SA streets ahead. Opportunities for alternatives abound.
As always, the latest Bright Africa analytics from investment advisor RisCura contains a wealth of information particularly relevant to SA pension funds in the African and global contexts. Amongst its findings is how SA overshadows the rest of Africa in terms of pension-fund assets and stock-exchange turnover.
Both are important components of domestic capital markets and therefore also sources for infrastructure funding. The backlog of infrastructure on the African continent is understandable, recently-retired FirstRand chairman Laurie Dippenaar told a Deloitte seminar, when considering that:
- On pension-fund assets, SA holds US$306bn (equal to 82%) out of the $372bn in Africa. Next highest is Nigeria at $16,8bn. Thus the ratio of SA to Nigeria is 18,2 times, yet Nigeria’s gross domestic product is bigger than SA’s and its population is more than three times larger;
- On stock-exchange turnover, the daily average in SA is $1 800m. By comparison, Egypt is at $72m and Nigeria is at $15m.
While the gaps between SA and the rest are astronomic, the report notes that across Africa bonds and equities remain the two predominant asset classes for pension funds. When viewed alongside the high asset growth in Nigeria and East Africa, the domination of fixed-income allocations reflects both regulation and a lack of alternative local investment opportunities.
As pension assets continue to increase and aid from developmental finance institutions decreases, the report suggests that African pension funds have a pivotal role to facilitate inclusive growth and social stability.
“Larger pools of capital allow for investment in economic and capital market development,” it says. “Local institutional investors lend credibility and often serve as a catalyst for greater external interest. Local investors also allow global peers to leverage local knowledge and networks.”
The asset allocations of SA pension funds are generally way below the ceiling for alternatives that Regulation 28 allows. And the more so for investment into the rest of Africa. Especially given the tepid performance of domestic equities, funds are doing themselves a disservice by not looking beyond the ordinary.
Until recently, parties aggrieved by determinations of the Pension Funds Adjudicator could only appeal to the High Court. It came at high cost. But now aggrieved parties may lodge appeals with the Financial Services Tribunal. It will be much cheaper.
An order of the tribunal will have the effect of a civil judgment and may be enforced as if lawfully given by a competent court. However, there’s a problem. Decisions of the Adjudicator may not be defended before the tribunal in the same way that they could be defended in the High Court where they were heard as unopposed motions.
Earlier this year, for example, there was no guidance from a written judgment on the personal liability of former IF trustees in their successful High Court appeal against an award of R18m against them (TT Aug-Oct). More recently, the court merely cited a precedent in granting an order in favour of the Municipal Employees Pension Fund and administrator Akani that overturned the Adjudicator’s decision on a member’s withdrawal benefit.
Why? Neither the courts’ elaboration nor accuracy in law will ever be known. In the MEPF/Akani matter, it appears that the court decided on an issue that had not been a subject of the Adjudicator’s determination. This had to do with the retrospective application of the fund’s rule amendment.
The court had decided on “the jurisdiction of the Adjudicator to make a determination in respect of the validity of an amendment to the rules of a pension fund”. However, in a ruling that could affect many other fund members, the Adjudicator had ordered the MEPF to pay complainant John Masangu his withdrawal benefit “in accordance with the rules as they applied as at the date of withdrawal”.
Heard by the court was only an advocate, instructed by a heavyweight law firm, appearing for applicants MEPF/Akani. The poor complainant couldn’t participate as a respondent because he couldn’t afford the representation.
With the tribunal, in theory there’d no longer be such cost constraints. Nonetheless, it’s unlikely that many individual complainants will have the resources to engage counsel in the same way as funds and administrators.
To be hoped is that the tribunal’s presiding officers will have more experience of the financial-services industry than some judges, properly setting out reasons for their decisions, rather than quickly disposing of unopposed motions.
There’s something remiss when the maxim of ‘audi alteram partem’ (‘let the other side be heard’) is confined to the papers by the one side but allowed for argument by the other.
