MoneyMarketing December 2018

1

31 DECEMBER 2018 | WWW.MONEYMARKETING.CO.ZA

First for the professional personal financial adviser

WHAT’S INSIDE

YOUR DECEMBER ISSUE

INVESTING IS ALL ABOUT RETURNS AFTER FEES

INVESTING: LONG TERM LESSONS FOR 2018

The absolute fee level you pay is an important consideration.

Many South African investors are uncertain about where to invest.

Page 12

Page 22

INCLUDING MEDICAL AID CONTRIBUTIONS IN FINANCIAL LEGACY PLANNING An unexpected life-changing event can happen to anyone at any time.

Page 29

Retirement not a top financial priority in SA

T

he numbers show that the million members belonging to 2 030 country is not yet winning employer clients at 31 March 2018. the game in terms of For the first time, the 2018 retirement savings, says Michael Member Watch uses data from all Prinsloo, Managing Executive: the South African retirement funds Research & Product Development at that Alexander Forbes administers, Alexander Forbes. meaning that the survey has the biggest “This isn’t a country where membership and employer groupings retirement is a number-one financial data sample of all the retirement fund priority. People are largely under surveys available in South Africa. pressure and they need to take care of One of the findings of the Member wider family groups. These are South Watch Survey is that the average African realities,” he adds. projected replacement ratio stands at Prinsloo was speaking at the launch 40.5% (This is the ratio of the income of the 2018 Alexander Forbes Member you receive from your pension once Watch™ survey, a piece retired, to the salary of research that focuses you were receiving just THE AVERAGE on the key stakeholders before retirement). in the retirement The average actual PROJECTED journey: the members replacement ratio of REPLACEMENT saving for retirement. those employees that RATIO STANDS He adds that retired during the last Alexander Forbes is year stands at 28.8%. AT 40.5% extremely proud of the “This means that survey that was started back in 2006 for every R10 000 that an employee when the sample size stood at 320 000 earned pre-retirement, their pension is members belonging to 460 employer R2 880 – and that is a 70% reduction clients. This has grown to just over one in lifestyle,” says Prinsloo. “Can people

handle it?” Meanwhile, retirees who achieve a replacement ratio of 80% or higher stands at 5.17%. The industry norm in South Africa is to target a replacement ratio of 75% or more. Prinsloo points out that low preservation rates are one of the biggest reasons for replacement ratios being lower than the target. Policymakers are attempting to solve the problem by regulating the use of a default preservation strategy when a member leaves their employer and doesn’t make a payment election, he adds. Several funds already allow members this option, but the law requiring this approach officially comes into effect on 1 March 2019. One of the most common reasons given by members for not preserving their benefits is that their fund credit is too low to warrant the trouble and expense of a preservation fund, he notes. “A total of 61% of those who chose not to preserve any of their benefits had a benefit of between R0 and R25 000 and the other 37% of

PERSONAL OFFSHORE SHARE PORTFOLIOS At Anchor, we understand the importance of diversification and risk mitigation. Our Global Balanced Share Portfolio provides global diversification across geographies and asset classes.

Speak to us today to create an offshore portfolio for your client sales@anchorcapital.co.za or www.anchorcapital.co.za ANCHOR CAPITAL (PTY) LTD IS AN AUTHORISED FINANCIAL SERVICES PROVIDER | FSP# 39834 | REG# 2009/002925/07

non-preserving members had already accumulated a significant benefit but chose not to preserve.” He warns that individuals should be made aware of the longer-term impact of not preserving even relatively modest amounts at younger ages because of the power of compounding. Prinsloo notes that according to the latest Member Watch Survey, the number of members preserving has decreased from 11.5% in 2012 to 8.7% in 2018 – although preservation has improved by 4% per annum over the last three years. The public services sector had the highest preservation rate in 2018 with 33% of members preserving. The retail, wholesale and hospitality sector had the lowest preservation rate with only 5.94% of members preserving. Continued on page 3

This One’s for you. The Financial Times of London has recognised Investec as the Best Private Bank and Wealth Manager in South Africa – for the sixth consecutive year. With offices in South Africa and the UK, Investec is perfectly placed to give our clients access to banking, investments and insurance, locally and internationally, all in One Place™. For more information, call 0800 1PLACE.

Bank | Invest | Protect locally and internationally

JHB 64835/OJ

TM

Investec Private Banking, a division of Investec Bank Limited registration number 1969/004763/06. Investec Private Banking is committed to the Code of Banking Practice as regulated by the Ombudsman for Banking Services. Copies of the Code and the Ombudsman’s details are available on request or visit www.investec.com. A registered credit provider registration number NCRCP9. Investec Wealth & Investment a division of Investec Securities Proprietary Limited. 1972/008905/07. Member of the JSE Equity, Equity Derivatives, Currency Derivatives, Bond Derivatives and Interest Rate Derivatives Markets. An authorised financial services provider No.15886. A registered credit provider registration number NCRCP262. Investec Life Limited, a member of the Investec Group, is a registered Long-term Insurance Company (Reg.No. 1944/017130/06) and an authorised Financial Services Provider (FSP number 47702). Terms and conditions apply.

31 December 2018

NEWS & OPINION

The energy sector had the highest • Exit type: The exit type also has an impact of proportion of fund members who had access the likelihood of preservation. The data shows to financial advice. that the highest rates of non-preservation Predictive analytics tools used on the are on resignation and early retirement. The Member Watch data have identified five key reason for the exit is also often correlated factors that affect the level of preservation. with the member’s financial situation. These factors are: Members without emergency savings or who • Size of the fund credit: The higher the fund are highly indebted are more likely to take credit at exit, the higher the probability of the their retirement savings in cash. member preserving their retirement savings. • Access to financial advice: Access to financial This affects the amount of tax that will be paid, advice has a significant impact on the level of which acts as a disincentive for members to preservation. Members who have access to take their benefit in cash. Fund credit size is financial advice have higher preservation rates. also correlated to the length of pensionable • Whether the fund offers a preservation service and salary. Other factors include the solution: The analysis shows that when monthly pension that members can buy with members can preserve in a fund-supported the retirement lump sum. If members feel that preservation solution that is easy to access the monthly pension they and institutionally priced, the can buy at retirement is too preservation rate is higher. THE PUBLIC low, they are more likely not to preserve. SERVICES SECTOR The Member Watch Survey also • Industry sector: Some shows that fewer members are HAD THE HIGHEST making investment choices, rather industries have a higher PRESERVATION average preservation relying on employers and trusteerate than other sectors. provided choices. RATE IN 2018 Industries with high “This highlights the importance turnover rate and very high resignations of default investment portfolios and we have tend to have very low preservation rates. The also seen the importance of fund-supported level of financial literacy within the industry solutions, such as annuity strategies, to help is also a factor. For example, in the retail employees navigate to retirement security. There sector where people change is an opportunity for companies to help their jobs more frequently and employees along their full financial journey,” there are more contract Prinsloo says. workers, the members are Increasing normal retirement ages can also more likely to take their be seen in the findings. “A few years ago, the benefit in cash. most common retirement age set by employers was 60 years, but that has now increased to 65,” he adds. “Increasing one’s normal retirement age by two years can add 8% - 15% extra income at retirement, so retiring at 65 rather than 55 can almost double a replacement ratio due to the compounding effect.”

EDITOR’S NOTE

L

ast month was once again a busy one. Probably the most important development for the economy was the announcement by parliment’s Joint Constitutional Review Committee that it had formally recommended that section 25 of the Constitution be amended to allow for the expropriation of land without compensation. Whether you agree with this or not, the important take-away is that the move has undoutbtedly unnerved investors. There was also news about Lion of Africa Insurance Company, a subsidiary of the empowerment investment holding company, Brimstone. In a statement, Brimstone said that Lion had decided to voluntarily and systematically wind down operations with immediate effect. In the past few years, Lion experienced a lack of profitability and a tough operating climate in its chosen markets. Contributing to this were not only an onerous regulatory environment but also increased solvency requirements. This is a sad development and it must have been a very hard decision to make. Lion will continue, however, to meet all its obligations under existing policies but will not be issuing any new policies. November’s good news was the launch of Discovery Bank. I attended the event at 1 Discovery Place, Sandton, where the magnificent new headquarters of the group are situated. Discovery chief executive Adrian Gore described the bank as “the world’s first behavioural bank” as it’s based on making people healthier in the financial sense by incentivising behaviour. With South Africans’ disregard for the need to save, the bank’s launch couldn’t have come at a better time. On behalf of the MoneyMarketing team, I wish you a peaceful holiday season and a prosperous New Year. Janice janice.roberts@newmedia.co.za @MMMagza www.moneymarketing.co.za

Michael Prinsloo, Managing Executive: Research & Product Development, Alexander Forbes

Happy

holidays from the team at

Thank you for your support in 2018!

For advertising opportunities speak to Mildred Manthey, mildred.manthey@ newmedia.co.za Direct +27 (0)11 877 6195 Cell +27 (0)72 832 5104 For editorial queries mail Janice Roberts, janice.roberts@ newmedia.co.za

NEWS & OPINION

Continued from page 1

3

PROFILE

4

NEWS & OPINION

31 December 2018

KHANYI NZUKUMA CHIEF EXECUTIVE, GLACIER BY SANLAM

How did you get involved in financial services – was it something you always wanted to do? I started my working career as a teacher, after studying psychology. I’ve always had a strong desire to understand and help people, so the move to financial services made sense. There’s an enormous role for the industry to play in educating people around wealth creation and in so doing, helping people aspire to better things for themselves and their families.

VERY BRIEFLY

What was your first investment, and do you still have it? I bought a rental property off-plan when I was in my early 20s. Unwisely, I sold it as I wanted to realise a quick profit. A few short years later it was worth many times more than I’d paid for it.

What have been your best and worst financial moments? I think my worst financial experience has to be purchasing a food franchise in the wrong place. It’s true what they say about “location, location, What makes a good investment in location” and I learnt that through experience. The today’s economic environment? lesson here is always to do a proper due diligence I don’t think there’s a single silver bullet. Investing before investing. sensibly involves a number of moving parts. Some of my better financial moments include Firstly, the investor has to identify their objectives deciding to invest in myself through further – short-, medium-, as well as long-term – and education. That definitely pays off. Another good also understand their risk appetite and capacity. decision was diversifying and investing in different In volatile market conditions, an investor needs assets at an early age – even if one of them didn’t to ensure they’re properly diversified, not just work out, I still had the rest. Lastly, I also chose to across asset classes, but geographically re-invest my retirement fund money as well. Advice from a qualified when changing employers along the and objective financial planner is way. This we know is crucial to a THERE’S AN invaluable in this regard. successful retirement.

ENORMOUS ROLE FOR THE INDUSTRY TO PLAY IN EDUCATING PEOPLE AROUND WEALTH CREATION

What is the best book on investing you’ve ever read – and why would you recommend it to others? The Founder’s Mentality by Chris Zook and James Allen compares the motivation of an entrepreneur and a professional manager and looks at the underlying principles of running a business with purpose, and not just with the profit motive in mind. An entrepreneur has a deep-seated passion for the business, and in many cases it’s about creating a lasting legacy. I would recommend it because it teaches people to do things with a higher purpose. Do you own Bitcoin? If not, why not? No, I only invest in things I fully understand. I may end up regretting the decision, but as far as investments go, I think Bitcoin is too volatile.

UPS & DOWNS

Sandton City, often described as a worldclass shopping destination, is now fully let for the first time in 45 years. The shopping centre says it has defied the sector vacancy rate of 5.8% for similar sized shopping centres, as reported by the South

African Property Owners Association as at the end of June 2018. The shopping centre has retail and leisure space covering 147 940m2 and is home to over 300 retailers. Sandton City is owned by Liberty Group, Liberty Two Degrees and Pareto Limited and is managed by JHI Retail.

Credit Suisse, the multinational investment bank, has left South Africa after over a decade in the country. Reuters reports that this forms part of CEO Tidjane Thiam’s revamp that includes a drive to focus on managing the money of wealthy investors, and scale back investment banking.

Credit Suisse – Switzerland’s second largest bank – employed over 30 people at its Johannesburg-based office. The investment bank re-entered South Africa in 2006 after leaving in the 1980s under pressure from the anti-apartheid movement.

Cheryl Howard (B Compt Hons CA SA) has been appointed as MD of Maitland Family Office. She is a tax, accounting and fiduciary specialist who joined Maitland in October 2018 through the acquisition of her successful fiduciary business, Talaria Wealth. Cheryl qualified as a Chartered Accountant at Deloitte where she was appointed as a tax manager in 1989 in their personal financial planning department. In 1991, Cheryl joined Grant Thornton, Kessel Feinstein to establish the personal financial planning department for their high-net-worth clients. In 1994, she joined BoE Private Bank as the general manager responsible for the Gauteng personal financial planning, taxation, fiduciary services, and wills and estates departments. In 2000 Cheryl left BoE to set up Talaria Wealth. Cheryl Howard

Swiss Re Corporate Solutions has appointed Michelle Oosthuizen as Head: South Africa. In this role, she will oversee all aspects of Swiss Re Corporate Solutions’ business in South Africa and Sub-Saharan Africa. Subject to completion of visa formalities, she will relocate from Zurich to Johannesburg. She brings 18 years of reinsurance experience to this role. Since joining the Swiss Re Group in 2000 as Legal Counsel and Head of Compliance to Swiss Re Africa, she has held various positions and gained extensive claims experience, notably as Head of Claims Australia and New Zealand and, most recently, as Global Head of Reinsurance Contracts. Prior to joining Swiss Re, she established and successfully managed her own law firm in South Africa. An Australian national, Michelle holds a Bachelor of Commerce, a Bachelor of Laws (LLB) and a Masters of Business Administration from Wits Business School in South Africa.

The University of Free State (UFS) School of Financial Planning Law is not only the first South African accredited education partner of the Society of Trust and State Practitioners (STEP), but is also one of the only three universities globally with this accreditation. STEP is an international professional association for practitioners who specialise in family inheritance and succession planning. “Being one of the only three universities with this accreditation globally recognises the relevance and academic excellence of the educational programmes offered by the School of Financial Planning Law in an international context,” says Advocate Shirly Hyland, Director of the UFS School of Financial Planning Law.

23488

THE POWER OF CONSISTENCY: OFF$HORE INTRODUCING OUR NEW RANGE OF GLOBAL DOLLAR FUNDS: Prudential Global Balanced Fund Prudential Global Inflation Plus Fund Prudential Global Equity Fund Prudential Global Bond Fund

Speak to your Financial Adviser for more information or visit prudential.co.za

CONSISTENCY IS THE ONLY CURRENCY THAT MATTERS.™

The Prudential Global Funds ICAV is an approved investment vehicle in terms of CISCA. The distributor is Prudential Portfolio Managers Unit Trusts Ltd (Registration number: 1999/0524/06), an approved CISCA management company (#29). Fund’s supplement is available free of charge from the ICAV or at www.prudential.co.za. Collective Investment Schemes Portfolios are generally medium-to long-term investments. Past performance is not necessarily a guide to future investment performance. The Fund’s prices are calculated on a net asset value basis, which is the total market value of all assets in the portfolio including any income accruals and less any deductible expenses and is traded at the ruling forward price of the day. The Fund may borrow up to 10% of the Fund’s value, and it may also lend up to 50% of the scrip (proof of ownership of an investment instrument) that it holds to earn additional income. Fund prices are published daily on the distributors website. These are also available upon request. The performance is calculated for the portfolio. Individual investor performance may differ as a result of initial fees, the actual investment date, the date of reinvestment and withholding tax.

6

NEWS & OPINION

31 December 2018

Congratulations to the winners of the 17th annual JSE Spire Awards Team Black vs Team Whirlpool at Playing for Pink Ladies Invitational Polo

Champagne, art and polo

M

oneyMarketing attended two fund-raising events last month. The first was the Absa Champagne Festival held over three days at the Inanda Club in Johannesburg.

