OF BUSINESS INSURANCE, AUTO & GENERAL
How did you first get involved in the insurance industry? I started my career as an actuarial analyst and joined Telesure in 2011. After joining the company, I qualified as an actuary and moved on to head the actuarial support function for Business Insurance and ValueAdded Products. In 2016, I completed my MBA at Saïd Business School, University of Oxford and returned to Telesure as General Manager for Strategic Support. At the beginning of this year, I was appointed as Head of Business Insurance. My role focusses on the development and distribution of business insurance products for the company, which at this stage includes a full commercial insurance offering for over 700 different types of businesses and a professional indemnity product.
Has the short-term insurance industry managed to stay robust in spite of SA’s slow growth? Yes. In fact, financial services in general have gone through a period of noteworthy development and innovation over the last few years. This has resulted in continued growth in the industry through our challenging economic times. The creation of new products for previously uninsured markets, technological improvements in distribution methods, and an enhanced focus on customer experience have all contributed to keep the short-term insurance industry ahead of the curve. Why is business insurance important? It is the nature of business that anything can happen at any time – that’s why business owners can’t afford not to have the best and
most agile insurance they can afford. At Auto & General, we combine traditional business insurance policy terms with more flexible options that are tailored to suit almost any type of business, from electricians, plumbers and guesthouses to medical practices, motor dealerships and restaurants. It is not only big organisations that require commercial insurance, and it also doesn’t matter whether you are a professional, semi-professional or contracted individual; every service-orientated business owner requires professional liability insurance. For example, our E&O policy covers directors and officers of a company from liability in the event of a claim made by one of its clients for an alleged error or omission that caused a ﬁnancial loss. Due to the ever-changing legislative landscape and evolving corporate governance framework,
a flawed decision by a company director or officer can lead to a catastrophic claim in the director or officer’s personal capacity. Fundamentally, every enterprise and its people exist to solve a problem or provide for a need in society. It is therefore critical that business owners have a structured insurance solution in place that protects their business against various risks the enterprise and its people face such that it can invest, take on new opportunities and focus on its key business activities.
IT IS THE NATURE OF BUSINESS THAT ANYTHING CAN HAPPEN AT ANY TIME
UPS & DOWNS Telkom last month announced that it had hiked its dividend payout by 56% to R4.22 a share for the year ended March 31, due to the 12.4% increase of its headline earnings. The company also reported a 43.3% increase in capital expenditure to R8.65 billion, with a capex-to-revenue ratio of 21.1%. It said the largest portion of its capex was deployed to its primary revenue generating areas, which are its fibre deployment zones as well
as in support of its mobile growth. “Our unrelenting investment drive for fibre and mobile has now created the required momentum to support our strategic growth areas,” Telkom added. While Telkom is listed on the JSE, the government still owns around 40% of the company.
South Africa’s gross domestic product (GDP) contracted 0.7% for the first quarter of 2017, placing the country in a technical recession, as it followed a GDP decline of 0.3% in the fourth quarter of 2016. The agriculture and mining sectors were the only areas that made
positive contributions. Agriculture increased growth by 22.2% while mining grew by 12.8%. “This dismal performance in Q1 2017 came before the credit rating downgrades, which has knocked consumer, business and investor confidence. Hence, a recession may settle in for a few additional quarters,” Coface said in a note.
VERY BRIEFLY Old Mutual Emerging Markets (OMEM) have announced the launch of a new Wealth and Investment cluster to be headed by Dave Macready, the current CEO of Old Mutual South Africa (OMSA). “The decision to form this cluster for OMEM was driven by a key strategic priority to significantly improve the overall competitiveness, market share and profit contribution of both its asset management and wealth businesses,” the company said. The new Wealth and Investment cluster, established with effect from 1 July 2017, will consist of the existing businesses of Old Mutual Investment Group (OMIG) and Old Mutual Wealth (SA), thereby incorporating all of OMEM’s investment, asset management and wealth businesses under a single umbrella. Global advisory and fund administration firm Maitland has appointed David Hathorn, until recently the CEO of FTSE 100 packaging and paper giant Mondi plc, to the Maitland Board as a Non-Executive Director. He will also act as Chairman of the Audit and Risk Committee of Maitland International Holdings plc. The appointment comes amidst a period of significant growth for Maitland which recently expanded its reach to 17 offices globally.
Trade credit insurance company, Euler Hermes, has appointed Stephane Rutili as Country Manager for South Africa. He will report to Luca Burrafato, Euler Hermes Head of Mediterranean Countries, Middle East and Africa (MMEA). Based in Johannesburg, Euler Hermes operations include a re-insurance agreement with Allianz Global Corporate & Speciality (AGCS) South Africa Limited that began in 2013. Rutili joins Euler Hermes South Africa with more than 25 years trade credit risk experience, having held several executive positions with the group. Sanlam, together with Africa Infrastructure Securities (InfraSec), recently collaborated in a strategic joint venture to unlock the investment potential Africa holds. Together they have launched the new Sanlam InfraSec Infrastructure Fund, a US$-denominated fund, to be managed via a joint venture company set up and owned by Sanlam and InfraSec. The proposed fund itself will be domiciled in Ireland, benefitting both from Ireland’s various trade and investment agreements with African countries, as well as the ease of enabling inward investment from leading DFIs and international commercial investors, due to its positioning and high governance standards.
31 July 2017
NEWS & OPINION
Communicating risk to clients is ‘complex’
new research report by British investment ratings and research agency FE, finds that most UK advisers are cautious about engaging with clients to encourage them to change their attitude to risk, even though it could be in their interests to do so. The report, Advice on Risk and Reward, analyses responses from 210 UK financial advisers with the aim of providing insights into the ways in which this community measures risk, uses it in portfolio construction and communicates the concept to clients. A key finding suggests that on average, advisers prioritise the client’s attitude to risk above their financial goals. Only 18% of the advisers surveyed often encourage their clients to take more risk to enable them to reach their financial goals and one in 10 never do so. Rob Gleeson, Head of Research at FE, comments: “Communicating the various types of investment risk to clients is complex and a daily challenge for most advisers. The reality is that most investors dislike losses much more than they enjoy any gains and advisers are mindful of this. Centring the conversation on financial goals may require them to explain to their client that a change in their attitude to risk is needed to achieve them. Our report suggests
that this is a conversation advisers are cautious to engage in.” This caution may be fuelled by a finding in the report, which shows that most respondents – 67% – are unconvinced that increasing risk will actually lead to materially increased returns. “There may also be fear of regulatory comeback even though it is not likely provided correct processes have been followed and documented, ” Gleeson explains. The report also highlights advisers’ concerns around how to articulate risk to clients. The majority (74%) rely on Attitude to Risk Questionnaires (ATQRs), and focus on volatility above other more complex types of risks that clients are exposed to. Additional highlights of the research report include: • Despite risk usually being the starting point for portfolio construction, only 42% of advisers always use a risk target when they are building portfolios • A very high number of advisers (72%) are blending model portfolios or multi-asset funds believing that this will necessarily reduce risk by increasing diversification • More than two-thirds of advisers are not monitoring
underperformance of funds against their own risk targets on an on-going basis, or reporting it to clients • Almost three-quarters of advisers (73%) think the next five years will be more risky than the past five years • Not all advisers have access to the full range of tools available to help deal with all aspects of risk and when they do, they do not always know how to use them to their full potential. “Our report highlights both the growing professionalism of the advisory industry and some significant inconsistencies in managing and communicating risk,” says Mika-John Southworth, Director at FE. “These issues must be addressed to ensure clients have realistic and achievable financial goals and have a clear understanding of potential gains and losses along the way. A change in the conversation around risk is needed to move on from a narrow dialogue centred around volatility and attitude to risk. All parties – advisers, fund managers, data analysts and technology providers – should do more to ensure the debate around risk is a balanced and holistic one.”
South Africa has seen much darker days
The spring that we are facing is not an Arab spring, but a spring of promise of development and greater harmony.” That is the perhaps unexpected prognosis by political analyst Max du Preez, speaking at the annual i3 Summit presented by Sanlam Investments and Glacier by Sanlam last month. “We have had much darker days as a nation – mass killings, displacement of people, drought, and famine. Every time, we made it through because of our built-in self-correcting mechanism. In two years’ time, we will not be talking about state capture anymore. The pendulum is swinging back; the deadlock of the past five years is broken. And this time it’s not being brought about by a messianic leader but, importantly, by the people themselves.” Du Preez pointed to parliament finally discovering its role as the people’s watchdog over the executive – and opposition parties were working together for the first time. “Live TV coverage of debates in the portfolio committees is the greatest gift to democracy,” he said. The severe shock to the economy brought about by President Jacob Zuma’s firing of Finance Ministers Nene and Gordhan was in fact a silver lining. For the first time, many ordinary citizens realised that the country was
part of the global economy. “At least now we’ve turned the corner,’ Du Preez said. “We have reason to be proud and optimistic. Open societies such as ours don’t fail. Our constitution is guarded by an independent judiciary; we have infrastructure, banks, a free press, communications, transport.” However, Du Preez warned against believing that the ‘Pollyanna scenario’ also applies to our institutions, saying they are increasingly under assault.“The political temperature is dangerously high at the moment; there is justified anger that the inequality is the same as it was in 1994. There is deep resentment that racism is still so alive. There is great frustration that Black participation in the economy is still miniscule. So, the temptation to play on populism was just too much for some politicians.” Populism plays into people’s most basic fears and prejudices, Du Preez said. It only really gained momentum in 2007 after the Polokwane leadership conference. “This populist narrative has raised the political temperature further and normalised insults across the racial divides, shortening the time we have left to transform our economy. Stability is currently our greatest asset.” Du Preez argued that we should embrace radical economic transformation, as it would ensure
the stability of the country. “But how do we implement radical economic transformation without it resulting in radical looting or radical ruin?” South Africa’s long-term success lies in education, he said, labelling the present situation of underfunded schools and unqualified teachers “a crime against humanity”. The government’s inattention to education “has done more harm than white monopoly capital.” Another remedy for the current socioeconomic malaise would require an acceptance that a Singapore-like form of state capitalism, coupled with rapid wealth redistribution to the poor via higher social grants, was required. “It is a myth that social grants lead to lazy people who are dependent on the state. Brazil uplifted 50 million people by that process. Grants were not unconditional – recipients had to prove they spent the money on education, vaccinations, food, and so on. It had a knock-on effect, providing stability to communities but also fostering entrepreneurs who previously had no fallback.” As for state capitalism, Du Preez said Singapore followed a strict recipe of strong corporate governance, a focus on high skills levels, and the use of technology. All of which built a stronger economy, more jobs, and better state-provided benefits.
“Needless to say, none of our state enterprises follows that model – not Denel, the Post Office, Eskom, SAA, or the SABC. How do those wasteful bureaucracies benefit poor people?” Du Preez said the ANC’s commitment to radical economic transformation has to be met halfway. The issue of land ownership, for instance, should not be seen by the private sector as a desire on the part of the state to confiscate commercial farms. Rather, it was a need to correct historical matters of ownership. The populist politics around land invasion espoused by the EFF’s Julius Malema and certain ANC politicians, were not long-term solutions, he added. Venezuela and Zimbabwe provided vivid proof of that policy’s failure. What makes Du Preez hopeful is that South Africa’s credit downgrades have deepened the ordinary citizen’s understanding of how the economy works. “Citizens now realise cheap promises could have unintended consequences and will make them poorer.”
