PENSION LAWYERS ASSOCIATIONBREAKFAST SEMINAR – October 2019

“TRANSFORMATION AND RETIREMENT FUNDS -WHAT DOES THE LAW REQUIRE?”

Speakers: Lister Saungweme and Mark Davids

Facilitator: Carlyle Field

Retirement Fund B-BBEE Scorecard:A Practical Guide

Presented byLister Saungweme

CONTENTS

1. Retirement Funds: B-BBEE Reporting Requirements

2. Retirement and Umbrella Fund Scorecard

3. What Does This Mean in Practice4. Practical example5. Q&A

Reporting Requirements

• Amended FSC provides for a “Voluntary Dispensation” for Top 100 Retirement Funds (incl. Umbrella Funds) to report on B-BBEE annually

• ( FSC : DTI as per the BBBEE Act of 2003)

• “If sufficient disclosure by pension funds does not materialise then consideration will be given to revising this dispensation”

• B-BBEE annual reporting should include a narrative on the B-BBEE score achieved and plans for improving the score

• The Financial Sector Transformation Council (FSTC) will measure transformation on an annual basis – may include relying on surveys

• ( FSC : DTI as per the BBBEE Act of 2003)• Amended FSC codes : 1 December 2017

Reporting Requirements

• Amended FSC provides for a “Voluntary Dispensation” for Top 100 Retirement Funds (incl. Umbrella Funds) to report on B-BBEE annually

• “If sufficient disclosure by pension funds does not materialise then consideration will be given to revising this dispensation”

• B-BBEE annual reporting should include a narrative on the B-BBEE score achieved and plans for improving the score

• The Financial Sector Transformation Council (FSTC) will measure transformation on an annual basis – may include relying on surveys

Reporting Requirements

Reporting Requirements

Retirement and Umbrella Fund Scorecard

B-BBEE Status Level and Procurement Recognition

Fund Liabilities (“Ownership”)

• Report annually on proportion of fund liabilities attributable to black male and female members;

• Apply measurement principles enshrined in FS Code 100 (Ownership) – Independent Competent Person’s Report for Mandated Investments

Management Control Scorecard

Skills Development

• Annually disclose details of accredited SAQA-approved training foro Trusteeso Executive Managerso Principal Officerso Other Staffo Disclose value, average training per staff member, number of

staff trained, examples of key interventions

• Member education initiativeso Number of members trainedo Amount spent relative to size of membership (Rand per

member)

Preferential Procurement Scorecard

What Does This Mean In Practice

Managing the B-BBEE Cycle

Scorecard Preparation – Management Control

• Management Control

o Information related to demographics of Board and staff members;

o Distinguish on Black People and White People.

Who Qualifies As Black People?

Scorecard Preparation – Preferential Procurement

• Preferential Procurement• Keep record of spend per supplier;• B-BBEE Certificates of each supplier (there is procurement

software that can manage this, alternatively in-house);• Distinguish between Large, QSEs and EMEs; Also 51% Black

Owned – and 30% Black Women Owned suppliers;• Determine the base target requirement (also called “Total

Measured Procurement Spend” – see slide below).

Key Definitions – B-BBEE Procurement Spend

GN 1 – 2019 (PFA)

“Sustainability of Investments and assets in the

context of a Retirement Fund’s IPS”