Described as “a celebration of champagne with a splash of art”, the Festival showcased African artists, while celebrating 100 years since the birth of South Africa’s great former statesman, the late Nelson Rolihlahla Mandela. Guests at the festival were served premium champagnes from the world’s leading champagne houses, paired with fine cuisine, while browsing through an an exhibition of some of the African continent’s best artwork. The selection of wall hangings and sculptures, commissioned from both established and emerging artists, went under the hammer with proceeds raised being donated to the Nelson Mandela Foundation. Artists featured at the exhibition included Pauline Gutter, Banele Khoza, Jan Tshikhuthula, Roberto Vaccaro, Jaco van Schalkwyk, Benon Lutaaya, Nelson Makamo, Vincent da Silva, Anton Smit, Pat Sithole and Asanda Kupa. The second fund raising event, Playing for Pink Ladies Invitational Polo, was also held at the Inanda Club and was organised by Edith Venter from Edith Venter Promotions. MoneyMarketing attended the occasion as a guest of Liberty. It was a day full of polo, live music – from Unathi and Kwesta – and a fashion show by Diane Paris. In the polo match between the South African team (Team Black) and the international team (Team Whirlpool), the visitors emerged the winners. Winston Monale, Absa Managing Executive, Wealth Management Investment and Insurance, addresses the Absa Champagne Festival

The Johannesburg Stock Exchange (JSE) recently announced the winners of the 17th prestigious Spire Awards. The annual award ceremony is seen as the benchmark for South African Capital Markets as it recognises and celebrates achievements voted for by the market.

The winners of the 2018 Spire Awards are as follows: Category

Winner

Best Broker: Agricultural Derivatives Research

CJS Securities

Best Broker: Commodity Options

BVG Commodities

Best Commodity Broker: Physical Deliveries

CJS Securities

Best Broker: Commodity Derivatives

CJS Securities

Best Dealing Team: Equity Delta One Derivatives

Legae Peresec

Best Dealing Team: Equity Options

Legae Peresec

Best Dealing Team: Equities

RMB Morgan Stanley

Best Research Team: Technical Analysis (Forex and Fixed Income)

Nedbank Capital

Best Research Team: Quantitative Research

Avior Capital Markets

Best Research Team: Africa

Absa Capital

Best Research Team: Forex

Absa Capital

Best Research Team: Credit

Absa Capital

Best Research Team: Economics

Absa Capital

Best Research Team: Fixed Income

Absa Capital

Best Agency Broker: Listed Interest Rate Derivatives

Ridgecape Capital

Best Inter Dealer Broker: Interest Rate Derivatives

Tradition

Best Market Making Team: Listed Interest Rate Derivatives

Rand Merchant Bank

Best Sales Team: Interest Rate Derivatives

Rand Merchant Bank

Best Market Making Team: Interest Rate Derivatives

Rand Merchant Bank

Best Agency Broker: Listed Forex Futures

Legae Peresec

Best Agency Broker: Listed Forex Options

Prescient Securities

Best Market Making Team: On-Screen Listed Forex Derivatives Best Sales Team: Forex and Forex Derivatives Best Market Making Team: Forex and Forex Futures

Rand Merchant Bank Absa Capital Absa Capital

Best Market Making Team: Forex Options

Absa Capital

Best Agency Broker: Bonds

Avior Capital Markets

Best Inter Dealer Broker: Bonds as voted by Agency Brokers

Tradition

Best Inter Dealer Broker: Bonds as voted by Banks

Tradition

Best Structuring Team: Fixed Income\Inflation\Credit\Forex

Rand Merchant Bank

Best Debt Origination Team

Rand Merchant Bank

Best Team: Credit Bonds

Absa Capital

Best Team: Inflation Linked Bonds

Rand Merchant Bank

Best Repo Team

Rand Merchant Bank

Best Sales Team: Bonds

Absa Capital

Best Market Making Team: Government Bonds Best IDB: Fixed Income

Nedbank Capital Tradition

Best Research House

Absa Capital

Best Interest Rate Derivative House

Rand Merchant Bank

Best Forex House Best Bond House Best Fixed Income and Forex House

Rand Merchant Bank Rand Merchant Bank Rand Merchant Bank

8

NEWS & OPINION

GERRY GRISPOS Senior Compliance Officer, CompliServe SA

I

31 December 2018

Q uo vadis financial services industry? Four areas to watch

recall when in my second year at high school in Zimbabwe, when slide rules and logbooks were the norm, I received my first calculator – a Casio with six-number capacity on the screen, weighing a ton. Sure, it was 1973, but I was convinced then that I had the mathematical tool I needed to conquer the world, and that nothing better could come along. Some 13 years later, when I began my career as an IFA, I received one of those brick-sized Nokia cell phones. I had arrived! What could beat this? In both cases, these advances, though almost unimaginable at the time, highlight how technology revolutionises the way we work. Improvements in the last 20 years alone can only point to the fact that in another two decades, technology will be completely different, so embracing change and adapting as you go are recipes for success. Here are four areas where it’s going to count in financial services: Different working environments will emerge Down the line, financial services companies will more than likely no longer be housed in huge, multi-storied buildings. Workstations will be at home and all work will be done online with physical interaction with clients

kept to a minimum or held via Skype. The normal working hours will no longer exist; employees will work as and when required, which is not an issue with 24/7, fast internet connectivity. Time will wait for nobody and if service is not instant, clients will walk away. Software may outpace employees Several well-known financial institutions have already replaced manual processes with software that automatically directs a client to their required service area. Fund managers can obtain all necessary fundamental information on various stock markets and the underlying financial institutions at a touch of a button, by simply utilising software packages. This has the potential of cutting down the number of research analysts previously needed. Algorithms now exist that scan markets daily without human intervention, looking for opportunities that comply with pre-arranged criteria, while other software has been designed to scan a variety of shares and to automatically provide potential buy-and-sell signals using technical analysis. More efficient systems may well result in the number of manual processes and jobs being reduced. If employees are warned of such a possibility, then

upskilling can take place to ensure employees can grow with technology. Tightened IT controls will be needed With the introduction of POPIA (Protection of Personal Information Act) a few months away, FSPs will need to understand how fintech fits into business processes and what information is being held. More thorough due diligence will need to be done on IT providers, including assessing their controls on backups and privacy. Compliance will evolve There is a myriad of laws that financial institutions need to comply with, which are evolving with the fintech revolution, making the guidance of a qualified compliance officer essential in adding a layer of risk assessment to the process of compliance and technology. It will still take time and the picture isn’t perfectly clear yet, but those who do not embrace the technological revolution will potentially be unable to compete with competitors who do. Quo vadis, financial services industry? Into the fintech world, stragglers beware.

Positive impact of private equity on SA economy Following a gruelling judging process of the extraordinary companies that were in the running, the Southern African Venture Capital and Private Equity Association (SAVCA) announced the winners of the inaugural SAVCA Industry Awards, held in partnership with Investec, at a dazzling gala that took place in Johannesburg last month. Speaking at the event, Craig Dreyer, SAVCA Chairman, commended all participating investee companies on having made it through the final stage of the process. “Each of these nine companies stand out amongst their peers for different reasons and are proof of the positive impact private business can have on the South African economy. “Congratulations to all of the finalists on building such robust businesses and thank you for embracing the value that private equity and venture capital investment can have on a business.” Also speaking at the event, Andrew Chananie, Head of Leverage Finance at Investec – the lead sponsor of the event – said that it has been an honour partnering with SAVCA to shine a light on the industry and its impact on the economy. “These awards are a great way to recognise the exceptional

performance of portfolio companies in the sector, and raise awareness of their vital contribution to society.” The three 2018 category winners are:

2018 SAVCA Industry Award for Best Small Company: SweepSouth

Currently in South Africa there are about 270 000 unemployed registered domestic workers, SweepSouth – a pioneering on-demand online platform for booking home cleaning services by connecting households with domestic workers – has reduced this number by 3%. Nominated by the Vumela Fund, managed by Edge Growth, SweepSouth has grown from just three domestic workers and two co-founders when the business started in 2014, to employ 38 people in-house and 8 000 “SweepStars” across South Africa. Since 2015, when the Vumela Fund came on board, the annual revenue has grown by 1 050% over the term of the capital injection, with gross profit having grown in this time by 100 times since the inception.

2018 SAVCA Industry Award for Best Medium-Sized Company: Vumatel

A pioneer in growing the fibre-to-home industry in South Africa as a source of fast reliable internet, Vumatel was nominated by Vantage Capital for the role it has played in this emerging

industry, the broader socioeconomic impact of providing connectivity, and the many sustainable job opportunities that have been created as a result. Vumatel’s staff compliment has increased to 660 permanent staff and 4 000 contractors used. Since receiving R250m of growth capital to fund its expansion in 2016, Vumatel has grown its subscriber base from less than 3 000 and 30 000 homes to over 63 000 subscribers and 200 000 homes by 2018. This growth has not only increased connectivity across the country, but has also challenged existing monopolies to the benefit of South African consumers. As part of its efforts to bridge the digital divide, Vumatel has installed free fibre in over 150 primary and high schools, positively impacting around 120 000 learners and are also running a project of fibre to the home in Alex Township providing 100mb uncapped for R89p/m.

2018 SAVCA Industry Award for Best Large Company: Tsebo Solutions Group Nominated by Rockwood, Tsebo Solutions Group is South Africa’s thirdlargest outsourced services provider in catering and facilities management, operating in 27 countries with five service lines and over 39 000 employees.

Managing director Clive Smith maintains that the assets of the company are the employees and customers, and almost half of its revenue is paid to staff monthly in the form of salaries. Often a first-level employment option for school leavers looking for work in the formal sector, the group trains about 50 000 people on a two-year cycle, at a base level. Further to that there is significant management training, from supervisory and middle management to executive management. Dreyer says that the success of this year’s winners is testament to the ability of private equity and venture capital investment to drive real economic growth and development across the country. “In addition to celebrating excellence in business acumen within the private sector, we hope that these three leading companies will continue to showcase and promote the exceptional effect that this type of investment can have on job creation, inclusivity and growth across the broader South African economy.”

Craig Dreyer, Chairman, SAVCA

Andrew Chananie, Head of Leverage Finance, Investec

31 December 2018 INSIDER CHRONICLES TIM HUGHES Corporate Affairs Director, Warwick

W

SA business – toxic or a force for good?

hen the country’s leading The transitional period from 1990business newspaper labels 1994 saw business confronted with the South African business as threat of a populist take-over of the toxic, there is a problem. When the mines, banks and land, or alternatively editor of one of the country’s leading presented with an unexpected finance weekly magazines appears to opportunity to position companies revel in bemoaning the many maladies for an exciting future of expansion, besetting business in this country, the economic growth and sanction-free problem is compounded. It is arguably ‘normalisation’. unique in the highly competitive and The third period may be regarded as professional financial journalism world the era of BEE charters. Commencing that an editor demonstrably doesn’t with the leaked first mining charter of like business! Indeed, it is no longer 2002 (with the resultant loss of billions clear what the mission of financial from the JSE in shocked reaction), journalism is in South Africa, and this through to energy and financial services is cause for concern – particularly given charters, business has been required to the palpable antipathy of some editors operate within a policy, legislative and to the business community. regulatory environment of increasing But is this fraternal government intervention scepticism justified aimed at ensuring GOVERNMENT and are editors greater racial and FROM 2009 WAS gender representation, merely reflecting, rather than shaping, CHARACTERISED participation and equity what broader society in the formal economy. BY RENT-SEEKING, While there are sharply feels and perceives to be a home truth divided views on the AS WELL AS about business? Is efficacy and impact of CAPRICIOUS, business indeed sectoral charters, they CHAOTIC AND toxic? Or is business are and will remain an in South Africa a operational fact of life INCOMPETENT force for good? for SA business for many BEHAVIOUR The TRC hearings years to come. confirmed for the historical record what But to return to the toxicity question. millions had already experienced – that Two factors characterised the business ‘big business’ was overwhelmingly operating environment under the Zuma white, elitist, exclusive, often racist, era and have left a lamentable legacy that exploitative and too often either will take time and require extraordinary benefited from apartheid, or co-existed commitment and leadership to compliantly with it. Yet even during the overcome. The first was a state sector most turbulent, violent and repressive that went rogue. Under the Zuma years of the 1980s, significant business administration, business simply lacked leaders were calling for and effecting a reliable, credible and trustworthy behavioural change and bypassing partner in government. Rather than government policy. providing policy leadership and

certainty to business, government from 2009 was characterised by rent-seeking, as well as capricious, chaotic and incompetent behaviour. The results for business, the economy and our country’s development were catastrophic. But one of the consequences of a rogue state sector is the attractive scent this emits to corrupt malevolent corporate bandits, masquerading as business partners. These private sector advisers to government – ranging from auditors, to business consultants, to turn-around ‘specialists’, to corporate finance ‘specialists’ – have all feasted on the carcass of a rotten state sector. The second corrosive factor is simply, yet profoundly, the widespread loss or opportunistic abandonment of governance ethics. However, it is vitally important to acknowledge and appreciate the productive, progressive and vital role that the business sector plays. Investment, capital formation, savings, skills development, innovation, empowerment, service delivery and, most of all, financial risk taking, are all characteristics of the worldclass business community in South Africa. Our mining sector remains an operational world-leader, our financial services sector is on par with the best in the OECD, our retail sector is modelled across the continent, our motor manufacturing sector is lauded for its export quality, and our IT innovation is the envy of many. But perhaps most importantly, intrinsic to the operations of South African business is a deeprooted commitment to our country’s development and sustainability, evidenced not only by being good at business, but by doing good in business.

NEWS & OPINION

9

Profile Group acquires 100% of Plexcrown Fund Ratings The Profile Group has increased its stake in local fund rating agency PlexCrown Fund Ratings (Pty) Limited to 100%, thereby consolidating its position together with subsidiary, ProfileData (Pty) Limited, to become the leading supplier of funds data and ratings in the local market. Collective investments in South Africa is an industry managing well over R2tn. The number of domestic collective investments offered by South African institutions outnumber JSE-listed shares by three to one and have grown to over 1 500 funds from some 700 funds five years ago. Together with ETFs, investors are hard-pressed to know which products to buy. Since 2005, PlexCrown has earned a reputation as the local leading retail unit trust fund rating agency in South Africa. Its ratings are independent, unbiased and completely objective and are based on a combination of various recognised statistical measures. “We pride ourselves on being in the forefront of statistical research, especially in the unit trust industry where we have developed rating and information products to serve our stakeholders such as investors, investment advisors, investment managers, regulatory authorities and life offices,” says Ernie Alexander, Chairman of the Profile Group. PlexCrown does the calculations for the coveted Raging Bull Awards based on risk-adjusted returns by applying the PlexCrown methodology. “We are also honoured to determine the much sought-after Raging Bull Management Company of the Year Award,” Alexander adds.

10

NEWS & OPINION

31 December 2018

US parents spend more on adult children than they save for retirement

A

Merrill Lynch Study finds that parents in the US spend twice as much on their adult children as they save for retirement. The survey, entitled The Financial Journey of Modern Parenting, was carried out earlier this year. Empty-nesting should offer the chance to cut back on expenses, spend more on leisure and save more toward retirement. However, those plans often become side-tracked when parents continue to serve as the ‘family bank’ for adult children. The survey finds that having adult children can complicate finances, resulting in what many see as the most expensive stage of parenting. How expensive? The study estimates that American parents of adult children annually spend $500bn on them – and that’s twice what they contribute to their own retirement accounts. “These expenditures are naturally concentrated in the early years of children’s adulthood, when they are attending college or entering the workforce for the first time. Parents’ financial contribution to children’s education accounts for about onefourth of the total.” Parents contribute toward a variety of other expenses as well, and these contributions can continue long after college graduation. “The most common are for groceries/food ($54bn annually) and cell phone service ($18bn). Today’s parents also regularly contribute toward adult children’s housing, car and even holiday expenses. Altogether, 79% of parents of early adults provide them with some type of financial support.” The $500bn that American parents spend annually on their adult children

doesn’t even include the occasional big-ticket items. “About 6 in 10 parents help pay for their adult children’s weddings, and one-quarter help fund a child’s first home purchase. The bottom line is that these financial contributions add up, and many parents aren’t aware of how much they’re spending on their adult children.” Most parents make these financial contributions knowing that there’s long-term sacrifice involved. Parents – around 82% – say they are willing to make a major financial sacrifice for their adult child. Half are willing to draw down savings, while 43% are willing to curtail their lifestyles. Onequarter of parents say they are willing to take on debt and pull money from retirement accounts. Sacrificing their futures? But does this make financial sense? “The retirement accounts of many Americans are severely underfunded,” the survey points out. “Is that in part because they are spending too much on their adult children? Are they sacrificing their futures, and thereby increasing the likelihood that they’ll become financially reliant on their children down the road?” Parents’ hearts may urge them to be generous, while their heads may tell them to secure their own financial futures and unburden their children from having to support them in their later years. “Nearly half say they wish they had established clearer boundaries with their children about what financial support they are willing to provide, and many say they have nobody to turn to for advice specific to fostering financial independence in adult children,” the survey concludes.