There’s been no messing around by the Financial Sector Conduct Authority with the R50bn defined-benefit Sasol Pension Fund. Doubtless stirred by allegations of former fund employee Dumisa Hlawula concerning irregularities in the fund’s approval of an overseas trip for its now-retired principal officer Lidia Visser two years ago (TT Aug-Oct), the FSCA has found that:
- Visser had acted in a manner inconsistent with the “fit and proper” requirements set out in the Pension Funds Act (PFA);
- Andries Schaap, the fund’s principal officer and general manager, had contravened the Financial Institutions (Protection of Funds) Act;
- The fund’s board had failed to comply with the PFA by delegating the duty of authorising travel expenditure to the general manager without having exercised any proper oversight.
Further, there was a related-party transaction in that Rynhardt van Rooyen was appointed a consultant to the fund while also a trustee representing pensioners on the SPF board. The FSCA found that the board:
- Did not avoid a conflict of interest and so contravened the PFA;
- Failed to comply with the PFA and a board notice by not representing the involvement of Van Rooyen in a related-party transaction.
The FSCA has proposed at this stage to resolve the matter by inviting the Sasol fund, the principal officer and the general manager to give enforceable undertakings under the Financial Sector Regulation Act that:
- The principal officer and general manager personally pay the fund R62 000 (the cost of Visser’s trip);
- The fund amends its travel policy to ensure that any expenditure relating to overseas travel, or local travel in excess of R15 000, be properly motivated to the board or appropriate sub-committee and approved before the travel takes place;
- The fund amends its disciplinary policy to ensure that any disciplinary matter, relating to the principal officer or any senior manager, be brought to the attention of the board or appropriate sub-committee for a decision on disciplinary action;
- The fund’s board and staff shall participate in an information-sharing session with the FSCA on whistle-blowing obligations in terms of the PFA and other financial legislation;
- The fund amends its procurement policy to ensure that it does not appoint any “officer” (as defined by the PFA) of the fund as a service provider to the fund.
The FSCA has given strict timelines for the enforceable undertakings to be met. Should the fund and its relevant officers not provide them, the FSCA will initiate proceedings to issue a directive under the Financial Sector Regulation Act.
Noting that Visser had retired as the SPF’s principal officer, the FSCA has reserved its right to object to her appointment as principal officer of any retirement fund that it regulates.
It’s a sorry tale in the context of Visser’s high standing and record of service to the industry. But there’s a bigger context, that’s salutary, in the value of whistle-blowing and the responsiveness of the FSCA.
Great for Forbes
One might have thought that the blue of Sanlam runs through the veins of Dawie de Villiers, the widely-respected head of its employee-benefits division. Perhaps it still does. Having been with Sanlam all his working life, the appointment of this 47-year old actuary (and cyclist) as group chief executive of Alexander Forbes is not entirely a departure from his roots (much as his impending move from Bellville to Sandton will be).
|De Villiers…uphill ride|
Alexander Forbes is effectively controlled by multinational consultancy Mercer and African Rainbow Capital. The joint chief executive of ARC is Johan van Zyl who happens also to be chairman of Sanlam. He’d know better than most of De Villiers’ attributes to stimulate a financial-services group with whose performance the controlling shareholders have been less than satisfied.
For De Villiers, it’s a big step up into daunting challenges. They’ll equip him for broader experience along a career path with many years ahead. For Forbes, it’s a boon to have at the helm a personality who leads by example and inspiration. If anybody can staunch the departures of talented personnel, and reinvigorate the sense of mission, it’s De Villiers.
Sanlam too is fortunate in that De Villiers leaves a strong team. Joceyln Hathaway becomes acting chief executive of Sanlam Employee Benefits while remaining chief financial officer and chief operating officer of the Sanlam Corporate cluster.
Having held various senior positions in the group since 2011, she’s a UCT graduate (B.Com, MBA) and is an avid dog lover. Now for the bark.
Back to PSSPF
A settlement agreement has been reached between the FSCA and the troubled Private Sector Security Provident Fund. It follows disturbing allegations that concern the fund’s administration expenses (TT Aug-Oct).