Max du Preez
FEATURE FIA AWARDS
FEATURE FIA AWARDS
31 July 2017
Intermediaries applaud SA’s top brands at FIA Awards
n a celebration held at the Sandton Convention Centre last month, the Financial Intermediaries Association of Southern Africa (FIA) announced the 2017 FIA Awards winners. The Awards celebrate the financial services brands that provide the best product, relationship and service to the country’s financial advisers and insurance brokers. “Our 19th FIA Awards is not only a celebration of exceptional insurance brands; but an opportunity for us to highlight the value that intermediaries bring to the table by ensuring good financial outcomes for consumers,” says Lizelle van der Merwe, CEO at the FIA. She adds that the appointment of Ask Afrika as the 2017 FIA Awards survey partner was intended to bring the association closer to consumers who are recognised by the FIA as the most important component in all financial transactions. The FIA Awards are fiercely contested and the winners are not only recognised as companies that go ‘the extra mile’ for South Africa’s insurance brokers and financial advisors; but those that truly have the consumers’ interests at heart. Awards are given in each of the 10 categories to reflect the main financial advice disciplines that FIA members are active in, namely employee benefits, financial planning (life and investment); healthcare (health insurance and medical schemes) and short term insurance.
Short term insurance • Short Term Insurer of the Year – Personal Lines: Santam • Short Term Insurer of the Year – Commercial: Renasa • Short Term Insurer of the Year – Corporate: Santam • Underwriting Manager of the Year: Leppard Underwriting Life insurance and investments • Long Term Insurer of the Year – Risk: PPS • Product Supplier of the Year – Investment Product Lump Sum: Allan Gray • Product Supplier of the Year – Investment Product Savings: Allan Gray Employee benefits • Product Supplier of the Year – Employee Benefits: Sanlam EB Healthcare • Product Supplier of the Year – Healthcare: Momentum Health • Product Supplier of the Year – Health Insurance: Stratum Benefits “The FIA would like to congratulate each of the finalists and category winners in the 2017 FIA Awards. Your performance is an acknowledgment of your commitment to the intermediated model of financial product distribution – and more importantly it underlines your promise to consumers that you will continue to deliver exceptional financial outcomes underpinned by good financial advice,” says Van der Merwe.
Sanlam - EB Product Supplier of the Year Award
anlam has been named the 2017 Financial Intermediaries Association of Southern Africa (FIA)’s Employee Benefits (EB) Product Supplier of the Year. The FIA awards provide financial intermediaries the opportunity to recognise product suppliers that consistently deliver exceptional value to clients. Dawie de Villiers, Chief Executive Officer of Sanlam Employee Benefits says that the company’s culture and business model is focused on addressing changing client needs in partnership with Dawie intermediaries. de Villiers
“The way our clients want to interact is changing rapidly with technological and generational shifts driving this change. For this reason, we’ve imbedded innovation into our DNA and made a wide range of investments in technology to bring an always-improving offering to our clients and to enable intermediaries to provide informed advice. From the introduction of Benefit Counsellors to the Sanlam My Retirement App, we are able to share real-time information and data between the sponsor, fund, employer, intermediary and member.” He adds that Sanlam Employee Benefits strategy has been to leverage synergies across Sanlam to develop what has been widely recognised as the market leading offering. “Intermediaries have played a crucial role in executing this strategy as their input shows
we engage with members. This accolade, I believe, is a reflection of our partnership with intermediaries to help improve financial outcomes for the members of Sanlam funds. “We’ve won this award previously and are delighted that the 2017 win represents an affirmation from intermediaries that Sanlam is on the right track in empowering them to add even greater value to our shared clients through our engagement model, service proposition and technological suite.” De Villiers adds that the role of the intermediary has never been more important than in today’s very tough economic conditions. “Advice across various dimensions is critical to help employers, funds and members achieve better financial outcomes. And advice is what intermediaries do best.”
31 July 2017
10 000 employers trust us with their employee benefits. We don’t know what keeps your employees up at night. We don’t know whether it’s worrying about the future, or their finances. But we do know that lost productivity due to sleepless nights can cost your company up to R46 000 per employee. That’s why we give your employees real support, and peace of mind, with comprehensive benefits like Trauma Counselling, Retirement, and Life Cover. It’s why more employers trust us with their employee benefits than any other. To give your bottom line the Liberty Corporate Advantage, speak to your Financial Adviser, visit liberty.co.za, or call us on 011 408 2999.
The Advantage of Knowing
Liberty is an Authorised Financial Services Provider in terms of the FAIS Act (Licence No. 2409)
FEATURE FIA AWARDS
Damian McHugh, Momentum: Head Health Marketing accepts the award from Peter Olyott, President of the FIA (left)
inancial services provider and financial wellness company, Momentum, is proud to announce that Momentum Health took first place in the Product Supplier of the Year – Healthcare category, at the 2017 Financial Intermediaries Association (FIA) awards ceremony which took place last month. This year was noteworthy for Momentum as they were nominated in four out of the ten categories for: Short Term Insurer of the Year – Personal Lines; Long Term Insurer of the Year – Risk; Product Supplier of the Year – Employee Benefits and Product Supplier of the Year – Healthcare. With a purpose to enhance the financial wellness of individuals, families and businesses, the recognition received at the FIA awards represents an acknowledgement of the renewed focus the company has to cement Momentum as a client-centric and innovative service provider that is able to meet the needs of the clients they service. Commenting on Momentum’s win,
31 July 2017
Momentum - Product Supplier of the Year: Healthcare
Damian McHugh, Head of Marketing for Momentum Health said: “By providing solutions and services that resonate well with our clients, we feel we are getting it right in meeting diverse needs of South Africans and providing a holistic approach to financial wellness. Obviously, Momentum’s added value components, like HealthReturns and HealthSaver, are appealing to our consumers. We are able to deliver on our promise of enhancing and unlocking financial wellness. “With accountability as one of our values, each employee takes on the responsibility to put the client at the centre of what we do and offer service and experience excellence at every touch-point. This naturally also reflects on the relationship we have with financial advisers and the ease of doing business with Momentum.” Momentum has one of the most comprehensive sets of solutions housed under one service provider and has developed a client value proposition centred around financial advice as the key
to achieving lifetime financial wellness. McHugh adds: “We are very pleased to have been recognised by the financial advisers who are the engine of the industry. At Momentum, we recognise the integral role that advice plays in the financial wellness of our clients. This accolade confirms that we are making strides in our client-centric strategy and we will continue to strive for excellence and innovation in our engagement with our stakeholders.” The FIA Awards, now in their 19th year, survey their more than 12 000 strong member base comprising of licensed employee benefits consultants, financial advisers, medical schemes and short term insurance advisers throughout Southern Africa. The survey assesses the intermediaries’ experience of product suppliers on product quality, service quality, relationship quality and overall satisfaction. In addition to having increased its membership to nearly 150 000 Momentum Health recently received a higher-than-industry score by the
South African Customer Satisfaction index (SAcsi) for its members’ overall satisfaction with the medical aid and its ability to meet its members’ expectations. Daine van den Bergh, CMO for Momentum adds: “We recently introduced The Financial Wellness ‘wheel’ in order to ensure that we could make our purpose of financial wellness practical and easy. The result is that clients can now, in a simplified way, understand the link between a financial plan produced by a financial adviser and the solutions proposed to fulfil their specific needs. “This also highlights the fact that Momentum’s product range is the most comprehensive and competitive in the industry. The multiple nominations for FIA Awards are testimony that the independent financial adviser community has embraced holistic financial planning and has acknowledged Momentum as being able to deliver on that; and their willingness to partner with us on that journey.”
Thank you to every financial adviser that selected Momentum Health as the best product supplier in healthcare. We appreciate your ongoing support!
Your health is your wealth
BETTER FUTURE #10
We’ve helped nurture 1000s of children to reach their potential. Along with our partner, Kago Ya Bana, we have big plans for South Africa’s littlest ones. By giving over 1,200 children and counting, the nurturing and education they need at foundation stage, we set them on a path to reach their full potential and thrive.
To learn how we’re ensuring better futures every day, visit hollard.co.za/betterfuture
Art from the Creative Block Programme, www.yellowwoodsart.co.za/creative-block The Hollard Insurance Co. Ltd (Reg No 1952/003004/06), Hollard Life Assurance Co. Ltd (Reg No 1993/001405/06) and Hollard Investment Managers Pty Ltd (Reg No 1997/001696/07) are Authorised Financial Services Providers.
FEATURE FIA AWARDS
31 July 2017
‘Entertainment insurance is unique, exciting and hard work’
Santam clinches FIA’s top corporate and personal insurance awards
KEU Underwriting Managers was nominated for a FIA Award this year, in the category Underwriting Manager of the Year.
KEU was launched on the 1st of April 2001 as Kaleidoscope Entertainment Underwriters, after the entertainment insurance market had seen some major changes,” says owner, Denise Hattingh. KEU rapidly made a name for itself as the company trusted by people in the entertainment industry to deliver the right cover and add value through its specialist knowledge of the specific needs of event managers and producers. “I started the company with eyes closed, and full of hope and I’m glad to say that 16 years later, I’ve been able to build a solid brand name and team, as well as good partnerships. Nothing in life is achieved in isolation - and KEU is not any different.” She adds: “It’s nice to be nominated for a FIA Award and to know that brokers appreciate the products, the service and knowledge that we provide to the general market. Entertainment insurance is unique, exciting and hard work.” KEU has recognised the value of good partners and has secured partnerships with arguably two of the most solid names in the insurance industry: Munich-Re and Centriq Insurance Company Limited. KEU provides its products and services exclusively through brokers. Products and services include Film Producers’ Indemnity, Event Liability and Cancellation, Prize Indemnity, Equipment All Risk and Risk Management. High profile events with which the company has been involved include the opening and closing ceremonies of the 2010 FIFA Soccer World Cup tournament including the preopening concert; the South Africa vs. Australia and Sri-Lanka T20 and one-day internationals in 2011; 80s Rewind Show held at Kingspark; The Vodacom Tottenhum Hotspur Soccer Tour in 2011; the Knysna Oyster Festival, President Jacob Zuma’s 2012 State of the Nation Address and Mumford & Sons. KEU has provided specialist cover for well-known films and TV shows including Survivor, The Wild, Big Brother, Spud, The Bang Bang Club, Otelo Burning, Skoonheid, Safehouse, Chronicle, How to steal 2 Million, The VOICE South Africa and Isibaya.
