Edition: Jun - Aug 2014


Trustee breakthrough

Code now provides for training. Watch for the ways to earn BEE points.

A small sentence added to the Financial Sector Charter Code makes a big difference. At last, it's official that the training of pension-fund trustees is included within the definition of consumer financial education.

This is recorded in the updated guidance note, issued by the FSC Council, for "The Measurement of the Access to Financial Services Element of Broad-Based Black Economic Empowerment". It's to be welcomed not only because it provides certainty but also because it will ensure that the dollops of money for consumer education, mandatory under the code, can also be shared for trustee training.

Ruth Benjamin-Swales
Benjamin-Swales . . . launchpad

Financial institutions, mainly banks and life assurers but also including such others as asset managers, are committed by the code annually to spend 0,4% of their taxed profit from SA operations on "consumer education" as defined. This 0,4% will apply until 2017, after which it will be reviewed. The total could well exceed R300m per year (TT March-May '13).

To coordinate all this – and it will certainly need coordination – is National Treasury. Represented on its national consumer education committee are the Financial Services Board, the Banking Association of (BASA), the Association of Savings & Investment SA (ASISA), the SA Insurance Association (SAIA), and such other industry bodies as the Association of Black Securities & Investment Professionals (ABSIP).

With such funding, opportunities are endless. So they'd need to be properly controlled and directed. For example, how much should be allocated specifically for trustee training? Who'll compile the training modules and how will trustees be drawn to the courses? The greater the involvement of trustee representatives themselves, such as Batseta, the better.

Also to be considered is whether (and, if so, how) individual institutions will continue with training of their own. An alternative is through the ASISA Foundation which, by February, had raised a mere R6,2m for the purpose. "As trustee education is now included in the FSC code's definition of consumer financial education, we envisage increased funding and activity in this space," believes Foundation chief executive Ruth Benjamin-Swales.

Sponsoring institutions are encouraged to brand the educational material they supply. This is in order, says the code, "to deter institutions from using service providers with little or no credibility or material of sub-standard level".

So long as the institutions' material is not confused with product marketing, they stand to gain BEE scorecard points.

ESG assessed

Legae Securities, the first black-owned and managed stockbroking firm registered on the JSE, has produced a thought-provoking report on the performance of listed-companies along environmental, social and governance (ESG) criteria. Its 153-page study highlights key areas of policy compliance and actual performance, scoring the companies against them.

Given that King III is a listings requirement, the outcomes are disappointing. Given that Regulation 28 of the Pension Funds Act puts ESG into the investment mainstream, its application has a long way to go. On a universe of 100 companies, almost a quarter scored 30% or below while no company scored over 70%.

Health care, Legae researchers Waseem Thokan and Peter Mushangwe found, was the best-performing sector. Financials were the worst-performing, largely reflecting that holding/investment companies show little or no ESG disclosure.

Waseem Thokan Peter Mushangwe
Thokan and Mushangwe . . . take notice

"One of the inferences is that companies viewing themselves as low-impact from an environmental and social perspective may be inclined to ignore these issues altogether," say the researchers. Although governance disclosure and scores are superior across the board, they nonetheless identify "significant shortcomings" in structures and processes. Generally, in terms of their methodology, companies score better on governance than on environmental and social criteria.

The 10 best performing companies, from the top down, are: Barloworld; Reunert; Allied Electronics; Adcock Ingram; Woolworths; Sun International; Liberty; Nampak; Nedbank, and Murray & Roberts.

Notably, the list contains four industrials (including the top three) and two financials as well as a health-care and a materials company. On the 100-company universe, Barloworld ranked 2nd in environmental, 29th in social and 19th in governance.

The 10 worst performers, from the bottom up, are: Reinet; Capital Property Fund; New Europe Property; PSG Group; Invicta; RMB Holdings; Brait; Rand Merchant Insurance; Sibanye Gold, and Redefine.

This list contains eight financials (including the bottom four), one industrial company and one materials company. Like most of the bottom 10, Reinet's deficiency "is driven by lack of disclosure. Of the 100 companies, it ranked second last in environmental and last in both social and governance.

For evaluating the 100 companies, the researchers identified 68 different metrics along three dimensions: 17 for environmental, 30 for social and 21 for governance, producing 6 800 data points for key cross-industry themes. They used only publicly-available information including integrated and sustainability reporting, Carbon Disclosure Project disclosures and Bloomberg data.

Now to see what difference it will make.