Mark Davids

The SA Investment Industry -#TheUsualSuspects

2000 2008 2014 2018Buy List Buy List Buy List Buy List

African Harvest Allan Gray Allan Gray Allan Gray

BOE Coronation Coronation Coronation

Allan Gray Foord Foord Foord

Coronation Investec Investec Investec

Investec Prudential Prudential Prudential

Old Mutual

Peregrine

The SA Investment Industry

52%

48%

5 Asset Managers 100+ Asset Managers

Unsustainable concentration in SA Investment Industry

The SA Investment Industry – 20 Years ago

2000Asset

Manager

Total AUM

(Rm) 2000

1 Old Mutual 231,137.00

2 Sanlam 201,994.00

3 Stanlib 100,983.00

4 RMBAM 92,769.00

5 Investec 81,468.00

6 Coronation 44,442.00

7 Metropolitan 30,164.00

8 Allan Gray 19,863.00

9 Quaystone 17,086.00

10 Prudential 7,939.00

2003

Asset Manager

Total AUM

(Rm) 2003

1 Old Mutual 268,123.00

2 Sanlam 221,920.40

3 Stanlib 152,640.79

4 RMBAM 133,759.00

5 Investec 121,476.00

6 Allan Gray 69,175.54

7 Coronation 57,298.00

8 Investment Solutions 45,814.00

9 m-Cubed AM 43,048.58

10 ABVEST 39,961.00

11 Metropolitan 39,727.69

12 Futuregrowth 30,906.16

13 Prudential 17,479.00

14 African Harvest AM 15,365.44

15 CADIZ 13,217.98

16 Quaystone 11,878.40

17 Oasis 10,566.70

18 Old Mutual Symmetry 10,306.51

19 Prescient 9,525.85

20 Real Africa 7,567.00

21 Sage 6,741.00

22 Alliance Capital 5,128.63

23 Foord Asset Managers 4,673.00

2018

Asset Manager

Total AUM

(Rm) 2018

1 Old Mutual 644,721.00

2 Coronation 531,918.00

3 Investec 527,429.00

4 Allan Gray 522,334.00

5 Stanlib 483,360.00

6 Sanlam 477,767.00

7 Alexander Forbes Investments 311,937.00

8 Nedgroup Investments 249,805.00

9 Sanlam MM 208,519.00

10 Prudential 207,307.00

11 Futuregrowth 177,756.00

12 Momentum AM 139,501.00

13 Taquanta AM 138,409.00

14 Foord AM 136,094.00

15 ABSA AM 131,027.00

16 Old Mutual MM 101,252.00

17 Momentum MoM 98,588.00

18 Prescient IM 86,381.00

19 Abax Investments 76,366.00

20 Stanlib MM 75,803.00

Source: Alexander Forbes Annual Retirement Fund Survey. Figures in Rand millions

The SA Investment Industry – 20 Years ago

How do we move the dial for transformed asset managers

Barriers to true competition

- Fear Of Change- Comfort with the status quo

Transformed asset manager landscapeEmerging manager Mainstream manager

Start-up Ramp-up Expansion Maturity

Acanthin Lodestar Afena Aeon Taquanta

Balondolozi Makalani All Weather Mazi Aluwani

Cachalia Motheo Property Benguela Global Kagiso

Cartesian MSM Property First Avenue Oasis

Capital Link Ngwedi Mianzo Argon

Cloud Atlas PAM Prowess Mergence

Differential Sana Capital Perpetua

Excelsia Seriti Sesfikile

Effectus Satori Meago

Independent Alt Terebinth Sentio

JoPhi Umthombo Vunani

Legacy Africa

Lima Mbeu

R0 – R5 Billion

24 Managers

R5 Billion – R10 Billion

6 Managers

R10 Billion – R50 Billion

11 Managers

+ R50 Billion

2 Managers

Challenges facing emerging managers

Limited Relationships

especially Retail

Limited Budgets for advertising

and marketing

Financial advisers don’t

know them

Short track records

Investors –showing little

interest

Innovative manager research

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Start-up Ramp-up Expansion Maturity

Wei

ghti

ng

Using a different LENS to assess managers

People

Philosophy

Risk

Organisation

Specialist Equity performance

-10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 20.0%

First Avenue

Mianzo

Benguela

ABSA

Vunani

Coronation

Aeon

Sygnia

Legacy

SWIX

Sentio

Prescient

Mergence

All Weather

Stanlib Core

Argon

JoPhi

SA Equity

SWIX (Benchmark Cognisant)