South African intermediaries honoured leading South African shortterm insurer, Santam, by choosing the business as their top choice when it comes to both corporate and personal insurance. Santam’s Executive Head of Commercial and Personal, Edward Gibbens, said: “The fact that this award was voted for by intermediaries is a strong endorsement of Santam’s enduringly high service levels, innovative product offering and on-going commitment to helping intermediaries deliver value to their clients.” The devastating and catastrophic events in the past month as well as the sociopolitical, economic and regulatory context within which the FIA Awards took place this year, attests to the importance and value of sound advice. “Today, more than ever, we recognise the essential role insurance intermediaries play in society and we know it is our task to demonstrate the real value our business has for individuals, businesses and indeed, the South African economy. The future of broker distribution depends on the way in which the entire insurance value chain faces the challenges that come its way while using the opportunities it is afforded to serve clients better,” says Gibbens. He adds: “We rely heavily on relationships of trust to deliver on our promise of Insurance good and proper. Our intermediaries are a crucial link to both our corporate and personal clients and our relationship with them is a cornerstone of our business. We believe the Santam brand has high consideration among intermediaries because we invest significantly in building capabilities in our claims and service delivery areas, both to their benefit and those of their clients.” Personal insurance clients are increasingly demanding simplicity, transparency and speed in their
transactions with insurers or their insurance intermediaries. “The relentless demand for transacting with insurers using online and mobile technology, for example, will continue to fuel this change in customer expectations. In this respect, we are proud to say that our innovation and service delivery in the Personal Lines category underscores our consistent efforts in living up to our brand promise,” Gibbens says. Santam’s Executive Head of Specialist Business, Quinten Matthew, says that assisting businesses through times of insured loss by paying claims quickly and efficiently has been one of the primary reasons that more than 86 of the top 100 JSE-listed companies trust Santam to protect their businesses. “A large part of our success has been founded on keeping a focus on the client and providing them with trusted insurance products when and where they might need them. These principles have always been fundamental to our strategy and success in the insurance market and at the heart of the business is the relationship we have with our intermediaries. We thank them for their loyal support and for acknowledging us once again.” The annual FIA Awards present Santam with an essential yardstick to determine whether it is effective and meeting the changing demands of the market. “We have retained our position through diversification, investing in our intermediary model and constantly adapting to social, environmental and economic shifts to manage insurance risk. We continue to work hard at providing good and proper insurance by introducing initiatives aimed at improving our offering and delivering client focused solutions through our extensive network of intermediaries,” concludes Matthew.
It is well known that behind every successful company is a solid team … KEU would like to thank all our staff and brokers for your support and dedication, resulting in our nomination for the FIA Best Underwriting Manager category of the Year 2017.
UNDERWRITING MANAGERS (PTY) LTD
Tel: 0861 00 0090 Fax: 0861 00 0030 email: email@example.com www.keu.co.za KEU Underwriting Managers (Pty) Ltd is an authorised financial services provider, FSP No. 5076.
Our commitment to your future has been recognised. Again. We’ve been awarded the 2017 FIA Product Supplier of the Year in the Employee Benefits category. It’s the 5th time in 7 years, an independent award that’s judged by the experts in the industry - financial advisers. For our clients, it’s reassurance that their retirement savings are in good hands and for our employees, it’s affirmation that what they’re doing, they’re doing very, very well. Because that’s what makes us Wealthsmiths™.
www.sanlam.co.za Sanlam is a Licensed Financial Services Provider.
FEATURE FIA AWARDS
31 July 2017
PPS - Long Term Insurer of the year: Risk
PS Insurance was named the the knowledge of our distribution winner of the category Long teams and building trust and stronger Term Insurer of the Year: Risk at relationships,” says Mouton. last month’s FIA Awards ceremony. Mouton says that as PPS is a niche “With its rich history in the player in the industry and only industry, being a winner of an FIA serves a small percentage of the local Award is an extremely prestigious population (graduate professionals), and sought after accolade and we they regard this award as a major at PPS are extremely proud of this achievement. achievement,” says Wimpie Mouton, “This is our first FIA Award so it PPS Executive: Life Broker Services. is a huge honour to be recognised. He explains that the We have worked criteria for the category extremely hard since THIS IS OUR (Long Term Insurer of the 2015 to improve our Year – Risk) refers to the value proposition to our FIRST FIA quality of the products, accredited intermediaries AWARD SO relationship and service and this nomination IT IS A HUGE offered by the provider. validates not only these “This award clearly HONOUR TO BE efforts, but also that underscores PPS’ our strategy to improve RECOGNISED commitment to the PPS experience for become the leaders in intermediaries was the the communities we serve and is correct one. We could not have testimony to our continued efforts in achieved this without the support building our unique brand. from the entire PPS Group.” “In July 2015 we started PPS thanked the FIA with an internal strategy to be for this award. more intermediary-friendly. At the “We are extremely proud of time we were fully aware that we the work the FIA does as an needed to enhance our service to organisation that continues intermediaries, as we receive more to fight for and uplift South than 75% of our business from Africa’s intermediaries.” external intermediaries. Our goal at PPS boasts in excess of that stage was to be the provider of 350 000 members who enjoy choice for intermediaries in our target access to a comprehensive suite market within three years. of financial and healthcare “The key areas that the team products that are specifically worked on was improving service tailored to meet the needs of to our intermediaries, increasing graduate professionals.
PPS is the largest South African company of its kind that still embraces an ethos of mutuality, which means that it exists solely for the benefit of its members. Thus, PPS members with qualifying products share in the profits of PPS Insurance via annual allocations to the unique PPS Profit-Share Account and those who have qualifying PPS Provider products can also share in the profits of PPS Investments.
Wimpie Mouton, Executive: Life Broker Services at PPS (right) accepts the Long-Term Insurer of the Year – Risk award from Lizelle van der Merwe, CEO of the FIA (centre) and Peter Olyott, President of the FIA (left)
To the winners & finalists in the
Thank you for partnering with our brokers & advisors in delivering exceptional financial outcomes to the people of South Africa
31 July 2017
Number one at putting partnerships first. Weâ€™re honoured to have been judged Financial Intermediaries Association (FIA) Short Term Insurer of the Year for Corporate and for the 3rd consecutive year, Personal Lines. Voted by those who know the business best - intermediaries - itâ€™s reassurance that weâ€™re meeting the changing demands of the market, building strong partnerships and providing our clients with the best possible products. Santam. Insurance good and proper.
For more information, visit www.santam.co.za. Santam is an authorised financial services provider (licence number 3416).
31 July 2017
What financial advisers need to consider when advising on hedge fund investing Hedge funds are a complex financial product that – since falling under the Collective Investment Schemes (CIS) Act – are now much more marketable than before, but still come with significant investment risk. Previously, there was no specific legislation governing hedge funds and one was not allowed to solicit for business. Now, with more opportunity to market, more potential investors may be curious to consider these funds, while the duty of financial advisers to advise clients appropriately becomes more onerous. Further, the pending addition of the new licence category – 1.22 (Participatory interest in CIS - hedge funds) means that financial advisers will have to register for this licence if they want to give advice and provide intermediary services on hedge funds. There is an open period of two months where advisers can register and practice but thereafter, unless you can demonstrate that you have the correct experience and knowledge, you won’t be able to retain the licence. It is vital to be knowledgeable on hedge funds you are marketing to clients, and these are some important aspects you must understand to be fit to do so.
RIF vs. QIF
For the record
Understanding the difference between a RIF (retail hedge fund) and a QIF (qualified investor hedge fund) is very important. A qualified investor means any person who invests a minimum of R1 million per hedge fund and who has the necessary knowledge of, and experience in investing in hedge funds, while retail hedge funds are open to any investor.
If you don’t understand the fund’s strategy such as if it is a long-only, or a long-short one, you cannot give appropriate advice. Some investors, such as those near or in retirement for example, may not be suited to such a risky investment, despite Regulation 28 allowing for up to a 10% allocation to a hedge fund for pension funds.
You need to understand the extent of leveraging in the hedge fund, whereby some hedge funds won’t leverage at all, while others will. Can your client afford the risk?
You need to understand how hedge funds perform in certain conditions. Knowledge of the stock market and how this could impact potential maximum loss is essential. You need to know that certain funds are suitable in favourable conditions, while others may not be.
Know the fund manager
A fund manager’s strategy can change. While there is a mandate, perhaps for a long-short, the fund manager may decide not to go short, but what if the market collapses? Go and see the fund manager, interrogate and understand the process, and thereafter monitor continuously.
When advising clients, more disclosure is required, as well as a record of advice. Unpack the hedge fund, making sure they fully understand the risks. As an adviser, you not only need to be equipped to provide informed advice, disclosing all the benefits and risks, but must also be able to prove you have adequately advised your clients for your own protection too.
Hedge funds in SA ‘still making great strides’ MoneyMarketing spoke to the CEO of Consilium Group, Samki Koti, to get his view on hedge funds in SA Are hedge funds really that complicated? The truth of the matter is that both proponents and opponents of hedge funds attempt to simplify the complexity of alternative investments. In doing so, one creates the possibility for important information to be lost. Hedge funds come in various shapes and sizes; this inherently generates multiple opportunities to misconstrue the complexity. A hedge fund may invest in a single strategy such as only investing in emerging markets, investing in an equity long/short portfolio, focusing only on volatility trading or concentrating on merger arbitrage. A hedge fund may also follow a multi-strategy approach or a fund-of-funds approach where it invests in multiple strategies. The variation of hedge funds also makes it difficult to compare these funds with one another. If you can breakdown the strategy of the fund, you can start breaking down the complexity. Even in the world of viciously mathematically priced derivatives, complexity can be simplified; the world we can invest in still consists of underlying assets. These funds are not at all complex. By taking a step back and investigating the fundamental approach of the hedge fund manager, it is easy to begin understanding where you are placing your money. Are hedge funds for everyone? Every client – whether being an institutional client or a retail client – has his or her own unique risk profile. Having a risk profile gives a financial adviser the ability to allocate funds or assets to a client which would match the specific risk profile. As hedge funds come in a variety of flavours, it is important that a client is associated with the correct fund. Hedge funds come as both retail and institutional products – it thus makes it more accessible to any individual to invest in these products. The size of the allocation and the type of fund would differ. How do SA investors see hedge funds? Hedge funds in South Africa are still making great strides with the first pooled hedge fund only being established in 1995. The use of hedge funds has grown in popularity. However, hedge funds in South Africa have been under immense scrutiny as has been the global trend. This has led the Financial Services Board to the approach of dividing funds into retail investor hedge funds (RIHFS) and qualified investor hedge funds (QIHFS). The RIHFS have stringent regulation requirements which in turn protects investors. Some might see these regulations as investor obstacles and others as an opportunity to correctly allocate capital; the truth is that it will change the landscape of how investors use hedge funds. Should there be more investor education around hedge funds? A lack of knowledge in both the risks and composition make investors adverse to interact with assets. It is thus important for the alternative investment industry to continue educating and publishing information on these products. It is Samki Koti, imperative that the industry continue CEO, to be transparent in its approach of Consilium investing as well as its fee structure.