Pensions Tribunal ‘still a force to be reckoned with’

T

wenty years after its number of justiciable complaints establishment, the Office of the increased by over 30%. Pension Funds Adjudicator “In resolving the complaints, (OPFA) continues to uphold its it was imperative to maintain mission to resolve complaints of our turnaround times without retirement fund members and their compromising the quality of our beneficiaries to maintain the integrity output. Staff had to work together of the pension fund industry. to streamline processes and share Commenting on the release of the information speedily.” 2017/2018 annual report, Pension She says most of the complaints Funds Adjudicator Muvhango pointed to weak governance within Lukhaimane says a record 9 794 funds and administrators. complaints were received in the last “Fund members are forced to financial year, due largely to increased approach the OPFA on a myriad awareness of the OPFA. of issues that should be attended to Of this, 4 405 complaints were by funds in the ordinary course of determined, 2 571 were found to be business – the most frequent being out of jurisdiction, 1 462 were settled, non-payment or late payment of with the rest of the 367 being closed for contributions by employers and various other reasons. non-payment of benefits by funds and “As we look forward to the administrators. next 20 years, the OPFA is poised “The office did its best to finalise to join the new ombud schemes complaints expeditiously, even dispensation – the Ombud Council though the funds that generate the – with much vigour largest number of in the knowledge complaints take on THE NUMBER OF that stakeholders, average 90 days to file especially fund responses with the JUSTICIABLE members, stand OPFA, instead of the COMPLAINTS to be the biggest 30-day period. INCREASED BY winners in a more “This means integrated and stretched human OVER 30% streamlined financial resources are services complaints’ management expected to send multiple landscape,” Lukhaimane says. reminders to funds to file responses Two decades ago, on 1 January on matters that are mostly 1998, then Minister of Finance Trevor straightforward,” Lukhaimane adds. Manuel appointed Professor John She says the high number of Murphy as the first Pension Funds complaints that are determined Adjudicator. It was a momentous remains a matter of concern. occasion aimed at affording “In some instances, intransigence ordinary pension fund members from funds/administrators to provide the opportunity to be heard in a information to complainants is forum that would issue binding inexplicable and totally unnecessary. determinations without the formality In this regard, the OPFA has resorted and cost of traditional legal processes. to escalating these issues to Board Since then, the OPFA has Chairpersons and Principal Officers contributed to the development of of funds.” retirement fund policy, legislative and regulatory amendments while ensuring much-needed access to alternative dispute resolution in a complex area of law. Muvhango Lukhaimane says 2017/18 has by Lukhaimane, far been the most challenging year Pension Funds Adjudicator since her appointment as PFA. The

INVESTING 11

31 December 2018

S

outh African businesses show a high degree of confidence in their ability to succeed in the face of a tough economic climate. That’s the message from a new HSBC survey, Navigator: Now, next and how for business. The survey was carried out between August and September for HSBC and reflects sentiment among South African business some six months into the presidency of Cyril Ramaphosa. Despite the gloomy domestic economic backdrop, the survey shows that nine out of 10 respondents in South Africa believe the near-term outlook for international trade is positive, higher than the 78% global average. A similar share of respondents (91%) feel confident that their company will succeed in the current trade environment. Expectations of global economic growth and confidence in buyer/ supplier relationships are most frequently cited as key factors supporting this optimism. The top three markets targeted for expansion by South African businesses responding to the survey are Botswana, the United States and Mozambique. HSBC says local businesses can respond to the current environment by considering hedging strategies and/or the use of derivatives to manage foreign currency exposure amid ongoing market volatility. Relatively few respondents identify the US-China trade dispute as having an adverse influence on their outlook. Instead, concerns are more frequently centred around the exchange rate and the deterioration in domestic economic conditions. The clear majority (70%) of South African businesses believe global protectionism is on the rise, although they do not cite this as a major concern for their company’s prospects for foreign trade. About two thirds (65%) of South African businesses think that relevant industry-/sector-

related free trade agreements (FTAs) will be helpful in the next three years. The Navigator survey also shows that, globally, more than half of companies (51%) expect that FTAs, where they apply to their country and industry, will benefit them over the next three years. FTAs are particularly popular in emerging markets, with 60% of firms in these countries saying they will have a positive impact, compared to 45% of firms in developed markets. HSBC recommends that South African businesses examine the opportunities created by the Tripartite FTA (Signed by SA in July 2017) to develop new business ventures in other African markets. “South African businesses are staying positive in the face of some of the most challenging economic conditions seen here for some years,” says Mark Stadler, CEO of HSBC South Africa. “The ability to remain focused in volatile circumstances has long been a characteristic of local business leaders and underpins their optimism compared to counterparts in other countries. It is also encouraging to note that South African businesses are prioritising digitalisation and data analytics as drivers of growth and efficiency.” Nearly nine out of 10 (89%) businesses in South Africa claim to utilise data to optimise performance, a higher proportion than the global benchmark (75%). Around half of companies say they use transactional datasets (52%), while a similar proportion use market data (49%), operational data (48%), social media data (47%) and customer personal data (45%). Respondents also cite a broad range of objectives from their data usage, ranging from targeting new customers to improving productivity, making strategic decisions, driving sales and optimising product development.

Focusing on new data innovations, respondents most frequently identifty the ‘Internet of Things’ (70% of respondents), Industry 4.0 (63%) and additive manufacturing (62%) as representing opportunities for their business. Conversely, the most frequently identified challenge is compliance with increasing regulation of data (29% of respondents). In the goods sector, increasing the use of technology in the supply chain is the top change planned by just over a third (35%) of respondents, which is somewhat higher than the global average (28%). The most frequently cited objectives of planned changes to the supply chain include cost reduction, increasing profits and making the supply chain easier to manage. In the services sector, increasing the use of technology in supply chains is also most frequently identified among respondents, with the share of South African respondents (41%) again higher than the global benchmark (27%). The second most frequently cited change is shifting the risk management/financing structure of the supply chain. Enhancing security and reducing risk is the most common objective of planned changes to supply chains for services businesses (39% of respondents). Ethical and environmental sustainability appear to be an important consideration for both goods and services companies in South Africa. Only 10% of respondents claim that sustainability is not a focus for their business. Mark Stadler, CEO, HSBC South Africa

Outlook for sovereign creditworthiness in 2019 ‘stable’: Moody’s The outlook for sovereign creditworthiness in 2019 is stable, balancing the global economy’s continued but slowing growth momentum against rising uncertainty over longer-term economic and financial stability, Moody’s Investors Service said in a report last month. Although several risks could affect credit conditions over the next 12 to 18 months, three-quarters of the 138 sovereigns that Moody’s currently rates have a stable outlook and 15 hold a positive outlook. Nineteen sovereigns have a negative outlook, compared to 22 a year ago. “Our stable outlook for sovereign ratings in 2019 balances the benefits of continued global growth against emerging domestic and geopolitical

risks,” said Alastair Wilson, Moody’s MD, Global Sovereign Risk. “Despite the stable outlook overall, we are more mindful than in previous years of the potential for unforeseen shocks to disrupt economic and financial stability over the next 1218 months.” Moody’s expects G-20 growth to peak in 2018 at 3.3% before slowing to 2.9% in 2019. For advanced economies in the G-20, Moody’s believes growth will fall to 1.9% in 2019 from 2.3% in 2018 – a pattern that is mirrored in key economies, including the US and Germany. The picture in G-20 emerging markets is more varied: their growth in 2019 will be meaningfully slower in 2019 than in 2018, at around 4.6% against 5.0% in 2018.

Slowing growth means that the window for global sovereigns to address longstanding credit challenges – including high levels of public and private debt, as well as longer-term trends related to ageing and inequality – is closing, the report stated. High debt, falling growth and rising rates expose sovereigns to the risk of shocks that undermine debt affordability and sustainability. A number of emerging and frontier markets are particularly exposed to tightening global financial conditions and rising US trade protectionism, the report added. “Around the world, the longerrun credit trajectory for sovereigns will depend on the success of reform efforts that address these

vulnerabilities. “As in previous years, the potential for disruptive domestic or geopolitical events poses the greatest tail risk. Geopolitical risks could have implications beyond a country’s economic and fiscal fundamentals and affect cross-border capital flows and thus funding conditions for many sovereigns.” The report concluded that geopolitical risk is a broad category that encompasses US trade and foreign policy, which poses an increasingly far-reaching threat to global confidence and growth; conflict on the Korean peninsula; regional conflict in the Middle East; and ostensibly domestic political events, including Brexit and recent events in Italy.

INVESTING

‘Ramaphoria may have ended, but optimism endures’ – HSBC

12

INVESTING

31 December 2018

PIETER HUGO MD, Prudential Unit Trusts

KIM HUBNER Business Development and Marketing, Laurium Capital

Investing is all about returns after fees Active managers outperform the ALSI after fees R100 invested over 19 years-cumulative return

3 000

2 500

Rand value

2 066.07 2 000

2 027.95

1 500

1 477.09

1 000

500

0 Aug-99

Aug-01

Aug-03

Other Active Managers

Aug-05

Aug-07

FTSE/JSE All Share TR

Aug-09

Aug-11

Aug-13

Aug-15

Prudential Dividend Maximiser A

Aug-17 Prudential Equity A

Source: Morningstar

W

hen you’re investing, the absolute fee level you pay is an important consideration and becomes even more so in a lower-return environment, as has been the case recently. However, beware of focusing solely on fees. Investors shouldn’t lose sight of the fact that the ultimate return you receive from your investments is much more dependent on overall investment performance than on the fees you are charged. A lower fee does not guarantee you superior after-fee returns. This is, after all, what matters in the end. Generally, it is true that actively managed funds are more expensive than their passive counterparts, largely because they charge for research and portfolio construction, which doesn’t exist for passive funds. However, we have seen a marked decline in active management fees in the last few years. According to Morningstar, the average total expense ratio (TER) of ASISA General Equity unit trusts is now 1.5% p.a. Additionally, most retail assets under management have shifted to discounted classes (or ‘clean’ classes) of these funds on LISP platforms, where the average fee level tends to be roughly 0.4% lower. Today’s ‘passive’ commentators stress how a certain number of active unit trust funds in South Africa are underperforming the equity market; meanwhile, they selectively choose a uniquely created or obscure equity index against which to measure that performance. What they are ignoring (perhaps conveniently) is the broader picture of total assets under management (AUM) in equity funds across the unit trust industry. South African investors know what they are doing, so give them credit: they are voting with their money and consistently placing their assets with those active managers who outperform their funds’ benchmarks over the long term. Here’s the proof. If you look at the total AUM in all SA retail equity unit trusts (represented by the ASISA General Equity category), an analysis shows that a relatively high percentage of assets outperform their benchmarks after fees over five years, an appropriate period for measuring equity performance. Taking the top seven largest funds in the category aggregated with Prudential’s equity funds as a sample representing over 50% of the total value of assets in the category, 78% of these nine funds outperformed their own benchmarks after fees over five years to 31 July 2018. This clearly highlights that active managers in South Africa do add value to clients above their fund benchmarks on an after-fee basis. Prudential’s active equity funds in the category, meanwhile, have outperformed not only their own benchmarks, but also the FTSE/JSE All Share Index (ALSI), the FTSE/JSE All Share SWIX Index and the FTSE/JSE All Share Capped Index (three of the market’s most widely recognised and understood indices) since their respective inception dates after all management fees, as have equity funds of numerous other top active investment managers. The accompanying graph illustrates this outperformance versus the ALSI. By contrast, none of the passive funds with a track record of five years or more included in the ASISA General Equity category have beaten any of these three local equity indices over the five years to 31 July 2018.

Flexible, unconstrained and focused on performance

L

ooking for real returns in To label all hedge funds (and a volatile market? Hedge hedge fund managers) as high risk funds offer managers an is misleading. The risk profile of a unconstrained way to manage particular hedge fund depends on money, have a high degree of the mandate of that fund. Some flexibility and don’t impose mandates may be very aggressive limitations that long-only funds may using leveraged positions, while have, like tracking indices. others may be designed to focus on Long-only fund management hedging and delivering low-volatility allows for an investment in a returns. There are hedge fund particular share, for example. And mandates to accommodate a range of typically, this would be done if the risk appetites. Important factors that fund manager thought the share must be assessed when considering a would increase hedge fund mandate in value. To buy a are net exposure, PERFORMANCE share, a long-only gross exposure, manager would position sizing, IS PARAMOUNT need to rate its concentrations TO A HEDGE FUND sector prospects. and liquidity risk. MANAGER Manage a hedge Hedge funds fund – and you can are not suitable make money from both a positive investments for every investor. You and a negative view. Hedge fund do need to have a decent amount managers can short capital and this of funds available to invest, and if is a logical extension of analysis you are in a Regulation 28 structure and research. Unlike a long-only your exposure will be limited. In manager, a hedge fund manager can addition, the fees are slightly higher buy a share for returns if they like it than most other CIS funds. If hedge and short sell it if they don’t. funds generate absolute alpha then The flexibility of hedge funds investors are generally happy to doesn’t only come from strategies reward the manager for this via a used – it is also inherent in the fairly constructed performance fee. relatively smaller size of hedge funds. Long-short equity hedge funds can Smaller funds have the ability to be be seen as a protected equity strategy. nimble, react faster to information, What these hedge funds generally and take more meaningful positions offer is market-like performance in mid and small cap stocks. An ideal with less beta exposure, and their size for a hedge fund is most often investment objectives are focused given as R500m to R2bn. Currently on real returns. In a world where in the hedge fund space in South real returns should be the ultimate Africa, R3bn to R4bn is considered investor goal, hedge funds have their big, whereas in the long-only space, aim on target. that would be a boutique fund. Performance is paramount to a hedge fund manager. Hedge funds are super-focused on performance and generally less focused on asset gathering. Appreciating this is one of the keys to understanding most of the South African hedge fund market. The portfolio managers are highly skilled and experienced individuals who invest in their own funds and are well regulated by the new legislation.

INVESTING 13

31 December 2018

PETER ARMITAGE CEO, Anchor Capital

Does tax really matter when making investment decisions?

T

ax rates have been rising for several years now. Companies, trusts and individuals are paying almost half of their declared income in tax to the SA Revenue Service (SARS). Currently, an individual at the maximum income bracket is paying 45c in tax for every rand earned. Now, more than ever, tax efficiency makes a material difference to your overall investment return. In fact, any tax saving is equivalent to an increased investment return. So, just how much difference can tax efficiency really make? EFFECTIVE TAX RATE Company Dividends

42.20%

Trusts

45.00%

Individuals (maximum)

45.00%

Source: PKF Publishers (Pty) Ltd 2018/2019 tax guide

Let’s run two simple R1m cash portfolios sideby-side. One portfolio is invested in an individual’s hands, in a simple interest-bearing bank account or money market fund. The other portfolio is also invested in the money market but with one important difference – the second portfolio is housed within a retirement annuity (RA). Assume a 30% average tax rate for the individual, with the interest exemption already fully utilised. The growth inside the RA is tax free. Let’s assume a return of 6% p.a. on the investment. So, what’s the difference? In the individual’s hands the 6% p.a. return is reduced by tax to become only a 4.2% after-tax return. The RA earns the full 6% and after one year the tax AFTER TAX RETURNS INVESTMENT TERM 1 2 3 4 5

DIRECT INVESTMENT R 1 042 818 R 1 087 469 R 1 134 032 R 1 182 589 R 1 233 225

saving equates to an enhanced return of R18 182 inside the RA. After two years, the saving is R39 690. If you track the two portfolios over a period of five years, the RA outperforms the direct investment by R115 625. That amount is nothing to scoff at as it equates to 9.4% more in your pocket at the end of five years. Aren’t there restrictions on my money? One of the main concerns around structuring investments is the restrictions on your capital – exit penalties, access to capital, increased costs and inadequate reporting are often noted (quite rightly) as investor concerns. RAs have been the focus of many of these queries. Restrictions on access to capital before the age of 55, and limits on underlying investment flexibility, should be clearly understood when housing investments inside an RA. Tell me about the fees Structures do have associated fees and the effects of these fees must be assessed against any potential tax savings. Structures such as endowments and RAs have been the subject of intense scrutiny from modern investors. New-generation products, including modern endowments, have done a lot to address concerns around fees with exit penalties removed, capital liquidity created through the issue of multiple policies (not applicable to RAs), and drastically reduced fees. These structures now merit a place in an overall investment portfolio. What about estate duty? South African tax payers with assets above the R3.5m exemption are subject to estate duty (death

RETIREMENT ANNUITY R 1 061 000 R 1 127 159 R 1 196 680 R 1 270 489 R 1 348 850

ENHANCED RETURN R 18 182 R 39 690 R 62 648 R 87 900 R 115 625

taxes) at a flat rate of 20% currently. It is important to realise that your beneficiaries will only receive their inheritance after your estate has settled its bill with SARS. Without proper planning, your estate could be handing the tax man up to one-fifth of all your assets. As daunting as this may seem, there are tools available for estate-planning purposes. A simple, and zero-cost, method of reducing estate duty is to leave assets to your surviving spouse. Any assets left to your spouse are currently exempt from estate duty and this preserves the R3.5m tax exemption, which can be used later in your spouse’s estate. This means that, upon death, your spouse will benefit from a full R7m estate duty exemption (the R3.5m exemption x 2). Do you have any assets held offshore? If so, beware of offshore death taxes such as situs tax. This is a tax levied for assets held offshore such as property and equities. The thresholds before this tax applies differs from country to country. Again, there are tools available to address this issue. Investing within an offshore insurance wrapper, for example, has the advantages of not attracting situs tax, even while holding the same underlying taxable assets – that is a 40% boost to your heirs on death! Beneficiary nominations on these structures will also assist further by avoiding executor fees (another 4% saving). So which structure is the right one? For simple investing, often a single structure may be appropriate. More complex portfolios may require several structures, including trusts, companies, endowments, RAs etc. An important note around any investment structuring is to update your will as required. There may even be a need for two wills – one for your local assets and one to deal with any assets held offshore. To whom should I be talking? Ideally, your accountant, legal counsel (where applicable) and wealth manager should be aware of any structural changes to your portfolio.

