MoneyMarketing May 2024

It

It’s time to reframe

thinking about alternative investments

BY SANDY WELCH Editor MoneyMarketing

Westbrooke Alternative Asset

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The future of shortterm insurance is definitely in tech. But what does this mean for FAs?

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Management has had a good start to the year, says Dino Zuccollo, Investor Solutions Head. “It’s incredible to see how alternative assets are becoming increasingly mainstream in South Africa and how the wider investment market is beginning to recognise the need for the inclusion of these assets in their portfolios.”

He says the change in attitude was apparent at the recent Alternatives Investments Forum 2024, where it was interesting to see how the dialogue had changed compared to a few years ago. “Less than five years ago, when I sat with clients, a lot of this was new and foreign to them. Suddenly, it’s becoming accepted.”

He says that the closing panel was indicative of how things have changed. “Representatives from the Motor Industries Retirement Funds the Eskom Pension Fund and others were all talking about the potential inclusion of alternative assets in their portfolios. They don’t necessarily see alternative assets as an industry on its own, but rather as a diversifier within their existing model portfolio allocations. It was the first time seeing those types of industries having that kind of understanding and showing interest. I think it speaks to the increase in understanding and adoption of the asset class, that it's becoming more mainstream.”

What are the major trends in alternatives?

According to Zuccollo, private credit was definitely the main theme of this year’s

conference. “I spoke on it, Goldman Sachs spoke on it, there were at least two panel discussions on the asset class – so it’s definitely where allocators are seeing the best risk adjusted returns at the moment. This is in line with what we're seeing in the market globally," says Zuccollo. “At Westbrooke, we focus on four things: private debt, hybrid capital, real estate and private equity. Our experience over the course of the last 24 months is that the private debt pillars of our business have really taken off.” He explains that the focus of Westbrooke is to deliver clients attractive, compounding riskadjusted returns (i.e. trying to achieve the best units of return for clients per unit of risk taking) and capital preservation.

Prior to the conference, Zuccollo put out a survey to their investor base with a few simple questions, the intention being to get an understanding of their thoughts on private debt. “We received a lot of responses that I thought were reflective. We asked clients how many of them allocate to private debt. 70% said yes, only 40% said no. The ones that said no, we asked why. They cited predominantly lack of understanding as the reason, which is interesting to me. So it’s education that needs to happen.”

How do you define alternatives anyway? It's very easy to explain a balanced equity fund to clients, says Zuccollo. “Investors are used to interacting with these types of investment products. To go to a client and explain to them what a private credit fund is, that it does clever

things and functions in specific niches of the offshore and local markets where there is an element of asymmetry, is more difficult.”

“For me, alternatives are broadly defined as anything that's not listed, liquid and therefore accessed through the traditional mechanisms,” he explains. “As an example, clients buy bonds all the time – private credit is simply the unlisted, private version of that, and in my opinion it is not necessarily riskier. There are different risks, which are generally centred around liquidity and the skill and integrity of your investment manager.

Continued on next page

Dino Zuccollo

More time for your clients.

Equilibrium is a discretionary fund manager that brings balance into your advice practice. We enable you to do what really ma ers.

That is the power of balance.

Continued from page 1

The Westbrooke philosophy is capital preservation centric and very much focused on the low-risk side of things.” He explains that one of the other differences is that the flow of information is better in the listed markets, whereas in the alternative markets it depends very heavily on who your manager is as to information

organisations and some play in the macro and some play in the micro. “I think it’s an important point of distinction,” says Zuccollo. , we asked: ‘Why do you allocate to private debt over cash, bonds and fixed income?’ By far the largest response was for diversification and lack of correlation to the traditional markets. I thought the fact that you could reason, but it would appear that at least for our base, it’s not. It’s the

“What we do is different to listed markets. Listed markets all tend to move in the same direction. A lot of the directional movement is driven by macroeconomic factors, which is frustrating for allocators because you can’t control it. In the past, your bond allocation used to be the shock absorber in your portfolio. If equities did well, then your bonds maybe underperformed, but the equities carried it and that worked well in a low interest this new normal of high interest moderate to low growth, and the correlation between stocks and bonds has become much more 60/40 (equities and anymore because stocks and bonds, from a valuation perspective, now move in the same direction. The biggest value of what operate in the micro and can therefore

What are the impediments to the growth of alternative assets in South Africa for South African clients? Zuccollo explains the first is a lack of understanding and knowledge. “What we do is complex inherently, but you’re rewarded with higher returns and greater diversification and tax efficiency. But you need to be a little bit more prepared to roll up your

more complex inherently, with higher returns and

sleeves and get into the detail.” Our wealth advisers are still on this journey of learning with us

“What we see with our advisers is that in the beginning we are very involved with them and attend client meetings and present the offerings.

As the months go by, the adviser becomes more comfortable. Slowly the allocations grow as they get more comfortable and the clients see the returns. For the advisers who’ve gone on the journey, it’s been an incredibly positive one.”

Choosing a trusted partner

Westbrooke celebrates its 20th year anniversary this year, demonstrating a track record of success across its R12bn in assets under management . “The best way to judge a partner, in my opinion, is to make sure they’re financially incentivised alongside you, not just on the upside,” says Zuccollo. “Clients buy bonds all the time. This is just a private version of that and isn’t riskier. There are different risks, but I don’t believe it’s riskier than buying listed equities. The Westbrooke philosophy is capital preservation centric and very much focused on low-risk and alignment. Alignment is when you put your money alongside your clients such that if they benefit, you benefit; but if they hurt, you hurt too. That's always been the way we built the business. Westbrooke aims to, as a group, be the biggest investor in the products we offer. When we offer a new investment opportunity to clients, we aim to invest between 10% - 20% of the total investment in order to drive strong alignment.

“Our mission is to provide active access to South African connected capital to the global world of alternatives. I’m not aware of another South African-based asset manager that, under one brand and ownership structure, has the track record and capability, and also has a product suite that spans three continents and four asset classes in alternatives.

“Despite being in the asset management business, we're very clear that we’re not an asset gatherer. We don’t want to just invest where we think we can raise the largest amounts of money. We want to go where we think the best risk-adjusted returns can be found and where we have appetite to invest our own capital. I think slowly, over time, that’s resonating with clients.”

Zuccollo says Westbrooke’s view is that if they continue to be deliberate, conservative and deliver predictable, sustainable, orderly returns for clients over the long term, they’ll see the benefits. “You must be careful not to get distracted by things that are unsustainable and to accept that there will be good times and bad times. Right now, in the current market, clients are being very well remunerated for being conservative. There’s nothing wrong with that.

“My challenge to financial advisers is to contact us. You don’t have to do anything other than learn. We want to educate the market on the pros and the cons of alternative assets. Now is the time to investigate something new.”

AEDITOR’S NOTE

s we enter an election month, a tumultuous and fairly uncertain time, it’s interesting to see that despite global economic shifts and evolving investment landscapes, Africa can still emerge as a beacon of opportunity for clever investors. With its youthful demographics and untapped potential, diversification and growth prospects beyond traditional boundaries are on offer. As Africa’s economic trajectory seems to be offering opportunity, experts advise that investors must approach the continent with a blend of optimism and pragmatism. While the potential for growth is undeniable, so too are the challenges of navigating regulatory frameworks, political uncertainties and market volatility. Our feature in this issue offers some more indepth information on the topic.

For those with an appetite for innovation and higher returns, alternative investments present an intriguing avenue that is rapidly gaining favour. From private equity to venture capital, these non-traditional assets offer the potential for outsized gains, but you need to have the right expertise to guide you in what for many is an unknown playing field. Our cover story and other features in this issue will help put you on the right path.

Unit Trusts, long favoured for their accessibility and diversified portfolios, have had some mixed reactions over the past few years. Are they going out of favour, though, with the outstanding performance of exchangetraded funds? We spoke to a wide array of industry experts and the feeling seems to be that the long-term track record unit trusts present means they are always going to remain a popular choice.

Another area of finance we’re looking at this month are discretionary fund managers, which can be indispensable allies to financial advisers. With their acumen and discretion, these professionals tailor investment strategies to individual client needs, balancing risk and reward in the pursuit of financial goals. But it’s important for FAs to choose wisely with whom they partner. In this issue, experts from Morningstar, Equilibrium Investment Management and AlexForbes explain in more detail.

Stay financially savvy,

SANDY WELCH Editor, MoneyMarketing

Don’t forget to follow us on Facebook, LinkedIn and Twitter.

KATHRYN VAN DONGEN COO CARMEL WEALTH

How did you get involved in the financial world – was it something you always wanted to do?

I’ve always aspired to leading an exceptional business, which led me to pursue chartered accountancy. While my career initially took me through fields like audit and FMCG, a significant turning point occurred in 2017 after a year of travel, when I joined PortfolioMetrix, a global investment management firm. What drew me to the firm was its entrepreneurial ethos, stellar team, and impressive growth trajectory. My transition into financial services was somewhat serendipitous, yet I’m proud to be part of an industry where excellence can truly impact the lives of South Africans.

What was your first investment, and do you still have it?

As an article clerk, I invested in a unit trust managed by one of SA’s largest asset managers. The total sum of my due diligence was that my dad thought it was great! It was an excellent exercise in the power of brand and social influence in investing, and, as I no longer hold it, it was also a lesson in the importance of understanding what you’re buying.

Tell us about your new job and your reasons for leaving an international company to join a local one.

I am joining Carmel Wealth as COO. It is an independently owned wealth and asset management firm that is actively acquiring a diverse range of financial planning businesses into the group. My current firm is a South African entrepreneurial success story. Having started on home soil, it now also operates in the United Kingdom and in Europe. Carmel Wealth has a similarly strong entrepreneurial ethos and offers a proven solution to IFAs wanting to sell their businesses or join an established group. Time will tell, but I could certainly see Carmel Wealth growing internationally in future.

What are you looking forward to in your new position?

I’m eager to work with a highly skilled leadership team and learn from their extensive local and international expertise. I’m particularly excited about contributing to a solution for the critical issue of succession planning for IFAs, and see this as an opportunity to engage in meaningful and impactful work.

“I’m proud to be part of an industry where excellence can truly impact the lives of South Africans”

Are there any challenges you foresee? All start-ups face significant obstacles, but that’s part of the

fun! As a mom of two young boys, and training for the Comrades, I aim to do my best for both the business and my family. Luckily, I’m well supported on both fronts .

What have been your best – and worst –financial moments ever?

My best was paying the last balance outstanding on our first home loan. Up to that point, when my husband referred to “our” house, I’d correct him that it was in fact

“the bank’s” house. He is a saint for living with an accountant. My worst moments were when my newly separated mom was worrying about money having left her career to raise children. From then I knew I’d always strive to be financially independent.

What are some of the biggest lessons you have learnt in and about the finance industry?

South Africa has its challenges, but we can really be proud of our top independent financial advisers. They are at the cutting edge of the global evolution of advice. It’s a privilege to work with professionals that adhere to such high standards and change lives for the better in doing their work.

What makes a good investment in today’s economic environment?

The best investment is the one that is right for your needs. Therefore, understanding what you’re buying is key. I prefer to steer clear of investing in concentrated bets requiring high conviction. Instead, I seek investments that are constructed to do what they say on the tin and deliver greater consistency of outcomes. This necessitates the correct overall asset allocation.

What are some of the best books on property/finance/investing/leadership that you’ve ever read, and why would you recommend them to others?

Morgan Housel’s Psychology of Money is a terrific way to learn through his storytelling. It reminds me of the most influential lecture of my MBA degree, which concretised the power of compounding (conveyed theatrically via a case study on cat food purchases versus long-term equity investing).

An oldie but goodie is also The Goal by Eliyahu Goldratt that teaches on the Theory of Constraints, as it’s applicable to so many aspects of running a successful business.

1 CONTINUOUS PROFESSIONAL DEVELOPMENT

The FPI recognises the quality of the content of Money Marketing ’s May 2024 issue and would like to reward its professional members with 1 verifiable CPD points/hours for reading the publication and gaining knowledge on relevant topics. For more information, visit our website at www.moneymarketing.co.za

NEW APPOINTMENTS

Mr Price Foundation appoints new Executive Director

Octavius Phukubye, an impact investment strategist, has been appointed as the new Executive Director of Mr Price Foundation, which was established 19 years ago to address South Africa’s national development priorities of youth unemployment and access to quality education. Phukubye has over 16 years’ experience managing and leading strategy, transformation and economic development projects cutting across consulting, fast-moving consumer goods (FMCG), banking and mining industries. His prior roles include Managing Director of IDF VAS, Vice-President of Supplier at ABSA, Economic Development Manager

at SAB, and Management Consultant at Accenture South Africa. He is also a former entrepreneur, having founded Brillianaire (sold to IDF Capital), and Hatchfy, and led the delivery of impact programmes for Glencore, Shell, Takealot and Rand Mutual Assurance.

New Clinical Executive for Bonitas Bonitas Medical Fund has appointed Dr Themba Hadebe as the Fund’s new Clinical Executive. Dr Hadebe qualified as a medical doctor at the University of Stellenbosch and has over 12 years of experience in both the private and public healthcare sector, as a medical officer and private practitioner. He holds further graduate qualifications

including a postgraduate qualification in Occupational Health, Global Health and Business Studies. He held a Medical Advisory role at Netcare Group where he strategically managed and led numerous health and wellness portfolios.

Elias Masilela appointed chairman at MultiChoice

Imtiaz Patel has stepped down as chairman of JSE-listed video entertainment group MultiChoice. He will be replaced as chairman by Elias Masilela, who had been named Deputy Chairman of the company’s board.

Masilela is the former CEO of the Public Investment Corporation, was the head of policy analysis at Sanlam, and the deputy director-general at the National Treasury. He is also former board member of the South African Reserve Bank, Government Employees’ Pension Fund and United Nations Global Compact. This comes in the wake of a pending takeover of MultiChoice by French-based media company Canal+. The takeover has met with some resistance, mostly because regulatory restrictions allow only 29% (20% for foreign entities) of voting rights in acquired broadcasting companies and a mandatory offer for all outstanding shares once a stake exceeds 35%.

Sergeant Straitlaced and Detective Do-Right: A tale of two principles

BY JAMES GEORGE Compliance Manager, Compli-Serve SA

In the financial industry, the concepts of ethics and compliance serve as the twin pillars upholding the integrity and functionality of the sector. While intertwined, they delineate distinct territories, a fine line separating the legal obligations from the moral compass guiding professionals in their decisionmaking processes. Imagine a buddy-cop movie starring Sergeant Straightlaced and Detective Do-Right patrolling the bustling streets of Financeville to better demonstrate the difference between ethics and compliance.

Sergeant Straightlaced, with his unwavering adherence to the rulebook, represents compliance. In finance, compliance is the backbone of operations, ensuring that every transaction, every piece of advice and every financial move is in strict alignment with the laws and regulations that govern the industry. It’s about safeguarding the market’s integrity, maintaining fair competition, and protecting consumers from fraud and

exploitation. Compliance officers, much like Sergeant Straightlaced, are tasked with the critical role of monitoring and enforcing these rules, ensuring that financial institutions operate within the legal framework set forth by regulatory bodies.

Detective Do-Right, meanwhile, represents the ethical dimension of finance. Ethics transcends mere legal compliance, venturing into the realm of moral judgements and values. It’s about doing what is right, just and fair, not because the law demands it, but because of a deeply ingrained sense of moral duty towards society, clients and oneself. Ethical practices in finance involve transparency, honesty and integrity, ensuring that while the rules are followed, they are done so with heart and conscience.

