Increased offshore allowance is an opportunity for investors — and transformation

Ninety One welcomes the recent decision by the National Treasury to increase the offshore allowance for retirement funds to 45% from 30%, which will broaden investment opportunities for South African savers.

Since SA constitutes less than 1% of global market indices, increased flexibility to invest abroad will provide investors with better diversification and superior risk-adjusted returns over time. This is a liberalisation for which Ninety One has been preparing since we began growing our offshore business in 1996.

If used appropriately, this change also provides the opportunity for SA retirement fund trustees to further accelerate both the transformation of the investment management industry, and the development of global money management skills based in the country.

The SA retirement fund industry has total assets of about R3-trillion, excluding the Government Employees Pension Fund. With the new offshore limit of 45%, total assets managed offshore will at times reach R1.35-trillion, or $85bn. This raises the important question of how this offshore allocation will support SA’s development and growth objectives.

For example, how will offshore asset managers contribute to our nation’s transformation project? Should offshore asset managers not be required to finally embrace the transformative Financial Sector Code and demonstrate a meaningful commitment to growing black and female SA investment analysts and portfolio managers? Should they not also contribute to funding tertiary education, job creation and social infrastructure in our country, in the same way SA asset managers do?

Alexforbes’s recent announcement that it will only use asset managers that are, at a minimum, B-BBEE level-three contributors, exemplifies the growing industry consensus and alignment around transformation. For many years SA asset managers have deployed powerful resources in support of employment equity and the development of skills, enterprise, preferential procurement, and socio-economic upliftment.

Many of the largest independent SA asset managers — Allan Gray, Aluwani, Coronation, M&G, Ninety One and Prescient — are B-BBEE level-one contributors, the highest notch. A requirement for offshore asset managers to also have a B-BBEE scorecard would further add to the asset management industry’s investment in transformation.

Since the limit was initially increased to 10% in 1996, SA investment professionals have been investing offshore. Today, SA multi-asset unit trust funds typically have between 30% and 45% invested offshore: in other words, almost half of a portfolio can be invested abroad.

Increasingly at the helm of some of the country’s leading multi-asset unit trust funds are black and female portfolio managers. Funds that are co-managed by black and female portfolio managers include some of the largest, such as Coronation Balanced Defensive, Discovery Balanced, M&G Balanced and Ninety One Cautious Managed. As a result, a growing number of black and female portfolio managers have track records of outperforming the relevant global benchmarks.

SA retirement fund trustees who are keen to support diversity can do so by considering these experienced investors for offshore mandates. Several SA firms have proven that the country punches well above its weight when it comes to producing world-class, globally competitive investment talent.

At Ninety One we embrace transformation because we believe diversity makes us better investors. Half of our investment teams in Cape Town are black professionals. As we have transformed our business over the past three decades we have also been adding to the country’s skills pool. Some of our alumni have gone on to start their own asset management businesses.

With the increased offshore limit SA retirement fund trustees have a unique opportunity to further support home-grown talent while also requiring offshore asset managers to be part of our nation’s transformation project.

• Khojane is MD and Phillips deputy MD, at Ninety One.