GEPF’s Approach to Investing

John Oliphant

Head: Investments and Actuarial

Contents

• An introduction to GEPF

• Investment approach

– LDI approach

– Integration of sustainability issues

• New growth opportunities

An introduction to GEPF

• GEPF is currently the largest pension fund in Africa - In terms of Assets: ZAR 1.02 trillion (AUD 130 billion)

- 1.2m active members and .32m pensioners

• One of the few DB schemes in SA

• Government is the main sponsor

• Governed by a Board of Trustees - 16 Member board

- 8 employer representatives

- 7 employee representatives

- 1 pensioner representative

GEPF’s approach to Investment Strategy

= Portfolio Construction

No discretion

Liability structure

Cash flow

Benchmark

Risk aversion

Asset allocation

Mandate allocation

Manager & product choice

Benchmarks

Investment strategy

Objectives Asset range

Risk Limits

Target final fund / benchmark

Current fund

Implementation

Discretion

Asset mix to match liability cash flows

GEPF Strategic Asset Allocation Fund Asset class

Asset allocation

(AA) AA range

Total

Assets

Local equity

Domestic Property

Local bonds

Cash & Money

Markets

Africa Equity (ex SA)

Global Bonds

Global Equity

50%

5%

31%

4%

5%

2%

3%

45 - 55%

3 - 7%

26 – 36%

0 – 8%

0 - 5%

0 - 4%

1 - 5%

Growth in AUM

Integration of Sustainability Issues

Irresponsible Investing...

• Investment is irresponsible if it:

- Causes costs on others today and/or in the future (reduced water quality & water availability, GHG emissions, degrading ecosystems, etc.);

- and these costs are neither priced in the market

nor considered in the investment decision.

Prof R. Quentin Grafton

Sustainability is important to us...

• GEPF is a founder signatory to the UN-backed Principles for Responsible Investment (PRI)

• GEPF publicly launched its Responsible Investment policy in March 2010

• GEPF through the RI policy commits to integrate environmental, social and

governance (ESG) factors into investment decision making and ownership practices

• However climate change requires special attention…

Positive Proof of Global Warming...

Consequences of Climate Change

Source: Stern Review

Climate Change & Food Security in SA

Great Weather Related Disasters (1950 – 1999)

Source: Universiteit Amsterdam, http://assets.panda.org/downloads/xweather.pdf

15

16

South Africa’s Growth Path

THE GAP

Source: SA Government - Department of Environmental Affairs

Current trends in asset management

• UK, Denmark, South Africa – pension funds required to consider ESG issues

• Stewardship codes – UK, Netherlands, South Africa and the European Commission – considering a code on ‘stewardship’ (investor responsibility)

• OECD – recommendation that all pension funds should integrate ESG

• Listing rules for companies – South Africa, Thailand

• Drive towards integrating ESG across asset classes

CRISA Principles aligned to PRI CRISA’s 5 Principles PRI’s 6 Principles

1. Incorporation of ESG 1. Incorporation of ESG

2. Active Ownership 2. Active Ownership

3. Disclosure

3. Collaboration

4. Promotion 5. Collaboration

4. Conflict of interest

5. Disclosure 6. Reporting

New Growth Opportunities

Global Pension Assets

Source: Towers Watson

Global Pension Asset Growth

Source: Towers Watson

Relative Economic Size

Emerging and Frontier markets to drive growth

Turning point

Political Reform leads to SA’s Growth

Infrastructure a Strong Growth Component Energy • Home to 13% of population but only 3% of

consumption

• Tremendous potential for hydropower with 21 out of 54 countries having resources but only 7% currently exploited

• 50% of Africans living in cities by 2030

Transportation • Most number of landlocked countries across any

continent

• Growth of cities and urbanization

• Given the vast nature of the continent it implies that Africa on average spends 3 times as much as developed countries in getting goods to market

• With globalization de-bottlenecking of ports and expansion of airports are indispensable

• 1,1 billion Africans of working age by 2030 ICT • Increased mobile penetration in Africa is

underway

• Customers are better connected improving overall business efficiency and reducing transaction costs

• Youth, connectivity, content

Water & Sanitation • Up to 30% of the population do not have access

to clean drinking water

• Lack of water will cause the economic progress to retard and investment in the water sector is a critical component for growth

GEPF & Developmental Investment

GEPF Developmental Investment Policy

Pillar I

Investments in Economic

Infrastructure

Pillar II

Investments in Social

Infrastructure

Pillar III

Investments in Sustainability

projects

Pillar IV

Investments in Enterprise

Development and BBBEE

Sustainable long-term returns for the GEPF

GEPF Investments Pan Africa

Sector Project Value

Sponsor Name

Sponsor Origin

Cable 240 Main One Nigeria

Rigs 600 SeaWolf Nigeria

Mobile 450 Essar India

Airport 600 TAV Turkey

Cable 250 CIVH South Africa

Power 200 Aldwych UK

Aldwych

Aldwych

Aldwych

Aldwych

Essar Essar

Main One

Sea Wolf

CIVH

TAV

Africa in perspective...

Thank you.

John Oliphant

Head: Investments and Actuarial

Twitter @John_Oliphant

www.gepf.co.za