FEATURE HEDGE FUNDS
GERRY GRISPOS Compliance Officer, Compli-Serve SA
FEATURE HEDGE FUNDS
FEATURE HEDGE FUNDS
31 July 2017
Hedge funds ‘a lot more complex’ than traditional long only funds MoneyMarketing asked Laurium Capital’s Kim Hubner about the hedge fund industry in South Africa Are hedge funds really that complicated? Hedge funds are indeed are lot more complex than traditional long only funds. A hedge fund manager has a lot more tools in his tool box. A long only manager buys stocks that he thinks are undervalued and will increase in value. A hedge fund manager can also sell shares that he thinks are expensive. He borrows the share and sells it and hopes to buy it back at a lower price. He can also use gearing or leverage, which can amplify the loss or gains of a portfolio. Have hedge funds in South Africa performed? Yes. Over a ten year period, from 1 January 2007 to 31 December 2016, long short equity funds (peer group average as measured by HedgeNews Africa) had an annualised return of 10.8% after fees, comfortably beating the average South African General Equity Fund and South African Multi-Asset High Equity Fund, which returned 8.8% and 8.6% respectively. The FTSE/JSE All Share Index (TR) over the same period had an annualised return of 10.4%. Have hedge funds in South Africa protected capital? Yes. One of the major reasons to have hedge funds as an investment is for downside protection. One only needs to look at the financial crisis in 2008-2009 to see how hedge funds performed as evidence of this. From 1 August 2008 to 28 February 2009, the FTSE/JSE All Share Index (TR) had a max drawdown of -32%, vs. the average South African General Equity fund max drawdown of -26%, and average
WERNER OPPERMAN 27four Investment Managers
Defining hedge funds Hedge funds, like strawberries, are something of a misnomer. From a strict botanical perspective, strawberries, like blueberries, blackberries and raspberries, are counter-intuitively named in that they are not in fact scientifically classified as berries at all. Strawberries are technically an aggregator accessory fruit, whilst bananas are curiously classified to
Short Hedging Long
Leverage HEDGE FUNDS Hedge Fund managers focus on undervalued stocks AND overvalued stocks = opportunity ignored by long only investors
LONG ONLY (UNIT TRUSTS) Long Only managers focus on undervalued stocks
South African Multi-Asset High Equity Fund max drawdown of -11%. The average long short fund over this same time, only had a max drawdown of 9%. Hedge Funds protect investors from themselves – if they do sell at the bottom of any crisis they should limit their losses. Financial Crisis (1 Aug 2008 – 28 Feb 2009)
All Share Index (TR)
SA General Equity Unit Trusts
Regulation 28 Balanced Funds (High Equity)
Equity Long Short Hedge
What are the risks? Hedge funds are obviously not without risk, as history internationally has shown. Fortunately, hedge fund managers in South Africa have proven themselves more conservative than their international counterparts. Some experienced managers have long, consistent records of accomplishment to prove it. Furthermore, hedge funds are now highly regulated by the FSB, which should give investors comfort.
be berries. Google is perhaps best suited to elucidating why precisely strawberries are not considered to be berries in the true sense, but I proffer my views below on why hedge funds present a similar misnomer. Alfred Jones, widely regarded as the father of hedge funds, crafted the then unprecedented practice in 1949 when he combined two investment strategies by leveraging and simultaneously shorting shares in his fund. Jones used leverage to increase the potential return on his fund, whilst concomitantly shorting an equal number of the stocks that he went long on. The theory underpinning this strategy was based on the notion that he would be protected from prejudicial market wide moves, whilst being rewarded for his stock picking skills. The genesis of shorting in this way was to form a hedge against adverse market moves. The idea of a hedge is to make an investment intended to
Why do hedge funds deserve an allocation in clients’ portfolios? Hedge funds have been regulated under the CISCA banner to compliment long only funds, not replace them, for the following reasons: • Increased diversification benefits • Equity-like returns (after fees) with lower risk • Protection of capital • Diversification - better risk adjusted returns • Highly regulated environment. However, retail investors are not making sufficient use of hedge funds, partially because they are not yet loaded on LISPs, which are the primary channel used by financial advisers. Another factor is financial advisers and investors alike do not have a good enough understanding of their benefits to be able to invest with confidence. We at Laurium Capital, and the industry as a whole, have the obligation to educate investors in this regard.
offset potential losses that may result from another investment. Since then, the trading strategies utilised by hedge funds have evolved significantly. One should no longer think of a hedge fund as just a conservative investment but rather as an investment vehicle that has a much larger toolset and more opportunities to exploit than traditional long only funds. If you want to invest in the JSE, you could start by adopting the passive route through buying an index. Bear in mind that passive investing is a bit of an oxymoron. Many active decisions are made in passive investing such as which index construction methodology to use, when to rebalance etc. In the classical sense, this is a pure beta portfolio. The next option would be to look at an active manager that picks stocks based on a philosophy and process they believe in. These are your typical investment styles such as Value, Growth or Momentum. By subscribing to an investment style, you
Kim Hubner, Laurium Captial
are just buying a risk premium. Risk premia are the return one expects to earn over the risk free rate. By investing in a passive equity fund, you expect to earn the return of equity as an asset class over holding a risk free asset. Investing in a style, you expect to earn a risk premium higher than the pure equity risk premium over time. Naturally, you will be adopting more risk to enjoy the added benefits of such a premium. Hedge fund managers have more investment styles and strategies as well as financial instruments (such as derivatives) at their disposal than traditional long only managers. By investing in hedge funds, the risk premium you could earn is diverse. The fund may have a conservative strategy or it could adopt an aggressive strategy that targets returns of 20% plus with the accompanying risk.
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FEATURE HEDGE FUNDS
Easing anxiety in choppy markets
nvestment managers need easing their anxiety in choppy market volatility; it affords us markets, and safe guarding their the opportunity to invest in investment plan. mispriced securities. But financial How do you go about choosing a advisors familiar with behavioural hedge fund? As with any investment, finance know that these periods of past performance shouldn’t be uncertainty can be troublesome when extrapolated into the future. But if it comes to managing their client’s you’re including hedge funds in your decision making. The temptation is client’s portfolio for diversification to deviate from a meticulously put purposes, historical return data has together investment an important strategy, sometimes tale to tell. What WHAT YOU WANT to the detriment of you want from long term portfolio FROM A HEDGE FUND a hedge fund returns and the vitality are returns ARE RETURNS THAT of the investor/adviser that exhibit a EXHIBIT A LOW relationship. low correlation Adding a hedge to market CORRELATION TO fund to your client’s returns over MARKET RETURNS portfolio can reduce time, without a OVER TIME. some of the stress that material lag in comes with volatile performance. markets. They do this by generating This should give you some comfort positive returns – or at least less that if the market dips (or dives), negative – when the market suffers your chosen hedge fund will limit the trauma. Behaving in this way, a hedge losses on your client’s portfolio. fund allocation should smooth your Track record permitting, it would clients overall portfolio returns, also be beneficial to scrutinise the
performance of the proposed hedge fund during prior periods of market stress. These intervals are essentially the ‘litmus’ test for hedge funds and their managers – losing money in line with the market during such downturns should raise concern about their ability to protect capital. Conducting quantitative analysis of this nature on a prospective hedge fund is crucial. But equally important are two qualitative factors, namely product comprehension and trust in the manager. The former can be difficult because hedge funds are sometimes complex. But all parties must understand the purpose and mechanics of the chosen hedge fund; failure to do so will make it difficult to judge its performance and render it vulnerable to premature selling. Trust in your chosen manager also plays a vital role. A solid track record and an established brand are useful starting points, but the rapport between the manager and adviser/client ultimately determines the health of the relationship. An
approachable hedge fund manager who emphasises transparency will help to settle the potential butterflies associated with investing in the alternative space. This year marks the 10th year that Obsidian Capital has been managing hedge funds. Both strategies we offer (Multi Asset & Long Short Equity) have consistently outperformed their inflation-plus benchmarks (SA CPI+3% and SA CPI+5% respectively) over the last decade. These funds are now conveniently available to retail investors via a LISP, with daily pricing and liquidity. We’re especially proud that during the ‘litmus’ years of 2008 and 2016 – where markets sharply unwound established multi-year trends – we were able to generate solid real returns in our Multi Asset Hedge Fund. We strongly believe that hedge funds have a pivotal role to play in portfolio diversification and we’ll passionately engage any advisor/ investor who would like to explore the opportunity.
FEATURE HEDGE FUNDS
STEPHEN BRIERLEY Head of Hedge Funds, Old Mutual Multi-Managers
edge fund investing is not new to the global industry. The concept of hedging the markets, i.e. being long and short of stocks was initiated in the late 1940s. In the earliest recordings, farmers in China would hedge the price of their crops for sale at a later date. Global hedge funds began to appear in earnest in the late 60s but really took off during the 90s. Our own hedge fund market began in the 90s, with some of these hedge funds still being actively managed to this day. Many investors are of the opinion that hedge funds should be treated as a separate asset class during the asset allocation process. We don’t agree as these are the asset classes that hedge funds invest in. Hedge funds take positions in equities listed on the JSE ALSI and also invest in the local bond and cash markets. These funds can complement equity; bond and cash portfolios depending on what their strategies are i.e. a long short equity fund can be used within an equity portfolio as hedged equity.
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The story of hedge funds
Futures and options markets However, they also invest in the derivatives of these markets, being the futures and options markets. Futures and options are merely derivatives of asset classes. The futures and options market in South Africa is very large, liquid and transparent and many of these instruments are listed, so the operational risk is minimal. Local hedge fund investing is therefore more simple and traditional than most investors think. Hedge funds in South Africa also generally shy away from exotic type instruments and structures, which may be the norm offshore. Shorting the market Apart from investing in derivatives, hedge funds are able to short the market. Shorting is merely benefiting from a fall in a stock price rather than from its rise. This is a very legitimate investment tool, one which long-only funds are also
GLOBAL HEDGE FUNDS BEGAN TO APPEAR IN EARNEST IN THE LATE 60S
able to utilise to a lesser degree. The fear lies in a short position appreciating rather than depreciating causing the hedge fund to get stuck in a ‘short squeeze’ i.e. you continue to lose money as the market continues moving up. However, a hedge fund simply needs to buy the stock in the market to unwind this position, as long as there is liquidity of the stock available, there is no reason for concern. Hedge funds therefore don’t short smaller and less liquid stocks for this very reason. As an investment strategy, hedge funds fit very well into an asset allocation framework alongside cash, bonds and equity. We have found that the risk-adjusted returns of hedge funds are so compelling that any sort of risk return exercise maximises the allocation to hedge funds, particularly long short equity hedge funds. As most institutional investors are constrained to a 10% Regulation 28 allocation to hedge funds, the optimisation would allocate the maximum of 10% to hedge funds. Research For institutional investors who are investing in a diversified portfolio of asset classes, hedge funds have been beneficial over the long term. Our research was done on a diversified long short equity portfolio of hedge funds. Hedge funds have recently become regulated under the CISCA, which means that retail investors now also have access. However, these regulations do not allow asset managers, to include hedge funds in balanced mandates (as is the case with institutional investors). Therefore, retail investors have to create their own portfolios with an allocation to hedge funds.