The dynamic interplay between Sergeant Straightlaced and Detective Do-Right in Financeville mirrors the real-world interaction between compliance and ethics in the financial industry. While compliance ensures

New CEO for CCBA

Sunil Gupta took over the role as CCBA CEO in April. This is after CEO Jacques Vermeulen announced that he would be retiring after 28 years with Coca-Cola. Gupta has been with the Coca-Cola Group for 25 years, with roles including being CFO for the Coca-Cola Company’s Bottling Investments Group (BIG). Before joining Coca-Cola in 1999, he held roles with Bank of America NT&SA, Casio India and EY International.

Absa reshuffles

Absa has named Deon Raju as its new group financial director in place of the outgoing Jason Quinn, who is joining Nedbank. Raju was also appointed as an executive director of Absa Group and Absa Bank. Other changes at Absa include the appointment of Rajal Vaidya as interim group chief risk officer. Christine Wu also replaces Cowyk Fox as chief executive for everyday banking.

adherence to external regulations and legal requirements, ethics deals with internal values and principles that govern individual and corporate behaviour. However, the distinction is not always clear-cut. Ethical dilemmas often arise in areas where the law is silent or ambiguous, requiring financial professionals to navigate the grey areas with their moral compass.

The financial landscape is ever evolving, with new products, services and technologies continually emerging. These advancements often outpace the development of specific laws and regulations, leaving gaps that ethical considerations must fill. In such scenarios, ethical decision-making becomes paramount, guiding professionals to act in the best interest of their clients and the broader society, even in the absence of explicit legal directives.

While compliance can be enforced through regulations, audits and penalties, instilling an ethical culture within an

organisation requires a more nuanced approach. It involves leadership by example, ongoing education, and open dialogue about ethical standards and dilemmas. An ethical culture fosters trust among employees, clients and the public, enhancing the reputation and long-term success of financial institutions.

While Sergeant Straightlaced might slap you with a fine for bending the rules, Detective Do-Right’s approach is more about guiding individuals back onto the right path through moral persuasion.

In a highly competitive market, the pressure to meet financial targets can sometimes lead to ethical compromises, for example, and this is where the role of compliance and ethics becomes crucial in ensuring that financial success is not achieved at the expense of moral integrity. A robust compliance framework may deter misconduct through fear of punishment, but an ingrained ethical culture motivates individuals to do the right thing even when no one is watching.

Ashburton is cautiously optimistic about China’s investment outlook

BY JARRED SULLIVAN Global Multi-Asset Investment Strategist at Ashburton Investments

Ashburton Investments is cautiously optimistic about China’s investment outlook – but says the world’s largest state-controlled economy will have to do more to boost its economically active population and fragile economic sectors if it is to win back the confidence of foreign investors anytime soon.

Jarred Sullivan, a Global Multi-Asset Investment Strategist at Ashburton Investments, says one of China’s greatest persisting challenges is its ageing population. While the Chinese state has upped its quota from one child per family to three, it is a very long-term strategy that would take years to deliver greater meaningful labour force participation and more robust economic growth rates. “What China needs to do in the interim is to encourage skilled immigration, which would boost its labour force, consumer spending and could even assist its troubled property market.

“China lacks a sufficiently resourced and skilled workforce – it’s the greatest structural issue facing its economy. India, on the other hand, is showing healthy growth and its population has now overtaken China’s. Its economy is also more competitive, and it has less haphazard policies – so we’re seeing more funds flowing into India now over China. China can achieve a cyclical recovery, though, but it needs more robust population growth.”

Worsening US-China trade relations unlikely to derail Chinese recovery

“The main cause of global investors’ crisis of confidence in China has been its haphazard and insufficient policy responses to a post-Covid economic recovery. We have, however, seen more stimulus measures coming through. Bilateral US-China trade relations have been diverging for years, so I don’t foresee (even worsening) US-China relations necessarily disturbing China’s economic recovery,” says Sullivan. “Chinese recovery is more about fostering confidence.”

The investment expert is quick to point out that a Trump electoral victory in the US could lead to “greater market uncertainty and artificial deadweight losses (cost to society caused by market inefficiencies), and this could affect China’s long-term sticky money flows in terms of its recovery”.

While Biden is still in the US Presidency, and his policy of “de-risking rather than decoupling from China” is in play, there may be less interdependency, but Sullivan is sceptical of either country’s ability to function independently of the other in today’s highly globalised world.

China’s relationship with Africa and BRICS China is highly invested in Africa and Sullivan sees the trend continuing. “In terms of Africa’s emerging markets, there is an inextricable link in terms of their growth vis-àvis China. China has been key in terms of infrastructural development in Africa, key loans, and strategic foreign direct investment into key parts of Africa.”

Other investor deterrents

Looking inward, a key sector in need of recovery is the faltering Chinese property sector. “China needs to address the property sector bottlenecks, in terms of

recapitalising the debt-ridden sector. It will have to start with ensuring that real estate developers and financers do not go bankrupt,” says Sullivan.

Boosted immigration into China of people with certain skills and income levels could lift the property sector and the economy, he says.

It was, however, starting to see some of the benefits from more accommodative monetary policy come through that could help improve the performance of its stock market, he says. “China has displayed nascent evidence of a rebound in equity market performance recently. We remain encouraged by the front-loading of policy supportive measures at the beginning of this year. Overall, multiples are generally low in the country and international investors are generally very underweight in the region. We remain cautious with our asset allocation sizing toward China but are aware that both investor positioning and multiples historically change rapidly once confidence returns.”

Unpacking this further, Sullivan says looking at the market strictly from a valuation perspective, China is still “quite cheap”, judging by where the P/E ratio currently sits compared to the past. “Investor confidence is still quite low, so we are very cautious with our asset allocation sizing. On a positive note, we are starting to see some of the high-frequency data recovering.

Investors are also encouraged by the news that China has cut its five-year prime lending rate, which, in theory, should stimulate credit markets. “Banks, both smaller and larger, will be able to lend more through the lowering of the reserve requirement ratio in recent quarters. It should stimulate the overall economy, including consumer spending, the property market, and it could inject more investor confidence about the recovery of the Chinese economy.”

Nascent evidence of recovery

Looking at liquidity levels, Sullivan believes China’s liquidity will be “strictly influenced by its low inflation levels and what it needs to do to bolster its growth prospects.

“China has displayed nascent evidence of a rebound in equity market performance recently”

With regards to the haphazard policy pronouncements in recent years, the approach of no news is good news is certainly welcomed. We do see that if there is silence for extended periods of time, it can foster a potential confidence change.”

“China has registered subdued inflation levels for some time now. In the Western world inflation levels are quite high, while China needs to foster more inflation. It’s just gone into positive territory, after many, many prints of deflation.

“But ultimately a confidence issue remains in China, although we are starting to see nascent evidence of confidence returning that can thrust inflation higher, and then they wouldn’t need so much liquidity.”

In terms of cash injections from onshore Panda Bonds, Sullivan is sceptical of it making much of a difference to China given that more stimulus is likely needed, specifically from fiscal authorities, that aims to benefit the consumer. China has only planned for a 3% fiscal deficit (as a proportion of GDP) target this year – much lower than the United States have registered in recent years. Ultimately, China needs to implement policies that encourage household consumption expenditure, as this will create more sustainable growth in the future.

The Five Rings of Success

BY FRANCOIS DU TOIT CFP® PROpulsion

Iam a huge fan of The Lord of the Rings I am also always reflecting on how success can be cultivated and how we can maximise the chance of long-term success. Whatever that means to you or me. I recently discussed the five rings on PROpulsion LIVE and wanted to also write this article based on that episode. In the realm of financial advising, wealth management, and financial planning, success often mirrors the epic tales of fantasy, where the journey towards triumph involves many trials and tribulations, lessons, and moments of celebration. This article explores the elements any professional needs, through the metaphor of The Lord of the Rings, drawing parallels between the quest for professional excellence and the legendary journey of Middle Earth.

“A well-cultivated network can be the difference between stagnation and growth, offering resources and insights that are not readily available elsewhere”

Ring of Lore (Knowledge):

The First Ring

At the core of any successful venture lies knowledge. It is the foundation upon which all else is built. In the world of financial advisory, this translates to a thorough understanding of your client,

technical knowledge such as tax, risk, and investment strategies, and the ever-evolving landscape of financial products. Knowledge, however, is twofold: theoretical and practical. While theoretical knowledge offers a basis to start from, practical experience teaches through application and, often, through failure. This dual approach to learning ensures a comprehensive understanding that is essential for any financial professional. You must be on a journey to learn something new every day.

Ring of Craft (Skills):

The Second Ring

With knowledge as the base, the next step is to develop skills – the ability to apply knowledge effectively and efficiently in real-world situations. Skills transform theoretical knowledge into practical expertise. They enable financial advisers to perform tasks with proficiency, ensuring they can navigate the complex landscape of financial planning with ease. This includes technical skills, interpersonal abilities, and problem-solving capabilities, all of which are crucial for building trust with clients and delivering tailored financial advice. And yes, just like Frodo, we sometimes need to figure things out as we go.

Ring of Fellowship (A Network of People): The Third Ring

No individual operates in isolation, especially in the financial profession.

Building a network of professionals, clients and mentors – a fellowship – is invaluable. These relationships provide support, open doors to new opportunities, and help us learn from a diverse set of experiences. A well-cultivated network can be the difference between stagnation and growth,

offering resources and insights that are not readily available elsewhere. It is important to be intentional with how, and with whom, you build your network. It is not about how big your network is, it is about your commitment to each other. You can build a great network through your existing contacts, by identifying types of other professionals that will complement your value proposition, and through social media.

Ring of Treasury (Resources):

The Fourth Ring

Success also demands the effective management of resources. This includes not only financial assets but also tools, technology and people. The ability to leverage these resources efficiently can significantly enhance productivity and service delivery. Moreover, investing in oneself and one’s business reflects a commitment to quality and excellence that clients will notice and appreciate. One resource many overlook is outsourcing. Just like Gandalf brought an entire army to help with the fight, so too do you have access to an ‘army’ through your relationships.

Ring of Heraldry (Brand):

The Fifth Ring

In today’s competitive market, building a strong, authentic brand is essential. A brand is not just a logo or a tagline; it is a representation of values, expertise, and the unique proposition one brings to the table. For financial professionals, this means creating a brand that reflects their knowledge, skills, and the quality of service they provide, helping them stand out in a crowded field. There are different ways to build your brand, but the only idea I want to leave you with today, is that you need to be intentional with your brand. Otherwise,

someone else will build your brand for you. And chances are that it will not be the brand you envisioned.

The One Ring to Rule Them All: Dominion (Your Mindset)

Underpinning all these elements is mindset – the most critical factor in determining success. A positive, growth-oriented mindset enables professionals and businesses to overcome challenges, seize opportunities, and continuously strive for excellence. It is about maintaining a belief in oneself and the possibilities ahead, even in the face of setbacks. Just as in any great quest, the right mindset is the key to unlocking one’s full potential.

The journey towards success is complex and multifaceted. It requires a combination of knowledge, skills, networking, resource management and branding, all driven by a resilient and positive mindset. By focusing on these core elements, we can navigate the challenges of the industry and the profession, build lasting relationships with clients, and achieve enduring success. Like the heroes of Middle Earth, the quest for professional excellence is an ongoing journey, but one that is rich with rewards for those who are prepared to embark on it. Stay curious!

Higher for longer: What do higher interest rates mean for private equity?

BY RICHARD DAMMING Senior Investment Director at Schroders AND, VERITY HOWELLS Investment Research Manager, Private Equity at Schroders

While inflation is moving steadily lower, we believe the secular shifts of deglobalisation, decarbonisation and demographic change will keep inflation and interest rates higher for longer. With the added challenge of geopolitical conflicts, many investors are reassessing their private equity allocation. But almost every year since 2008 has involved a crisis for investors in private equity.

And yet, double-digit returns have been earned by global private equity investors in every year over this period, whatever the global economy and markets have thrown at them, recessions included.

Performance in recent years is less meaningful as funds have yet to mature, but investors in 2008-19 vintages have earned an average internal rate of return of 16% a year and got back an average of 1.8 times their money. This has far outpaced GDP growth.

One reason why performance has been so resilient is that private equity funds benefit from ‘time-diversification’. Capital is deployed over several years, rather than all in one go. This reduces sensitivity to market events and means that the concept of market timing doesn’t make sense when it comes to allocating to private equity. Likewise, private equity investors are long-term asset holders without pressure to divest if market conditions are not conducive to return maximisation.

There are many value-drivers that go well beyond economic or domestic industry-specific growth. For example, mergers and acquisitions/consolidation, technical innovation, professionalisation, and export-oriented business models. These can generate value even against a challenging macroeconomic backdrop.

But a tailwind from rising leverage and falling borrowing costs is ending.

One factor that has been supportive through this period is cheap, easily available debt. This has helped more leveraged transactions ‘juice’ returns, especially when accompanied by rising valuation multiples.

With long-term inflationary pressures created by the 3D Reset, we believe the era of ultra-low interest rates is behind us. Debt will cost a lot more and leverage levels will be lower because higher interest costs will make it less appealing.

But, offsetting this, falling valuations mean that it costs less to acquire a company today than it would have done 12 months ago. And the price reduction required to offset a lower level of leverage and leave returns unchanged is less than you might think. A 12.5% reduction could be enough to offset a reduction in leverage from 65% to 50% without impacting returns, all else being equal (see worked example).

One change is that the types of strategies that look set to be more successful could look quite different to those that succeeded in the past decade. With leverage and rising multiples unlikely to propel returns, there could be a sweet spot for strategies focussed on revenue growth and profit margin improvement.

For example, expansion of product lines or geographic footprint, and professionalising management to improve profit margins. This is all easier to do among small- and medium-sized, often family-owned, companies. At larger companies, which have often been through several rounds of private equity or institutional ownership, it is much harder to add the same value.

Worked example:

Crudely, let’s assume a company’s enterprise value grows by 8% a year. So, if it’s worth €100m on day one, it’s worth €146.9m after five years (for the purpose of this analysis it is irrelevant whether this comes from revenues, margins, or multiple expansion). At that point it is assumed that you exit.

If the purchase is 65% financed by debt, then that covers €65m, with the equity investor putting up the other €35m. After five years, the equity investor’s stake is worth the sale price net of outstanding debt which, for simplicity, I’ve assumed is still €65m. That gives them €81.93m, which works out as an annualised return of 18.5% on their initial €35m investment.

But what if, in today’s new world, you can now only get 60% debt financing? Or

55%? Or less? The graph below shows how much cheaper the purchase price would need to be for your return to be the same as in the original case. This assumes you can still sell it for the same projected value of €146.9m in five years’ time. For example, if only 50% debt financing was available, entry prices would have to fall by 12% for investors to still earn an 18.5% return. This is perhaps less than many people might expect.

What about inflation

higher for longer?

The combination of ageing populations, slowing globalisation, and the transition to more expensive energy sources are set to keep inflation structurally higher. This is a global problem that is affecting all asset classes, across equities and bonds, public markets and private ones. Private equity is not immune. As well as impacting leverage, as described above, the profitability of many companies will come under pressure as their cost base increases.