14

INVESTING

SORIA HAY Head of Corporate Finance, Bravura

M

31 December 2018

Mauritius still ‘most desirable’ business destination in Africa

auritius continues its upward trajectory as the most desirable business destination in Africa, having been ranked as the 20th top business jurisdiction for 2019 out of 190 countries, according to the World Bank. This is five positions up from last year’s ranking, and more than 50 rankings above South Africa. Quick to leverage the country’s coveted role as the gateway to Africa, the Mauritian Stock Exchange (SEM) embarked on an internationalisation strategy in 2009 that included listing a diversified spectrum of instruments spanning across various asset classes. What soon became apparent was that an increasing number of issuers had a specific Africa focus. Since 2009, about one third of new GBC company/ international securities listed have been Africa focused and, via SEM’s multi-currency listing, trading and settlement platform, have raised $1.3bn to fund their activities. On the back of this, SEM launched an Africa Board in October this year, that aims to showcase those listed issuers and products that have an Africa-centric orientation. As well as reinforcing SEM’s emergence as a viable and dynamic platform for capital raising, listing and trading of Africa-focused ventures, it also aligns with the national agenda of positioning Mauritius as a financial services hub for Africa. Soria Hay, head of Corporate Finance at Bravura, an independent investment banking firm specialising in corporate finance and structured solutions that has offices in Mauritius, South Africa, Australia and Namibia, comments that the country – known as an African oasis of political and economic

stability – has enjoyed a stable, growing economy for almost 20 years, with an annual GDP growth averaging 3.9% for the period from 2001 to 2018. This year’s GDP growth is at 3.7%. Hay says, “Consistent economic performance is a result of the country’s willingness to reinvent itself and diversify. From an economy that primarily produced sugar fifty years ago, Mauritius is now positioned as a luxury tourist destination and, more recently, a financial services and back-office processing hub.” A total of 22 securities have been included in the Africa Board at launch, with a total market capitalisation of $1.5bn. A total of eight global shares are recorded in its equity register, including Grit Real Estate Income Group Limited, Bravura Holdings Limited, Sanlam Africa Core Real Estate Investments Limited, Tadvest and Dacosbro. Hay notes that Bravura has advised four of the entities included in the Africa Board. This includes Dacosbro, a property investment holding company, where Bravura acted as corporate advisor on its listing and subsequent capital raisings on the SEM with a transaction value of R1.4bn. Bravura also advised Tadvest Limited on its dual listing on the SEM and secondary listing on the Namibian Stock Exchange (NSX), as well as its acquisition of a diversified portfolio of property, agriculture, industrial and other assets. Hay says the company sees a growing interest in Mauritius by clients eager to invest in Africa but wary of the risk of uncertain African jurisdictions. “In stark contrast to South Africa, Mauritius provides a secure, stable and well-regulated jurisdiction. The country

JONTI OSHER AND DINO ZUCCOLLO Section 12 fund managers, Westbrooke Alternative Asset Management

There are more than 100 registered Section 12J companies in South Africa and it is estimated that the market has raised more than R3.6bn in investments. S12J was instituted in 2009 with a 12-year sunset clause for 2021. We are technically at the six-year midpoint – the right time to question whether S12J is a success. The truth is that S12J had a muchdelayed start. It took from 2009 to 2015 for the tax legislation to be amended to be more attractive to investors. For this reason, we will only have seven years of data to assess whether 12J has met its objectives. Section 12J was introduced by the South African Revenue Services under Section 12J of the Income Tax Act in 2009 as an investment tax incentive. The intention was to boost the South African economy by encouraging investment into a range of private companies that meet defined criteria. The incentive gives investors the

Is Section 12J, the investment tax incentive, working for SA?

ability to write off 100% of their investment against their taxable income in the year they invest. Therefore, investors can benefit from up to 45% immediate tax relief. This reduces the cost of the investment, which provides downside protection and enhances overall returns.

S12J industry body

has a robust infrastructure, an efficient goods market, strong institutions and an educated workforce.” However, Hay adds that the country has not been without its challenges. “In the past, Mauritius has been faced with criticisms levied at it around a low-tax regime making it a potential tax haven. But as its economy matures, Mauritius has committed to policy strengthening combined with the implementation of business reforms to ensure any weaknesses are eradicated.” A recent example has been the initial inclusion of Mauritius on a list compiled by the Organisation for Economic Co-operation and Development (OECD) of those CRS-committed countries that offer residence and citizenship by investment (CBI/RBI) schemes that could potentially be detrimental to the integrity of the Common Reporting Standards (CRS). “While Mauritius was initially identified as one of the countries offering high-risk CBI/RBI schemes,” explains Hay, “the OECD overturned its assessment shortly thereafter and subsequently removed Mauritius from the list. This is a clear recognition of Mauritius’s commitment to swiftly respond and act to reinforce its stance on international tax avoidance and evasion. It gives out a positive signal to the international investor community.” Hay adds that the launch of the Africa Board is an exciting opportunity for investors wishing to invest in an African country that provides policy certainty and a reliable jurisdiction. “The success of this initiative will serve to strengthen both the SEM and Mauritius as a potentially lucrative and businessfriendly environment.”

Westbrooke Alternative Asset Management – that looks over half of the capital invested in S12J funds today – is spearheading the formation of an industry body to assist in proving the viability of extending the incentive past June 2021. While the industry has been discussing how much has been raised, we plan to generate the type of relevant information that National Treasury can use to assist in extending the legislation post the sunset clause. We will investigate the number of investments, the number and types of those investments, how many jobs

have been created and sustained, how much of S12J capital has been deployed, and which sectors of the economy and geographic areas are benefiting. We want to know about successes as well as areas that can be improved for the benefit of the industry. We are also keen to hear about economic activity around S12J. For instance, Westbrooke has been able to pioneer a new type of non-traditional equity capital for businesses that rent movable assets through Aria Growth Partners, a Section 12J fund. If a business can rent its movable assets, Aria Growth Partners can provide capital and assist in the growth of the business. A practical example of how it works: Mobile Macs provides delivery motorbikes to the fast food franchise industry. Rather than owning, insuring and servicing the bikes themselves, it makes more sense for franchise owners to rent these from Mobile

Macs. While demand for their rental solution was growing, additional funds were needed to enable the business to scale. With the injection of readily available capital from Westbrooke Aria, Mobile Macs increased its fleet from 800 to 1 500 bikes. In the 18 months since Westbrooke’s involvement in Mobile Macs, the company’s growth has resulted in a nearly 50% increase in direct employment. At the same time, 400 new jobs have been created for bike riders.

The verdict

Since it was introduced, S12J has had positive spinoffs for South Africa. Westbrooke Alternative Asset Management has R1.7bn in assets under management from over 600 investors. The funds have made more than 20 investments with over R700m capital deployed to date. These investments have created more than 1 200 jobs.

INVESTING 15

31 December 2018

US midterms outcome cuts likelihood of further stimulus The US midterm elections were held last month with the results coming in as predicted by the pundits and pollsters: the Republicans kept control of the Senate while the Democrats won control of the House of Representatives. The US November midterm election outcome reduces the likelihood of further stimulus, Barclays Economic Research says. “In the US, a divided government is likely to result in a return of legislative gridlock, reducing the possibility of further fiscal stimulus and increasing our conviction that US growth should decelerate over time. While there is agreement between the two political parties on the need for infrastructure spending, the parties remain divided on how it should be financed and, as a result, we do not include a new infrastructure spending bill in our baseline outlook.” While the path of the federal budget has become more certain, in Barclays’ view, other elements of fiscal policy have become more uncertain. “Democratic control of the House will undoubtedly lead to increased oversight of the Trump Administration, which could easily intensify the acrimony that already exists between the parties. If so, diminished trust could create stand-offs around ‘cliff’ items such as debt limit suspension deadlines (eg. March 2019) and government funding bills, opening the door to uncertainty-induced drags on economic activity. Congress will need to vote to raise the debt ceiling this spring and measures to fund the US government – as soon as 7 December – require bipartisan support (60 votes in the Senate).” Last month the US Federal Reserve kept rates on hold at 2.002.25% at its meeting. “Language around economic activity in the inter-meeting period remained upbeat on balance. In our view, further fiscal stimulus could have complicated the Fed’s job by creating a larger output gap. Instead, divided government likely keeps the Fed comfortable with its existing outlook for the US economy and, in turn, with its belief that gradual rate hikes balance the risk of going too fast versus going too slow. We retain our call for a 25bp rate hike in December and expect above-trend growth alongside falling unemployment rates to keep the Fed biased toward action. We look for four additional 25bp rate hikes next year.” Barclays believes that US trade policy and attitudes towards China are unlikely to change. “Responsibility for trade policy largely remains in the President’s hands. While new trade agreements, such as the USMCA, need to be approved by Congress, tariff policy is implemented and new trade agreements negotiated by the Administration.” Meanwhile, President Trump’s trade policy, including both the steel tariffs and tariffs on Chinese goods, has already adversely affected the rest of the world. “New export order PMIs have indicated contraction in EM exports for some time now, and in October this spread to developed markets, excluding the US. We expect Q3 German GDP growth to show a contraction of 0.1% from an expansion of 0.5% in Q2, as EU car regulations and a slowdown in global trade have reduced industrial production significantly. These weak October PMIs suggest that the weakness in economic growth may last into Q4 2018 as well,” Barclays says.

Opening an international banking account

A

n international banking account can help alleviate uncertainty and reduce currency conversion costs over time, says Standard Bank Wealth. “We live in a global village and families and business executives are increasingly on the move, whether it is for international holidays, education, or a temporary work assignment in another African country. However, opening an offshore bank account to manage your affairs and ensure that money is available in a chosen currency wherever you are in the world no longer needs to be a headache,” says Standard Bank Head of International Personal Banking, Michael Nudbichler. In the current climate, global citizens need to better preserve the value of their money by holding funds and having transactional ability in a preferred foreign currency. An offshore bank account within the ambit of an over-arching financial plan is the solution. “If exchange control regulations OFFSHORE are complied with, our local currency BANKING can be deposited ENTAILS and then converted without having to CAREFUL be physically in the PLANNING offshore jurisdiction. Standard Bank’s international footprint also enables clients to have this money maintained offshore,” says Nudbichler. However, offshore banking entails careful planning and ensuring that the plan fits in with long-term goals. “You need to know if you can afford to externalise funds and then consider when and how. After that you can embark on proper planning based on individual circumstances and goals.” The key is to start early to reap the rewards of an offshore strategy, notably when it comes to the high costs of converting currency every time you have to make an offshore transaction. “For example, if you know when a child will graduate and that you may want to send them overseas, it is important to map that out over the next few years. You will want to ensure you have sufficient funds in the offshore jurisdiction well before this happens, to avoid having to convert one large amount at a given time and placing yourself at the mercy of whatever the currency conversion rate may be on that day,” explains Nudbichler. As an integrated financial services organisation, Standard Bank harnesses its Wealth International licence offshore. As Africa’s largest bank by assets, the bank has a footprint in over 20 countries, including Wealth International presence in South Africa, Kenya, Ghana, Nigeria, Uganda and Mauritius, and

internationally in London and Jersey. Standard Bank Isle of Man, for instance, allows clients to manage their money and personal banking needs across borders, whether they are investing their allowances abroad from a diversification perspective or travelling. “You may want to make an urgent direct payment offshore, be on a six-week locum overseas and want to have the salary paid into an offshore account, or be on a sixmonth sabbatical. This account enables all those transactions to take place seamlessly. In other words, because it is an offshore transactional account, you can access your money anywhere in the world and move money between accounts through free internet banking,” he says. Online payments to third parties would be subject to a standard charge of £20 a transaction – other details to keep in mind are that opening balances of £4 000, US$6 000 or €6 000 and AU$6000 are required. You can then deposit a salary, earnings or savings into your account from multiple sources. “Keeping your money in one place allows you to make transfers and payments in several currencies from a stable and secure offshore jurisdiction. It is the perfect link between all of your banking arrangements, allowing you to be in complete control of your money, wherever you are in the world.” A comprehensive financial plan would see additional offshore investments added to the mix to enhance retirement savings, for instance. This could just start with a fixed monthly deposit that takes advantage of the annual single discretionary allowance of one million rand a person per calendar year without the need for a tax clearance certificate. “You can avoid a lot of stress if it is not convenient for you to have all of your money exposed to one currency. It is also important to ensure you are well diversified and that your funds are preserved for a long time. The ability to transact offshore through an integrated account also means you can repatriate money whenever it suits you, avoiding unnecessary liquidity constraints and delays,” says Nudbichler. “There is a growing need to make fast, low-cost international payments and the convenience of making them online has changed the landscape totally. The Standard Bank Offshore app enables clients to transfer from their local accounts to their offshore accounts in the comfort of their own home or office.”

Michael Nudbichler, Head of International Personal Banking, Standard Bank

16

INVESTING

31 December 2018

Investors’ real enemy: Inflation

I

nvestment envy is an extremely common condition, but it does pose a challenge to financial advisers. Your client may be earning a long-term return of 10% on his/her investment, but knowing that a friend is earning 11% is likely to bring on what is known in behavioural psychology as FOMO – or Fear of Missing Out. It’s only human to want to compare results, but it does take the investors’ eyes off the real enemy – inflation. Most investors are concerned about market crashes and the impact of interest rate changes, says Natasha Narsingh, head of Absolute Return at Sanlam Investments. “But what is under-appreciated is the damage inflation can do over the long term,” she adds. “We’re up against the decay inflicted by inflation.”

WHAT IS UNDERAPPRECIATED IS THE DAMAGE INFLATION CAN DO OVER THE LONG TERM What is the real impact of inflation on your life? For the past 60 years (1958 -2018) inflation stood at 7.7% per year on average. What does this mean? “If you had R100 in 1958 you would need about R8 800 to buy the equivalent of goods and services in 2018. Or put differently, assuming 7.7% inflation, 30 years from now your money will be worth about 10% of what it’s worth now. This is particularly devastating for investors

who are no longer earning an active income and who need to live from their capital,” she notes. “Sometimes there’s a disconnect between the returns you need to achieve and what the underlying asset classes are doing for you. In down markets when your peers are getting -12%, you would not be happy with the better -8%. A negative return, irrespective of whether it is outperforming or not, is still lower than what you started out with. Beating your peers will not protect your capital. It’s inflation you need to beat.” She believes that this is where an absolute return fund comes into its own because it’s built to combat everpresent inflation. “Absolute return funds exist to give a relatively smooth investment experience. Essentially, you can use the fund as a stable component or investment building block of your portfolio and blend it with more aggressive funds, if you wish.” Dual goals Narsingh points out that the world is an uncertain place from an economic and political perspective – not only here in SA but worldwide. “This is an opportune time for absolute return funds – such as the Sanlam Investment Management (SIM) Inflation Plus Fund – to show their mettle and deliver on shorterterm capital protection and the longerterm (three- to five-year cycle) goal of an inflation plus return. “Over the 10 years to 30 September 2018, the fund returned 9.4% versus its benchmark of 9.25%. Its worst 12-month performance is 5.8%.”