We have held hedge funds in our institutional balanced portfolios for many years serving our pension fund clients well. Retail clients will have to understand the risks of hedge funds and the managers before they embark on combining hedge funds in their own portfolio of asset classes. In all cases we would recommend a multimanager with experience in hedge fund manager due diligence who offers a hedge fund. Staid growth Hedge fund growth over the years has been staid, to say the least, and we don’t believe their strong risk and return statistics have been matched by growth in assets. The hedge fund industry has only been able to grow to approximately R70 billion in 2016, according to the Novare Hedge Fund survey undertaken last year. The unit trust industry is over R2 trillion. This industry is largely made up of institutional investors e.g. pension funds. Institutions invest through fund of funds, which make up approximately 60% of the assets while 20% is made up of High Net Worth Individuals. The retail market has yet to show any meaningful flows although it is only a little over a year since the regulations were implemented. Global hedge fund outflows and performances tend to create a perception that the local industry is very risky, which is mostly not the case. The high fees could be another reason why investors have stayed away from hedge funds, while the largely unregulated environment could also be a reason for investor alarm. The regulatory environment has recently changed, but whether there will be retail inflows remains to be seen. It is also not clear if sufficient, present and emerging manager capacity will absorb this flow. Old Mutual Multi-Managers is a business unit of Old Mutual Life Assurance Company (South Africa) Limited, a licenced Financial Services Provider, Reg. No: 1999/004643/06. Old Mutual Multi-Managers is authorised to provide financial services on the OMLACSA license, FSP 703.
SECTION 19 LB 114442L/5/E
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WHEN YOU RECEIVE POSITIVE RETURNS, I DO TOO. Grant Watson
Joint Boutique Head Old Mutual Customised Solutions
We believe that when you are personally invested in something, you are even more driven to make it succeed. That’s why Grant Watson invests his own money alongside yours. Grant is joint boutique head of the Old Mutual Customised Solutions boutique and manages the Old Mutual Managed Alpha Equity Fund, which is currently a top quartile performer. Grant’s boutique has, amongst other awards, won Best African Absolute Return Multi-Asset Fund since inception and Hedge Fund Manager of the Year. But this is more than just Grant’s success, it’s yours too. Invest where the fund managers invest by contacting an Old Mutual Financial Adviser or your Broker, call 0860 INVEST (468378) or visit www.oldmutualinvest.com/asinvested
nd fundawards wealth&finance2016
Hedge Fund Provider of the Year 2015
Wealth & Finance Fund Awards : Best African Absolute Return Multi-Asset Fund (Since Inception: August 2003) for Wealth Defender Portfolio & Best Absolute Return Portfolio Manager - South Africa, 2016 and Wealth & Finance International designated Hedge Fund Manager of the Year 2016. Imbasa Yegolide Awards: Hedge Fund Manager Of The Year, 2011 and 2015. Old Mutual Customised Solutions (Pty) Ltd is a licensed financial services provider, FSP 721, approved by the Registrar of Financial Services (www.fsb.co.za) to provide intermediary services and advice in terms of the Financial Advisory and Intermediary Services Act 37 of 2002. Old Mutual Customised Solutions (Pty) Ltd is wholly owned by the Old Mutual Investment Group Holdings (Pty) Ltd and is a member of the Old Mutual Investment Group. Old Mutual Unit Trust Managers (RF) (Pty) Ltd is a registered manager in terms of the Collective Investment Schemes Control Act 45 of 2002. The fund fees and costs that we charge for managing your investment are accessible on the relevant fund’s Minimum Disclosure Document (MDD) or table of fees and charges, both available on our public website, or from our contact centre. The Net Asset Value to Net Asset Value figures are used for the performance calculations. Top quartile performance over 3-8 year periods to March 2017 (Source: Morningstar). The performance quoted is for a lump sum investment and in respect of the Old Mutual Managed Alpha Equity Fund. The performance includes income distributions prior to the deduction of taxes and is reinvested on the ex-dividend date. Actual performance may differ as a result of actual initial fees, the actual investment date, the date of reinvestment and dividend withholding tax. Past performance is not a guide to future performance. Annualised returns are the weighted average compound growth rate over the performance period measured. The actual highest, average and lowest 12-month return figures since inception to 31 March 2017 are 64.5% (highest), 16.7% (average) and -31.5% (lowest). The fund was launched on 23/12/1998. Morningstar and Old Mutual Investment Group calculated the performance of the fund as at 31 March 2017. Old Mutual is a member of the Association of Savings & Investment South Africa (ASISA).
31 July 2017
INSIDER CHRONICLES MARC WIESE General Manager, Warwick Private Clients
ne of the most conspicuous facts about our planet is that it took nearly 4.5 billion years for the human population to reach one billion some 200 years ago. According to the United Nations most recent statistics, we now share the planet with more than seven billion human inhabitants. Clearly, there has been an extraordinary expansion in the global population with approximately 6.5% of all humans ever born living today. What then are the expectations for the future? Based on a study done by Max Roser and Dr Esteban OrtizOspina from the publication Our World In Data, population growth has slowed since 1962. The authors expect
Global population growth a problem or opportunity?
global population to grow at a progressively slower rate until 2100, at which time it will peak. The question then arises, if global population growth is expected to continue for the next 80 years, where should asset managers invest in order to maximise returns for an ever-increasing population? As global population growth is not expected to positively influence all geographic areas or all economic sectors, one needs to carefully consider numerous factors. As global investors, we need to deal with a global population of 9, 10 or even 11 billion and how portfolios should be structured to take advantage of emerging opportunities. Opportunities are expected to focus on industries such
as waste management, food production and distribution, water purification, innovative technologies and last but not least, health care. Notably, the average person over the age of 85 uses about nine times as many health care products as an individual under the age of 65. Crisis always has the potential to create opportunity, as was the case with the last world war when nuclear energy and jet planes were created. More recently, the relative scarcity of fossil fuels has generated huge investment into renewable energy. Man-made problems also forge fabricated solutions; with increased investment in research and development, new innovative technologies are providing exciting possibilities. The next important factor to consider is where most population growth will occur. The bulk of the population growth projections are attributed to high fertility areas such as Africa, or other countries with already large populations. Studies done by the United Nations have
indicated that more than 50% of the population growth over the next 30 years is expected to come from India, Pakistan, Democratic Republic of the Congo, Ethiopia, United Republic of Tanzania, United States of America, Indonesia and Uganda. This does not, however, mean that investors should focus only on these countries for investment opportunities. Warwickâ€™s focus is a dual investment philosophy, focusing on neither value nor growth alone, but rather both. Extreme deep-value investors may be biased to developing nations for growth opportunities. We, however, believe a holistic approach must be adopted, analysing the advantages of population growth of countries, their economies, infrastructures, political structures and stability. The challenges faced by the burgeoning global population growth will, in turn, provide persuasive investment opportunities around the world. Moreover, while the current investment atmosphere is clouded by political instability, volatility and fear of risk, this provides opportunities for enormous growth and investment returns. At Warwick, we identify such opportunities, by following a globally diversified approach to investing, in order to get the best possible risk-adjusted return for our clients over the long term.
31 July 2017
CHRISTOPHER RULE, CFA Capital Markets Executive, CoreShares
SA Case Study: Dividend Equity Strategies ‘Disruptive innovation’, a term coined by Clayton Christensen, describes a process by which a product initially takes root in simple applications at the bottom of a market and then relentlessly moves up market, eventually displacing established competitors. For many investors, the difference between passive and active investment approaches is clear-cut. A ‘passive’ solution is one that is low-cost and requires a simple investment in a market capitalisation index. Any strategy crafted differently to this approach is considered ‘active’. Fast forward to 2017 and we are witnessing a challenge to this convention. Smart Beta, a hybrid of active and passive, has gained significant interest in the industry, as it is a way of delivering investment strategies in a low-cost, transparent way. Smart Beta is similar to passive investing because it is rules-based and low-cost, but also active because it varies from market capitalisation. The reality is that a large percentage of active strategies can be explained within a defined set of rules. Essentially, Smart Beta has the potential to offer investors an active portfolio strategy at a fraction of the cost without investors having to sacrifice on return, risk or objectives. Smart Beta Application A South African case study An investment strategy in which active managers seek to buy equities with attractive dividend metrics is a trusted investment strategy and one
Smart Beta: a disruptive innovation that can’t be ignored
that has recently gained traction in the global search for yield. These strategies tend to rely heavily on rules and quantitative processes and therefore become very replaceable with an equivalent Smart Beta approach. The following study sets out to examine dividend strategies within the SA market, and to establish whether or not Smart Beta can start displacing the existing active funds. We collected data on all retail equity funds in the SA market that have a dividend specific focus as part of their mandate. There were a total of five funds with a combined asset under management (AUM) in excess of R10 billion. We documented each of the funds’ key characteristics that were sought when selecting shares. Figure 1: Dividend equity funds Looking at Figure 1, it is not immediately apparent which of the five funds are active and which are Smart Beta. For the client, what is of greater interest is the relative success of the funds in achieving their intended objectives of generating income.
TABLE 1: Quantatitive comparison of Dividend equity funds in South Africa (3 year period ending 30 April 2017)
Source: Morningstar, as at 30 April 2017
FIGURE 2: High Fees (Active) Result in Lower Income Generation for Clients
Source: Morningstar, as at 30 April 2017
Fund C and E are Smart Beta with the rest being actively managed funds. Fund E is the CoreShares Dividend FIGURE 1: Dividend Equity Funds in Aristocrats ETF that recently reached South Africa and their Investment Styles its three-year track record. This fund has used a transparent, rules-based strategy that meets the investor’s need for equity income but also has delivered good performance relative to general equity peers. A significant driver of Smart Beta’s disruption is the low-cost and efficiency with which it is able to capture investment strategies. Source: Individual Minimum Disclosure (Figure 2 illustrates this point.) Documents per Fund
Figure 2: High fees result in lower income generation for clients It is clear from these findings, that dividend equity strategies using Smart Beta have great potential in the SA market by offering clients more value for fees paid. CoreShares believes that Smart Beta building blocks of this sort will start to play a much more meaningful role in the SA asset management landscape.
Have a look at the results and see how the theory is playing out in reality. Visit the research and take our quick survey here:
JOHNY LAMBRIDIS Portfolio Manager, Prudential Investment Managers
31 July 2017
Dual shares: enabling exclusive control over companies
ost listed companies have a single class of shares, with each share carrying identical economic rights (rights to dividend payments, etc.) and voting rights. Some companies, in an attempt to vest control of the company in the hands of a certain group of shareholders, have a dual (or even multiple) class share structure where one class carries a higher voting right. In South Africa, dual share structures are relatively common, being employed as a means for founding families or management to maintain voting control, or to underpin black ownership. Investors should be aware of how they are used, as well as their benefits and drawbacks. Lower- or non-voting shares tend to trade at a discount to their higher-voting counterparts, which can be considered an advantage for investors who aren’t interested in voting on corporate management decisions. In many cases, however, these structures concentrate the powers of running the company – such as naming the Board of Directors – in the hands of a few and shield management from shareholder (and therefore Board) oversight. This can lead to questionable corporate governance practices, making it important
for shareholders to scrutinise these companies closely. At Prudential, we are intent on wielding our shareholder vote where we can. We prefer to hold the higher class of voting share, but this is not always possible. Some well-known examples of local companies that have dual share structures or recently eliminated them include: • Naspers: Company management holds unlisted A shares, each with the right to 1 000 votes, while Naspers listed N ordinary shares (under the ticker NPN) have one vote each. This allows top management and directors to maintain control of the company with only a relatively small block of shares. • Pick n Pay: In 2016, Pick n Pay eliminated its pyramid control structure comprising two listed companies (Pick n Pay Stores and Pick n Pay Holdings) that concentrated voting power in the hands of the founding Ackerman family. It was replaced with an unlisted B share structure. As a shareholder in Pick n Pay Stores on behalf of our clients, Prudential voted against the transaction primarily because Pick n Pay Stores shareholders were disadvantaged – they were made to bear the costs of the transaction without receiving any economic benefit.