However, not all will suffer. Those that can pass on higher costs into higher prices will prove more resilient.

Investors in private equity need not fear the implications of structurally higher inflation and rising geopolitical conflict. Although the global economy continually faces challenges, returns have been strong through thick and thin. The tailwind from cheap interest rates may be fading but the ability to buy companies for less will go a long way to offset that.

HOW MUCH OF AN ENTRY PRICE REDUCTION IS NEEDED?

“Falling valuations mean that it costs less to acquire a company today than it would have done 12 months ago”

Tailoring financial needs analysis for client success

BY NIC SMIT Chief Product Actuary at Bidvest Life

As we forge ahead into 2024, the economic landscape continues to present formidable obstacles for South Africans. With the prices of essential goods surging and wage growth stagnating, disposable income has dwindled, forcing consumers to cut back on spending to focus on essential items. In this climate, life insurance is increasingly being perceived as a discretionary cost, leading many South Africans to either forgo opting for cover entirely or to scale back on their benefits. As a financial adviser, your role in filtering your clients’ financial needs is critical, and it’s your expert guidance that will help them balance their affordability constraints against their risk needs. While conducting a Financial Needs Analysis (FNA) is important at the planning stage, actively listening to your clients is the first step toward understanding their immediate needs and building trust around how to alleviate their lifestyle pressures. This process begins by tackling their most prevalent risk: the potential loss of income due to illness or injury.

Combine income and lumpsum benefits

How you structure your clients’ life insurance benefits is key to ensuring they and their beneficiaries are sufficiently provided for in the event of needing to claim. According to Bidvest Life’s 2022 Claims Report, income protection claims accounted for 58% of total payouts in 2022 – more than for the rest of its portfolio combined.1 And, while a 30-year-old male has only a 15% chance of passing away before the end of his working years, there’s a 91% chance of him being unable to work for a period of two weeks or more during his career. 2

FNAs, while helpful in assessing lumpsum requirements, make assumptions around future interest, inflation and annuity rates, and can fall short in accounting for beneficiaries’ longevity, thus potentially resulting in beneficiaries’ long-term needs not being adequately catered for. Additionally, there’s a potential risk of beneficiaries mishandling lumpsum payouts . Income protection pays out up to 100% of the insured salary monthly when a policyholder is not able to work due to an illness or injury, whether temporary or permanent. This approach ensures a sustainable source of income to cover monthly expenses like medical aid, insurance, bond, and kids’ school fees.

Income protection also continues to unlock value for financial advisers as a means of catering for affordability challenges and superior claims processes for your clients.

By integrating a combination of income protection and lumpsum benefits into your clients’ portfolios, you can offer them, their families, and their businesses a more robust safety net, ensuring they can effectively address significant once-off expenses while maintaining financial stability.

“Actively listening to your clients is the first step toward understanding their immediate needs and building trust”

As an industry, we can utilise digital tools to enhance this process and educate our clients. Bidvest Life’s Risk Reality Calculator asks basic questions to determine a variety of potential scenarios, like a temporary absence from work due to illness or injury, a critical illness diagnosis, disability, or premature death before retirement. Offering personalised information enables us to better influence and convert our clients, bridging the gap between life insurance and the millions of South Africans who could benefit from its protection. By embracing technological tools and demonstrating genuine empathy when listening to your clients’ needs, you empower your clients to navigate life’s uncertainties with confidence. This approach creates an environment where the appropriate mix of life insurance benefits becomes not just a luxury, but a pillar of financial resilience.

1 Bidvest Life 2022 Claims

Four key philosophies for wealth creation in turbulent markets

BY MAARTEN ACKERMAN Citadel Chief Economist and Advisory Partner

Amid buoyant equity markets and impressive returns, the prudent investor recognises the imperative of fortifying their wealth against a risk premium. As markets surge and fluctuate, the need for astute wealth management strategies becomes ever more important –particularly for South Africans who need to measure and manage their wealth in global terms. This is also a year that is marked by several significant geopolitical factors, as well as elections in more than 70 countries, including the US and South Africa.

While the markets have been strong going into 2024, given the expectation that rates could start to decline later this year, we remain on the cautious side as we think that fundamentally there are still a lot of challenges in the pipeline.

It’s unlikely that the markets can sustain these levels based solely on positive sentiment or a handful of Artificial Intelligence (AI) companies that are currently doing well – at some point, we have to look at the economic fundamentals and recognise the impact that elevated interest rates will ultimately have on consumers and businesses.

While higher interest rates act as a natural handbrake for consumer activity, they can also provide a tool for investors. While we are cautious on equity valuations and believe that there are several headwinds still to be faced, instruments like cash and bonds are offering value that we have not seen in the last decade – as inflation slows, these instruments could deliver inflation-beating returns at lower risk than equity.

There are several strategies to manage the risk-reward trade-off. This includes higher exposure to fixed-income instruments, incorporating high-quality defensive businesses in their equity portfolios, and incorporating gold and managed volatility products that can assist with downside protection in a more volatile trading environment.

Citadel has used four key investment philosophies to preserve and grow client wealth over its 31-year history.

The first is to recognise that the future is uncertain and therefore investors need to diversify into multiple asset classes that will behave differently under various economic scenarios.

The second is that valuations must make sense. Equity markets have seen outperformance by a handful of businesses, which have driven them to new highs. When one asset class is in favour – such as high-growth technology and AI – this often means that other strategies like fixed income and investing for yield are ignored. These out-of-favour sectors may offer superior returns in the coming years.

The third key philosophy is that investor portfolios require diversification of assets across a range of countries, currencies and companies. South Africa is an excellent example of this. For the 10 to 15 years post-1994, South African investors had an investment period where the JSE was one of the top-performing stock markets in the world and property prices were growing – in contrast, we have now had a decade of low growth in domestic property and the JSE has been a laggard.

Lastly, it is critical to understand the investment environment and ensure that your asset allocation is optimised to preserve wealth when risk is higher. This is often an under-appreciated element in the wealth management relationship – investors often focus too much on their returns and not enough on the preservation element.

By adhering to the four key investment philosophies outlined in this article, investors have a reliable compass for navigating the complexities of the financial markets. While the journey to building wealth may be filled with twists and turns, those who remain steadfast in their commitment to these principles are wellpositioned to achieve their financial goals and secure a prosperous future for themselves and generations to come.

Artificial intelligence: Rise of the next generation of investment processes

BY STEPHÁN ENGELBRECHT Portfolio Manager, Mazi NextGen

The date is 27 October 2019 in Yokohama, Japan.

South Africa and Wales are battling out a fiercely competitive and strategic semi-final in the 2019 Rugby World Cup. We are in the 76th minute, only four minutes left in the game, the scores are tied at 16-all, and South Africa has been awarded a lineout on the Welsh 10-metre line. South Africa wins the lineout and starts their powerful rolling mall, Wales infringes to try to stop it, and a shrill blast from the referee’s whistle tells all the players that their fate will be in the hands (or rather the right foot) of South African ace flyhalf, Handré Pollard.

It is a difficult kick, and everybody in the stadium hold their collective breath as Pollard steps forward and kicks the ball. Many of his own teammates cannot bear to watch! The ball duly sails through the posts and South Africa wins the titanic battle 19-16 and goes on to raise the Webb-Ellis trophy.

In the documentary series Chasing the Sun, Pollard is asked what thoughts went through his mind during that critical kick. Pollard’s response was something to the effect of: “Nothing. During those pressure situations you must block out all emotions and trust your process. All that I focused on was to follow my process.”

Pollard’s insights are very relevant to investment management. Human beings are emotional creatures and investing tends to awaken two of our most powerful emotions, namely fear and greed. In this modern

information age, where an abundance of data and news are freely available, it is so easy for investment professionals to find the bad (good) data or news to enhance your feeling of fear (greed) as the value of your investment portfolio falls (rises). So, even though there are numerous investment books out there telling investors to block out emotions, ignore all the noise, focus only on the relevant data, and follow your process, this is much easier said than done. This is because our brains so easily fall victim to the siren-song of the prevailing popular stories and really want to believe that “this time it is different”.

This is one of the key differentiators of the Mazi NextGen Long Short Prescient RI Hedge Fund (the fund), a newly launched hedge fund that relies heavily on proprietary machine learning algorithms to identify high probability investment opportunities and to construct portfolios. Learning from historic price movements, our algorithms can distil the relevant information from the glut of data we provide it. It can identify complex relationships between macro factors and company-specific metrics, like quality, momentum and valuation, that consistently led to superior performance in the past that our human brains would never have been able to identify. And the algorithms do this every time without fear or greed pulling it in a certain direction, ensuring that our portfolios reflect the data and not emotions or noise.

Defence stocks provide diversification opportunities

BY JD HAYWARD Portfolio Manager at Flagship Asset Management

Writing about peace and war can be a delicate subject. While the last couple of decades have been relatively peaceful across most of the developed world, many developing countries have not enjoyed a similar era of calm. The Middle East and Africa have been especially hard hit.

Today, much of the developed world faces the prospect of war again. As grim as this prospect is, and as much as military and defence investments are traditionally viewed poorly from an ESG perspective, they remain relevant and necessary.

Developments in recent years have cast a new light on investments in military and defence stocks, increasing the growth potential of traditional arms manufacturers, like tank and munition producers, and companies that provide auxiliary services, such as radar and electronic systems.

Structural underinvestment

Since the end of the Cold War, the West experienced an era referred to as the ‘Long Peace’ or ‘New Peace’. This might have instilled a false sense of security in many countries, swiftly exposed when regional powers had to start delivering aid

to Ukraine. The thought of a large-scale ground war had become so distant that many members of NATO realised they were not well equipped to fight one.

To ensure that it is sufficiently armed to defend members when required, NATO put spending guidelines in place nearly two decades ago. This guideline is 2% of each country’s respective GDP. The rationale makes sense. Countries with stronger economies would contribute a larger nominal amount, but the contributions would be fair proportionally. The problem with this guideline is that it was not being met to gear up for a far riskier geopolitical landscape. In 2014, only three NATO members met the contribution requirement, despite NATO Defence Ministers pledging bigger contributions as far back as 2006.

This does not mean that the machine learning algorithms have replaced humans entirely in our investment process. Humans still reign supreme when it comes to creating and developing an investment process – the machines are just better at following it. Our role in managing the fund is to research as many alpha generating investment ideas as possible, distilling these concepts into clearly definable and measurable problem statements, identifying the data required to derive the investment signals, testing whether the strategies were successful, and whether they would add value to our overall portfolio. From there we leave it to the machines to identify the opportunities using our derived investment process.

We believe that this combination of human creativity and the discipline of machine learning algorithms will dominate the processes of investment managers in the future. In our view, the Mazi NextGen Long Short Prescient RI Hedge Fund* offers a glimpse of the investment process of the future; and the future is truly exciting!

Disclaimer: The information provided here is for general informational purposes only and should not be construed as financial advice. Before making any financial decisions or investments, it is advisable to consult with a qualified financial advisor who can assess your individual needs and provide personalised advice tailored to your situation.

Mazi Asset Management is an authorized Financial Services Provider (FSP 46405)

later, there was another equally unexpected wake-up call. His name was Donald Trump.

Increased defence spend

The results of Russia’s invasion and Trump’s hardline stance have been noteworthy.

While only three NATO members reached the target spend level in 2014, this increased six-fold to an expected 18 countries in 2024.

“Developments in recent years have cast a new light on investments in military and defence stocks”

While this is a massive improvement, a lot of work (and investment) still needs to be done. After the ascension of Finland in 2023 and Sweden in 2024 to fully fledged members of NATO, the organisation now has 32 member states, more than 40% of whom will not have met their spending targets yet.

Investment implications

2014 proved to be a pivotal year in NATO’s history, as the ‘Long Peace’ came to an abrupt halt when Russia illegally annexed the Crimean Peninsula. Two years

Developments in recent years have cast a new light on investments in military and defence stocks. Some ESG investors have even started viewing defence stocks more favourably.

One can either invest in traditional arms manufacturers or take a more subtle approach by investing in companies that provide auxiliary services, such as radar and electronic systems. Lastly, there is also the option to invest in companies that have segmental exposure to the industry without being dependent on it.

Examples of the more traditional arms manufacturers would be German manufacturer Rheinmetall and British-based BAE Systems. Both manufacture traditional warfare weapons like tanks and munitions. But investors can also consider companies like Airbus or Rolls Royce. Both are familiar names in the commercial aerospace industry but have significant defence segments.

Last year, global equities delivered stellar returns, but once markets inevitably cool down and the effect of a prolonged period of high borrowing costs starts to bite, investors will have to look outside of the well-trodden IT sector for good returns. That job certainly becomes easier when you look for investment opportunities outside South Africa that are set to benefit from structural tailwinds, even in times of geopolitical tensions and uncertainty.

With the world in chaos, Africa might offer the answers

BY SANDY WELCH MoneyMarketing Editor

Adenia Partners is a leading private equity firm focused on growth opportunities in Africa. M oneyMarketing spoke to Florent de Boissieu, one of the partners, about his view on investing in the continent.

We’re currently going through challenging times worldwide. Why do you think now is the time for people to invest in Africa and what are the opportunities?

In Africa, we are used to various geopolitical tensions, but what’s interesting right now is that these tensions are far from being limited to Africa. There’s a lot of uncertainty in so many countries around the world. However, we are used to having problems with currencies. We are used to being on the bad side of the press. We know how to deal with these situations. I feel like the world in general has become much riskier. Africa has not, in the past years. It feels like many things are working quite well on the continent at the moment. Some of the things that the rest of the world is going through, Africa has been going through for a long time already. We know how to deal with these things, which makes it a more stable environment in a way.

Do you think the rest of the world underrates the continent in terms of investment opportunities?

Certainly. I think it comes from the size of the market. If you look at Africa from the eyes of a multinational that’s operating in the US or Europe, Africa is very small. It’s probably about 1% of their market or 1% of their revenue. Africa is a bit overlooked because people would not spend a lot of time looking at it.

They wouldn’t spend a lot of time trying to figure out what’s working here. However, if you’re focused on Africa, you see a lot of opportunities, and there are several secular trends that are driving that. It’s a bit of a cliché, but the emergence of the middle class is something, the fact that 50% of the UN population in 2050 will be in Africa. There are a lot of long-term trends that make it difficult to completely ignore.

If you had to pick a few big investment opportunities, country-wise, or perhaps in general, what would you say people should be focusing on if they want to invest in Africa?

Energy is very interesting. It’s true, of course, that in South Africa, the institution of energy has been very complex, so the key here is to find a way to deal in a part of the value chain where you can derive good margins and where you can make a difference, so you have to probably think a lot about how to do that. But it’s certainly a big thing, as is anything supported by long-term trends, such as the emergence of e-commerce, which has a lot of potential as well. We see it in South Africa, we also see it in Kenya, and in many other countries.

ESG is very important to your company.

Can you tell me a little bit about that?

Sustainability is important because we live on this continent. Not being sustainable is not an option. Providing decent jobs is super important for us. It’s probably the most important thing you can do. We work a lot on the social aspect, the quality of jobs that we are providing to people. We work a lot on the environmental side of business. We’ve just published our Climate Reforms report yesterday, a public document that anyone can look at.

What’s important to you in terms of new trends in investing?

