SOUTH AFRICA - Currency volatility is playing havoc with South African retirement fund performances.
In 2001 the rand plunged 38% to nearly R20 to the pound, but has recovered to about R12.
Given the resources bias of the Johannesburg Securities Exchange, retirement funds boasted annual returns in excess of 30% in 2002 as they coasted on the rally in dollar-earning resources stocks. This year it is a different story.
The rand was one of the world's best performing currencies over the last 18 months. While regulators read this as a sign of national virility, fund managers seem willing to sacrifice some of their manhood for a moderately weaker rand.
The latest quarterly survey on retirement fund managers from Absa Consultants and Actuaries explains why. Despite a vigorous rebound in world financial markets since March, the average balanced global discretion portfolio earned negative returns for the year to June. While the June quarter was the best for fund managers since 2001, returns were still negative over 12 months. The average balanced portfolio did, however, manage to outperform inflation over the three years to the end of June 2003.
Retirement funds have rushed to diversify their portfolios internationally to reduce their exposure to the rand, which weakened in nine out of the last 10 years. Those reared on the inevitability of rand weakness were dumbfounded by the reversal in the currency's fortunes over the last 18 months. It was generally expected that the rand would continue its historical downtrend once interest rates started to drop in June, but this did not happen.
The South African Reserve Bank signalled its preference for a strong currency to assist its fight to contain inflation. While the strong rand hurt offshore investments over the year to June, funds with a domestic only mandate performed relatively well, with Allan Gray Life Domestic Absolute Portfolio taking the top position in the domestic category, returning 23.8% for the year.
OMAM Profile Capital is rated the top full global discretion portfolio in the conservative category, with a one year return of 13.1%.
Second placed for portfolios with a global mandate was STANLIB Asset Management Absolute Return portfolio, with a return of 9.4% over a one-year period.
LGPS Central has appointed Hermes Equity Ownership Services (EOS) to run engagement and voting services for the investments of its nine local authority funds.
The Universities Superannuation Scheme (USS) is being pressed to ignore advice from a joint expert panel, which would store up problems with "pernicious consequences" for the higher education sector.
Simon Eagle of Willis Towers Watson says that, based on his work for Royal Mail, well-designed collective defined contribution (CDC) funds would be viable for some other UK employers too.
Bhavin Shah continues Newton Investment Management's series of DC columns with a look at how schemes can meet the challenges of providing income in a low interest rate world