We recently visited Cape Town to research the market. This beautiful country is the location of a growing fund industry market despite its volatility.
Some of our observations included:
- The local Institutional market is almost wholly DC with consolidation having taken place through the use of umbrella funds (master trusts). Further consolidation is possible in the coming years but is more likely once employers are allowed choice to have more than one Umbrella Fund (such as in Australia).
- Passive uptake has been slow to adopt, still a big active equity culture.
- The regulatory regime limits exposure to offshore investments to 40% of the portfolio (10% Africa, 30% RoW). This has recently increased from 15% but even a major government fund (PIC) has only 5% assets offshore.
- Such overseas exposure has been important support for investment return given depreciating Rand.
- South Africa is ahead of many markets with their fund expense reporting, having implemented TER, TIC (TER + transaction cost), and Superfund Cost (TIC + platform costs).
- An organisation’s B-BBEE (Broad-Based Black Economic Empowerment) Rating is an important consideration in this market. B-BBEE is government policy to advance economic transformation and enhance the economic participation of Black people in the South African economy
We have seen that the use of the Tax Transparent Common Contractual Fund by South African Investment Managers for their SA clients overseas allocation has been important in increasing return verses use of a more traditional Irish PLC/ICAV.