There are many trends happening in Africa that investors need to keep their eyes on. Education, for example, is becoming increasingly digitalised, which is very interesting, and the private sector should do something in this regard. We see that healthcare is a huge field and there are many things that need to be done on the continent in this regard. We have invested in this sector in the past and we continue to look at interesting opportunities. It’s interesting to me that some other investors buy minority stakes in companies because this is not how we operate. We see you can have much more impact when you buy more than 51% of shares. It allows you to make a lot of changes in the companies you are investing in.

What are the challenges?

The currencies are always a challenge. In South Africa, everyone is aware of how volatile the rand is and it’s the same for many countries in Africa. It’s a problem when you are investing. One way to deal with it is to look at companies that have revenues in hard currencies, but there aren’t many businesses like that. What we look for are companies that have pricing power that can pass increases onto consumers, so being a leader in the market is super important, or having something that differentiates you in the marketplace.

Tell us about your acquisition of The Courier Guy. What made you decide this was a good investment?

It’s a very good business. We’ve acquired 100% of the company alongside co-investors DEG, Proparco, and South Suez. This acquisition marks the second investment of Adenia’s fifth flagship fund, Adenia V. Our investment was driven by the exponential growth of e-commerce in South Africa, particularly with players such as Amazon entering the market.

“The key here is to find a way to deal in a part of the value chain where you can derive good margins and where you can actually make a difference”

Exciting times in African debt markets

BY LUSANDA NDESI Lead Specialist: Banking Syndications AND, MATOME MODIBA Head of Africa Regional Operations Syndicate at Absa CIB

Are South Africans too pessimistic and are they missing some positive signals from the debt markets? While domestic equity markets have struggled in recent years, the debt markets are demonstrating robustness, innovation and continue to attract demand in the global marketplace. This is important as it speaks to the growth prospects of both South Africa and the broader African continent.

As one of the leading Pan-African banking groups, we look at activity in the debt markets and believe that there is appetite to unlock funding for large strategic projects, which will be transformative for the continent in the coming years.

In the South African context, we have seen several new Issuers and Issuances coming to the market. An example of this was the inaugural Bond issuance by the

New Development Bank (NDB) in August 2023. Absa was the co-arranger of the deal, which saw NDB issue R1,5bn across three- and five-year bonds. The proceeds will be used to fund infrastructure and sustainable development projects in South Africa.

While we are not yet seeing major Capital Expenditure (CAPEX) projects being funded by South African Corporates, there are several corporates re-financing existing debt and putting them in a position to deploy capital.

This has also been supported by a spike in interest in Environmental, Social

and Governance (ESG) and Sustainabilitylinked finance projects as organisations invest in energy-security. With the JSE announcing new listings requirements for ESG, we expect this segment of the market to mature and attract new funding.

A range of negative news headlines have cast doubts on the attractiveness of South Africa as an investment destination, but we observe an interesting dynamic when reviewing our discussions between local and international institutional investors. This has been further exacerbated by challenges faced by many of the State-Owned Entities (SOEs) who are significant players in the debt markets.

Despite challenging conditions, international investors continue to have an appetite for the right South African debt projects. A good example of this would be the Transnet issuance last year. This was a $1bn issuance with a five-year term, listed on the London Stock Exchange – it was 2.9 times over-subscribed and was Transnet’s first international bond issuance in 10 years.

In our interactions with funders, it is interesting to note that local investors

“Despite challenging conditions, international investors continue to have an appetite for the right South African debt projects”

tend to be more pessimistic, compared to their international counterparts. It might be argued that South African managers are “closer to the problems” – but we remain encouraged by the demand from international investors.

When it comes to the rest of Africa, the debt markets are maturing rapidly and as we see a combination of innovation and liquidity being added to the market, we expect this to be a catalyst for funding for strategic projects.

Despite challenges presented by the Covid-19 pandemic, the cost-of-living crisis and geopolitical tension across the globe, these markets continue to develop.

Absa was involved in a number of transactions last year that encapsulate this opportunity. The first was a capital raise for Bayport in Zambia. The corporate debt market in Zambia had been very quiet since 2018 but through our relationships on the ground, strong partnerships with Development Finance Institutions (DFIs) and our understanding of the Zambian market, we were able to ignite the sector with this important deal.

The second was a US$200m term loan for the Revolutionary Government of Zanzibar (RGoZ) through its Ministry of Finance and Planning. We acted as mandated lead arranger, underwriter, bookrunner and security agent in the deal.

The facility to the RGoZ is more than the financing of government projects. It will be a game-changing catalyst for the country’s Development Vision 2050 to achieve an upper-medium income status for the economy. Being a significant financier of the RGoZ 2023/24 fiscal projects makes us a significant investor and enabler in the improvement and transformation of the lives of the people of Zanzibar through the development of such projects. This includes projects in strategic land, sea and road infrastructure, social services such as health and education, as well as economically transformative sectors such as tourism, the blue economy, agriculture and industrialisation.

While there are some that might fear that regional banks are being excluded from some key projects and issuances on the continent, we believe that the opportunity for more transactions will materialise as we continue to provide innovative funding solutions that illustrate our commitment to participate in the growing African story.

The landscape for both public and private sector debt is rapidly developing on the African continent, and we look forward to utilising our skills, expertise and understanding of the market to create value for our clients.

FSD Africa Investments and Allied Climate Partners collaborate

FSD Africa Investments and Allied Climate Partners have entered into a Memorandum of Understanding and will partner to address a critical financing gap for climate infrastructure, mitigation and adaptation in Africa. This aligns with the core missions of both organisations: to increase the number of bankable opportunities for climaterelated investment, increase private sector participation, improve livelihoods, and mitigate the effects of climate change across Africa.

FSD Africa Investments (FSDAi) invests to make finance work for Africa by allocating catalytic capital to market-shaping instruments, intermediaries and infrastructure, and has cumulatively invested US$105m with a portfolio of 19 projects.

ACP invests junior, first-loss equity in regionally focused third-party funds. ACP announced its inaugural investment into the Southeast Asia Clean Energy Fund II, managed by Clime Capital, in January, and is seeking to replicate similar investments in other regions.

“This collaboration will drive innovation across the African continent, specifically mobilising more climate finance”

Allied Climate Partners (ACP) seeks to aggregate approximately US$825m backed by US$235m in philanthropic capital to support the establishment of thirdparty funds, platforms, and other investments in early and development stages of climate-related projects in Africa, Southeast Asia, India, and the Caribbean & Central America.

Speaking during the MoU signing ceremony on the sidelines of the ongoing AVCA annual summit in Johannesburg, South Africa, FSDAi Chief Investment Officer Anne-Marie Chidzero hailed the collaboration as one that will support Africa to meet her ambitious climate finance goals. “For the African continent to meet the Nationally Determined Contributions, we must raise tenfold current annual climate finance levels to US$277bn, and the share of private capital to at least US$100bn. Working with ACP, we will be able to catalyse and crowd in more innovative and green finance for greater action,” said Chidzero.

ACP Chief Executive Officer Ahmed Saeed noted that this collaboration will drive innovation across the African continent, specifically mobilising more climate finance for Africa. “There is a critical gap in climate finance, and

Unlocking Africa’s investment potential

BY JACLYN GARDNER

For years now, we have been searching for catalysts for the African capital markets. Over the past 24 months, our conversation with investors would finish with questions around what events needed to happen for these markets to start performing.

Sure, the equity markets are cheap, but admittedly, they have been cheap for a while.

And sure, the fixed income markets are yielding attractive rates, but rates have risen almost everywhere globally, so the hunt for yield isn’t what it was a few years ago.

The first quarter of 2024 has shown the first sign of green shoots in Africa ex-SA. Positive macro developments have finally started taking place, which is a positive underpin for both African equities and fixed income alike.

Recently, two of Africa’s largest markets, Egypt and Nigeria, have both started to liberalise their currencies and continue with positive economic reforms.

In Egypt, the government undertook a large devaluation of the currency of 35%, with the central bank (CBE) floating

the official forex rate and allowing it to converge with the parallel market rate.

Around the same time, the IMF, World Bank and EU have all reiterated their commitment and financial support.

In Nigeria, policy improvements since President Tinubu took office in late May 2023 have remained underway, with market-friendly changes to policies, such as the partial removal of the fuel subsidy and a rebound in oil production and gradual weakening of the currency peg.

January saw the Nigerian Naira strengthen dramatically as authorities began the process of exchange rate liberalisation.

This backdrop of positive data has provided a boost to risk assets, with equity markets, high-yield credit markets and oil prices all experiencing a strong first quarter.

The Laurium Africa USD Bond UCITS Fund has rebounded 33% in USD from the lows in September 2022 to the current 31 March 2024 level. We have also seen oversubscribed primary issuances in the African Eurobond markets pick up after a lengthy post-Covid hibernation.

“Two of Africa’s largest markets, Egypt and Nigeria, have both started to liberalise their currencies and continue with positive economic reforms”

specifically risk-oriented equity, available for emerging and developing economies to meet climate and energy transition goals. We are thrilled to partner with FSDAi, a pioneering organisation at the forefront of strengthening private sector participation and financial markets in Africa. Together, we hope to attract more risk-oriented capital for early-stage investments in Africa, by establishing new, catalytic, blended finance solutions that will leverage public and private capital to tackle the climate crisis,” explained Saeed.

Working in concert, FSD Africa Investments and Allied Climate Partners will identify, evaluate, and seek to invest in highly catalytic financing solutions in Africa that increase investment for early-stage project development and companies deploying climate-related infrastructure in Africa. The sectors to be targeted, owing to their potential to accelerate a low-carbon transition and improve livelihoods, include: clean energy generation and transmission; electric transportation; green industry; and water and waste management. Selected investment managers will seek to invest in high-leverage and catalytic projects, platforms and companies with demonstrable and positive impact on climate in Africa, and which have the potential to mobilise third-party capital at scale.

Source: Bloomberg (30 Sept 2022 – 31 Mar 2024)

What we have yet to see are flows back into the African markets after many years of one-way traffic. This is starting to change as Safaricom and Equity Bank, two of the largest stocks in Kenya, are up between 50 and 65 percent in USD since beginning of February as macro challenges were resolved and both local pension funds and large foreign investors such as Blackrock came back into the market. We sense that the initial catalyst needed to get things moving in the right direction has been signalled in the above moves.

Eye-wateringly low valuations, decent earnings growth prospects, and the continuation of necessary economic reforms are what the market has wanted to see. It is only a matter of time before the tide turns and flows come back into African markets, and when they do, prices and yields will move quickly.

The upside in both African equities and fixed income are as stark as ever, and now is the time to take a closer look at these asset classes. As we like to say at Laurium: ‘Come on in, the water is warm.’

Investec backs Acre Impact Capital to first close I

nvestec is the anchor investor in Acre Impact Capital , which recently announced its first close. Acre Impact Capital is the first ever export finance impact fund in Africa, established to work with banks and export credit agencies to finance green and social infrastructure on the continent.

Investec’s involvement dates back to Acre’s commencement of fundraising with the support of the Private Infrastructure Development Group

Since Investec’s initial investment, Investec has been joined by development banks including the European Investment Bank , FSD Africa Investments , as well as family offices and impact-first investors, including Trimtab

Investec’s global head of export and agency finance, Brian Irvine (far right), at the launch of Acre Impact Capital with its managing partners.

Impact and Ceniarth. Other African banks have also joined, reflecting a long-term commitment to the continent and expectations about the positive impact of the strategy in respective home markets.

A strategically important investment

Investec Group has a long history of incubating funds on the continent and understood the strategic importance of the fund in accessing and converging new sources of funding for the export credit market.

It has recognised the importance of supporting Acre Impact Capital as an independent open platform through which these new funding sources could be effectively deployed into transactions for the benefit of the market as a whole.

Through its initial investment, Investec expects the fund to contribute and enable the closure of up to 20 projects across the continent to the value of up to US$2bn in renewable power, health, addressing food and water scarcity, sustainable cities and green transportation.

Lourens van Rensburg, Head of Corporate and Institutional Banking at Investec Bank Ltd, says, “Investec has a proud history of backing innovative ventures and we are delighted to have supported Acre Impact Capital from the outset.

“Acre Impact Capital is a unique platform that merits our anchor backing, thanks to its vision to deliver highly impactful infrastructure projects to under-served populations in Africa and the communities in which we live. We look forward to more investors joining the unique Acre initiative.”

Fund managers demand greater flexibility as new capital streams emerge in PE and VC market

BY ASHFORD NYATSUMBA Partner, Webber Wentzel AND, MICHAEL DENENGA Partner, Webber Wentzel

The investment landscape within the African private equity and venture capital markets has changed both slowly and suddenly since 2020. Low interest rates initially led to a boom in private capital deals in 2021 and 2022, totalling USD7,4bn and USD7,6bn in value, respectively. By 2023, however, private capital deals declined by 28% in volume and 22% in value, a nominal decline of USD1,7bn.

Interactions with sector professionals have revealed how changing market conditions are driving new trends and behaviours. These trends can be placed in four categories: Mauritius remains the primary home of African-based funds, but continental

and foreign competition is emerging as managers seek flexibility and fit-forpurpose domiciliation

New international, local and institutional capital sources are seeking ways to deploy capital

• Focused, narrative-supported investing is playing an increasingly important role in fundraising Exit opportunities will remain difficult to come by.

Investors are seeking greater flexibility in terms of location and structure

For some time, Mauritius has been a leading market for investors with an Africa mandate. The island’s favourable exchange controls, 46 double taxation treaties,

policy support, and experienced financial services sector have made it the most popular domicile for African-focused funds.

South Africa remains a viable and popular option for funds seeking to deploy capital across Africa generally, evidenced by the increasing number of dollar-denominated South African funds that have been established recently. However, its higher burden of regulations and reporting criteria, as required by the Reserve Bank, makes it less attractive to some managers. The Kigali International Financial Centre (KIFC) is among the newest entrants in the market, with the government providing substantial support to attract investors and fund managers alike.

As a new entrant, it will be important for the KIFC to demonstrate that it will remain competitive over a sustained period and offer managers competent service provider support, investor protection, and increased number of double tax treaties with relevant countries.

As asset managers and investors scout for ideal markets to base their funds, what has become increasingly apparent is the demand for flexibility in fund structure. Before the downturn, funds were able to raise and close quickly, but as of 2024, it is taking funds between one and two

years to reach close, due to the highly competitive African fundraising landscape. Currencies in key African markets have also shown significant elasticity in recent years.

In addition, exit opportunities have remained limited in Africa, so investors are requesting vehicles that are designed for flexibility and pivots – ranging from parallel structures to continuation funds and feeder funds.

New funding actors are emerging but with conditions

Although we are seeing an increasing number of private equity funds being established in African countries such as Botswana, Namibia, Nigeria and Ghana, these are mostly backed by institutional funds and state-backed instruments. These pension funds are restricted in their deployment by asset limitations and regulations depending on where they are based.

In addition, in some African countries such as Ghana, private equity funds are established as companies, which restricts allocation by local pension funds. To attract international investors it is worth remembering that their preference is for partnership structures because they afford flexibility, tax efficiency and limitation of liability.

With the rise of ultrahigh-net individuals across Africa, Family Offices are also becoming increasingly important within the private equity and venture capital landscape. It has been interesting to observe that these offices are investing in private equity funds that allow them to diversify their investment while simultaneously offering a transfer of skills.