• Brimstone: Black empowerment investment holding company Brimstone has a class of listed non-voting N shares (BRN), while its ordinary listed shares have one vote each (BRT). The dual structure enables the group to ensure high levels of black shareholder control, which currently stands at 72%, while actual black economic interest is 55%. • Altron: Altron had a dual class share structure in place until recently, with both A shares and N shares listed on the JSE. The N shares carried only 1/200th of the vote of the A shares, a device originally created in order for the founding Venter family to maintain control. In March 2017, the shares were successfully unified as part of a corporate restructuring. As holders of both Altron A and N shares, Prudential was, in principle, supportive of this transaction. However, the Venter family (and other A shareholders) were compensated for losing voting control, and Prudential voted against the proposed compensation formula, determining that it was detrimental to N shareholders and that A shareholders were being overcompensated.
RMB AND UNIVERSAL INDUSTRIES, FINANCIAL CATERING FOR AFRICA’S KITCHENS.
THINK PRIVATE EQUITY. THINK RMB.
RMB Ventures acquires Universal Industries, a proudly South African, sub-Saharan leader in food preparation and hospitality equipment. RMB Ventures with a consortium including RMB Corvest and MIC partnered management in acquiring this leading African food preparation and hospitality equipment business. This deal seeks to support management’s expansion strategies and reinforce its position in markets across Africa. Our private equity approach of adding value beyond money continues to build our reputation as a trusted partner for leading South African companies. For more information contact Muhammed Moosa on +27 11 282-8448, email firstname.lastname@example.org or Pearl Tsotetsi on +27 11 282-4966, email@example.com www.rmbventures.co.za
31 July 2017
Now is the time to start thinking long-term
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Johannesburg Stock Exchange
FEATURE NATIONAL SAVINGS MONTH
FEATURE NATIONAL SAVINGS MONTH
Lack of willpower ‘a big hurdle to saving’ MoneyMarketing spoke to Gerald Mwandiambira, Acting CEO of the South African Savings Institute(SASI) about Savings Month and SASI’s Alternative Savings Solutions campaign Tell us a bit more about this theme: Alternative Savings Solutions. We’ll be discussing ways in which individuals can save, which will help increase the national savings ratio. Some of these ways include initiatives on the part of employers. So, when HR departments load new employees on to their systems, they should put these employees on the maximum retirement contribution rates, as opposed to employees defaulting to the lowest contribution rate – which eventually will catch up with them. Another employer initiative is offering a 13th cheque to employees that is saved up from their earnings through the year to alleviate debt problems in December and into the New Year. Yet another initiative is the idea of rounding off people’s salaries and keeping a certain amount back, then paying it to the employee as a bonus. We want people to realise that a big hurdle to savings is lack of discipline and willpower. People just can’t get into the savings habit. Passive saving is a good way to get people to increase the amount they put away – almost subconsciously. Another type of saving revolves around small amounts of money that some people disregard. Apps like Liberty’s Stash invests your spare change in SA’s Top 40 Biggest Companies. Similarly, National Treasury is looking for a way to apply a ‘pay as you go’ option to their Retail Savings Bonds. In addition, banks are encouraging stop order type savings – at some banks, when an individual opens a current account, a savings account is automatically opened. How financially literate are South Africans? A big problem around financial literacy is that it’s being driven by organisations that want to sell people something. There’s an attitude to these organisations that goes like this: “You’re only educating me so I’ll buy what you’re trying to sell me.” Organisations such as SASI and the Financial Planning Institute have financial literacy programmes and because there is no underlying product that they want to sell, people trust these types of institutions. If the financial services industry starts more generic messaging, we may see a shift in attitude. Surveys tell us that South Africans are the biggest borrowers in the world and that they have a high level of debt? Yes, and there’s the conundrum: “Do I save or do I pay debt?” Unfortunately, most people choose the latter path. While being a good payer of debt, you’ll have nothing to fall back on should you lose your job. A savings net is necessary.
Gerald Mwandiambira, Acting CEO of the South African Savings Institute
31 July 2017
July is National Savings Month
he South African Savings Institute (SASI) launched its traditional Savings Month Campaign on 28 June. “Savings Month is SASI’s national savings awareness campaign, and the theme for this year’s drive, which runs during July, is “Alternative Savings Solutions,” says Gerald Mwandiambira, Acting CEO of SASI. Savings Month has been designed to remind consumers, via the media and other channels, to strive towards financial freedom or remain continuously vulnerable. “Cultivating a culture of savings and promoting alternative savings solutions in all spheres of life is our focus for 2017,” Mwandiambira adds. He says that South Africans generally don’t have a savings pool to tap into in times of emergency and tend to cash in their retirement savings when times are tough. “For this reason, National Treasury introduced vehicles such as the Tax Free Savings Account in 2015 to encourage household savings. SASI welcomes this strategy and is encouraged to pursue this mandate even more aggressively. Hence a key focus of this year’s savings
campaign will be to promote savings literacy,” he adds. SASI will be implementing a number of initiatives during July, aimed at instilling a culture of saving. “As responsible South African corporate citizens, we want to demonstrate our commitment to economic sustainability and to promoting the financial well-being of all South African consumers. We believe the Savings Month activities will further the spread of the savings message across the country and provide the necessary information to assist consumers to make informed savings decisions,” Mwandiambira says. Savings tips to survive 2017 • Resist SALES, think SAVE! Clearly distinguish between needs and wants. • Have a clear budget for your requirements in every month. Create a budget using the SASI budget tool or phone apps, available at NO COST. • Use free online tools to track your spending and debt and know where every cent of your income goes. • Pay cash for and don’t be trapped by easy credit – in fact, cut up those store credit cards! • Visualise what you want to save for and start saving more. • Service your debt and stick to the payment terms. If you cannot service your monthly debts discuss your situation with your credit providers before it is too late. About SASI The South African Savings Institute is an independent organisation dedicated to developing a robust culture of saving among South Africans. Saving is an integral part of financial literacy hence the Institute’s efforts are concentrated on raising awareness on key concepts of money management; communicating, educating people and helping them manage down debt; ultimately contribute to a financially healthy citizenry.
FEATURE NATIONAL SAVINGS MONTH 25
31 July 2017
Financial planning profession’s role more critical than ever
s political drama continues to create market uncertainty and economic growth remains stagnant, the financial planning industry has a more critical role than ever to plan to guide investors and consumers to take better care of their financial affairs. “Consumers are under immense pressure,” says David Kop, CFP®, Head: Advocacy and Consumer Affairs at the Financial Planning Institute (FPI). “IOL reported in March this year that more than 250 families were losing their homes on a weekly basis because they’d fallen into arrears with their bond repayments. There are reports about retailers struggling as consumers are spending less on all goods, as well as about troubles in the vehicle industry with ongoing declines in sales. This shows that the financial situation of many is under stress.”
Kop adds that the National Savings Month initiative is an important project that the FPI and its professional members strongly support. “CERTIFIED FINANCIAL PLANNER® professionals across South Africa guide individuals through the financial planning process and the importance of budgeting, yet there is always more to be done.” The Institute has several initiatives in place to drive financial literacy and a better understanding of personal financial issues and according to Kop – as the financial situation for many continues to deteriorate – these have been expanded this year. “The financial literacy outreach and education campaigns through workshops, presented with the support of FPI members, have been stepped up for 2017 adding a new national campaign, the Big Drive
THE INSTITUTE HAS SEVERAL INITIATIVES IN PLACE TO DRIVE FINANCIAL LITERACY
4 Financial Freedom roadshow from September through to October,” he says. “Despite massive coverage of money issues in the media, consumers and investors still make the wrong choices. It is for this reason that we, together with our members, play a key role in awareness projects around National Savings Month. CFP professionals are highly skilled and can provide expertise at the highest level.” Kop calls on members to use the project to drive understanding of what it is that sets CFP professionals apart from the many financial service providers and advisers offering savings and investment solutions. The FPI has the following resources available to support consumers and the industry: • A dedicated website about financial planning: www.letsplan.co.za • Financial literacy workbooks that can be used in consumer education sessions. Different books intended to assist attendees, at different levels of understanding, about personal financial issues. • Regular educational workshops for members to drive continued education and also work through changes in legislation about financial planning or specific issues like amendments to tax rules. • A wide range of publications and newsletters, aimed at the industry and consumers, published on the main FPI website www.fpi.co.za For more on these tools and other resources, get in touch with the FPI team on 086 1000 (FPI) 374 or (011) 470-000 or join their online community on Facebook and LinkedIn (Financial Planning Institute of Southern Africa) or follow them on Twitter (@FPI_SANews).
David Kop, CFP®, Head: Advocacy and Consumer Affairs, FPI
31 July 2017
DR MARITHA VAN DER WALT
Evolving dread disease solutions to meet clients’ needs
read disease products were and lifestyle changes. Therefore, it launched in 2000. These is very important that the policy products paid a once-off provides the necessary protection amount for only four defined dread for a second diagnosis of cancer. diseases, namely cancer, heart It is also very important to attacks, coronary artery bypass determine if the dread disease surgery, and strokes. Since then the product covers early cancers products have evolved to pay for (medically called in situ cancers). many specified illnesses and severity Traditionally, these early cancers levels on tiered products. were excluded from dread disease Tiered products will normally policies because they have a good allow further payments for prognosis. Although early cancers subsequent claims if the disease are curable, the diagnosis may still progresses to higher severity have a financial impact on the client levels. However, they often do not and affect future insurability. allow further claims at the same or Discovery Life has launched a lower severity level than the first dread disease product that covers claim. Non-tiered cancer relapses after products will pay a one-year remission ALMOST 40% 100% of the insured period, second amount, but most unrelated cancers, as OF PEOPLE often will not allow well as early cancers, WILL BE further payments according to the DIAGNOSED for the specific specific terms and category of claims. WITH CANCER conditions of the This payment contract. Discovery IN THEIR structure for cancer Life’s LifeTime Max LIFETIME on dread disease 200% and 100% Severe policies needs further Illness Benefits were scrutiny. Almost 40% of people will recently rated the number one be diagnosed with cancer in their and two dread disease products lifetime. Around 14% of cancer in the market for cancer cover survivors will be diagnosed with a by the Independent Clinical second, unrelated cancer, while the Oncology Network. risk of a relapse of the same cancer Continuous innovations in the could be higher. life insurance market have meant For this reason it’s crucial to verify that a cancer relapse no longer how a second diagnosis of cancer, has to result in financial shortfalls. whether it is related to the first Ultimately, with dread disease cancer or not, will be assessed by the products that provide cover for a insurance company. cancer relapse, policyholders can Due to early detection and better more closely match their financial treatment, more patients survive needs with the risks of a dread cancer and are therefore at risk of disease reoccurring. a relapse of the first cancer, or a It is imperative to examine the second, unrelated cancer. way that insurance companies treat A second diagnosis of cancer can cancer claims to make sure the have the same impact – or an even client has the best protection for this greater impact – on the patient, in life-changing ‒ and very common ‒ terms of costs, emotional wellbeing, diagnosis.