NDP practicalities

The target of the National Development Plan, for gross fixed capital formation to reach 30% of gdp by 2030, is "ambitious" and "will be challenging to meet". This is the dispassionate contention of Old Mutual Investment Group senior economist Johann Els and infrastructure head Jurie Swart.

To effect the investment roll-out, it's vital to build capacity. But this is stymied by the unavailability of architects, engineers, project managers and financial managers at the level of local government.

"Government needs more infrastructure specialists," Swart urges. "Engineers are in shortest supply, followed by technologists and technicians, compared with the number of superintendents, foremen, artisans and operators. Labourers outnumber all these specialist and middle-management roles."

Moreover, the 30% target will be a stretch from the present 19%. Of this, private fixed investment now contributes 63% of SA's total fixed investment. Public corporations (mainly spending by Eskom and Transnet) make up 21% and government (mostly from roads, schools and hospitals) the other 16%.

Clearly, a significant factor in the NDP's target is the private sector. But Els is not sanguine: "Currently we have low interest rates but sluggish and unexciting growth. While some replacement investment is happening, the economy is simply not strong enough to drive significant new private-sector investment."

Neither do fixed-investment indicators – like machinery imports, building plans passed and commercial vehicle sales – look promising. "The days of government's huge infrastructure boom between 2004 and 2007 are over," Els believes. "While there are still billions of rand to be spent over the next few years, the growth rate has dropped sharply compared to what we then saw."

Yet, for investors such as pension funds, Mutual still sees infrastructure as a distinct long-term savings class. With the group's infrastructure investment and commitments at R10bn in equities and R15,6bn in debt, at this stage it is considered too small.

Housing boost

Sibusiso Luthuli
Luthuli . . . superior returns

The Eskom Pension & Provident Fund – SA's second largest retirement fund after the GEPF – has committed R100m to development of some 20 000 new affordable houses in SA. The investment is through International Housing Solutions (IHS), a global private-equity funder.

It follows the commitment of more than R500m to another IHS fund by the National Housing Finance Corporation and the International Finance Corporation, a member of the World Bank group.

"The affordable housing sector has shown its ability both to improve the social circumstances of thousands of South Africans as well as provide superior returns to investors", says EP&PF chief executive Sibusiso Luthuli. "IHS has a proven track record to enable the building of quality communities while maintaining the highest levels of oversight and financial due diligence."

Curator's reputation

The Financial Services Board might need to rethink the continued services of Dines Gihwala in the curatorship of Fidentia. This follows another judgment, unrelated to Fidentia, that he's lost in the Supreme Court of Appeal.

Dines Gihwala
Luthuli . . . superior returns

The dispute between Gihwala, representing a company called Seena Marena and the Gihwala Family Trust (GFT) amongst others, and two UK companies, Grancy Property and Montague Goldsmith, has been going through the courts for ages (TT Sept-Nov '13). This time, in effect, Gihwala attempted unsuccessfully to prevent legal representatives of Grancy and Montague from examining the accounts of Seena and GFT for adequacy and accuracy in the manner that they wanted.

The SCA held that the examination be in a two-stage judicially-controlled procedure. The first stage is to deal with the adequacy of the accounts and the second with their accuracy.

Background is that the UK companies had decided to investment moneys in SA. They communicated with Gihwala regarding their interest in two investments and transferred the moneys for him to invest accordingly. In certain instances, they advised him to collect funds from a firm of attorneys (Hofmeyrs, of which Gihwala was chairman and senior partner) in its trust account.

"At a certain stage the relationship between the parties turned sour", noted Appeal Judge Mhlantla. "It transpired that some of the funds were never invested, whilst others were repaid to them. The appellants were not satisfied with the refunds and, by way of letters, demanded an account from the respondents."

A lower court had found the accounts rendered to have been "woefully inadequate." Also, Gihwala had not invested R10m but repaid it with R50 000 interest. The UK companies demanded an account dealing with receipt, growth and application of the funds. Gihwala refused, contending that the UK companies had received a full and proper account.

There're obvious questions for the FSB to ask itself.

For the record

Two errors in the TT edition of March-May require correction:

  • Fedusa general secretary Dion George points out that that the Federation of Unions SA is not and never has been associated with union Solidarity: "It is not affiliated to Fedusa. Neither do we share the same political and general policy outlook."
  • Dave Crawford should have been described as an "independent educator", not a "financial planner" (which implies registration as a financial services provider).