The five Ps of choosing your investment partner

BY RONÉ SWANEPOEL

Business Development Manager at Morningstar

South Africa

Outsourcing investment management has become very popular among financial advisers for several reasons. Although the adoption of a DFM in your practice can significantly free up your time, add value to your clients, and assist with the future growth of your business, partnering with the right DFM for your business is a crucial decision.

What are the key elements to consider when choosing an investment partner?

#1 People

When partnering with a DFM, the overall quality of the investment team is key to determining their ability to deliver consistent outperformance relative to benchmark and peers. It is important to understand the structure of the team, the size of the team, their access to data and systems needed to make investment decisions, and how decisions are made within the team.

Although the investment team is key to the success of client portfolios, the operations and service teams form the backbone of the day-to-day success of your business. Partnering with a DFM sees that team become a part of your business, and exceptional service and an endinvestor focus from your DFM partner should be front and centre when you are in the process of deciding to partner with a DFM.

Some questions to ask:

What is the size and experience of your investment team? Do they form part of a global team or are decisions made by a small number of individuals?

How are decisions made within the investment team? What support will be provided from a business development perspective?

#2 Process

When it comes to the investment process, it’s key for a DFM to have an independent, understandable, repeatable and consistently applied global investment process. Just as independence lies at the heart of effective financial planning for clients, it also plays a pivotal role in the success of a DFM’s proposition. Ensuring your investment partner is fund-agnostic, platform-agnostic and managementcompany-agnostic should be a key consideration when deciding who to partner with.

With client needs extending to include more offshore investments, having a global process and global footprint

become important. Partnering with a DFM with a truly global presence can add an immense amount of value to your clients and business.

Some questions to ask:

Are you platform-, fund- and manco-agnostic when constructing and running portfolios for clients?

Are you able to explain your investment process?

How is your investment process implemented?

How do you manage risk within your investment process?

Do you have a strong global presence and global investment capability?

#3 Parent

Understanding the core values of your potential investment partner will ensure you partner with a DFM that is aligned in terms of the values you consider important in your business. ‘Like-mindedness’ and the treatment of the end investor are paramount when considering the parent of your potential investment partner, and those companies that are good stewards of capital are those that act in investors’ best interests in all aspects of managing client portfolios.

A key element is to look for an investment partner that has a culture of stewardship and puts investors first, and less to those that are too heavily weighted to salesmanship.

Some questions to ask:

What is your organisational structure?

How do you recruit and retain talent within the business?

What is the business strategy?

How do you ensure the end investor is kept top of mind throughout the business?

“A key element is to look for an investment partner that has a culture of stewardship and puts investors first”

#4 Performance

Although performance should never be the most important value-add when choosing a DFM, it should remain a key element in evaluating the business. By partnering with a DFM, the objective is to improve client outcomes and

investor behaviour by incorporating actively managed portfolios, which aim to outperform the peer group and benchmark consistently within your business.

Consistency here is key. By blending different underlying fund managers, a DFM aims to smooth the return that investors experience. Another key consideration is the track record of the DFM in managing client portfolios and their ability to demonstrate this track record.

Some questions to ask:

What is your track record in managing portfolios?

Are the returns shown your true track record or backtested/simulated returns?

How do you look at performance in conjunction with risk management within client portfolios?

#5 Price

Although it might not be the only determinant, fees are an important element when it comes to investment returns. A higher Total Investment Charge (TIC) may seem to have a negligible impact on a client’s investment portfolio in the short term; however, in the long term, fees can have a large impact on investment returns. In the same way investment returns compound in a client’s favour, investment charges compound negatively against returns. Therefore, the fees of investment portfolios cannot be ignored.

A key factor to consider when deciding to partner with a DFM is their commitment to minimising costs for investors.

One of the ways in which a DFM can achieve this is by negotiating preferred fee classes from the asset managers they work with and passing this through to end investors. Another key factor is the overall DFM fee charged and the transparency of how fees are charged within client portfolios by the DFM.

Some questions to ask:

Do you get access to preferential fee classes from underlying managers, and do you pass this saving directly back to end investors?

How do you earn fees within client portfolios?

What is the importance of fees when choosing the underlying managers within your portfolios?

Partnering with the right DFM can help enhance investment offerings, strengthen client relationships, and streamline a business. Together with the adviser, a DFM can bring your clients the best of both worlds.

Free yourself to make your greatest impact.

A sustainable and profitable financial practice is all about taking care of your clients' goals and making the most of your time.

With Investment Solutions by Alexforbes as your DFM partner, you not only have a powerful investment proposition for your clients, but we’ll also take care of research, analysis, reporting, and compliance, giving you more time to guide them, coach them on good financial behaviour, and source new business.

All that and unparalleled access to a wide range of local and global investment opportunities, competitive pricing and tailored solutions will help you make your greatest impact yet, on your clients and in your practice.

Let’s partner for impact.

ADawie de Villiers, CEO of Alexforbes

Alexforbes enters the discretionary fund management market

lexforbes has entered the R500bn Discretionary Fund Management (DFM) market with the launch of ‘Investment Solutions by Alexforbes’.

Dawie de Villiers, CEO of Alexforbes, states, “We are excited to introduce our DFM to independent financial advisers (IFAs), helping them to make the greatest impact on their clients’ financial journeys. IFAs will have access to the same trusted investment advice and support capabilities currently used by South Africa’s most prominent investment consultants, corporates and retirement funds. These capabilities encompass South Africa’s leading comprehensive investment manager research process, offshore solutions facilitated by our partnership with Mercer, previously inaccessible investment classes through our private markets programme, and specialised multimanaged investment portfolios.”

“Over the past decade, DFMs have gained prominence, managing R500bn in investments, with projections indicating further growth”

Over the past decade, DFMs have gained prominence, managing R500bn in investments, with projections indicating further growth.

De Villiers emphasises, “Our experience is that top financial advisers excel in providing high-quality advice to their clients. The rise of DFMs has allowed these advisers to focus on their strengths and collaborate with specialist providers who enhance their investment advice. This mirrors our approach at Alexforbes, where our consultants deliver the best advice and our investments multi-manager is dedicated to investment research, selection and solutioning. Entering this space with a distinctive offering for IFAs is a natural extension of our proven capabilities that already serve over R450bn in assets under administration.”

Investment Solutions by Alexforbes is a new unit within Alexforbes. It is separate from the investments multimanager and internal adviser team, to preserve independence, objectivity and confidence in the solutions provided to IFAs. “We’ve chosen to reimagine the Investment Solutions brand for our DFM as it’s the best descriptor of what we offer to IFAs and their clients – investment solutions backed up by the scale, experience and expertise of Alexforbes,” explains De Villiers.

Leveraging institutional capabilities, Investment Solutions by Alexforbes provides IFAs access to previously inaccessible asset classes such as hedge funds, private markets and infrastructure investments. De Villiers highlights, “These asset classes offer compelling diversification and performance opportunities, serving as building blocks for superior investment solutions. Offshore investing is another significant opportunity for IFAs to create value for clients, but the risks and complexities are numerous. Our partnership with Mercer, a global investment leader, equips IFAs via our DFM with worldclass insights covering more than 11 000 global strategies to empower their advice.”

Alexforbes’s extensive expertise and proven track record in optimising adviser capabilities will also assist IFAs in achieving optimal outcomes for their clients, enabling them to concentrate on growth. The introduction of Investment Solutions by Alexforbes aligns with the group’s strategic objective of becoming a trusted partner to IFAs. This complements the acquisitions of OUTvest and TSA Administration to meet their requirements. De Villiers concludes, “I encourage every IFA to consider Investment Solutions by Alexforbes as their partner in delivering exceptional advice and providing an outstanding investment destination for their clients.”

When selecting a DFM, make sure you do it for the right reasons

BY FLORBELA YATES Head of Equilibrium

In the rapidly evolving financial landscape of South Africa, financial advisers are increasingly recognising the value of partnering with discretionary fund managers (DFMs) to navigate the complexities of fund management and regulatory compliance. This collaboration allows advisers to leverage the expertise of DFMs like Equilibrium, which offers a broad spectrum of services including asset allocation, risk management, and consolidated reporting, thereby enabling advisers to focus more on their core mission: providing personalised advice and nurturing client relationships.

The primary driver behind this growing trend is the substantial regulatory demands that consume advisers’ time, detracting from their ability to engage directly with clients. Equilibrium’s model of partnership stands out by saving advisers significant time, acting as their personal investment team and handling all aspects of investment management. This relationship not only ensures that clients’ investment needs are consistently met but also alleviates the pressure on advisers to

stay abreast of the latest market trends and regulatory requirements.

When selecting a DFM, performance is a crucial factor, but it shouldn’t be the sole consideration. Advisers are urged to adopt a comprehensive due diligence process that encompasses risk profiling, asset allocation, transparency of fees, and the degree of control over the client relationship. The aim is to establish a partnership based on mutual trust, shared goals, and long-term collaboration. Through such partnerships, advisers gain the freedom to delegate investment management tasks to DFMs, allowing them to concentrate on financial planning and client interaction. This collaboration also mitigates the risk of investment performance, transferring it to the DFM and enabling advisers to focus on their primary role as planners and client advocates.

The choice of platform is another critical consideration in this partnership. The right platform can enhance the efficiency and success of the adviser-DFM collaboration by offering better pricing, simplifying operations, and ensuring alignment with

client objectives. Equilibrium’s presence on multiple platforms underscores the importance of flexibility and accessibility in catering to diverse adviser needs. However, Equilibrium advocates for consolidating platform use to streamline operations and optimise benefits.

“When selecting a DFM, performance is a crucial factor, but it shouldn’t be the sole consideration”

In essence, the adviser-DFM partnership, supported by a sensible selection of platforms, presents a strategic response to the challenges and opportunities within South Africa’s investment landscape. This collaborative model promises to redefine the value advisers can deliver, emphasising the importance of focused financial planning and client service over

the intricacies of fund management and compliance. As this trend continues to gain momentum, it heralds a new era of investment management in South Africa, where the synergy between advisers and DFMs becomes a cornerstone of financial advisory success. This evolution not only enhances client outcomes but also sets a new standard for the integration of financial planning and investment management, ensuring advisers can offer more comprehensive, client-centric services in an increasingly complex market.

At Equilibrium, we offer a range of services to advisers. You can select the services that offer you the best value and that would scale your practice. We also give you access to resources and insights that are usually not available to you when you select funds yourselves. Not all DFMs are equal, so selecting one that meets your requirements is crucial to the success of your advice practice and your clients’ investment goals.

3 critical (but often-overlooked) benefits of partnering with a DFM

BY DANIEL SCHOEMAN, CFA CIO, Analytics Multi-Manager

Financial advisors understand the value of time. Every minute spent managing investments is a minute taken away from building relationships with current clients, meeting with prospective clients or growing their advisory business.

Yet, investment management remains a core competency for many advisors. Any time spent on investment management may start to hinder growth and limit the ability to serve clients effectively.

This is where partnering with a DFM can be a game-changer. Beyond the well-known benefits of investment expertise and portfolio diversification, DFMs also offer three often-overlooked benefits that can significantly enhance financial advisors’ practices:

Time Freedom

• Peace of mind.

Time

Client consultations, financial planning and ongoing market research can easily consume the typical workday of a financial advisor. Partnering with a DFM alleviates this burden by delegating the time-intensive task of investment management. DFMs are responsible for investment research, portfolio construction, ongoing monitoring and rebalancing – freeing up valuable hours. This reclaimed time empowers an advisor to:

• Deepen client relationships: Instead of being bogged down by investments, they can dedicate more time to building stronger relationships

with their clients. More time to focus on understanding clients’ evolving needs, providing financial guidance, and crafting personalised wealth management strategies.

• Expand their client base: With a DFM managing investments, they'll have the bandwidth to take on new clients and grow their business. Advisors may then utilise the freed-up time for prospecting, networking and building a robust referral network.

• Sharpen their expertise: Dedicating time to professional development allows advisors to stay ahead of the curve.

Advisors will have time to attend industry conferences, delve into complex financial concepts, and enhance their knowledge base to deliver even greater value to their clients.

Freedom

Financial advisors are often tethered to their work and clients. Partnering with a DFM untangles these constraints. By delegating investment management, advisors gain the freedom to:

• Maintain a healthy work-life balance: Time to pursue hobbies, spend quality time with family, or simply recharge batteries. A refreshed and balanced advisor is better equipped to serve clients effectively.

• Explore new business opportunities: With more time on their hands, advisors can delve into unexplored business areas. Avenues to explore include offering specialised financial planning services, launching educational workshops, or writing a book to establish themselves as thought leaders.

• Pursue personal goals: Advisors can travel the world, learn a new skill, or volunteer for a cause they care about. A fulfilling personal life translates into a more motivated and energised professional.

Peace of mind

Market volatility, client anxieties, and the ever-present risk of underperformance can take a toll on advisors. Partnering with a DFM fosters peace of mind by:

• Leveraging investment expertise: DFMs possess a deep understanding of financial markets and investment strategies. Their expertise ensures that clients’ portfolios are managed according to sound principles and best practices.

• Mitigating risk through diversification: DFMs are adept at constructing diversified portfolios that align with clients’ risk tolerance and investment goals. This reduces portfolio volatility and protects clients’ wealth.

• Providing ongoing communication: DFMs offer regular reports and clear communication, keeping advisors and their clients informed about portfolio performance and investment decisions.

Closing thoughts

Analytics offer so much more than the typical DFM:

• No one-size-fits-all approach to portfolio construction

Access to innovative decision-support systems

• No minimum asset size needed Opportunities to enhance revenue streams

• Ability to obtain CPD points effortlessly

Access to systems and research Opportunity to progress seamlessly from Cat I to Cat II.

Partnering with Analytics is a strategic decision that extends far beyond simply outsourcing investment management. It’s an investment in advisors’ time, freedom and ultimately, their peace of mind.

By leveraging our expertise, advisors can reclaim control of their schedule, pursue untapped business opportunities and provide their clients with superior service.

What makes people susceptible to insurance fraud?

BY GLENN HICKLING Head of Legal at BrightRock

Economic hardships often push individuals toward desperate measures. In tough times, fraudulent behaviour becomes even more tempting. Falsifying death certificates for funeral policy claims or withholding crucial health information during application processes are just some examples of this deceit. Extreme cases of fraud may involve staging an accident, faking an injury or death, or syndicated schemes where fraudsters coordinate and execute complicated fraud strategies. Even seemingly harmless actions like exaggerating income or omitting medical history can have serious repercussions. Insurance providers will not hesitate to repudiate claims, rendering individuals uninsurable and, in some cases, subjecting them to criminal prosecution.

Risk management strategies for business success

BY PETER OLYOTT CEO of Indwe Risk Services

Insurance fraud is on the rise and it’s worrying

The surge in fraudulent and dishonest life insurance claims has emerged as a troubling reality in South Africa and beyond, casting a pervasive shadow of distrust over the insurance sector. Recent headlines underline the alarming trend of individuals exploiting diverse forms of insurance cover for financial gain, underscoring the widespread prevalence and consequential impact of insurance fraud within our society.

According to the Insurance Crime Bureau’s 2023 report , funeral insurance topped the list of fraudulent claims, with 1 922 cases reported. This was followed by death cover, disability cover, hospital cash plans, retrenchment and loss of income cover. The staggering rand value of these fraudulent claims amounted to R770.5m in losses prevented, underlining the substantial financial implications of insurance fraud. KwaZuluNatal emerged as the hotspot for fraudulent claims, with Gauteng, the Eastern Cape, and the Western Cape closely trailing behind. Despite efforts to combat fraud, the industry still suffered a significant loss of R77m due to fraudulent activities.