1 year to May 2019

Source: MOTSWEDI Research, Alexander Forbes Manager Watch

-6.0% -5.0% -4.0% -3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0%

OMIG Managed

Vunani

Benguela

AF Investments

Abax

Mianzo

CAPPED SWIX

Sentio

Legacy Africa

Excelsia Core

Stanlib Multi Factor

Prudential Select

Cachalia

Momentum

OMIG Fundamental

Afena Core

Prudential Core

Stanlib MM

Mergence

Argon

Umthombo

Kagiso

SA Equity

Capped SWIX (Benchmark Cognisant)

1 year to May 2019

Specialist Bond performance

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0%

ALBI

Precient Bond Quant

Prudential Yield Enhanced

Coronation Active Bond

Stanlib Core

Aluwani Active

SIM Bond

Futuregrowth Core Bond

MMI SA Bond

Ashburton Bond

JoPhi

Investec Triple Alpha

AF Investments Pure FI

Cadiz Houseview

Vunani Active Bond

PAM Bond

ABSA Bond

Stanlib MM

Umthombo

Kagiso Bond

Balondolozi Bond

Futuregrowth Yield Enhanced

JM Busha Bond

Precient Bond QuantPlus

Investec Credit

Prowess Credit

Argon Bond

Makalani FI

SA Bond

All Bond Index (ALBI)

1 year to May 2019

Source: MOTSWEDI Research, Alexander Forbes Manager Watch

Higher Purpose

ImpactOur roleOur

belief

Transformation

Sustainable & competitive

industry

Developing core skills

Stimulate growth

Thorough research capability

Support excellent Boutique Asset

Managers

Financial Sector Charter commits all participants to actively promote a transformed and competitive financial sector that reflects the demographics of South Africa which contributes to the establishment of an equitable society

GN 1 – 2019 (PFA) “Sustainability of Investments and

assets in thecontext of a Retirement Fund’s IPS”

How do funds currently “consider” ESG

• Annexure B to Circular PF130 – issued in 2007

• Most IPS are based on this blue print

What does it say about ESG

• Essential Elements of IPS• Primary objective is to provide optimum return for beneficiaries – then look at SRI

• Active shareholder• Proxy Voting

• All points are made with the basis of the primary objective

Portfolios construction

IPS • PF130

Mandates • ALM

Reporting

What does it mean for a BoT to consider ESG

• Reg28(2)(b) Reg28 (2)(c)(ix)IPS ESG

How does the seek to ensure Sustainability of Assets

• What is the philosophy of the Fund – not of the asset manager we select

Investment PhilosophyObjective

What does it mean for a BoT to consider ESG

• When thinking about Investing Sustainability what is important to us• Are we a mining retirement fund • Are we a financial sector fund• Are we a industrial sector fund

What are the priorities of my members

• Fair wage/environmental rehabilitation/gender equality• BBBEE / Quality Education / Good Health • Decent Work / Clean water / reducing inequality

What does it mean for a BoT to consider ESG

• South Africa’s National Development Plan• Eradicate Poverty, Eliminate inequality and secure decent std of

living

• Guidance from the UN SDG • Start thinking about the funds philosophy

“Consider” ESG should be read as Embed ESG

Report Monitor Mandate IPS

Investment Objective

Investment Philosophy

How does an Asset Manager Consider ESG

• Knowing what our ESG Philosophy is –empowers us

• Informs our conversation with asset managers • How does an AM embed ESG into their process • Does it resonate with the fund

How does an Asset Manager Consider ESG

• Shoprite Holdings example

• Board Independence • Not employed by Co., Not on Board for more than 10 Yrs• Not > 5% share holding

Source: https://www.unpri.org/

Disclosure and Reporting

• Disclosure becomes easier when we have a base to work from

• Report to Regulator and Members • The extent to which ESG has been integrated

• Sustainable reporting practices• IPS is enriched with ESG factors • Philosophy is summarised in IPS

• but a full document made available

• Financial Statements reporting - by Note: - Assets in compliance- Class and value

QUESTIONS?