Narsingh says the SIM Inflation Plus Fund has two goals. “The shorterterm goal is to preserve capital over any rolling 12-month period and the longer-term goal is to explicitly deliver CPI + 4%. This fund is not index sensitive, nor is it managed with the goal of outperforming its peers. It does, however, stack up exceptionally well against its peers on a risk-adjusted return basis.” Strong risk-adjusted returns The managers of the SIM Inflation Plus Fund have a very disciplined focus on downside risk. “As a result, the fund has one of the best riskadjusted results in South Africa. It consistently delivers one of the highest Sharpe ratios in the industry,” she says. “Notably, the SIM Inflation Plus Fund takes just enough risk to deliver on the returns it needs to deliver. This is important, as not all absolute return managers are able to deliver positive 12-month returns in case of a market crash. “In years like 2008 and 2009, we’ve seen more aggressive, almost balancedtype fund managers purporting to be absolute return managers and who previously delivered outperformance

well above the inflation target, failing hopelessly to protect capital when markets took a tumble.” Entering the market For investors worried about the timing of entering the market at elevated levels, the SIM Inflation Plus Fund provides peace of mind, Narsingh says. “The fund delivers consistently no matter when you decide to enter the market, which is great for volatile times – like now. The fund managers watch the markets on your behalf and make use of various capital protection tools to mitigate the risk of entering the markets at expensive levels.” The SIM Inflation Plus Fund is ideal for investors who want to invest for longer than three years, but don’t want to ride out the vagaries of the markets. “And, most importantly, the managers never take their eyes off investors’ number-one enemy, inflation,” she adds.

Natasha Narsingh, Head: Absolute Return, Sanlam Investments

Moldova Citizenship-by-Investment Program launched The Moldova Citizenship-by-Investment (MCBI) Program was recently launched at the 12th Global Residence and Citizenship Conference in Dubai, hosted by Henley & Partners. Earlier this year, Henley & Partners – in partnership with the Moldovan Investment Company – won the public tender to assist the Government of the Republic of Moldova in designing, implementing and internationally promoting the much-anticipated MCBI Program, which is now officially accepting applications. “The launch of this prestigious new European program is a milestone for all of us in the investment migration community, because it speaks to the

growing relevance and value of our industry,” THE MCBI says Dr Christian Kalin, PROGRAM Group Chairman of Henley & Partners. OFFERS “The MCBI Program INVESTORS offers investors a A FOOTHOLD foothold in Europe and access to one of IN EUROPE the fastest growing commercial hubs in the region, while also giving Moldova the chance to attract much-needed foreign direct investment and a set of highly qualified and carefully vetted new citizens.”

Speaking at the launch, Chiril Gaburici, the Minister of Economy and Infrastructure for the Government of Moldova, provided insight into the program’s origins: “The MCBI Program has been specifically developed with the Moldovan people in mind. Our country has come a very long way over the past few years, and many of our most important industries are today thriving and growing. Now, in order to take the next step forward in our economic development, and also support the social wellbeing of all Moldovans, we need to welcome innovative new ways of generating capital. The MCBI Programme is part of this future-focused approach.”

INVESTING 17

31 December 2018

Fixed income a haven for investors

A

n increasing number of South African investors are seeking safety in the lowrisk asset class that is fixed income, due to continued sluggish economic growth. Speaking at the 2018 Absa Fixed Income Conference in Johannesburg last month, Head of Fixed Income at Absa Asset Management, James Turp, says that investors are moving away from risky asset classes. “Until we see signs of growth in the economy, cash and fixed income is a good place to be if one considers past performance. Property, equities and other asset classes will continue to underperform until we see sustainable economic growth coming through global developments that favour emerging markets or domestic investment,” he adds. Changes to economic growth will likely come from supportive changes to global trade, inflation and yield normalisation, domestic politics and economic structural reforms. “We are witnessing a turn-around era, with government focused on filtering out corruption and stimulating economic growth, which can lead to employment,” he says. Turp has yet to see compelling evidence to support a focus away from inflation-beating fixedincome portfolios. He explains that in multi-asset class balanced portfolios, fixed income is playing a massive role in preserving value, offering less capital volatility. “In current volatile markets, fixed income is the stable cornerstone of multi-asset portfolios. “Since the global financial crisis, commodity demand has dissipated. Having been a primarily commodity-focused economy, we needed to diversify into manufacturing and agriculture when times were good,” he notes. “The big question now is: where is the growth going to come from?” While the basket of emerging market currencies has weakened against the US dollar, the rand hasn’t performed as poorly as some of the others. “A lot of weakness can be attributed to contagion we get by proxy from other emerging markets.” Emerging market performance has been linked to the strength of the dollar and the reduction in global dollar liquidity, a reversal could help emerging markets come back into play. Focusing on Absa Asset Management’s Fixed Income portfolios, Turp states that it is imperative that “we deliver returns in excess of inflation, as determined by our mandates, at the lowest appropriate risk”. Absa’s fixed-income product range includes the Absa Money Market, Core Income, Income Enhancer, Flexible Income, Tactical Income, Inflation-linked Income and Absa Bond Fund.

James Turp, Head: Fixed Income, Absa Asset Management

Africa’s first infrastructure performance index to launch next year

F

or years one of the main constraints for institutional investment into infrastructure in Africa has been the lack of a benchmark. This is about to change as investment advisory company, Riscura partners with Africa Investor to launch Africa’s first infrastructure performance index in early 2019. The initiative is supported by the African Sovereign Wealth and Pension Fund Leaders Forum, the World Pensions Council, BATSETA, and official institutions such as NEPAD/African Union and the Association of bilateral European Development Finance Institutions amongst others. “We believe the introduction of this index will enable increased investment into this asset class, as indices and benchmarks play a critical role in investment management,” says Heleen Goussard, head of unlisted investment services at RisCura. “Consider the case of an institutional investor in the process of making an asset allocation decision within alternative investments,” she adds. “The availability of a reliable performance index allows returns to be compared, not only against a benchmark, but between asset classes. As a result, when considering the investor’s risk profile, an optimal asset allocation can be made.” Over the last two decades Africa experienced periods of per capita income growth that were higher than those seen in developed nations. However, numerous factors have led to a recent slowdown in the region’s economic activity. “Many would argue that the inadequate supply of infrastructure services is one reason for this,” says Goussard. Research by the World Bank has quantified the potential impact infrastructure development could have on Africa’s growth trajectory. It has been estimated that increasing infrastructure development to levels seen in other developing regions could result in GDP per capita growth increases of at least 1.2% annually. Adding in enhancements to the quality of infrastructure would contribute a further 0.5%; increasing growth by a total of 1.7% annually.

This growth is even more impactful when compared to the world’s leading nations. The impact on GDP growth, from making strides in both the quantity and quality of infrastructure, rises to 2.6% annually. According to Goussard, “Simply put, the potential benefit of funding Africa’s infrastructure deficit is significant.” When looking for answers to Africa’s infrastructure financing needs, it’s easy to look at public investment as the main solution. However, with insufficient current levels of infrastructure spend as a percentage of GDP and increasing debt-to-GDP ratios, most African countries have little room in their fiscus to accommodate a higher infrastructure spend. “We believe the solution lies with institutional investors,” says Goussard. “Pension funds’ long investment horizon make them especially suited to infrastructure investments. The potential for these investments to deliver a predictable cashflow stream over a sustained period, coupled with an element of inflation protection is attractive for institutional investors.” Currently levels of capital committed to infrastructure funds are insufficient and the reasons are complex. “The investment ecosystem is not yet thriving as African countries are still working on developing significant pools of institutional capital, sufficient asset managers and robust regulatory regimes,” says Goussard. “The introduction of infrastructure performance information for Africa is a simple step in the right direction, given that institutional investors often cite a lack of performance data as a constraining factor when considering infrastructure allocations,” she adds.

PENSION FUNDS’ LONG INVESTMENT HORIZON MAKE THEM ESPECIALLY SUITED TO INFRASTRUCTURE INVESTMENTS

Heleen Goussard, Head: Unlisted Investment Services, RisCura

18

INVESTING

31 December 2018

Do investors care about their portfolio’s impact?

I

mpact investing continues to gain momentum, with many new products entering the marketplace. This is the view of Barclays, the British multinational investment bank and financial services company, following research for its report entitled Investor motivations for impact: A behavioural examination. The report studies how investors themselves view the sector and what their views, expectations and behaviours are when it comes to impact investing. The report draws on Barclays’ behavioural finance expertise, along with two sets of data it collected in 2015 and 2017, as a member of the Advisory Group to the UK government on Growing a Culture of Social Impact Investing in the UK. Investor activity is increasing According to the report, impact investment activity has increased between 2015 and 2017: 15% of investors had now made an impact investment, compared to 9% two years before. “There remains, however, a significant gap between activity and interest, with 56% of investors saying they are interested in exploring impact investing – highlighting the conversion challenge for the industry,” the report states. Millennials are driving impact investing forward today – but the industry must engage older investors Millennials are the most active age group when it comes to impact investing: in 2017, 43% of respondents under 40 had made an impact investment, compared to 9% of those aged 50-59, and only 3% for those aged over 60, the report finds. While younger age groups show greater interest and activity, older investors, who hold greater wealth today, represent a significant opportunity for the sector. “To engage older investors more effectively, the industry will need to address their scepticism and misconceptions and a possible view that these new types of

MILLENNIALS ARE THE MOST ACTIVE AGE GROUP WHEN IT COMES TO IMPACT INVESTING

investments are inherently risky. We can do this through greater education to dispel misconceptions, and ensure advisers are equipped to support their older clients with information and insights that are relevant to their stage in life.” Identifying specific ‘causes’ for impact outcomes increases investor engagement The report finds that investors are willing to invest larger amounts of their wealth in impact assets when the investment is linked to a specific cause, rather than the general concept of impact investing. “When asked how much, if any, of a hypothetical £100k inheritance they would allocate to impact investments, investors given a list of specific causes allocated an average total of £63 000 to impact investments. This compares with £15 000 for those who were asked what they would allocate to impact generally, without causes specified. This shows how the way such investments are framed dramatically affects engagement.” Personal values are strongly correlated with interest in impact investing According to the report, different guiding principles – the personal values that shape investors’ decisions in all areas of life – are strongly correlated with the propensity to engage with impact investing. “‘Making a difference’ is the principle most strongly correlated with interest in impact investing among our sample of investors; while the research showed that if an investor rates ‘family security’ as highly important, they are typically less interested.” The report states that the strength of this correlation has doubled over the last two years, highlighting just how vital a role personal values play in investor decision-making around impact opportunities. Investors expect market-rate returns from an impact investment The report found that 82% of investors would expect close to, or above, market returns from an impact investment. “This could be indicative of a maturing sector, and a growing understanding of the case for impact among investors.”

Developing an approach to support black-owned asset managers Transformation cognisant asset managers can demonstrate true value for clients and positively impact people and communities. This is according to Mazi Asset Management, one of two black-owned asset managers, along with Sesfikile Capital, now available on the Old Mutual Max Linked Investment Service Provider (LISP) Platform. Karabo Morule, MD of Old Mutual Personal Finance, says the addition of Mazi Asset Management and Sesfikile Capital is part of the Personal Finance Responsible Business strategy. “We play an active role in shining a light OF THE 48 BLACKon excellence in the asset management industry, of which transformationOWNED ASSET cognisant asset managers manage MANAGEMENT R490bn of the close to R8tn pie. By adding Mazi and Sesfikile onto our investment FIRMS IN SOUTH platform, we’re giving our customers more AFRICA, 23 ARE selection while at the same time helping LESS THAN FIVE the asset managers grow their reach. “Our company believes in the principle YEARS OLD of time in the market, not timing the market. Mazi has a solid track record and is the preferred equity manager of Old Mutual Multi-Managers (OMMM). Their commitment to being in it for the long term and delivering real returns for investors, underpinned by a robust research process, resonates well with us,” says Morule. The Mazi Asset Management Prime Equity Fund (B2 class) is joined by a property fund from Sesfikile Capital on the Old Mutual Max LISP platform and available to customers via their adviser or broker. By the end of 2018, the funds will also be available for investment online. Sesfikile Capital is a majority black-owned specialist property investment manager founded and run by Kundayi Munzara, Mohamed Kalla and Evan Jankelowitz. “Adding the Sesfikile fund to the retail platform was a natural progression as the company already manages half of OMMM’s domestic property exposure,” says Morule. “Our selection process looks at asset managers whose solid, repeatable investment activity has resulted in a track record of consistent delivery over a minimum period of three years.” Morule acknowledges that newer transformation cognisant asset managers may experience initial difficulty in meeting some of the criteria, at least in the short to medium term. “Of the 48 black-owned asset manager firms in South Africa, 23 are less than five years old. To balance our fiduciary and responsible investment duties, Old Mutual Personal Finance has developed an approach to support black-owned asset managers that also considers, among other criteria, the size and stability of investment teams, the structure of the business and investment teams, and their underlying investment philosophy. “Our responsible investment strategy will continue to focus on the addition of transformation cognisant asset managers onto our Max LISP platform and creating awareness among our customers and advisers,” Morule adds.

Karabo Morule, MD, Old Mutual Personal Finance

INVESTING 19

31 December 2018

Investors want more non-financial information from companies

I

nvestors around the globe have an appetite for using non-financial information (NFI) to make capital allocation decisions but don’t always have the information they need for decision-making processes. Investors want information that is relevant and reliable. This is according to a report issued by PwC and the World Business Council for Sustainable Development (WBCSD). The report, titled Enhancing the credibility of non-financial information, focuses on what investors need in order to make decisions that consider non-financial information – that is information outside of financial statements, including environmental, social and governance (ESG) metrics. The goal behind the research was to understand which aspects of nonfinancial information are most useful to investors and their processes, how they use this information and what can be done to improve the confidence in the information reported. The report is the product of a series of roundtables and interviews with over 50 investors in Australia,

Denmark, Frankfurt, Hong Kong, India, Johannesburg, London, the Netherlands, New York, São Paulo, Tokyo and Toronto. Through these interviews it became clear that investors are not getting the sustainability information they want or need to make informed decisions. “Globally, there has been a surge in the amount and variety of information reported to investors outside of financial statements,” says Jayne Mammatt, Director of Sustainability and Climate Change at PwC South Africa. “Investors want companies to show how NFI is integrated in their strategic decision-making and are looking for material information to be underpinned by controls and processes on par with those used for financial information.” According to Mammatt, investors need this information because time has shown that companies who understand and manage their NFI performance are more resilient to external pressures and change, and there is a growing body of evidence

that suggests such companies outperform their peers when it comes to long-term shareholder value. Although some countries are introducing legislation that requires assurance on ESG information, most assurance is voluntary and can vary greatly in scope and level. NFI reporting systems and information are relatively immature compared to financial information that is governed by accounting standards and subject to audit. The investors interviewed set out the challenges they face in using NFI – with many of these arising from the numerous reporting frameworks and initiatives in this area, as well as the sheer volume of information reported and the perceived lack of highquality, consistent and comparable information. This complicates corporate reporting and leaves investors guessing at the relevance of the information provided, all the while leaving clear gaps. In addition to being relevant, investors want to have confidence in the reliability of NFI. Many investors

believe that when an independent third party backs up information, it can be used with more confidence, although this may not necessarily change how they use it. To address this, there are actions that companies, data aggregators, assurance providers, standard setters and regulators can take or should consider to improve the relevance and reliability of NFI. “Both PwC and WBCSD are committed to increasing trust in sustainability information and finding a way of applying it effectively. This report is an important step in the right direction,” Mammatt says.