Recent developments in insurance fraud

According to ASISA ( The Association for Savings and Investment South Africa), sales representatives within the industry have also been implicated in illegal activities, encouraging members of the public to join criminal schemes for monetary gain, both with and without their knowledge. In the 2022/2023 period, sales fraud accounted for 57% of all fraud cases recorded and remains a persistent threat. It’s commonly achieved by manipulating clients or falsifying policies without their knowledge, solely to earn commission. This unethical practice further impacts trust in the insurance industry.

The surge in insurance fraud is also bolstered by sophisticated techniques like generative Artificial Intelligence (AI), which poses a significant threat to South Africa’s non-life insurance sector. The proliferation of AI tools, such as ChatGPT, has enabled fraudsters to employ deep fake video, voice spoofing, document forgery, advanced social engineering, email phishing, and synthetic identity fraud, amplifying the complexity of fraudulent activities. Additionally, chat platforms with instant shareability features further escalate the risk of fraud. Given this landscape, detecting fraudulent claims is becoming increasingly challenging.

What consumers and the insurance sector can do to protect themselves Vigilance is key. Safeguarding personal and financial information, refraining from clicking on suspicious links, and promptly reporting any signs of identity theft are crucial steps. Moreover, maintaining honesty in dealings with insurance providers is paramount. An insurance contract relies on mutual trust and disclosure – any deviation from this undermines the very foundation of the agreement.

Insurance companies, too, have a role to play in combatting fraud. With advanced forensics teams, AI, and cutting-edge technology, they need to further step up their efforts in fraud prevention and detection. Collaboration within the insurance industry is imperative to curb the escalating trend of fraudulent activity. Protecting both the industry and policyholders is vital, as unchecked fraud could result in heightened premiums or reduced coverage, worsening the protection gap for policyholders already grappling with economic hardships. In the face of rising living costs, maintaining affordable insurance and prioritising customer retention are vital considerations.

In the ever-evolving world of business, understanding why managing risk matters is crucial. Businesses aiming for success rely on solid strategies for handling uncertainties, forming the cornerstone of their operations. Key components of a comprehensive risk management plan play a pivotal role in steering businesses toward long-lasting growth.

“At the heart of effective risk management lies a detailed plan. This blueprint outlines actionable strategies to mitigate identified risks, with clear steps, assigned responsibilities and realistic timelines. A proactive and well-defined approach to risk empowers businesses with the resilience needed to withstand unforeseen challenges,” says Peter Olyott, CEO of financial services provider, Indwe Risk Services (Indwe).

Assessing risks involves a careful examination of both internal and external factors affecting operations. This comprehensive analysis forms the foundation for crafting a strong risk management strategy. The World Economic Forum Global Risks Perception Survey 2023-2024 sheds light on the likely impact of various risks over both the short and long term, providing invaluable insights for businesses. Over the long term, extreme weather events, critical changes to earth systems (climate change) and biodiversity loss top the list, indicating the importance of addressing environmental concerns for sustained business continuity. Meanwhile, over the short term, misinformation and disinformation, societal polarisation and cyber-insecurity pose immediate threats, urging businesses to prioritise adaptive strategies. These identified risks of course do not detract from the current risks being experienced globally in terms of military action and the enhanced threat of climate-associated risks such as flooding and droughts, and natural perils such as severe earthquakes.

“Assessing risks involves a careful examination of both internal and external factors affecting operations”

Insurance and other risk financing solutions play a pivotal role in risk management, offering a safety net against unexpected events that could disrupt operations. Essential insurance types, including business property insurance, liability coverage, business interruption insurance, and cyber insurance, provide critical protection against various risks.

“Proactivity is key in risk management. Regular reviews and updating of strategies are imperative to adapt to evolving circumstances, emerging threats and industry shifts. Routine assessments ensure that businesses remain resilient in the face of challenges,” says Olyott. “Every time a new major risk manifests itself, we are obligated to rethink and reposition our risk strategies in order for them to remain relevant.” Mastering the art of risk management isn’t just a defensive move; it’s the key to opening the door to long-term success. By understanding, assessing, planning and adapting, businesses can navigate uncertainties with confidence, ensuring a steady course toward sustainable growth.

It’s insurance – but different

BY SANDY WELCH MoneyMarketing Editor

Ev erything.Insure has found a unique gap in the online insurance market. Vis Govender, Group CEO and founder of Everything.Insure, explains how the company differentiates itself.

Tell us about the history of the company and why it was started. I’ve been in the financial services, banking and insurance industry for my whole career. I’ve spent a lot of time on the innovation side of running systems and working on process improvements. That’s really my passion. I found the insurance industry to be fairly traditional in terms of practices, prices, processes and technology, compared to the banking industry, which went through some big changes in the early 2000s with the introduction of online banking, banking apps and mobile banking. I’ve been waiting for that to happen to the insurance industry, and it just hasn’t. It’s still inefficient and bureaucratic and paper-based. It’s only in the last few years that there’s been a slow but building momentum into insurance tech, where people can do some things themselves. About five years ago, I was chatting to Mishaya Chettiar (now Executive Head, Everything.Insure) about how there’s got to be a better way, and that’s where it started. It was a bright spark idea that made us realise that there’s got to be a way to automate this.

Vis Govender, Group CEO and founder of Everything.Insure

“It was a bright spark idea that made us realise that there’s got to be a way to automate this”

How did things progress from there?

Despite all my experience and pain in building systems over many years, I still underestimated this project. I thought it’ll take us maybe six months and a couple of R100 000 and we can get it done. But it’s been quite a different story. It’s taken five years and tens of millions to eventually complete it. However, what we initially conceptualised to what we finally built is impossible to compare.

Explain what you’re offering and why it’s innovative.

In a phrase, it’s a digital insurance marketplace. Other providers are currently offering what can be considered macro brochures. They’ll present you with the product, but then ask you a series of questions and give you a price, but you can’t really buy online.

For example, I’m going to be charged R1 000 to insure my car. I click thank you. Then I must go into an offline analogue traditional process and fill in a form or get a call and spend 45 minutes to conclude the transaction. That’s frustrating to people who want online fulfilment.

We’re offering a full spectrum of products in one place. All the blue-chip tier brands are available, and you can’t buy

these anywhere else online. Some of our competitors have solved a product journey whereas we’ve sold a marketplace journey.

Did international experts help with the development?

Most of the expertise is South African. We’ve got incredible skills in this country. We have used some international partners in some specialist areas, like IT security, because this product needs to be absolutely bulletproof and robust. We also got a company from India to assist with the build of some of the API layer.

What was the general feeling from the market?

It was a bit mixed. Initially people didn’t expect we’d be able to solve the problem end to end. Every company in the insurance market is racing to build a solution to successfully sell their product online. One or two of the dominant players were apprehensive about partnering with us initially. The big question was: is this going to be a race to the bottom in terms of price? We had to deal with that legitimate concern. However, there are several marketplace examples around the world where that hasn’t happened. There is a technically correct price where supply and demand converge.

Your aim is to put the consumer at the centre. Tell us about that. Switching insurance is the most painful thing in the world. We want to take out the friction, pain and frustration and make it easy. That also drives good customer service, good product design, good pricing and good relationship building. We show you everything available so you can choose what best fits your persona. We’ll show you the core product, the personal product, the professional product, the high network product, the pensioner product, the cyclist product, and allow you to choose.

What’s your strategy to keep up with technological advancements?

It’s an incredibly dynamic time in the industry from a tech point of view. It’s impossible to predict how AI is going to change life, and it’s levelling the playing field. A new incumbent who doesn’t have 160 years of history like an Old Mutual can fairly quickly scale now with the advantage of these technologies. We partnered with UCT to sponsor their computer science honours groups and give them a project every year. We get feedback about the latest happenings in tech. At the end, we employ some of them. So we are recruiting from the latest graduates, and we also employ our own AI and ML specialist.

Do you work with traditional FAs, or is your offering in competition with them?

We are not a threat to traditional FAs. Our tool is a financial adviser too, so it’s as much of a threat as one financial adviser is to another. It’s a competitive environment but we don’t see ourselves as an existential threat. In fact, it’s a real tool for financial advisers. We allow FAs to become partners with us on the platform, and they can use it for their practice management. It’s got lots of practice management functionality. When it comes to short-term insurance practice, we believe it can almost double your profitability. Some businesses tap out as soon as they get to a certain level and can’t grow beyond that because of all the admin and the compliance burden. Up to 90% of those practices don’t get above the R4m top line revenue mark. Using the platform, you can double or treble that because it allows you to scale and everything’s automated, from renewals to underwriting. Clients can self-serve. This frees the adviser to focus on giving proper advice and growing their practice. I think it’s more of an enabler than competitor to financial advisors.

How does it feel to see what started out as a small idea become this massive undertaking? It’s exceptionally rewarding. It’s been amazing to build something from zero and it’s been a privilege to do it.

Universe expands but unit trusts are still the brightest star

BY SIOBHAN CASSIDY MoneyMarketing Contributor

As much as exchange-traded funds (ETFs) have appeared to outshine unit trust funds in recent years, the old guard of the modern investment firmament look set to hold their place at the top table for investors and investment houses for the foreseeable future.

In fact, many unit trust managers have responded proactively to the challenge presented by the arrival of new products and platforms by adapting and improving their offering, a desirable outcome for all. ETFs are sometimes described as having democratised investing; it is worth remembering that unit trusts laid the ground for ETFs many decades ago.

The first unit trust was launched in the UK in 1931; they have been available in South Africa since the mid-1960s. They quickly gained popularity among investors because they made investing in complicated markets accessible and simple. Unit trusts have been so successful for so long because, by allowing exposure to a professionally managed, diversified portfolio for a relatively small investment, they offer a level of accessibility and convenience that appeals to investors of all levels of expertise. Or, as Fedgroup’s Chief Marketing Officer Tim Allemann describes it, “Unit trusts offer a simple way for investors to diversify their portfolios while letting the professionals do all the heavy lifting.”

“Despite the rise of new and alternative investment products internationally, in South Africa unit trusts continue to be favoured by many”

Historically, the JSE allowed only those ETFs that tracked underlying indices or physical commodities to trade. Makiwane says this created a headwind to ETF penetration in the South African market, “which skews towards actively managed funds”. However, she adds, the change in regulation enacted in 2023 allowing actively managed ETFs (AMETFs) to trade on the JSE should lead to increased flows into ETFs.

The change in regulation allowing AMETFs to trade on the JSE means traditional unit trust investment strategies can now be offered in listed form but, says Pottier, it is still early days with not many more than a handful of AMETFs available on the JSE yet. Makiwane points to the US, where 74% of new fund launches in 2023 were AMETFs, “which could be a trend we observe in the SA market in future”.

According to a paper published in a Reserve Bank quarterly bulletin in 1967, titled ‘A review of the unit trust movement in South Africa’, the early success of unit trust funds, the first of which debuted in South Africa in May 1965, was “partly attributable to the fact that the country had just experienced a prolonged period of rapid economic expansion, which had produced inflationary tendencies in the economy... [and] ... made potential investors more susceptible to the idea of hedging against inflation through equity investment.”

Since then, unit trusts have developed a significant track record of delivering good, reliable returns. Allowing investors with no knowledge or understanding of the market to gain exposure to inflation-beating returns, unit trusts have continued to grow and attract the lion’s share of assets invested in the South African collective investment space.

ETFs are much younger. The first prototype for the present-day ETF was listed in Canada in early 1990 and the first ETF to be listed on the JSE, the Satrix Top 40, made its appearance in November 2000. In recent years, the growth of ETFs has outstripped unit trusts as they have captured the imagination of fund managers and made investors out of many people who just weren’t interested before. Being listed makes them more transparent and adds a layer of regulation, and continuous trade on the exchange also means high liquidity.

Gontse Tsatsi, Head of Retail Client Management at Old Mutual Investment Group, says, “Despite the rise of new and alternative investment products internationally, in South Africa unit trusts continue to be favoured by many because they have a long track record of delivering investment returns and helping investors achieve their financial goals for emergency funding, financial freedom and building wealth.”

In addition to the track record, Tsatsi pointed out that most of what makes ETFs popular is “already offered and in the characteristics of unit trusts, which shows the vision in formulating unit trusts in the first place”.

Saying he thinks “unit trusts absolutely still have a role to play”, Michael Field, General Manager for Investments at FedGroup, says, “We have seen a lot of interest in things like ETFs, structured notes, model portfolios and the like; we need to consider what they do that the unit trust can’t,” adding that an ETF “is effectively just a unit trust sold via a stock exchange”.

Naledi Makiwane, Investment Specialist at Coronation Fund Managers, adds, “To date, unit trusts have dominated the South African CIS industry, with a market share of c.94% of the R3.3tn in industry assets. Hedge funds and ETFs share similar, low levels of market penetration, with around R150bn invested in each category.” She says unit trusts were a proven vehicle for meeting investors’ needs for several reasons, including their reliability, transparency, availability, costeffectiveness and liquidity.

Kelin Pottier, Solutions Strategist at 10X Investments, explains that while ETFs were “useful building blocks in constructing a portfolio, they have historically fallen short of being complete solutions, and place the onus on the investor to determine how best to combine each asset class and navigate the market”. He adds, “Unit trusts, on the other hand, are dominated by actively managed single asset class strategies, which offer the prospect of market-beating returns as well as multi-asset solutions, which are professionally managed funds seeking to optimally combine different asset classes to achieve a return objective while managing/ diversifying risk.”

Acknowledging that ETFs had addressed some of the shortfalls of traditional unit trusts, such as high minimum investments, lack of liquidity, limited transparency and high fees, Pottier says traditional unit trust managers had responded positively to the pressure, with some asset managers offering lower minimum investments and competitive fees on unit trusts. Old Mutual Investment Group’s Tsatsi agrees that the unit trust universe has not stood still but continued to evolve and grow.

“There are various types of funds within the unit trust range that are constantly evolving and growing. There are options such as Shar’iah-compliant funds, ESG-focussed funds, as well as more innovative indexation funds, ensuring options catered to every type of investor. New trends like cryptocurrencies and alternative investments are welcome as they encourage continuous innovation and improvement,” he says.

Also, as the older guard, unit trusts have practical advantages. The wider investment industry has, over time, developed models, procedures and processes around these investment products, which trade in the primary market or over the counter; unlike ETFs, which are traded on an exchange.

Pottier says most industry players – including the large pension funds and the multi-managers, as well as financial advisors and LISPs – tend to prefer unlisted investment structures. “Very few LISP platforms and fund buyers have incorporated ETFs into their operational, investment processes and business models,” he says.

Anyway, as Fedgroup’s Field points out, “Just because it is new doesn’t mean it is better,” while emphasising that “the investment vehicle is less important than the substance”.

“Investors should rather focus on what assets are going to deliver their return, understand exactly what fees they are going to be charged, understand who stands behind their investment (and add a healthy dose of scepticism),” says Field. His colleague Tim Allemann agrees, “The key is to understand what you are investing in and how much you are paying, and if you don’t, seek professional advice.”

Unit trusts are a tried-and-tested investment wrapper. They’re a staple for portfolios of all sorts. For good reason. These wrappers are versatile, transparent and relatively simple. They’re big business, too. At the close of 2023, the South African unit trust industry was worth some R3.5tn. For comparison, at that same date, the JSE exchange traded fund (ETF) industry was worth R160bn.