Assupol wins coveted award and appoints new Group CEO
iaan van Dyk has been appointed as the new Assupol Group CEO. This was announced by Assupol’s Chairman, Andrew Birrell last month. Van Dyk is no stranger to the company, having served as a Non-Executive Director on the Assupol Holdings Board since September 2013. His roots are firmly entrenched in the insurance industry and as an actuary, he has an intimate knowledge of how the insurance business operates. “In the past two months, I was placed in a privileged position of getting to know this remarkable company better from the inside. Considered a relatively small company in comparison to the competition, Assupol has proved to be a market leader with consistent gains even during tough economic times. I look forward to being part of the successful team that will take Assupol to even greater heights,” Van Dyk says. Another development for the company is the opening of its new headquarters in Menlyn, Pretoria. The skyscraper building – the highest landmark in Menlyn – has ten floors and is located in the heart of the metropolitan business node. The company’s headquarters were previously based in Menlo Park, Pretoria. The new Assupol headquarters is the latest addition to the fast developing skyline of the Menlyn area. “Assupol has enjoyed a lot of success in various areas over the last ten years, but this move is arguably one of Assupol’s greatest milestones”, Van Dyk says. “This expansion signifies yet another momentous occasion in the history of the company, which has been serving South Africans for more than a century.” More good news is that Assupol has once again won the coveted 2017 Capital Finance International (CFI.co) Best life Assurer in Southern Africa Award, for the third year running. “It is an honour to be recognised for our excellence and the value that we add to all our stakeholders,” says Bridget Mokwena-Halala, Assupol Life CEO. “We strive to treat our clients fairly by giving them outstanding service and products that are specifically tailored for their needs.” Assupol received the award again this year “due to the company’s continued dedication to operational excellence and remaining true to its core market and services, Mokwena-Halala adds. “The success that Assupol enjoys is owed to the hard work and dedication of its employees, intermediaries and business partners.”
Riaan van Dyk CEO, Assupol Group
31 July 2017
SECTION 27 2017
BEST LIFE ASSURER WINNER SOUTHERN AFRICA
31 July 2017
Ombud returns R100m to consumers
espite a changing environment, the Ombudsman for Short-term insurance (OSTI) recovered just short of R100 million for consumers in 2016, an amount only marginally less than in the previous year. “This reduction in the rand recovery can be explained by the concomitant reduction in the number of files closed in 2016,” Ombud Deanne Wood, says. Last year OSTI saw major changes in leadership, its approach to its work and the impact of the legislative environment. With effect from 1 March 2016, Wood succeeded Dennis Jooste as Ombud, following his retirement after four years at the helm. “Dennis left behind an impressive legacy – an efficient and stable office with minimal backlogs and notable turn-around times,” Wood says. “Dennis’s tenure left me with an opportunity to consider other areas in which OSTI might improve the quality of the service that it offers to
consumers and to its members.” She adds that to achieve the right balance between efficient turnaround times and a job well done, OSTI had to change its approach to its work and implement measures to ensure greater focus on high quality outcomes. In May 2016, OSTI embarked on another major change to a consistent and efficient resolution of complaints, coupled with an assurance of high quality outcomes. “The changes that have been made serve to ensure that OSTI’s decisions are consistent in approach and represent the collective thinking of the organisation,” says Deputy Ombudsman, Edite Teixeira-McKinon. “They also strive to encourage greater accuracy in the outcomes of the recommendations made and to ensure that the quality of work produced is of the highest standard.” Wood adds that quality outcomes were essential to the proper functioning of an Ombud scheme.
“It is therefore important that consumers feel listened to, are given a clear and accurate explanation of the outcome of their complaint and feel that their matters have been addressed in a fair, comprehensible, correct and impartial way,” she adds. At the opposite end, insurers should feel confident that OSTI operates as an extension of their own quality assurance to their clients. Insurers are also entitled to have their positions heard and their reasoning and rationale properly considered. Operational Results During 2016, OSTI received 14 916 complaints of which 10 175 were registered as formal complaints. This reflects an increase of 780 more complaints received in 2016 compared to 2015. This increase, coupled with operational changes implemented during 2016 and the focus on quality outcomes resulted in 1 313 fewer complaints closed for 2016 than in the previous year. In total, 8 631 claims
were closed. Motor vehicle insurance claims which were closed to benefit the insured amounted to R59.2 million. Wood reports that the average turnaround time per complaint, remains within commendable levels at 91 days. More than a third of complaints were resolved in less than 60 days. Only 6% of complaints took longer than 180 days to resolve. According to Wood, long-standing complaints concerned matters of significant complexity and the delay in their resolution were usually attributed to the intricacy of the evidence gathering and evaluation process required during their investigation. OSTI’s overturn rate remains constant at 27%.
Mind the gap If you became disabled, would your financial security be impacted?
riter, strategist and runner, Lisa James* appeared to have it all. A go-getting mother of two, in her mid-40s, she prided herself on her healthy lifestyle and, on top of a carefully planned mix of life insurance, income protection and investments, she had a decent rainy day nest egg. So hitting rock bottom was the last thing she expected. It wasn’t an awful maiming accident or a terminal condition that turned her personal, professional and financial life upside down. It was a stress-induced diagnosis of benign multiple sclerosis, a chronic condition in which the immune system attacks the central nervous system. “My doctor booked me off for six months to recover,” says Lisa. “I had an income protection policy to cover me during that time which cushioned the blow initially. However, my physical and mental recovery was slower than expected, six months turned into two years and totally wiped out my nest egg in the process.” Serious disability insurance shortfall Lisa’s story is not an uncommon one. While the average middle-income South African has around R900k in income protection, the Association for Savings & Investment South Africa (ASISA) recently conducted a study into the impact of disability on financial security – it concluded that at least R2 million insurance cover would be necessary to ensure the same standard of living could be maintained if the policyholder became disabled and unable to work. ASISA’s assessment is that South Africans are
Source: The South African insurance gap 2016, ASISA
seriously underestimating the impact disability can have on their families’ financial security and – with the shortfall typically exceeding R1 million – they face the uncomfortable choice between biting the bullet, and increasing monthly payments now, or risking a drastic cut in living expenses if their main breadwinner should ever suffer a disability. Of course, the level of cover depends on an individual’s income and, as the table shows, it varies at every age and stage of life. However, the reality – according to the The South African Insurance Gap 2016 Research Report conducted by True South Actuaries & Consultants on ASISA’s behalf – is that South Africans are underinsured for permanent and temporary disability by as much as 59%. (Up 6.3% on the last report, this was conducted in 2013.) Why we shy away from disability insurance There are a number of reasons why disability products are less popular than other kinds of life insurance. According to Hollard Life’s Head of Product & Technical, Ryan Chegwidden, the
main one is that it’s regarded as a fringe risk and, “for some reason, it’s easier for people to wrap their heads around the need for life cover, which takes care of their loved ones if they die and aren’t around. So, when it comes to finding a balance between affordability and insurance needs, they tend to choose a product that deals with the inevitability of death rather than the likelihood of disability,” he explains. Although the concept of living through a serious illness or an accident that may leave them disabled and unable to earn an income – even temporarily – is something few people consider, ASISA’s stats are emphatic. According to their report, South African’s experience a total of 46 400 disabling events each year or, put another way, 127 disabilities every day. “After what happened to me, I now realise it can happen to anyone,” says Lisa, “and I was someone who thought I had it all covered.” * Lisa James’ account of her struggle is factual, however we have changed her name in the interests of her privacy.
31 July 2017
ew legislation impacting health insurance offers policyholders better protection by mapping out clear rules on exclusions, waiting periods, benefits and commission. Falling under the Long-Term and Short-Term Insurance Acts, the demarcation regulations affect all gap cover, hospital cash plans and primary healthcare policies entered into, or renewed, after 1 April this year. Roseanne Murphy Harris, President of the Actuarial Society of South Africa, states that the primary aim of the demarcation regulations is to establish firm boundaries between medical aid schemes and the different types of health insurance products. “Confusion over the benefits offered by health insurance policies versus medical aid schemes has unfortunately resulted in consumers inadvertently sacrificing adequate medical cover by opting for products not appropriate for their circumstances,” she says. “This confusion also restrained medical schemes from developing a broader and more sustainable membership pool, which is crucial for the financial wellbeing of schemes.” By introducing clear boundaries, the regulations aim to prevent health insurance policies from interfering with the business of medical schemes. Product providers are also obliged to communicate clearly to policyholders that health insurance policies, especially hospital cash plans, are not a substitute for medical scheme membership. The regulations have therefore introduced new guidelines for the benefits payable by gap cover and hospital cash plans, while primary healthcare policies are expected to transition into medical aid schemes in the next two years. New cap on gap cover benefits Murphy Harris notes that one of the primary changes introduced by the regulations is the new benefit cap on gap cover, which may help to counter escalating healthcare expenses.
