Edition: Sep - Nov 2014
Editorials

UMBRELLA FUNDS

Competition hots up

Sentinel plans to expand from its mining-sector base and challenge the big guns. More scope for industry comparisons of costs, offerings and services.

LaGrange...no shareholders

Visser...best practice

In days gone by, the Mine Officials Pension Fund and the Mine Employees Pension Fund featured prominently in the SA investment landscape. This was a function of their size.

But as the years passed, the mining industry contracted. So too, in tandem, did the funds. As a strategy to increase critical mass, last July the MEPF merged into the Sentinel Retirement Fund that had started life almost seven decades ago as the MOPF.

The merged entity is rapidly becoming larger than the sum of its mining-industry parts. At last count it had over R76bn in assets under management, 97 participating employers, 57 400 members and 38 100 pensions in payment. Ranked by assets, it’s amongst the largest of SA’s private pension funds and mutated into a self-administered defined-contribution umbrella fund.

The intention now is to go hard at competing for clients outside its traditional operating environment in the mining sector. This will take it slap-bang against the dominant institutional sponsors of umbrella funds (see box)

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They need to a rise to the challenge because of the competitive advantages that Sentinel claims. One is on costs. Operating as a mutual society, notes chairman André la Grange, it isn’t under pressure to produce profits for shareholders of a sponsor. Profits are shared by members, as losses would be too.

More than this, he adds, Sentinel effectively runs a multi-manager operation: “Having got out of managing our own investments, our bargaining power enables us to squeeze asset managers on fees.”

Chief executive Eric Visser also points to state-of-the-art systems, specific for retirement funds, that have no capacity constraints: “The system we use for member administration, popular globally, provides us with pricing and unitisation daily”. He takes pride not only in the fund’s investment choices and returns but also in its best-practice governance, communications policies.

To be sure, these Sentinel sales pitches will be rigorously tested in a robust marketplace. It can only be a good thing.

SOME BRIEF POINTERS

Socially responsible investments: A minimum 5% exposure is targeted for high-impact SRI. At end-June 2013 the proportion stood at 6,5% of total assets.

Proxy voting: Sentinel actively manages its investments. During the past financial year it opposed certain resolutions, which were then defeated or withdrawn, at investee companies. “In general, the fund’s exposure to any individual investment is too small to have much of an impact,” says chief investment officer Johan Botes. “However, through collaboration with other investors and engagement with managements, we do make some impact.”

Top 10 equities as at end-June 2014: BAT, Naspers, Sasol, MTN, Anglo, SABMiller, Old Mutual, FirstRand, Richemont and Standard Bank. The largest was BAT (2,94% of fund assets), and the smallest was Standard (1,11%). The biggest single instrument was the RSA R202 inflation-linked bond (3,44% of fund assets).

Growthpoint: In anticipation of converting to a defined-contribution fund 15 years ago, Sentinel decided to reduce its property portfolio to 7% of total assets. In 2001 it approved the reverse listing of its income-producing properties into Growthpoint. The fund then owned 78% of Growthpoint, sold down over several months to 38% by October 2003, culminating a few months later in a share swap with the fund’s manager of its listed properties. At present the fund holds less than 1% of Growthpoint.

Melrose Arch: Once the most high-profile property investment of Sentinel, it was excluded from the Growthpoint transaction because development was still at an early stage. In 2005 the project was sold to Property Partners (which in turn sold down its exposure to Amdec) for R560m in cash and a R710m loan (repaid in 2011) against the property.