However, in a fast-changing investment landscape, what does the future hold for unit trusts in South Africa? There is sound evidence that these robust products have plenty of runway. Likewise, they face hurdles that the investment community needs to address.

Good news for unit trusts

First, the good news. There are three primary reasons that unit trusts are set to retain their long-earned dominance as a favourite with retail investors. The most fundamental lies

The pros and cons of incumbency: The future of unit trusts in South Africa

BY WEHMEYER FERREIRA Executive Director, 1nvest

in the market structure itself. Retail savings are heavily intermediated, with most assets sitting on Linked Investment Service Provider (LISP) platforms. And, at present, LISP platforms only cater for unit trusts. Add to this the fact that LISP investments are large and growing, and all of this amounts to a strong tailwind for unit trusts.

Next, unit trusts benefit from sheer breadth of product. As a long-standing, trusted product in South Africa, unit trusts grant investors access to an unparalleled variety of asset types and markets,

“Unit trusts grant investors access to an unparalleled variety of asset types and markets, both local and global”

both local and global. Today there are approximately 1 800 unit trust funds available in South Africa.

Finally, South Africa has a large proportion of compulsive savings. This is good for unit trusts, as the wrapper of choice in this space. This is evidenced by a large multi-asset category.

Staying on top

None of that means the future is guaranteed. Money managers, the industry, and the economy itself face important challenges to overcome in order to ensure unit trusts continue to thrive.

For starters, the trend of capital leaving South Africa’s shores is an immediate concern. Many of the drivers behind this move are political and macroeconomic. No silver bullet exists to fix this. The financial services industry can – and should – do its part to contribute to the revival of more prosperous times for the economy.

The relaxation of Regulation 28 by the National Treasury in July 2022 has contributed, too. Finance Minister Godongwana’s change allows for pension funds and other asset managers to increase their offshore holdings.

As always, there is the threat of competition. This is a dynamic industry, with plenty of incentive for innovation and product development. The chief threat to unit trusts at present is active ETFs. These are beginning to establish themselves and have plenty of potential.

However, active ETFs will likely take time to gain traction. The American market made its first genuine strides with products like this in the early 2010s, but they only really became mainstream in the last two years. They have a long way to go if they are to catch up with unit trusts in South Africa.

In 2023, PPS paid R849.1 million in permanent incapacity claims. Read about mutuality for the greater good in the Results Highlights. It’s protecting the livelihood of a professional, so that they can keep their car, their home and their kids in school. than cover.

PPS returns exceptional value in a challenging economy

The Professional Provident Society (PPS), the financial services group focused solely on providing customised financial services solutions for graduate professionals in South Africa and Namibia, returned exceptional value to its members in 2023, as operating performance improved. The Group announced total profits that were added to its members’ notional PPS Profit-Share Accounts™ in South Africa and Namibia of R4.54bn.

“Our operating performance in 2023 demonstrates the resilience of our mutual model, which has served and added value to graduate professionals in South Africa for more than eighty years. The Covid-19 era has shown that it is professionals who – through their disciplined training and experience – drive the solutions that society needs for various challenges. They are also key to the country’s tax base and create millions of jobs. By serving them, our business has a very big impact on society,” says Izak Smit, PPS Group CEO.

The Group returned R6.12bn in total benefits to its members in South Africa and Namibia in 2023, compared to R5.04bn in 2022. Of this, R2.12bn was in the form of Profit-Share payouts to members who have exited their life risk cover phase, mainly due to retirement. “If we did not operate in a mutual framework, this value would have been paid to outside shareholders. The beauty of our model is that this value was returned to our members with qualifying products, over and above the cover they enjoyed, and claims paid to them,” says Smit.

Total gross insurance claim payments were R4bn, R165m in short-term insurance claims and R3.84bn in life claims. Total life claims were R3.4bn in 2022. “Although we have seen the number of life claims returning closer to the levels before the Covid-19 pandemic, it is still somewhat higher than our longer-term actuarial expectations, and average claims values were also slightly up. There is still a small Covid-19 impact. However, it is difficult to say what this impact is exactly, because fewer people test these days.”

The Group’s life insurance gross earned premiums in South Africa reached R6bn, an increase of 8.7% compared to 2022. This strong growth was supported by the Group’s enviable low life insurance lapses, which remained at just under 4.7%. This is despite the challenging economic conditions in South Africa. These low lapses can largely be attributed to the lifetime value PPS offers its members through its mutual model – which cannot be matched by other insurers because at PPS, profits are ultimately returned to members. Life new business in South Africa in 2023 amounted to R254.4m, slightly down from a record performance in 2022.

In the R4.54bn profit that was announced, R1.2bn was operational profits and R3.34bn was investment returns. “It is good to see operating profit returning to more than R1bn, the level it was before the Covid-19 era. This is of course very much impacted by the claims experience. Paying valid claims always remains our first priority, and a commitment to our members. Allocating Profit-Share to their PPS Profit-Share Accounts™ after that is an added benefit that our members enjoy, which no other insurer can match,” says Smit. The strong investment returns were supported by good returns on overseas equities and rand weakness. The last quarter of 2023 was especially strong in the equity markets, pushing annual returns in balanced portfolios for 2023 to double digits after a flat performance in 2022.

“Our operating performance in 2023 demonstrates the resilience of our mutual model”

Izak Smit, PPS Group CEO

“Our subsidiary and associate businesses are also starting to make a meaningful contribution to the profits that we are able to allocate to our members. Here we can especially mention strong growth in PPS Investments, where assets under management have grown to R84bn in 2023, while the investor number grew to more than 66 500. Net inflows were a positive R2.5bn. This in a year when many other bigger asset managers experienced net outflows for the first time in many years due to the challenging economic environment. Our short-term insurance business, which includes personal and business insurance product lines, as well as PPS Health Professions Indemnity, have also returned a profit in 2023. We continue to expect strong growth in future. It was a brave move to enter the healthcare indemnity space five years ago, after many requests from our members, as that market was in distress in South Africa. But we have built this business responsibly and now have a healthy book of insured professionals that grew by 21% in 2023 to more than 12 600. Service is a key differentiator and not only contributes to the low lapse rate but continues to drive the ongoing growth in the number of insured graduate professionals choosing PPS Health Professions Indemnity as their indemnifier of choice.”

PPS Healthcare Administrators’s revenue grew to R358m in 2023. A major achievement in 2023 was securing its first client outside of South Africa with administration services being provided for the Botswana Public Officers Medical Aid Scheme.

The Group’s associate business in Australia, PPS Mutual (Australia) is becoming a South African success story in that country, with already more than 11 000 graduate professional members.

In its reporting guidance to its members, the Group cautions against overenthusiastic future investment return expectations based on the good investment market performance in 2023. “Financial reporting is a short-term snapshot in a longer-term continuum,” Smit explains. “It is the long-term average returns that matter. Investment returns of growth assets, which usually deliver the best long-term returns, will always be volatile over shorter periods. Given the long-term nature of our members’ tenure with us, we have a unique competitive advantage that allows us to focus on investing in growth assets. Although those assets will experience shorter-term market volatility at times, it is those good long-term returns that we target.

“We expect conditions to remain challenging in South Africa over the foreseeable future. But we are working on some exciting projects. Expect market announcements within the next few months about a development that we believe will impact the insurance landscape in South Africa. In everything, we remain true to our purpose, to focus on our members, assisting them to hedge against life’s catastrophes and adding value to their lives,” Smit concludes.

Five lessons for investing in uncertain times

BY TIM ACKER Portfolio Manager at Allan Gray

With 2024 being an election year for almost half the world’s population, many investors are worried about what the future holds for their wealth. But the times we live in will always be uncertain, according to Tim Acker, portfolio manager at Allan Gray and New York Times bestselling author and partner at Collaborative Fund, Morgan Housel. The trick is to remember how behavioural biases erode wealth during heightened risk.

Lesson 1: No one can predict the future

The biggest mistake that investors can make in the face of uncertainty is to base their investment decisions on political predictions, says Morgan Housel. Acker agrees that uncertainty makes most investors feel uncomfortable. “If we look at a stock that we want to invest in, we’re probably only 55% certain that this stock will outperform the market over time,” he says. “That means there’s a 45% chance that this stock will underperform, which is quite a high risk, but the reality is that very rarely are we 100% certain that any stock is a sure bet.”

As paradoxical as it may seem, uncertainty can co-exist with prosperity, asserts Housel. Even though it may feel that global uncertainty has surged, it doesn’t mean that some things won’t change. He says a critical insight for decisionmaking is being able to recognise patterns and behaviours over time.

Lesson 2: Invest in preparedness, not in prediction

The lesson from Covid-19 is that we should be prepared for the unexpected. “Every year there is a 1% chance that something bad will happen,” states Housel. “But if you add up all those small chances, you realise that at least one of those bad things are going to happen in any given year.” Rather than underestimating low-probability risks, they should be factored into our way of thinking.

AND MORGAN HOUSEL New York Times bestselling author, and partner at Collaborative Fund

“You need to build a portfolio that can withstand the risks of the unexpected. If you’re by nature more conservative, that might mean building more cash into your portfolio to make you sleep better at night.”

Lesson 3: Switch from a ‘fine’ to a ‘fee’ approach to volatility

Another common investor mistake is confusing market volatility with an error in judgement, asserts Housel. “You get a fine when you’ve done something wrong like speeding,” he says. “But you pay a fee if you want to go to Disneyland. In the same way, if you want to benefit from compound interest and grow your wealth over time, you need to be willing to pay the fee of market volatility. It’s a fee, not a fine.”

Acker concurs. Volatility, he says, is the price you pay for being in the market. “If you’re able to endure the ups and downs for a number of years, you get to reap the rewards.”

Lesson 4: Investing is a marathon, not a sprint

If you’re investing for your retirement or your children’s tertiary education, your mindset needs to change to that of an endurance athlete, Housel says.

Housel attests to the fact that endurance trumps short-term market gains. “The magic of compound interest means that average returns for an above-average period of time will always be better than above-average returns for a short period of time,” he says. Nevertheless, dealing with market fluctuations is difficult, states Acker. “You need nerves of steel to ride out storms and stick to your long-term strategy to reach your investment goals.”

Lesson 5: Ask the right questions, which leads to better behaviour

Housel says many investors ask the wrong questions when it comes to investing, for example, “What are the highest returns I can earn?” However, the right question to ask would rather be “What are the best returns I can sustain for the longest period of time?”

He says that average returns sustained for an above-average period leads to magic.

“As humans we are not good at predicting what is next, regardless of what anyone tells us. Instead, we can focus on what we can control, starting with identifying the behaviour that stops us from achieving our long-term goals, as well as what helps us attain them. Patience is key to success in long-term investing,” concludes Acker.

Shifts in the offshore investment landscape

BY JB SMITH Managing Director at Sequoia Capital Management and NMG Asset Execution Executive

At a time when market volatility is as high as it has ever been, recent regulatory changes have shifted the investment landscape to allow asset managers to increase offshore exposure by up to 45%. However, few managers embrace this level of offshore investment.

When we consider the survey information we received, out of the 57 portfolios, the average offshore exposure at the end of September last year was 31%. The maximum was 47% and the minimum at that point was approximately 17%. However, these statistics are based on conservative portfolios.

Meanwhile, local pension funds must establish the sustainability of their returns, especially during times of market turbulence. Asset owners should therefore weigh the advantages of different types of investment vehicles to access offshore investments. These can include passive solutions, structured notes, and active management approaches.

“Local pension funds must establish the sustainability of their returns, especially during times of market turbulence”

Passive strategies allow investors to get exposure to a basket of shares at a reasonably low cost. Through this, the investor gets full exposure to an index, irrespective of the prevailing value or price level of the share. Structured notes provide tailored solutions, offering downside protection or enhanced returns. Active management offers ways to reduce exposure to overpriced assets and it is dependent on the specific active manager’s investment framework and philosophy. It is this second option that we believe is what the market wants and needs. The various structures also have different fee levels and liquidity provisions. These are all factors that must be considered. There must also be an understanding of where the risks lie. For example, one can access structured notes via an insurer or through an investment bank. These may have different yield pick-ups and different risk factors.

Apart from the high-level decisions, there are also many different strategies to choose from, as well as asset classes. Some of these may still be fairly new or not yet developed in the local market. For example, infrastructure assets and portfolios are referred to as liquid alternatives. These provide exposure to real assets, infrastructure, and other alternatives without the long lock-ins of traditional alternative assets.

Asset owners must understand that each approach carries its own set of risks and potential returns. To navigate these options, professional advisors need to calculate potential risks while accounting for investment goals and other investment restrictions.

Our starting point is always to take trustees through a belief session. This session assists them to articulate their thoughts on what they want to offer their members. Additionally, asset modelling and risk budgeting strategies are very effective for setting out the optimal allocations for a given set of circumstances.

Of course, diversification across portfolios and asset classes can help reduce risks while increasing returns. It’s therefore always important to monitor and evaluate the changing market conditions and investment goals.

Read this . Then call your parents .

Plan a dinner together. Invite them over for coffee. If you live far apart, organise your next visit. Whatever you do, don’t put it off. But why the rush? Because in your lifetime, you have far less actual time with your parents and other loved ones than you might think. Not convinced? Let’s do the maths.

that equates to only 32.5 days together. 32.5 days over the next 10 years? Doesn’t sound like that much anymore, does it?

We’ll assume you live in the same city as your parents, you’re on good terms and enjoy spending time together. But the nature of modern life means we need to make the time to see them. So you see them every two weeks, for a few hours. That’s 26 times a year.

Now let’s assume they’re in their sixties, they live for another 10 years, and you keep this rhythm of seeing them. That’s 260 visits. Which, admittedly, is quite a few.

But assuming those visits are for an average of three hours each,

And it will be even less if they live in a different city. Or worse, if you live in a different country.

We naturally underestimate how little time we have to do the things we want and to be with the people we love. Which goes to show that time really is the greatest gift of all.

The good news is, if you invest early, time gives you money. And then, money gives you more time to spend on what’s important to you. Like seeing your parents.

So, give them a call and make a time to meet up.

To make the most of your time, visit www.allangray.co.za, call 0860 000 654, or your financial adviser.

Vukile secures R1.1bn in green and sustainability-linked funding with Absa

Vukile Property Fund (JSE: VKE), the specialist retail real estate investment trust (REIT), has secured R1.1bn of funding through an innovative green and sustainability-linked loan with Absa. The loans, which are refinancing existing debt facilities, will be enabled as part of the refinancing process of existing debt and will be specifically directed to Vukile’s solar PV project and linked to its sustainability targets. The goals include reducing carbon emissions, boosting water savings and educating property professionals — initiatives that benefit the environment and society, and align with Vukile’s wider environmental, social and governance (ESG) commitments.

Vukile’s approach to sustainability is ingrained into its culture with transparent measurement and reporting of sustainability targets to ensure alignment of its ESG strategy throughout the organisation. This supported the efficient and creative funding solution with Absa, which promotes greater alignment of Vukile’s financial strategy to positive environmental and social outcomes, where interest rates are directly linked to the achievement of preset targets.

Laurence Rapp, CEO of Vukile Property Fund, comments, “This sustainability-linked loan is a first for Vukile and represents a significant milestone in our ongoing commitment to sustainability.”