Also known as medical expense shortfall cover, gap cover is intended to address the shortfall in medical expenses that may arise when medical costs exceed what medical schemes are prepared to pay. “Some healthcare specialists may increase their charges according to how much insurers will pay. This in turn has the effect of contributing to medical inflation,” she explains. Gap cover has now been capped at a maximum of R150 000 for each insured person per year. Restrictions on hospital cash plans Hospital cash plans are intended to pay a daily amount towards non-medical expenses that might arise when an individual is hospitalised, such as childcare or a loss of income. “However, these policies are often used as low-cost options by earners who mistakenly believe that the benefits will cover the costs of hospitalisation, leaving them without adequate medical protection,” says Murphy Harris. “Moreover, many hospital cash plans only paid benefits after policyholders had spent as many as four or five days in hospital, which only happens in rare cases.” Hospital cash plans have therefore been limited to paying up to R3 000 for each day spent hospitalised to a maximum of R20 000 a year. These benefits may not be paid or ceded to healthcare providers. The new regulations further stipulate that benefits should be paid after a maximum of two days spent in hospital, and must be calculated from the first day hospitalised. Transition to low cost benefit options One of the biggest changes enacted by the demarcation regulations will see primary healthcare policies transition to medical aid schemes over the next two years. This is because these products are considered to perform the business of a medical aid scheme. Primary healthcare policies offer policyholders a limited range of healthcare benefits, such as visits to general practitioners and emergency medical care. “However, insurers are able to apply for a two-year exemption under the regulations in order to protect the rights of policyholders, as these policies target lowincome earners who are often unable to afford medical schemes,” she says. She notes that further consultation with the Council for Medical Schemes (CMS) and the Department of Health will take place over the next two years in order to address the framework for low cost benefit options under medical schemes. This option will be used to better accommodate low-income earners at the end of the two-year period. “The CMS published a draft framework for low cost benefit options in 2015, and
although there were some issues with the structure of these options, I believe that this framework represented a good starting point for further engagement,” says Murphy Harris. Consumer protection guidelines for all health insurance policies Other rules introduced by the demarcation regulations for the protection of consumers include: • Commission: Commission payable to insurance brokers on health insurance policies has been limited in order to prevent the mis-selling of products. Commission is now set according to monthly premium bands, ranging from a maximum of 20% of premiums less than R300 per month, to a maximum of 5% of premiums above R1 200 per month. • Premiums: Insurers are prohibited from discriminating against individuals by refusing them cover or increasing their premiums based on their state of health, because they have a disability or because they are pregnant. However, insurers price premiums based on the age of the policyholder when taking out a contract, if this pricing affects all new policyholders of the same age. • Waiting periods: Insurers may impose a general waiting period of up to three months on policyholders before they are able to make a claim, as well as a condition-specific waiting period of up to 12 months. This would apply to individuals that have been diagnosed with or sought treatment for an illness or condition in the year preceding the date they take out a new policy. • Disclosure: As part of the Treating Customers Fairly (TCF) principals adopted by the financial services industry, the terms of policies, the premiums payable, as well as any restrictions on benefits must be disclosed when taking out a policy. Regulations may encourage innovation Finally, Murphy Harris adds that insurers are often reluctant to offer products in an uncertain legal environment, as this uncertainty means that they may not be allowed to offer the same policies in the future. “These regulations mean that more insurers could begin to offer healthcare policies, and we could see more competition and cheaper and more innovative products in the healthcare space.”
Roseanne Murphy Harris, President of the Actuarial Society of South Africa
Boundaries set up between medical aid and health insurance
31 July 2017
Counting the costs of medical aid fraud
The reduction and elimination of fraud, waste and abuse will impact on medical aid contribution increases,” says Gerhard Van Emmenis, Acting Principal Officer of Bonitas Medical Fund. “Fraud, waste and abuse are the biggest contributors to escalating healthcare costs as the fee-for-service model of payment encourages people to over-charge or over-service for profit,” he adds. The cost of irregular claims Last year Bonitas identified over R79 million in irregular claims involving medical practitioners. To date, the Fund has recovered millions of rand which could be used to pay for at least 57 000 more family practitioner consultations for members, or potentially be used to fund an additional 18 lung or liver transplants. “It’s a travesty that greed ultimately denies others the opportunity for quality healthcare,” says Van Emmenis. The private healthcare funding industry spent over R150 billion on private healthcare in 2016. Of this a staggering 10-15% of these claims contained elements of fraudulent information – adding an estimated R22 billion to the annual cost of private healthcare in South Africa. Who are the culprits? The culprits are not just medical practitioners. Guilty parties are found all along the healthcare delivery chain – from medical practitioners through to employees, service providers and members. There has also been an increase in collusion between members and healthcare providers. The trends Van Emmenis says fraud may not necessarily be on the increase but the high level analysis means medical schemes are uncovering substantially more fraud than previously. Identity fraud: Current trends seem to be ‘bogus doctors’ who submit claims, using another doctors’ practice number. Time-based health practitioners: “2016 data revealed a massive increase in costs for allied/auxiliary service providers,” says Van Emmenis. “These are your dieticians, physiotherapists, psychologists and most time-based non-surgical healthcare practitioners. Using Big Data analytics, we are now able to identify these culprits much sooner, some of whom claim as much as 5060 working hours a day ”.
GUILTY PARTIES ARE FOUND ALL ALONG THE HEALTHCARE DELIVERY CHAIN
Other fraudulent activity Waste and abuse are far higher than fraud and are more easily quantifiable in terms of values as they are usually a clear contravention of tariff codes or a rule that exists. Most of the common practices include: • Billing for services not rendered (over billing) • Using incorrect codes for services (at a higher tariff) • Waiving of deductibles and/or co-payments • Billing for a non-covered service as a covered one • Unnecessary or false prescribing of drugs • Corruption due to kick-backs and bribery • Economic downgrade When the economy is bad, people including medical practitioners and suppliers can get desperate. There are so many ways in which the system can be manipulated. For example, if a doctor does not get enough patients to cover his expenses, he may well resort to abuse or fraud. If a member has used all their out of hospital expenses, a doctor might admit the patient to hospital just to access more benefits. If hospital occupancy is low, the hospital may well extend the stay. Who pays the price? As medical aid schemes became acutely aware last year during the increased tariff period, everyone suffers, including the general public. Schemes have to introduce double digit increases which are sometimes unaffordable. This forces members to buy down or leave the medical scheme
and join the public healthcare sector. This not only creates an additional burden on the state where they are already under-resourced, but medical schemes start to stagnate if they are losing members and the vicious cycle of premium increases continues. What is the best deterrent? “In our experience, the biggest single deterrent to fraud, waste and abuse is making it known that we are actively investigating every suspicious or unusual claim or activity. Education in terms of the relationships with medical aids, their members and the healthcare providers goes a very long way in curbing the abuse of medical aid benefits and, as such, our approach to fraud management speaks to this education component in all the matters we deal with.” Van Emmenis says: “We believe in ‘prevention is better than cure,’ and encourage the members to participate in the process. For example by checking their accounts and questioning strange or unfamiliar claims.” Collaboration Van Emmenis believes that working together is the only way to combat this scourge in the industry. To this end SA Fraud Prevention Services (SAFPS) is encouraging all the role players to come aboard its new initiative. This is a listings database where details of reported and investigated cases are captured to enable all members of the initiative to mitigate their risk with the sharing of information and identifying serial abusers or fraudsters. “Bonitas actively participates in industry initiatives including the SAFPS, the Healthcare Forensic Management Unit (HFMU), the
Association of Certified Fraud Examiners (ACFE) as well as a range of associations focused on preventing fraud.” Another important aspect of this initiative is the coordination of collaboration among healthcare insurers, where knowledge, skills, operating structures and many other important aspects can be shared. Who deals with the perpetrators? The only body who can deal with the perpetrators is the Health Professionals Council of SA (HPCSA) or the Pharmacy Council. There is no one monitoring the hospitals. “We believe the HPCSA are too lenient on offenders. According to Section 66 of the Medical Schemes Act, medical aid fraud, committed either by a member or a healthcare practitioner, is a criminal offence which carries a fine or imprisonment or both,” says Van Emmenis. Fraud and abuse are committed by a small number of healthcare providers but are a major cost driver in terms of financial impact. “Bonitas is leading the way in effectively detecting and preventing the fraud because substantial losses are suffered and it adds between R192 and R410 per month to every principal member’s medical aid contributions.” In conclusion, Van Emmenis says it will take a combined effort of the regulatory bodies, the professional associations and the medical schemes to raise the necessary awareness and stop fraud, waste and abuse going forward.
Gerhard Van Emmenis, Acting Principal Officer of Bonitas Medical Fund
31 July 2017
NO LONGER WHISPERING TO POWER: THE STORY OF THULI MADONSELA BY THANDEKA GQUBULE As Public Protector, Thuli Madonsela achieved in seven years what few accomplish in a lifetime. She has been praised and vilified in equal measures during her time in office, often putting her at centre stage. Speaking in Cape Town last year, Madonsela said that her role as Public Protector is akin to that of the Venda traditional spiritual female leader, the Makhadzi, who whispers truth to the king or the ruler. A ruler ignores the Makhadzi at his peril. During the speech, Madonsela joked that when the sounds of exchanges between the ruler and the Makhadzi grow loud, that is when the whispering has failed. No Longer Whispering to Power is about Madonsela’s tenure as Public Protector, during which the whisper grew into a cry. It is the story of the South African public’s attempt to hold power to account through the Office of the Public Protector. This important book stands as a record of the crucial work Madonsela has done, always acting without fear or favour.
Latest Forbes Celebrity
The Forbes Celebrity 100 ranks the top-earning front-of-camera entertainers on the planet by pretax income from June 1, 2016 through June 1, 2017. Here’s a list of the top 20: Rank, Name, Earnings (Category, Country) 1. Diddy, $130 million (Musician, US) 2. Beyoncé, $105 million (Musician, US) 3. J.K. Rowling, $95 million (Author, UK) 4. Drake, $94 million (Musician, US) 5. Cristiano Ronaldo, $93 million (Athlete, Portugal) 6. The Weekend, $92 million (Musician, Canada) 7. Howard Stern, $90 million (Personality, US) 8. Coldplay, $88 million (Musicians, UK) 9. James Patterson, $87 million (Author, US) 10. LeBron James, $86 million (Athlete, US) 11. Guns N’ Roses, $84 million (Musicians, US) 11. Rush Limbaugh, $84 million (Personality, US) 13. Justin Bieber, $83.5 million (Musician, Canada) 14. Lionel Messi, $80 million (Athlete, Argentina) 15. Dr Phil McGraw, $79 million (Personality, US) 16. Ellen DeGeneres, $77 million (Personality, US) 17. Bruce Springsteen, $75 million (Musician, US) 18. Adele, $69 million (Musician, UK) 18. Jerry Seinfeld, $69 million (Comedian, US) 20. Mark Wahlberg, $68 million (Actor, U.S.)
THE END OF MONEY: THE STORY OF BITCOIN, CRYPTOCURRENCIES AND THE BLOCKCHAIN REVOLUTION BY NEW SCIENTIST
Murder for hire. Drug trafficking. Embesslement. Money laundering. These might sound like plot lines of a thriller, but they are true stories from the short history of cryptocurrencies – digital currencies conceived by computer hackers and cryptographers that represent a completely new sort of financial transaction that could soon become mainstream. The most famous – or infamous – cryptocurrency is bitcoin. But look beyond its tarnished reputation and something much shinier emerges. The technology that underlies bitcoin and other cryptocurrencies – the blockchain – is hailed as the greatest advancement since the invention of the internet. It is now moving away from being the backbone for a digital currency and making inroads into other core concepts of society: identity, ownership and even the rule of law. The End of Money is your essential introduction to this transformative new technology that has governments, entrepreneurs and forward-thinking people from all walks of life sitting up and taking notice.
SUDOKU ENTER NUMBERS INTO THE BLANK SPACES SO THAT EACH ROW, COLUMN AND 3X3 BOX CONTAIN THE NUMBERS 1 TO 9.
31 July 2017
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The July edition of MoneyMarketing looks at hedge funds – and why they can no longer be ignored by institutions, individuals or corporates....
Published on Jun 28, 2017
The July edition of MoneyMarketing looks at hedge funds – and why they can no longer be ignored by institutions, individuals or corporates....