• HOME
  • LIBRARY
  • CLIENT
    PORTAL
  • UNCLAIMED
    BENEFITS
  • CONTACT

Africa Cup of Investments Conference 2013

Part 2

The theme of this year’s conference was “Challenging the Investment Mindset”. As in previous years it was a well organised, very interesting and informative conference that can only be recommended to anyone who has a role to play in the pensions industry. You may find the one or other topic of interest to you or thought provoking in which case please feel free to share your views with our readers.

Challenging your investment mindset (panel discussion)

Steps taken by fiscal authorities across the globe to overcome the financial crisis had a major impact on investment markets and require a mind shift of the investor.

  • In the face of the uncertainties prevailing in global financial markets, investors need to review their measure of risk, extend their investment time horizon beyond the prevailing uncertainties and must temper their return expectation.
  • Knowledge is cyclical, not cumulative so we do not get cleverer but repeat our mistakes.
  • Studies have shown that the behaviour of directors and trustees has not changed despite their legal liability having become significantly more onerous.
  • In SA the financial services industry is being pressurized by the regulator towards more standardized contracts, which is not good for freedom of choice and competitiveness.
  • The prevailing low interest rate environment is in the interests of governments and results in future consumption being advanced without really stimulating economic growth.

Facilitating investment in Africa and overcoming potential deterrents (panel discussion)
Africa has become the ‘flavour of the month’ for foreign investors. However, it does present a number of challenges that investors need to be aware of and overcome.

  • Africa achieved a lot in improving political stability over the past years.
  • Africa offers lots of positive stories and exiting prospects.
  • Africa GDP grew from US$ 600 bn in 2000 to US$ 3 trn.
  • Private sector solutions are the remedy to develop.
  • Africa presents the following 3 macro risks:
    • lack of property ownership or right to title and setting up a legal format of a business;
    • GDP driven primarily by commodity exports;
    • difficulty of diversifying across the continent.
  • To mitigate the above risks requires access to experience.
  • Infrastructure is paramount to further investment in Africa.
  • Low education levels are a serious impediment with only 7% of the workforce in possession of tertiary education, presenting a risk of political upheaval.
  • Africa has taken steps to improve the environment for doing business in Africa but more effort is required in the above areas.

Commodities and currencies (panel discussion)
Quantitative easing has produced exceptional returns on equity investments since the financial crisis. In view of the risks this presents, investors should consider commodities as an asset class that offers attractive features.

  • Investing in commodities should be considered for the following reasons:
    • it achieves diversification from the more traditional asset classes;
    • it reduces portfolio volatility as they are influenced by other factors such as weather (agriculture), politics (energy) and the business cycle (metals);
    • it can enhance returns;
    • it serves as an inflation hedge.
  • Commodities are driven by consumption rather than production and would be better correlated with members’ expenditure patterns.
  • Pension funds should invest in commodities as they directly affect members’ retirement liabilities, consider the increase in the price of oil.
  • Governments cannot afford deflation as debt is determined at nominal value while tax is based on real value and governments cannot tax the improvement of the real value of taxpayers’ income as the result of growing purchasing power.
  • James Rickards suggested that developing countries should introduce capital controls in the current environment where developed countries manipulate their currencies through ‘quantitative easing’. He also suggested that structural problems in the economy can’t be fixed through money supply as the US and China are doing. Europe on the other hand has taken the right steps to fix its structural problem through the austerity measures.

Upcoming structural game changers – SA retirement and savings reform and new regulatory requirements (panel discussion)
SA treasury has ventured onto a route of regulatory reform of the financial services industry in the belief that this will promote saving and benefit the consumer. Will this reform achieve what it aims to achieve if it is based on flawed assertions?

  • Are administration costs in SA high relative to global experience as claimed in a government white paper?
  • This statement is based on distorted data and does not compare ‘apples with apples’;
    • costs are a function of resources required;
    • on the group side, costs are higher due to fragmentation in the industry;
    • on the retirement annuity side, distribution costs are too high in terms of value for money;
    • regulations should be written to promote competition in the interests of the consumer and not the provider;
    • the retirement system should not be all things to all people as different needs exist such as between high income and low income earners.
  • A culture of savings has to be built and government has a big role to play in this regard.
  • The education system has to embrace the concept of savings.

Opportunities in African private equity (panel discussion)
Regulation 28 requires of Namibian pension funds and insurance companies to invest 1.75% of market value of investments in unlisted equities. Trustees will have to acquaint themselves with this topic.

  • Africa has a large funding gap which presents an opportunity for private equity investment.
  • SA private equity returns have outperformed listed equity.
  • In terms of P:E ratios, private equity is most expensive in West Africa at a multiple of 8 and least expensive in SA at a multiple of 6.5.
  • Private equity managers should be selected based on the following criteria:
    • track record of returns;
    • track record of successful ‘deals’;
    • the strength of the team and how long it has stuck together;
    • access to ‘deals’ of the manager.

The great reversal: an analysis of the potential effects of capital outflows on selected African countries (Thalma Corbett, head of research NKC Independent Economists)
The strong growth in local equity markets, a strong currency and a low interest rate environment locally is the result of large scale intervention by monetary authorities particularly of developed countries. The strong growth of foreign portfolio investments that have produced these results are likely to revers, which will impact on local financial markets as a matter of course.

  • Egypt – foreign participation in bond issues has declined substantially and the TB rate increased from below 14% to 16%, while other economic fundamentals are also worsening.
  • Ghana – bond yields increased sharply since the end of 2011 from around 12% to around 19%. Fiscal deficit increased sharply but it still offers a strong outlook for economic growth.
  • Kenya – bond yields increased from around 5% in March 2011 to around 12%. It has a high fiscal deficit of 7.9% of GDP while inflation risk is rising. Foreign portfolio investment comprise 45% and 55% of equity its market.
  • Nigeria – debt yields actually declined from around 16% in March 2012 to around 13%. It experiences strong economic growth in the non-oil sector, has strong foreign reserves and strong foreign portfolio investment.

Important notice and disclaimer
This article summarises the understanding, observation and notes of the author and lays no claim on accuracy, correctness or completeness. Retirement Fund Solutions Namibia (Pty) Ltd does not accept any liability for the content of this contribution and no decision should be taken on the basis of the information contained herein before having confirmed the detail with the relevant party. Any views expressed herein are those of the author and not necessarily those of Retirement Fund Solutions.

PENSION CALCULATOR
How much will you need when you retire and are you investing enough?
GALLERY
CLIENT COM(PLI)MENTS
FREE INVESTMENT AND PENSION FUND NEWS
Subscribe now to receive our monthly newsletter.
We use cookies to make this site simpler. By using this site, you permit the use of cookies.
More information Ok