Through its expertise and commitment to sustainable finance, Absa played a crucial role as lender and sole sustainability coordinator, ensuring alignment with the Loan Market Associations’ Green Loan and Sustainability Linked Loan Principles.

Heidi Barends, Head of Sustainable Finance for Absa, says, “We partnered with Vukile to ensure market-leading performance indicators are set for this funding solution that are relevant to their sector and aligns to their business strategy. By combining environmental and social objectives, we’ve set a new standard for sustainable investment. Vukile is clearly committed to sustainability and we’re proud to have advised it on this strategic transaction. Our guidance throughout underscores our commitment to driving meaningful change in the financial landscape.”

Offer your clients the perfect fit medical aid

BY JEREMY YATT Principal Officer of Fedhealth Medical Scheme

Maurice Shapiro, Group Head of Treasury of Vukile, remarks, “As our partners and a key stakeholder, Absa played an important role in delivering a fit-for-purpose innovative solution that helps align Vukile’s funding strategy with its ESG goals. Vukile is committed to making a difference for our communities, and we are pleased to partner with Absa.”

Vukile is committed to advancing its positive impacts through renewable resources, water-saving initiatives and education of property professionals, in line with its well-defined business strategy, based on the belief that thriving communities create successful shopping centres.

Rapp concludes, “Vukile aims to drive economic growth and be a change agent for social wellbeing and environmental stewardship, which ultimately assists our customers, our tenants and our business. We are committed to leading the way in sustainability and reporting openly about our practices.”

As a specialist retail REIT, Vukile was developed on the foundation of a well-defined, specialised growth strategy, with a focus on owning dominant retail assets across South Africa and Spain. Vukile’s assets are valued at around R40bn, with 40% in South Africa and 60% in Spain. The Spanish assets are held in the 99.5% Vukile-owned Madrid-listed subsidiary, Castellana Properties Socimi. Vukile adopts a proactive approach to asset management and a strong focus on customer-centricity as the driver of stakeholder value creation.

These days, every cent matters. With prices going up left, right and centre, South Africans are feeling the pinch like never before. It’s no wonder that many people find it harder and harder to afford something as important as private medical aid cover.

Despite this, Fedhealth Medical Scheme offers brokers a unique opportunity to actually grow your medical aid book and offer an easy-tocustomise option for every individual. Since Fedhealth’s medical aid cover can be customised down to the last detail, it means greater affordability for every client, based on his/her specific healthcare needs. Here’s how:

A flexiFED option for every life and pocket

Fedhealth’s flexiFED options are designed around your clients’ unique life stage and family composition, and are packed with day-to-day benefits which Fedhealth pays for from Risk, such as unlimited network GP visits, trauma treatment at a casualty

ward and specialised radiology like MRIs and CT scans. So whether your clients are young movers and shakers, planning a baby, or have mature families to look after, there’s a flexiFED option with built-in dayto-day benefits with their name on it.

Fedhealth members can structure their own day-to-day funds

Only Fedhealth lets your clients choose how to fund their day-to-day savings, by either choosing a hospital plan, savings plan or flexible savings plan. This means greater affordability and choice for individual clients, as well as corporates.

Says Jeremy Yatt, Fedhealth Principal Officer, “Fedhealth’s innovative day-to-day savings structure is one of the ways in which our members get unparalled levels

of control over how much they pay for their medical aid. For example, no other scheme allows members to only pay for the day-to-day funds they use, but Fedhealth members who choose a flexible savings plan enjoy this freedom.”

Additional discounts for your clients, extra earning potential for you Fedhealth gives your clients the choice to save up to 25% on their medical aid contributions each month – while you can earn additional commission by selling a complementary product.

For a 10% discount on flexiFED GRID variants, your clients have access to over 120 world-class GRID network hospitals for any planned hospital procedures. To enjoy a 25% discount on flexiFED

Elect variants, your clients may use any private hospital of their choice for planned hospital procedures, but pay a R14 700 co-payment per event. To cover this excess and for other benefits, members can take out Fedhealth NexGen Gap Cover by Sanlam from just R64.90 p/m for individual members, or R109 p/m for families – extra earning potential for you, the broker!

Members can enjoy either of these two discounts on their monthly contribution without sacrificing any benefits, and in case of emergencies, GRID and Elect members will always be taken to the nearest private hospital for stabilising treatment.

To find out what perfect fit medical aid from Fedhealth can do for your brokerage and your clients, call 0860 002 153 or visit fedhealth.co.za

Laurence Rapp, CEO of Vukile Property Fund

Did you know that as a medical aid broker, you could grow your medical aid book AND offer an easy-to-customise option for every individual?

As South Africa’s most customisable medical scheme, Fedhealth enables you to offer every client a personalised offering that suits both their needs and budget perfectly.

TAILOR-MADE MEDICAL AID FOR YOUR CLIENTS. CUSTOMISED EARNING POTENTIAL FOR YOU. Find out what Fedhealth can do for your brokerage and your clients with customised medical aid.

Our flexiFED options are designed around your clients’ unique life stage and family composition – and are packed with day-to-day benefits that we cover from Risk to give members even more value for money, like unlimited network GP visits and trauma treatment at a casualty ward.

We allow your clients to choose how much day-to-day savings they need and how they want to pay for it – meaning greater affordability and choice for individual clients, as well as corporates.

We give your clients the choice to save up to 25% on their medical aid contributions each month with our GRID and Elect discounts – while you can earn additional commission by selling Fedhealth NexGen Gap Cover by Sanlam, a complementary product.

Is dual coverage the ultimate shield?

BY REO BOTES

Managing Executive at Essential Employee Benefits

The world of healthcare cover is complex and confusing, and as such, the question begs: Does the strategic pairing of medical aid and health insurance truly function as an effective financial shield against unforeseen medical expenses? Although it may seem redundant, could this approach of having both medical aid and medical insurance genuinely offer a comprehensive safety net by reducing the risk of financial strain when medical aid savings are exhausted?

The interplay of medical aid and health insurance

The most striking differences between medical aid and health insurance manifest in hospital cover. Health insurance excels in catering to everyday healthcare needs, such as general practitioner visits, prescription medications, and dental check-ups at a specific rate. It can serve as a complement to medical aid, ensuring that these routine expenses are covered, and preventing the depletion of medical aid savings. On the other hand, medical aid shines when it comes

to more extensive medical expenses. It offers comprehensive hospital benefits, encompassing surgeries, hospitalisations, and specialised procedures.

“Assessing changes in health status and lifestyle can help determine whether a more comprehensive or streamlined plan is needed”

Consider a family scenario with multiple children, where high healthcare service utilisation can quickly deplete medical aid savings. In such cases, a day-to-day health insurance plan could provide coverage for unlimited doctor visits, over-the-counter medications, eye tests, prescription glasses, and limited dentistry. A broker can help you explore whether paying a

monthly premium for health insurance to cover day-to-day benefits aligns with your family's primary healthcare needs, especially if there's a trend of your Medical Savings Account (MSA) being depleted year on year.

Dispelling misconceptions

Several misconceptions surround health insurance, and the main one is that it is solely for low-income earners. In reality, individuals from all walks of life can take up health insurance, depending on their healthcare needs. Another misconception is that health insurance is only for those already suffering from illnesses. Health insurance is designed to cover preventive care, essential for maintaining good health and preventing costly medical emergencies.

The educational role of brokers and advisors

Individuals should periodically review their healthcare plans to ensure alignment with their current needs. Assessing changes in health status and lifestyle can help determine whether a more comprehensive

How does health insurance stack up against medical schemes?

Millions of South Africans simply can’t afford the high cost of medical scheme membership, while many others are finding it more challenging to maintain their medical scheme benefits. It’s a doubleedged sword as consumers are loathe to lose access to private healthcare in their time of need.

Health insurance is an affordable alternative that provides a range of cover from basic primary care-only options for day-to-day needs, hospital-only options, accident and emergency care, as well as more comprehensive options.

“Demand for basic health insurance plans that cover basic primary medical care have seen significant growth in the last three years – accelerated as the state of public healthcare facilities has declined. At the same time, interest in more comprehensive plans that provide cover for defined hospital events within stated annual benefit limits is also growing,” explains Carl Moodley, Chief Information Officer of GENRIC Insurance Company Limited, underwriters of GENRIC Health Insurance.

The most important difference between health insurance and medical aid is what they cover, and there are distinct differences. A medical aid benefit provides for comprehensive health coverage according to prescribed minimum benefits (PMBs), while health insurance pays out a defined amount for specific health events or conditions as defined in the policy.

Why is health insurance cheaper?

One of the reasons medical scheme membership is

expensive is that medical aids must provide full cover for prescribed minimum benefits (PMBs). These PMBs include 270 in-hospital, life-threatening procedures and 26 listed chronic conditions, covered at cost for all members.

Members pay for these benefits, whether they use them or not. It is this ‘base’ cost for the PMBs that puts medical scheme access out of reach for most lower to middle income earners.

Health insurance is regulated under insurance and medical scheme regulations; however, not to the same extent as medical schemes. Health insurance can specify the benefits and conditions covered and pays out a defined or fixed amount. Health Insurance benefits are typically modular in design, so you can build up your cover – for example, day-to-day cover for GP visits, dental, optometry and pathology to cover your primary healthcare needs, to more comprehensive cover for hospital events and maternity benefits.

GENRIC provides examples of some of its hospitalisation claims paid during 2023 to illustrate how the cover works:

• Golden Hour Policyholder (accident and emergency cover) – R225 000 was paid out under the accidental injury benefit for a child who suffered second degree burns. Although the maximum incident limit was reached (R225 000 per insured per event for accident in-hospitalisation) the policy covered over 90% of all the incurred costs, and the child had access to private healthcare. The policyholder was able to

or streamlined plan is needed, and seeking advice from financial advisors or insurance specialists can guide individuals in making informed choices. Brokers and advisors play a crucial role in educating clients about health cover. They possess a thorough understanding of the benefits and gaps in cover, enabling them to offer customised solutions that align with individual needs.

Effective management of healthcare financing requires a combination of understanding one's needs, selecting the right plans, engaging in preventive care, and maintaining financial flexibility. As you ponder on whether having both health insurance and medical aid is advantageous – being prudent is key and seeking advice from an advisor can assist in the viability of allocating funds to a primary care health insurance product or saving money for the unexpected should there be a trend of an MSA being depleted.

negotiate with healthcare providers for a discount and terms for the final settlement.

• Comprehensive Advanced Policyholder – this policyholder suffered an accidental injury resulting in a knee replacement being required. The policy paid out R219 660.96 and covered all the costs for this event. The insured was also covered for post-rehabilitation physiotherapy up to R10 000.

Comprehensive Advanced Policyholder – this policyholder was diagnosed with a bladder tumour, with the policy covering R100 000 of the medical bills. The insured would be liable for any additional costs over and above the R100 000 threshold. This cover option provides for R100 000 per insured per event for the in-hospital illness benefit, as well as R250 000 per insured per event for the in-hospital accident benefit.

Many families are looking to insure against a worstcase scenario. The Golden Hour In-Hospital Accident Benefit provides accident-only cover at under R425 per month for a family of four (two adults and two children).

A more comprehensive benefit like Comprehensive Advanced, which provides cover for accident hospitalisation, illness hospitalisation, maternity and casualty, as well as day-to-day cover for GP consultations, optometry and dental benefits up to fixed sums, comes in at around R2 750 per month for a family of four, for a solid set of benefits. A significant benefit is that certain health insurance benefit options also provide for preventative care, which is a big advantage.

More affordable medical scheme cover needed for the missing middle

BY CRAIG COMRIE Chairperson of the HFA

Expanding healthcare access in South Africa demands meticulous resource allocation, which is crucial for delivering the calibre of service essential to upholding the human dignity of our entire population, according to the Health Funders Association (HFA).

“Defining what constitutes value in healthcare cannot be separated from the quality of life of the person on the receiving end, the standard of healthcare they receive, and whether the patient’s suffering is eased, and their daily functioning restored without unnecessary delay,” says Craig Comrie, chairperson of the HFA, a professional body representing medical schemes and their members.

“At this pivotal moment in South African healthcare, it is essential that the quality and quantity of healthcare services are defined and configured in a sustainable balance to ensure South Africa’s world-class healthcare skills and assets, which are largely privately funded, are retained, nurtured and grown to accommodate the country’s wider healthcare needs.

“The regulatory framework, if reformed as recommended by the Health Market Inquiry, which started a decade ago, could create more practical and sustainable improvements to universal healthcare coverage for South Africans and provide more affordable healthcare for medical scheme members and greater access to those without cover. This will avoid the growing number of individuals who cannot afford healthcare cover and are placing additional pressure on already overburdened public health facilities, a situation that is less than desirable,” he says.

Comrie points out that medical scheme members contribute substantially to the public health system as taxpayers and make very little use of State services, thereby freeing up resources for those who are dependent on public health.

“We could create health cover solutions for the many employed South Africans for whom medical aid is unaffordable at present”

“Despite the predominantly negative attention directed towards National Health Insurance (NHI), it’s imperative to acknowledge its potential for significantly improving accessibility to quality healthcare. While criticisms abound, it’s crucial to recognise the positive impact it could have in extending affordable, highquality private healthcare to millions more South Africans if appropriately implemented.

“There is full agreement that quality healthcare should be extended to all South Africans, and we see great potential for medical schemes as a collective to assist in elevating the standards of healthcare afforded to all employed South Africans and their families,” he says.

“At best, it will take decades until South Africa’s future health system is capacitated to replace the services currently provided by medical schemes in their entirety, and we see this as an opportunity to work together to build quality healthcare overall.

“With the outstanding regulatory gaps addressed, we could create health cover solutions for the many employed South Africans for whom medical aid is unaffordable at present. Comparatively well-off enough not to be reliant on the State, this missing middle could be accommodated through private health funding employment benefits, at least until the NHI system is geared to provide adequate care for all,” Comrie says.

Finalisation of the Low-Cost Benefit Options (LCBO) framework and regular reviews of Prescribed Minimum Benefits (PMBs) to complete the existing health funding regulations would considerably reduce costs while maximising relevance for the wide-ranging needs of South Africans in a more economically viable manner.

The HFA points out that making medical scheme membership more affordable through rational regulatory means would help keep many employed people healthy, actively contributing to the economy, and keeping them out of the hospital by providing meaningful access to healthcare for a larger proportion of the population.

“An important point here is that tax incentives in the private sector, which are currently targeted and have in real terms been reduced, may be more effectively spent by individuals accessing healthcare where they

choose rather than dictating where and how they access healthcare, as envisaged in the NHI Bill. In the end, consumers often know where they get best bang for their healthcare buck.

“Until the NHI system is fully equipped to provide a level of care approaching this for everyone, private health funding is ready to help shoulder this responsibility to realise the goals of universal health coverage.

“The practical truth may be that the NHI will remain limited to what the country can afford, but this need not define the entire extent of healthcare services that individuals will continue to require. We strongly appeal to the President and policymakers not to disregard the spectrum of opportunities for making progress towards universal health coverage with prudent revisions of the existing regulatory framework.”

The Health Funders Association (HFA), which was established in 2015, is a non-profit organisation representing stakeholders involved in the funding of private healthcare in South Africa. The organisation at present represents some 73% of the country’s more prominent medical schemes and 43% of South Africa’s total medical scheme membership base.

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