Jayne Mammatt, Director of Sustainability and Climate Change at PwC South Africa

CIS investors commit R54bn in third quarter Seemingly undeterred by stock market volatility, a troubled economy and the turmoil in emerging markets, local investors committed a healthy R54bn in net inflows to the local Collective Investment Schemes (CIS) industry in the third quarter of this year. The CIS industry statistics for the quarter and year ended September 2018, released last month by the Association for Savings and Investment South Africa (ASISA), show that the above average net inflows (including reinvestments) in the third quarter pushed total net inflows for the 12 months to the end of September 2018 to R112bn. Commenting on the CIS industry statistics, Sunette Mulder, senior policy adviser at ASISA, says year-on-year the local CIS industry also delivered a steady growth in assets. At the end of September last year, assets stood at R2.19tn, compared to the R2.32tn at the end of the third quarter this year.

Where did the money go?

According to Mulder, portfolios in the SA InterestBearing sector (Short Term and Variable Term) were a firm favourite with investors, attracting the bulk of the net inflows for the 12 months to the end of September 2018. This sector recorded net inflows of R43bn, with R35bn going into SA Interest-Bearing Short-Term portfolios. These portfolios aim to provide relative capital stability and are characterised by a regular and high level of income. The SA Interest-Bearing Short-Term sector delivered an average return of 8.3% over the 12 months ended September 2018 and 7.4% over the

five-year period, outperforming all other sectors. Mulder says SA General Equity portfolios also recorded strong net inflows of R16bn for the year ended September 2018. SA Multi Asset portfolios, on the other hand, continued to decline in relative popularity, attracting R32bn. The exception were the SA Multi-Asset High-Equity portfolios, which attracted R24.2bn. Only a year ago, she adds, SA Multi-Asset portfolios still dominated in terms of net inflows. “It is impossible to draw meaningful conclusions on investor sentiment from the current flow patterns, which are very divergent. Investors are favouring interest-bearing portfolios, but not at the expense of general equity exposure. Where previously investors appeared to prefer the diversification offered by multi-asset portfolios, it seems that investors and their advisers may have gone back to balancing their own portfolios to achieve optimal diversification.” At the end of September 2018, SA Multi-Asset portfolios held 49% of assets, SA Interest-Bearing portfolios 28%, SA Equity portfolios 20% and SA Real Estate 3%.

Mulder. Intermediaries contributed 32% of new inflows. Linked investment services providers (Lisps) generated 21% of sales, and institutional investors like pension and provident funds contributed 18%.

Offshore focus

Locally registered foreign portfolios held assets under management of R514bn at the end of September 2018. These foreign portfolios recorded net outflows of R20bn over the 12 months to the end of the third quarter this year. Foreign currency unit trust portfolios are denominated in currencies such as the dollar, pound, euro and yen and are offered by foreign unit trust companies. These portfolios can only be actively marketed to South African investors if they are registered with the Financial Sector Conduct Authority (FSCA). Local investors wanting to invest in these portfolios must comply with Reserve Bank regulations and will be using their foreign capital allowance. There are currently 455 foreign currency denominated portfolios on sale in South Africa.

Where did the inflows come from?

Mulder says 29% of the inflows into the CIS industry in the 12 months to the end of September 2018 came directly from investors. However, this does not mean that these investors acted without advice. “We believe that a number of direct investors pay for advice and then directly implement the choice of portfolio,” comments

Sunette Mulder, senior policy adviser, ASISA

20

INVESTING

TERENCE GREGORY CEO, Ecsponent Limited

Solar energy can contribute to Africa’s well-being Two-thirds of Africans – 620 million people – still have no access to affordable, reliable, sustainable and modern electricity, one of the UN’s key Sustainable Development Goals. Decades of neglect and mismanagement have left Africa with some of the world’s worst-functioning grid systems, which continue to stifle the continent’s economic growth, job creation, agricultural transformation and improvements in health and education. In Sub-Saharan Africa, the lack of electricity access is also putting food security under threat. In 2016, 224 million people were undernourished in the region, 46 million more than in 2000. Despite progress made in alleviating undernourishment – reducing it from 28,1% in 2000 to 20% in 2010 – the figure has begun to creep up again to 22,7% in 2016. At current growth rates, Africa is expected to be able to feed only 13% of its population with its own resources by 2050.

The case for investing in renewables to promote food security

While South Africa seems to be shackled to energy generation from fossil fuels, the rest of the continent is investing in renewable energy to “bring power to their people”. The rest of Africa has realised that renewable energy, especially solar power, can make a significant contribution to not only improve food security, but also improving people’s general quality of life, their access to water, technology and information, education, food preparation options, and employment. As a result, opportunities for investment in these technologies are abundant and promising. Investing in solar power could yield dividends in at least four areas that modernise the agricultural sector. The key areas that can make a significant contribution to alleviating Africa’s food crisis include powering systems such as: • Irrigation schemes • Desalination plants • Refrigeration capabilities • Environmentally friendly practices to improve food quality.

Investment returns for early adopters

The return on investment of renewable energy is increasing rapidly because the projects are more cost effective in the medium to long term and take a fraction of the time to build, compared with major fossil-fuel-based power plants. Renewable power plants are also easier to deploy and can be developed closer to the source of demand through microgeneration, which enables rural and remote areas to benefit. For African investors this holds tremendous potential, which is why the Ecsponent group will be investing in the pan-African renewable energy company, Investor Solar Africa Limited. This clean energy investor from Botswana, which is an independent power producer (IPP), has concluded development and funding activities to develop a 22-Megawatt peak (MWp) utility scale project at $US23m, with long-term offtake agreements from the local government already in place. The bulk of the project’s funding was raised through Invest Solar Africa, backed by Ecsponent Limited. Old Mutual Asset Management Zimbabwe and Norsad Finance are co-investors on the project. Construction on the Havara project on 40 hectares of land in the Bwoni Village, Seke Rural District, located South West of the city of Harare, is imminent. In addition to the greater benefits of the project and expected investment returns, the project will also have a community-development element. A number of new job opportunities will be developed, and the local villagers of the Bwoni Community will own 10% of this project through a Community Development Share Ownership Trust. With this investment and others announced during the past financial year, Ecsponent’s equity holdings portfolio has expanded significantly in value and across diverse territories and currencies.

STRUCTURED PRODUCTS FEATURE

31 December 2018

How to invest offshore while protecting your initial investment

G

iven the challenging economic environment, South African investors are understandably concerned about their local savings and investments being eroded over time. “The JSE over the past five years has delivered pretty much single-digit returns and it’s been difficult for South African investors to meet their financial goals,” Vimal Chagan, Liberty Divisional Director for Investment Propositions, told a recent Liberty panel discussion. “Searching for the next big thing where investors can find some growth is quite difficult. No one has a crystal ball to help you – economists can give you great news, but with financial markets, this good news is already priced in. To run after yesterday’s news is a losing strategy.” Chagan adds that one could look for exposure to an asset class such as bonds. “Domestic bonds have done quite well, but after tax the returns are not that good.” He notes that another alternative is to invest directly offshore. “The S&P is up 50% over the last five years in dollar terms, which is a great return. The Euro Stoxx 50, however, is up 10% over the last five years – and that’s not enough to excite investors.” Investors, Chagan says, could also look at the world of structured portfolios – such as the Liberty Advanced Global Equity T1 portfolio, which offers clients unlimited investment growth while significantly reducing risk on the original investment. “This means you have the opportunity to grow and preserve your investment regardless of market conditions.” For a minimum investment of R150 000, clients will have access to a five-year portfolio of an equally-weighted basket of offshore capital indices, the S&P500 and Euro Stoxx 50. This provides exposure to some of the largest companies in the United States and Europe while ensuring a safety net on your initial investment to guard against market volatility. “Regardless of how far markets fall, Liberty is guaranteeing your invested amount, after initial fees. However, this is based on BNP Paribas’ credit risk. If returns are even 0.1% over the five-year period, the investor will get at least 10% per annum (based on current market conditions), after fees and taxes. If markets perform exceptionally well and exceed that 10% return per annum, after being adjusted for tax, you will participate fully in the market return,” Chagan notes. Given the volatile rand, he says it is important to understand that there is no currency exposure in this portfolio. If the local currency continues to soften (or if it firms), investment returns are in rand and

will not be affected. Chagan explains that returns are calculated in a simple way: “At year five, if the basket of indices grew, your investment would also have grown. In this manner, you benefit from the performance of the basket. However, the value of the investment will fluctuate during the term of the investment, with market fluctuations, and the payoff profile for the portfolio is only valid at the end of five years. “Due to the fact that the Liberty Advanced Global Equity T1 portfolio is structured as an endowment, it’s a tax-efficient design and returns are taxed within it. The net return is therefore yours as there’s no further taxation and you don’t need to get involved in tax administration hassles.” He adds that investments in excess of R1m receive an enhancement of 1% on their lump sum investment amount, and investments in excess of R3m receive an enhancement of 2% on their lump sum investment amount. “If you invest R1m, we will invest an extra R10 000 on your behalf. Similarly, if you invest R3m, we will invest an extra R60 000 on your behalf.” The five-year period begins on 7 December 2018 for all portfolio investors. Liberty understands that investors’ personal circumstances change, and therefore offers emergency access to their money. “One early withdrawal of all or a portion of the invested funds can be made during the term in line with our endowment wrapper rules. While there is no charge for an early withdrawal, it’s important to remember that the portfolio value isn’t guaranteed during the five-year period, only at the end of the five-year term, so investors should ideally remain fully invested for the fiveyear term,” Chagan adds. Note:While Liberty’s sophisticated financial instruments strive to provide safer investment opportunities, investors in the Liberty Global Advanced Equity product will be exposed to the credit risk of BNP Paribas Issuance BV and BNP Paribas SA (together ‘BNP’) as the returns promised under this product are conditional upon the performance by BNP of its obligations to Liberty. There is risk of partial or total loss of capital in the event of bankruptcy or default by BNP. BNP Paribas SA is a highly rated Global Bank (S&P: A, Moody’s: Aa3, Fitch Ratings: A+).

Vimal Chagan, Divisional Director for Investment Propositions, Liberty

STRUCTURED PRODUCTS FEATURE

31 December 2018

21

Investing in an uncertain world – structured products demystified In this world of political uncertainty, trade wars and rising US interest rates, many investors are looking for investments that can give them peace of mind. Structured products can fit the bill, providing capital protection and geared returns. However, the concepts and terminology can be daunting for investors, discouraging them from taking part in what should be a very useful tool in one’s portfolio. In this article, we attempt to demystify the main features of structured products and explain the role they can play in a diversified portfolio. Each equity structured product is different, but most share the following features that will determine returns:

They have some form of capital protection built in

This is arguably the most well-known feature of structured products. A typical structured product will have a maturity of between three and five years, with the initial capital either protected 100%, or with protection of losses up to a 1022D_Structured certain percentage (say 20%Products or 30%).Advert

C

M

Y

CM

The returns are geared

This simply means that investors earn a multiple of the return of the reference index or group of indices. Returns are often capped at a certain level, but investors will still earn a multiple of the growth up to that cap. For example, the structure may give the investor two times the return of the underlying index, capped at 60%. So, if the index grows by 50% over five years, the investor will earn a 100% return. If the index grows by more than the 60% cap, the investor will earn 120% (the 60% times two). Only if the index returns more than 120% will the investor have been better off in the index itself. Such gearing is thus very useful for investors who are bearish or only mildly bullish about the underlying market.

They can provide returns in rand or foreign currency

Structured products will often link returns to a well-known stock market index, such as the S&P 500, FTSE 100 220wx155hmm_12Nov_V4.pdf 1 2018/11/12 or Nikkei. Others will be linked to a

group of indices. It’s important to look at the currency the returns are linked to. Some will offer the return in US dollars, euros or sterling, while for others, the returns will be in rand. Investors will choose which one they want, depending on how much rand or foreign currency exposure they want. There are some non-market risk factors that investors should be aware of:

Credit risk

A structured product is essentially a contract between the investor and issuer, with the latter promising to deliver the returns described above. Investors take credit risk on the performance by the issuer of their obligations under this contract. In some cases, to enhance the returns payable to the investor, credit risk on a second entity may be introduced into the transaction via a credit reference. In these cases, the product payout is dependent on the performance of both the issuer and the credit 15:44 reference entity.

Liquidity

Most structured products are designed to run over three to five years, so ideally investors should only invest money they’re prepared to put away over that length of time. However, circumstances can change, and investors will often need access to their cash due to unforeseen events. Many issuers will offer to help investors find a willing buyer of the structured product where the investor wants access to capital, or may offer to repurchase the instrument themselves. In short, once one understands a few basic concepts, structured products need not be complex at all.

Partner with us for protected investment strategies

MY

CY

CMY

K

“Our extensive experience and global reach positions us perfectly to offer structured products that deliver clearly defined returns.” – Lourens van Rensburg, Head of Corporate and Institutional Banking Look out for new products coming soon on investec.com/invest

Corporate & Institutional Banking The information is for informative purposes and not intended to constitute advice in any form. The information therefore has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient. Investec Bank Limited accepts no liability whatsoever for any loss or damage of any kind arising out of the use of all or any part of communication. Investec Corporate and Institutional Banking, a division of Investec Bank Limited. Reg. No. 1969/004763/06. An Authorised Financial Services Provider. A registered credit provider registration number NCRCP9. A member of the Investec Group.

Brian McMillan, Head: Retail Sales, Investec Structured Products

INVESTING: LONG-TERM LESSONS FOR 2018 FEATURE

22

ROBIN HARTSLIEF Investment Professional, Marriott

31 December 2018

Investing: Long-term lessons for 2018

2

018 has been an emotional rollercoaster for investors in both local and international markets. The global investment landscape is in the midst of considerable change driven by rising US interest rates and the potential US-China trade war. Added to this, South Africa faces its own economic growth challenges and a potential Moody’s sovereign credit rating downgrade. Not surprisingly, many South African investors are uncertain about where to invest. Marriott believes that following the investment principles outlined below will stand you in good stead during these turbulent times and for the years ahead. Invest for income and let the capital take care of itself Marriott only invests in securities that provide reliable and growing income streams regardless of global slowdowns, exchange rate volatility and varying interest rates. This is because the value of a business is based on the income or earnings it can generate. Only through increasing its income can the value of a business increase, a maxim well known by those running their own businesses. Over the long term, this principle holds true for investments.

“Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now.” - Warren Buffett Offshore, offshore, offshore Marriott believes best value is offshore. With some of the largest companies in the world trading on attractive dividend yields, equity valuations in first world markets are presenting investors with a good opportunity to generate inflation beating returns over the next five years. Multinational companies, such as Coca-Cola, Unilever and Johnson & Johnson have consistently produced reliable and growing income, which in turn has led to capital growth. Although listed on first world stock exchanges, these businesses transcend geographic boundaries, and will benefit from the anticipated emerging market consumption boom in the years ahead. Know what you are investing in When investing, try to understand in which businesses your money is actually being invested. Don’t speculate with your life savings. Speculating invariably involves buying and selling investments

based on very little fundamental knowledge and typically produces enormous anxiety and poor results in practice. Rather buy and hold companies that form an integral part of the day-to-day lives of consumers, and will continue to grow their dividends regardless of economic conditions. Don’t pay too much for an income stream Avoid any investment where the dividend yield is well below the historic average. Paying too much for an income stream will likely result in poor returns over the longer term. Remember, above all investing is ultimately all about income Capital growth may receive a great deal of investor attention; however, investing should ultimately be focused on building an income stream to fund a lifestyle. Don’t worry about economic variables that are out of your control. It is difficult to predict interest rates, the future direction of the exchange rate, or the stock market. Rather concentrate on what is actually happening to the businesses in which you are invested and monitor the income produced by these investments.

Invest for Income o

Local and Offshore Personalised Investment Solutions

o

Pre and post Retirement Solutions

Income Focused Investing Contact our Communication Centre on 0800 336 555 or visit www.marriott.co.za

Don’t just save tax free. Invest tax free.

NET#WORK BBDO 814190/E

Did you know that every year you can invest as much as R33,000 tax free? No tax on income, no tax on dividends and no tax when you access your money. So, don’t just leave your money in the bank (or under your mattress) when you can become a long-term investor.

Visit coronation.com or speak to your Financial Adviser to find out more. C o r o n a t i o n i s a n a u t h o r i s e d f i n a n c i a l s e r v i c e s p r o v i d e r. T& C ’s a p p l y. Tr u s t i s e a r n e d ™ .