In terms of the settlement, it’s been agreed amongst other things that the fund’s existing trustees — none of whom may have any financial or other interest in a service provider to the fund — be replaced by two statutory managers. Forensic investigations, already commissioned, have to be completed and the findings activated.
All current service providers must be reviewed for suitability. Further, the statutory managers are to investigate all allegations levelled by the FSCA and, if necessary, adopt a new remuneration policy.
To clarify our previous report, it was not the Register-appointed ‘s26 board’ but the current board that had been remunerated at R25m a year. During the 20 months that the ‘s26 board’ had been in office, its chair points out, his monthly fees averaged less than R100 000 and those of the deputy chair were lower.
Both sets of fees were significantly discounted from their usual professional rates. They’d been approved by other board members and reported to the registrar.
The financial statements of the fund, compiled after the s26 board’s term had ended, had not been reviewed or approved by the s26 board. It would appear that these statements incorrectly included the travel and accommodation costs of the whole board in the reported fees of the chair.
Letter re Oz
Independent actuary Rob Rusconi of Tres Consulting writes:
In your article ‘Down Under isn’t tops’ (TT Aug-Oct), you described renewed concern in Australia regarding the high costs and adverse outcomes under superannuation (retirement) funds operated by for-profit entities against their non-profit, no-frills counterparts.
Fees in these for-profit funds have been persistently around 2.5 or even three times the corresponding fees in their no-frills counterparts. The reason is that funds managed by for-profit entities incur greater marketing costs, pay commission to intermediaries and offer expensive (largely unnecessary) services in an effort to differentiate themselves from one another. Non-profit funds do not.
SA’s umbrella funds are managed by for-profit sponsors. The profit constraint is structural. Even if these financial entities permit 50% representation on their boards by independent trustees, why should they permit any changes that undermine their interests?
Our policymakers must find a way to reverse the rush to umbrella funds managed by for-profit entities by encouraging and facilitating sound alternatives.
No deal with Vele. No troubles at SALA fund.
Our article headed ‘VBS muck’ (TT Aug-Oct) carried inaccuracies that did an injustice to fund administrator Fairsure. Suggestions which flowed from the inaccuracies are retracted and regretted.
Most importantly, in the report of VBS Mutual Bank curator Anoosh Rooplal there was no “finding” but merely an allegation – in other words, hearsay from an individual – that VBS controlling shareholder Vele Investments had purchased Fairsure with fake money. Since there was no purchase of Fairsure, by Vele or anybody else, not only does the allegation fall away but so too does the suspicion of “fake money”.
Further, a client of Fairsure is the SA Local Authorities Pension Fund. It has never owned shares directly or indirectly in Fairsure. In 2015 the fund had attempted to buy Fairsure but the attempt was blocked by the FSB Appeal Board.
Although the SALA fund has been troubled by governance issues, causing the Registrar to intervene at board level (TT Feb-April), the Fairsure lawyers insist that “the SALA fund is well run, fully funded and fully compliant”.
They also point out that:
- Neither Vele nor anybody linked to it has ever purchased Fairsure shares;
- There has been no change of control in the Fairsure shareholdings for the past three years. The FSB/FSCA authorised the last change in control when shares were sold to Fairsure’s BEE shareholders;
- Neither members of the SALA fund, nor members of any other fund administered by Fairsure, “have any cause whatsoever to be concerned about their benefits”.
Fairsure Administration and Fairsure Consulting are both wholly-owned by proprietary company MEB Holdings, in turn owned by Oriole Holdings (51%), the Phillips Family Trust (23,5%) and the Brien Family Trust (25,5%). “Our clients are not aware of any indirect shareholding of Vele or its directors in MEB Holdings,” say the Fairsure lawyers.
The allegation in the Rooplal report referred to an affidavit by one Phopi Mukhodobwane. He’d stated that “to the best of his knowledge” Vele had acquired Fairsure.