24

INVESTING: LONG-TERM LESSONS FOR 2018 FEATURE

CHRISTO LINEVELDT Investment Specialist, Coronation

A

t Coronation, we have an unwavering commitment to investing for the long term. We believe an emphasis on valuation discipline over the appropriate time horizon increases the probability of achieving above-average returns. All our actions are aimed at ensuring that we analyse, debate and ultimately value businesses based on their long-term fundamentals. We do not chase share prices or constantly react to the most immediate news flow.

RISK

By working hard to retain the trust of our clients, we can examine how a business performs through multi-year cycles, and this is what we believe gives us a distinct advantage over our average competitor. Figure 1 illustrates the compelling results, in real terms, that are available to investors who are willing and able to put money in the equity market for very long periods of time (regardless of the sentiment of the day) and then let the power of compounding work for them. While an investor who committed R1 to local bonds and/or cash would have seen an increase of two to five times in their purchasing power over the past 94 years, an equity investor who made the same commitment would be able to buy 1 377 times more today.

31 December 2018

The case for being patient FIGURE 1: REAL PERFORMANCE OF SA EQUITIES, BONDS AND CASH

In Figure 2 we illustrate the rewards of adding an active return to that of the market by having remained invested with Coronation over the long term. An investment in the local equity market more than 20 years ago would have grown your capital just more than 13 times (in nominal terms), whereas a similar investment in the Coronation Equity Fund, which has outperformed the market by 3.1% p.a. after fees (a seemingly small number), would have grown your capital by almost 25 times. The conclusion is as simple as it

Trade credit insurance vital in challenging environment

FIGURE 2: CORONATION EQUITY FUND

is compelling. Invest in the equity markets for long periods of time, stick with winning fund managers for the long haul, and the power of compounding will most likely do extraordinary things for you. Yet most investors capture only a small fraction of the market return over time. This is because financial markets (and the performance cycle of a fund manager) typically turn when investors least expect them to. Often, the moves are large and, for that reason, a high percentage of the returns that patient investors earn

According to Frank Knight, CEO of credit management firm Debtsource, no company should overlook the importance of trade credit insurance, yet the vast proportion of South African businesses have inadequate or no cover. “There are approximately 4 500 policy holders in South Africa, of a pool of 150 000 businesses, that potentially sell goods or services on a trade credit basis and that could benefit from the protection of trade credit insurance.” He says the commercial environment remains a challenging one for customers, suppliers and insurers, yet the importance of trade credit insurance has never been greater – the survival of any business could be at risk without it. There is a significant protection gap with too many firms operating at the mercy of non-payment of debts. This gap needs to be closed with businesses encouraged to take this cover as a strategic driver of credit management and an essential part of every businesses’ contingency planning. Trade credit insurance provides a business with protection against the failure of a customer to pay for the goods or services they have received. There are several reasons for this: they may have become insolvent, may have critical cash-flow issues or have simply failed to pay the creditor within an agreed credit period. Company size or ‘blue chip’ status is no longer a guarantee of payment and past trading experience

over the long term are made in a surprisingly few trading sessions. For example, since 1960, investors who were not invested in the South African equity market for 12% of those trading months received zero return over the 58-year period. When investing to fund a retirement, investors’ time horizons are measured in decades rather than years. This means that optimal decision-making requires counterintuitive thinking to the short-termism that drives most market participants.

should not be seen as a reliable guide to the future. “The risk of debtor insolvency is an inherent part of owning and growing a business. Sometimes your customers simply do not or cannot pay you – it is unavoidable but not disastrous and in these instances a trade credit insurance policy can be a vital lifeline,” Knight says. He adds that Stats SA recorded 159 liquidations in September and 260 insolvencies in August, and while it can’t be determined how many of those would have benefited from trade credit insurance, there is no doubt that even if a small percentage had been able to protect their cash flow when a customer was unable to pay them, the numbers would be different and jobs could have been saved. “While the numbers of companies that are not covered for trade credit are considerable, there is a real opportunity. Rather than viewing trade credit insurance as a grudge purchase, businesses should see it as something that can prevent bankruptcies, help companies manage credit, and even present opportunities for business expansion,” Knight adds.

Frank Knight, CEO, Debtsource

RISK 25

31 December 2018

Contracts pose biggest liability risks for businesses

C

ontracts are becoming increasingly complex and if the content of the document is not considered carefully, it could lead to a significant increase in the liability exposures faced by business owners. This is according to Dianne Kirk, Executive Head of the Liability Division of SHA. Kirk adds that in tough economic times such as those being experienced in South Africa at present, companies become far more risk averse and their ability to absorb unexpected losses diminishes dramatically. This is why it is important that businesses spend the time and effort making sure contracts being entered into clearly reflect the responsibilities and obligations of all parties, with particular attention to any limitations of liability. According to Kirk, signing a contract without appreciating the impact of accepting ‘open-ended’ liabilities just for the sake of securing work is never a good thing. “As liability underwriters, we have witnessed a rise in the number of summonses being issued in civil litigation cases and it is clear that more

companies and customers choose to pursue litigation as a first option when there is a dispute.” Pointing to some of the main findings of the 2018 SHA Specialist Risk Report, she notes that 15.5% of businesses had experienced legal action brought by a customer against their business. Additionally, the survey also revealed that 58% of the litigation cases against these companies were related to contractual issues. “In our experience, we have seen that contract risk management is nowhere near sufficient. It appears that many companies are still signing agreements that are generic or rolled over beyond their initial expiry date without consideration of changes in job specs or other factors. This leads to problems when there is a disagreement between the parties.” She adds that this kind of approach to dealing with contracts often leads to disputes between the parties involved. “When businesses strike deals without properly structured and documented agreements, the parties are left at the mercy of the Common Law to resolve disputes. This often results in prejudice

of at least one of the party’s interests.” Kirk states that it is crucial for businesses to have well-planned contracts in place, and to thoroughly scrutinise even standard contracts with every new agreement that is made. “Once a contract has been agreed, contact your insurance broker and discuss what insurance is needed to protect the business, taking note of any prescribed coverage and limits that may be in the contract. Involve the broker early on and not at the last minute or when workers are at the contract site and cannot start until proof of insurance has been provided, as is often the case.” Additionally, Kirk also cautions that businesses cannot fully rely on disclaimers. The courts take a dim view of signs that may be unreasonable, not visible or not displayed in a variety of languages. It is of course always better to have disclaimers and appropriate indemnities than to not have them, but they should only be considered a first line of defence to protect a business from liability claims.

Lastly, she says that ensuring that one’s business has adequate broad-form liability insurance in place is essential. “This requires the business owner to go through the company’s liability policy carefully with their broker, seeking clarity on any term, condition or exclusion that they are unsure of. It is very important to take note of the claims reporting obligations contained in the policy to ensure that any incident or circumstance that has or could lead to a claim, whether the insured is responsible or not, is reported and that no admission of liability is made. The sooner the insurer is notified the better, as it may be necessary to obtain witness statements or CCTV footage without delay.”

Dianne Kirk, Executive Head: Liability Division, SHA

Naive employees often a risk to cyber security

O

ften, the greatest threat to the data security of any organisation is traced to an oblivious employee who has inadvertently brought a company to its knees by allowing confidential data to be hacked. Cyber forensic security expert, Rudi Dicks, director of The Cyber Academy explains, “A data breach can cost an organisation millions of rand and worse, its reputation. Even with excellent information, security teams and robust technologies in place, the weakest link is often a user within the company that has been manipulated by a malicious attacker who is then able to access the sensitive information that the user is authorised to view. “While data leaks can be orchestrated by a disgruntled worker or a corporate spy who is familiar with the organisation, most data breaches occur because of avoidable human error. As malicious attackers constantly use new and innovative methods, companies can’t keep implementing new technologies to mitigate these.” Cyber-attacks continue to make headline news, such as the recent hack into Liberty’s data and the Cathay Pacific attack which saw the personal information of 9.4 million customers leaked. Current estimates indicate that more than 90% of cyber-attacks can be attributed to human error.

Dicks says the easiest method of attack is to manipulate an employee and therefore the best security intervention is to raise awareness among staff. “Technology can’t help a human problem which involves someone manipulating an employee or contractor to perform an action or divulge confidential material. “In one instance, a stranger came onto the premises for an alleged job interview, told the receptionist he had spilled coffee on his CV, handed her a USB and asked her to print it for him. Once the USB was inserted to her computer, the attacker gained remote access to that machine and from there, the entire network.” The Cyber Academy works with companies to protect them from cyber-attacks by raising awareness and training staff to ensure that cyber protection and data security are maximised. “Our trainers have real-world hacking experience and remain thoroughly engaged with the current cybercrime landscape and, most importantly, they understand the attackers’ mindsets. Social engineering attacks such as phishing, vishing, spoofing and ransomware are all cyber-attacks that continue to grow in frequency and sophistication at alarming rates.” Dicks adds that physical security is a basic but often overlooked form of defence. “Staff must report all strangers they see in the office that are not clearly marked with a visitor’s access card. Access to the building needs to be rigorously managed. Unknown USBs may not be used, and sensitive information should be shredded. Password protection policies must be strictly adhered to.” With the advent of social media, people’s interests are publicly available

and hackers often use it to manipulate them. This is exacerbated by the number of digital devices that people now have. Types of cyber security risks • Phishing uses disguised email as a weapon. The email recipient is tricked into believing that the message is something they want or need – a request from their bank, for instance, or a note from someone in their company – and the recipient then clicks a link or downloads an attachment. • Vishing is a similar type of attack where voice is used instead of email. Attackers will phone a victim to prime an attack or ask to guide them through changing settings or disclosing a password. • Spoofing sees attackers impersonating people familiar to the victim either by sending an email as someone else or changing the address very slightly to appear as if from the legitimate sender. • Pharming attacks involve a hacker sending the same email to many recipients and then waiting to see which recipients respond. • Whaling is a specific form of phishing that personalises the attack towards high-profile people in senior positions. • Ransomware occurs when data is encrypted within an organisation. The hacker then requests payment in Bitcoin to receive a code to unlock the Rudi Dicks, user’s files. Director, The Cyber Academy

26

RISK

31 December 2018

LYNDALL GREEN Senior Manager Insurance, KPMG

Insuring the arts

“

A musician is someone who loads “Insurance? For what? Who would R90 000 worth of equipment into want to steal bagpipes? Most people a R20 000 car, to drive 150km to don’t like them even when they are play a gig paying R600.” played by someone who knows how.” This quote of unknown origin is Although true, it is not likely to stop a true of many musicians, not only thief, especially if they happen to be in within South Africa, but around the a car that has become the latest target. world. Sadly, it should also include the line “...with absolutely no insurance”. Cost of insuring instruments Although some musicians would place For those who have at least considered their instruments and equipment far insurance, the cost of insuring is above their spouse and children when often much higher than anticipated. asked for a list of priorities, and would As instruments are likely to leave the run into a burning building to save house to be played at various locations, their beloved pieces, they often do not insuring these under household have the necessary insurance in place contents results in a nasty shock when to replace the items they hold dear the claim is repudiated on the basis should the unthinkable happen. that the instrument was not stolen Unfortunately, the unthinkable while in the house. happens more often than we would Obtaining a quote or insurance like. Parking your car in a less-thancover is also tricky. Instruments are secure parking lot of the pub you are generally not loaded onto insurance playing at for the night often makes companies’ underwriting systems, you a prime target. Auditoriums making it difficult to receive a quote that house our local orchestras are quickly, or being able to properly often located in city centres and are compare quotes between insurers. not always well guarded, especially Loading various instruments at night. While instruments and onto your insurance policy can be musical equipment are unlikely to cumbersome, especially when dealing be the targets themselves, they are with someone who does not fully the unfortunate collateral damage of understand what exactly you are trying car thefts and break-ins. Often the to insure. Is there really a difference high value of the pieces is not even between a clarinet and an oboe? known to the thief – items are stripped down and sold for scrap, losing most Valuations of the value in the process. This is Each instrument must be separately especially true of lesser disclosed to the known instruments – insurance company, EVEN THE clarinets, cellos or flutes. along with full SMALLEST Instruments found descriptions and serial after being dumped by numbers. In the case BUMPER criminals may be too of instruments of high BASHING MAY damaged to be of any value, and those not DAMAGE ITEMS recently purchased, use in the future. Many instruments THAT ARE BEING a valuation must be are also damaged in obtained before the TRANSPORTED car accidents. Even instrument can be the smallest bumper IN THE BOOT OF insured. Valuations bashing may damage may be difficult to A CAR items that are being obtain, especially if the transported in the boot of a car. All in instrument is unique in nature. all, insurance for musical instruments The instrument itself is only a and equipment is largely overlooked portion of the total setup that requires by musicians and insurers. insurance cover – pedals, cables, bows, tuners, amplifiers and many Who would want other additional items contribute to steal bagpipes? significantly to the overall cost for For some musicians, the thought an individual. A guitarist may spend of insuring their instruments and more on the pedal board and amp equipment has never crossed their than on the guitar itself, although the minds. Musicians are stereotypically focus of an insurance quote would be not known for their financial planning on the guitar. and administrative prowess (I mean no Some policies also include a offence to readers who are musicians). threshold for specified items that can My favourite response while be insured after being removed from discussing this topic with a bagpiper: the house, either individually or in

aggregate. This is a problematic area for musicians who tend to buy more guitars and amps than necessary, and who more than exceed this threshold. The cost of transportation and insurance for those who regularly play in different cities within South Africa has become so high that many musicians own multiple instruments that are then housed in each city. Because of the above, musicians who have contemplated obtaining insurance cover do not ultimately follow through as necessary, simply because of the administrative nightmare or the cost of the exercise. They believe the cost outweighs the benefits, given the perceived smaller risk to the instruments and equipment. For the few who have taken out insurance, it is sometimes hard to determine when a claim has arisen. Damage to instruments may arise because of a specified incident, as part of normal wear and tear, or as a result of a manufacturer’s fault. Insurance contracts are often not completely understood, or forgotten in entirety when a loss arises, resulting in no claims being recognised where there potentially should be a pay-out. New valuations Insurance policies are also not updated regularly, and new valuations are not obtained when the value of the instrument has changed. Replacement values for both instruments and equipment are sensitive to exchange rate fluctuations, as most of these items are imported. Given the emergence of many new insurance products and technologies over the past years, the overall poor insurance coverage is hopefully something that will change going

forward. The ability to ‘switch on’ your insurance as needed for items such as sports equipment is potentially something that could be rolled out to cover musical instruments and equipment. Differentiating the risk between when instruments are in the safety of one’s house, versus when the instrument has been removed from the house to be played at an external venue, would likely have a significant impact on premiums. It may also help musicians to accurately price the cost of insurance into their own chargeout rates. Another area of potential improvement is collaboration between larger music distributors and brokers/ insurers. A reminder regarding insurance cover at the point of sale may also improve the current level of market penetration. The acquisition of a new instrument is not often a well thought out plan, and a trip to buy guitar strings or a new set of drum sticks often results in a new instrument, and insurance may not have been top of mind. Even the most diligent individual who has insurance cover over other instruments may not consider insurance at that point in time. Much like buyers are reminded of insurance when purchasing a car or piece of jewellery, a quick discussion as part of the sale may be all that is needed to add onto the person’s existing cover, or cause the individual to consider insurance cover for the first time. A note from the author: I am a musician and much of this article stems from my personal frustrations around insuring my instruments. This article applies to all sorts of bespoke equipment and other valuables sought to be insured by all manner of people.

AN INSURANCE PARTNER THAT SPECIALISES IN YOUR BUSINESS You put 110% into your business. You deserve the same from your insurance partner. Old Mutual Insure understands your business. That’s why we have the right cover for you and your customers. It’s simple. It’s personal. It’s efficient. With our track record of experience and specialist expertise, you’ll know you can count on us. The great things you do tomorrow, start with the small steps you take today. Take that step with Old Mutual Insure. The time is now.

Visit ominsure.co.za to take that first step.

DO GREAT THINGS EVERY DAY All products are underwritten by Old Mutual Insure, an Authorised Financial Services Provider (FSP 12)

119164L

INSURE

28

RISK

31 December 2018

HNWIs face unique insurance risks High-net-worth individuals (HNWIs) face unique insurance and personal risk management challenges – particularly in a high-crime climate such as South Africa. That’s the word from Christelle Colman, MD of Elite Risk Acceptances. “As a result, HNWIs are gravitating towards different insurance products; products that are better suited to their more complicated risk management needs. However, a mistake that is often made is overinsuring against minor threats, while underinsuring against the major, less obvious risks that are unique to their situation.” According to the latest AfrAsia Bank South Africa Wealth Report, South Africa has the highest levels of total wealth and is home to 43 600 HNWIs – individuals who hold net assets of at least US$1m. With a significant annual increase of 8%, these HNWIs currently hold over 40% of total private wealth in the country. The report also shows that South Africa’s total wealth is more than double the next closest African country, which is Egypt, and almost three times larger than the biggest African economy, Nigeria. The country has as many as 98 centi-millionaires, each with net assets of $100m or more. Colman says that the rise in the affluent market highlights the need for a tailor-made, specialist offering that can cater to their specific needs. “Taking into account the clear trend of continued growth of HNWIs in the local market, high levels of underinsurance and relatively low penetration of specialist underwriters, the high-net-worth insurance market in South Africa still clearly has plenty of room to grow,” she adds. In addition, she believes that the high-net-worth

BEN RULE Associate Designate, Norton Rose Fulbright

insurance market in South Africa offers real growth opportunities for brokers who can provide the high level of expertise and personal service required by this segment. However, it is vital that the key risks faced by HNWIs are properly understood. Colman lists some of these unique risks:

Higher security risks

Security at home and during travel, including the risks of political turmoil and global conflict, remain a top concern for HNWIs. For wealthy families with complex risk exposures, particularly considering the environment of violent crime in South Africa, it is highly recommended that a security expert be consulted. These experts typically provide a full risk assessment that would minimise any security breach, such as home intrusions, a cyber-breach or any other issue that could put the family at risk.

Sensitivity around depreciation of the rand

A uniquely South African risk often underestimated by HNWIs is the impact of the depreciation of the rand on the replacement value of their high-value assets, often purchased from all over the world. Items typically purchased abroad include imported motor vehicles such as exotic cars and other collectable items such as jewellery, Persian carpets, furniture pieces and art. Colman therefore warns global consumers to continuously monitor the value of their movable assets where there is a potential currency risk, and to adjust the values upwards where the cost of replacing these items has appreciated.

Employee-related risks

HNWIs hire several employees to help run their households. Employees bring about risk exposures related to inside-job armed robberies and threat of force to the insured families. Wealthy individuals should adopt stringent protocols when hiring as well as terminating employees. Procedures should include background checks, on-boarding protocols, regular performance reviews and the like.

Ownership of assets

Lastly, HNWIs tend to register ownership of their assets in private entities such as trusts, companies and closed corporations. It is crucial that brokers work closely with their clients to understand the ownership structures of all assets – as they would for insuring a business with multiple entities – to ensure that insurance cover is properly coordinated and adequate risk protection is being provided. Given the high values at risk, their complexity and the need for a bespoke service, the wealth insurance segment is far removed from the high-volume personal lines market. “This growing market segment requires specialist underwriters and brokers to effectively service their complex needs,” says Colman.

Market value vs reinstatement value: Mind the gap

P

olicies that insure immovable property against loss or damage often stipulate that the indemnity is calculated by determining the cost to replace the destroyed or damaged property with new property of a similar nature – meaning the cost to restore the property to the state it was in prior to the loss or damage. The sum insured in a policy should therefore reflect the cost of restoring a completely destroyed property to the state it was in prior to destruction. This cost increases if there are several buildings or structures on the property in question. Depending on the damage suffered, the cost of restoring the property could include clearance or demolition costs. This cost of restoring the property to the state it was in prior to the loss or damage is called the reinstatement value of the property. Ascertaining the reinstatement value of a property could require input from a qualified or certified property valuer or quantity surveyor. The reinstatement value is affected by the building materials used in the structures, among other factors.

Christelle Colman, MD, Elite Risk Acceptances

The reinstatement value differs from the market value of a property, which is the agreed amount for the purchase of that property by a willing buyer from a willing seller on the open market. This is often colloquially referred to as the ‘value of a property’. There may be a temptation to use the market value of a property as a basis for the sum insured. However, close attention should be given to the applicable policy wording before fixing the sum insured. Listing the market value of a property as the sum insured on a policy,

that indemnifies the insured using reinstatement value, could cause issues for the insured. Market value may differ from reinstatement value for a variety of reasons. The market for some properties is for the land rather than the buildings, as the buildings may be demolished or substantially redeveloped. Existing buildings (particularly on older properties) may be made of materials that are no longer common and are therefore unduly expensive to restore after loss

or damage. Insuring a property for its market value when the policy requires a reinstatement value could lead to that property having been over- or underinsured. Property is overinsured if it is insured for an amount in excess of what its value is. Vice versa with underinsurance. In the circumstance of underinsurance, most policies allow the insurer to apply average to any claim made against that policy. The application of average allows an insurer to pay out only a proportion of the value of the claim, calculated by ascertaining the proportion of the insured value against the actual value that was at risk. Overinsurance will be a waste of premium because the insured will not get paid more than the property value. To avoid the issues of over- or underinsurance, it is best to closely consider the policy wording and submit the correct value to the insurer at the outset. Appreciating the difference between market value and reinstatement value is a good starting point.

HEALTH 29

31 December 2018

Henk Meintjes, Liberty’s Head of Risk Products, tells MoneyMarketing about the innovative new solution that closes the gaps in financial legacy planning

Single and healthy – what’s the best medical aid option? Most consumers re-evaluate their medical aid options in December and many realise that one size definitely does not fit all. Young people, especially, cannot afford high monthly fees. As they are generally fit and healthy, they look for options that offer much more flexibility and control. Jeremy Yatt, Principal Officer of Fedhealth, says, “Affordability is a big issue for young and healthy millennials. If they can’t afford the premium, they often default to selecting a basic hospital plan which may satisfy their budget but does not quite satisfy their needs. They generally find most options are simply outdated.” It makes sense that at different life stages people have different requirements and need to plan accordingly. This year Fedhealth answered the need for more personalised options and has literally turned the medical aid industry on its head with a revolutionary new concept, Yatt adds. Here’s how it works: Take Tshepo for example. Tshepo is a single guy. He chose flexiFED 2 at a base price of R2 086 per month for a single member. He liked the fact that he could get an 11% discount on his AFFORDABILITY monthly contribution by selecting to IS A BIG ISSUE use network hospitals only for nonemergency hospitalisation. FOR YOUNG Since Fedhealth has a list of over 100 AND HEALTHY network hospitals, he quickly found out that Life Fourways Hospital, a hospital MILLENNIALS on the list, is a stone’s throw from his home. But in the case of an emergency, Tshepo can still go to any hospital, which gives him peace of mind. His contribution is now only R1 856 per month, a saving of R230 per month or R2 760 per year. Lastly Tshepo considers his day to day expenses – Fedhealth makes R3 600 available in his MediVault for the year on this option. Tshepo is one of those lucky people who do not often need the doctor, so he decides not to transfer funds from his MediVault to his Wallet just yet. But it is great to know that he can use it and pay it back over 12 months interest free should he incur any day-to-day medical expenses. Yatt says, “Young people can often fly by the seat of their pants as long as they have hospital cover and some day-to-day benefits. The reality is that most basic plans do not, however, offer any day-to-day support and this is where the problems come in. These revolutionary new options are specially designed for those starting families or people with young families. They offer things like focused maternity benefits, unlimited hospital cover, unlimited network GP visits, a dentistry benefit, access to a 24hour nurse line, and much more. It is worth doing your homework well and checking out a range of different medical aid options.”

Jeremy Yatt, Principal Officer, Fedhealth

Please explain the impact of medical aid cover on South African households The reality is that medical schemes are expensive but you need to pay for them if you want access to the best medical care. Even though household budgets are already stretched quite thin, monthly medical scheme premiums still make up a substantial portion of consumers’ monthly expenses. Added to this cost is the annual medical inflation rate, which is approximately 5% higher than the normal cost of living at a rate of 4.7%. Medical inflation increased by an average of 8.9% in the past four years and CPI increased at a lower rate of 5.5% over the same period. Why is it important to include medical scheme contributions in financial legacy planning? Sadly, too many South African breadwinners understand the impact of losing their medical scheme cover because of an unfortunate event that stopped income from coming in. While current life insurance offerings cater well for specific needs like education and funeral costs, it leaves beneficiaries with the responsibility of using a lump sum pay-out towards various other needs. These realisations led to us developing a benefit specifically aimed at paying beneficiaries’ medical scheme contributions, for up to 10 years, when the main member can’t. This Medical Premium Protector benefit is available on Liberty’s flagship Lifestyle Protector solution and ensures that nominated dependants won’t struggle to pay for quality private healthcare following the death, permanent disability or permanent impairment of the main provider.

What about future costs of medical care? We’ve made sure that the benefit will be enhanced annually to keep up with medical aid inflation. In addition, payments to the medical scheme will be tax deductible in the hands of the beneficiary. This means that for ten years, clients and their beneficiaries will not have to concern themselves with increases in medical scheme costs. How many dependants can benefit from this solution? The benefit allows for a maximum of 16 (17 including the main member). Liberty covers the medical scheme contributions of up to eight adults and eight child dependants. In addition, beneficiaries don’t have to be on the same medical scheme and can even change providers during the claim period, as long as it is a medical scheme that is registered with the Council of Medical Schemes. Why is it important to discuss this solution now? An unexpected life-changing event can happen to anyone at any time. It’s always best to be adequately prepared for this unforeseen event. Advisers should have a discussion with their clients about this benefit and close all the gaps in their financial legacy plans. This will ensure that breadwinners and their loved ones have access to the same level of private healthcare they’re accustomed to for up to ten years after death, disability or impairment.

Henk Meintjes, Head: Risk Products, Liberty

HEALTH

Including medical aid contributions in financial legacy planning

BOOKS ETCETERA

30

EDITOR’S BOOKSHELF

BOOKS ETCETERA

THE TRUTH MACHINE – THE BLOCKCHAIN AND THE FUTURE OF EVERYTHING By Michael J Casey & Paul Vigna

31 December 2018 SUDOKU ENTER NUMBERS INTO THE BLANK SPACES SO THAT EACH ROW, COLUMN AND 3X3 BOX CONTAINS THE NUMBERS 1 TO 9.

Many of the legacy systems once designed to make our lives easier and our economies more efficient are no longer up to the task: big banks have grown more entrenched, privacy exists only until the next hack, and credit card fraud has become a fact of life. However, there is a way past all this – a new kind of operating system with the potential to revolutionise economies, the blockchain. In The Truth Machine, Michael J Casey and Paul Vigna demystify the blockchain and explain why it can restore personal control over our data, assets and identities; grant billions of excluded people access to the global economy; and shift the balance of power to revive society’s faith in itself. They reveal the empowerment possible when self-interested middlemen give way to the transparency of the blockchain, while highlighting the job losses, assertion of special interests, and threat to social cohesion that will accompany this shift. With a balanced perspective, Casey and Vigna show why we all must care about the path that blockchain technology takes moving humanity forward, not backward.

WHEN CULTURES COLLIDE – LEADING ACROSS CULTURES – 4TH EDITION By Richard D. Lewis In the fourth edition of his seminal work, crosscultural expert and international businessman Richard Lewis provides leaders and managers with practical strategies to embrace differences and successfully work across diverse business cultures. With the inclusion of several new chapters, contemporary Europe is now completely covered, plus significant revisions have been made throughout to bring political information and statistics fully up to date. Using the powerful ‘Lewis Model’ the book equips individuals, teams and organisations with practical strategies and knowledge of cultural behaviour, leading to more successful business outcomes at all levels.

MASTERING THE MARKET CYCLE – GETTING THE ODDS ON YOUR SIDE By Howard Marks Economies, companies and markets operate according to patterns or cycles. These cycles arise from naturally occurring phenomena in everyday business, and to a large extent, from the simple ups and downs of human psychology and behaviour. But when should you pull out of the market? And when should you stay in? These fundamental psychological influences – including greed and fear – can and do profoundly affect investors. If you carefully study past cycles, understand their origins and import, and remain alert for the next up or down cycle, you won’t have to reinvent the wheel in order to understand

SUBSCRIBE TO

every investment environment. And you’re less likely to be blindsided by unexpected events. By following the author’s insights – which are drawn in part from his memorable memos to clients – you can master these recurring patterns for your own financial gain and psychological benefit.

JOHANNESBURG THEN AND NOW By Marc Latilla, with colour photography by Yeshiel Panchia If you’re looking for the perfect Christmas gift, you’ve found it in this book that tells the story of the city of Johannesburg. In less than a century, the jumble of shabby tents that constituted Johannesburg’s first settlement has grown into a modern metropolis of towering office buildings, high-rise apartments and sprawling suburbs. Its rapid development has been in no small measure the result of the fabulous wealth that lay in the gold-rich deposits of the nowfamous Witwatersrand basin. The story of gold is also the story of Johannesburg, and in a fascinating series of photographic juxtapositions, the book chronicles the city’s expansion from dusty mining camp to economic powerhouse. Rare archival photographs, dating from the 1880s to the 1940s, are contrasted with vivid scenes of the modern city, providing a hitherto unseen portrait of ‘The Place of Gold’. Where possible, the modern-day photographs have been shot from the same locations as the originals. Detailed captions provide fascinating comparisons between the old and the new, while also illuminating features that have remained the same. Johannesburg Then and Now is a superb collection of images and text that will delight both local residents and visitors.

GET A 12-MONTH SA SUBSCRIPTION FOR ONLY R494! (SA postage only, including VAT)

EDITORIAL EDITOR: Janice Roberts janice.roberts@newmedia.co.za LAYOUT & DESIGN: Julia van Schalkwyk SUB EDITOR: Anita van der Merwe

ADVERTISING ADVERTISING SALES EXECUTIVE: Mildred Manthey Direct: +27 (0)11 877 6195 Cell: +27 (0)72 832 5104 mildred.manthey@newmedia.co.za

DISTRIBUTION & SUBSCRIPTION Felicity Garbers felicity.garbers@newmedia.co.za

PUBLISHING TEAM GENERAL MANAGER: Dev Naidoo PUBLISHING MANAGER: Sandra Ladas sandra.ladas@newmedia.co.za PRODUCTION MANAGER: Angela Silver angela.silver@newmedia.co.za ART DIRECTOR: David Kyslinger

Published on behalf of Media24 by New Media (Pty) Ltd. MANAGING DIRECTOR: Aileen Lamb CHIEF EXECUTIVE OFFICER: Bridget McCarney EXECUTIVE DIRECTOR: John Psillos NON-EXECUTIVE DIRECTOR: Irna van Zyl

PRINTING Printed by Novus Print Solutions © Copyright MoneyMarketing 2018

Contact Felicity Garbers

Email: felicity.garbers@newmedia.co.za Tel: (021) 701 1566

JOHANNESBURG OFFICE: Ground floor, Media Park, 69 Kingsway Avenue, Auckland Park, 2092 Postal Address: PO Box 784698, Sandton, Johannesburg, 2146 Tel: +27 (0)11 877 6111 | Fax: +27 (0)11 877 6198 HEAD OFFICE: New Media House, 19 Bree Street, Cape Town, 8001 Postal Address: PO Box 440, Green Point, Cape Town, 8051 Tel: +27 (0)21 417 1111 | Fax: +27 0)11 877 6198 newmedia@newmedia.co.za

Unless previously agreed in writing, Money Marketing owns all rights to all contributions, whether image or text. SOURCES: Shutterstock, supplied images, editorial staff. While precautions have been taken to ensure the accuracy of its contents and information given to readers, neither the editor, publisher, or its agents can accept responsibility for damages or injury which may arise therefrom. All rights reserved. © MoneyMarketing. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, photocopying, electronic, mechanical or otherwise without the prior written permission of the copyright owners. © MoneyMarketing is not a financial adviser. The magazine accepts no responsibility for any decision made by any reader on the basis of information of whatever kind published in the magazine.

Look again.

It’s no illusion. Our exponential growth history is unfolding before your eyes, and we want you to grow with us. Enjoy peace of mind knowing that you invested in the JSE-listed financial services group that has grown its assets by more than 100%, each year, for the last six years.

Let us help you grow. Contact us for more information about our history of growth and investment options.

Financial Services

Look beyond the here & now

2019

When you’re planning ahead, you need the complete picture to make sound financial decisions. Updated for 2019, LexisNexis Financial Services titles give you direct access to the most comprehensive and up-to date content, so you can make vital recommendations with complete confidence.

LE XI S N E XI S .CO. Z A /S TO RE C ALL 0 86 0 765 4 32 E MAI L CU S TO M E RC ARE@ LE XI S N E XI S .CO. Z A