Edition: December 2015 / February 2016
Listed vehicle for direct investment in infrastructure projects.
R500m raised to begin acquisitions.
Oliphant . . . modest charges
The successful listing of Gaia Infrastructure Capital, on the JSE’s main board, presents
the opportunity especially for smaller
pension funds and individuals to invest directly
in an asset class that’s growing exponentially.
Listed shares offer liquidity, important for pension
funds in meeting liabilities as members withdraw,
and tradability in denominations suited to retail
Because of their scale, direct investment in
infrastructure projects is predominantly the domain
of large institutions. With Gaia, it’ll be different
because it enables investment in a company
that invests directly. Listed as a special-purpose
acquisition company (Spac), for the raising of
R500m in primary capital, Gaia will start with a
pipeline of “viable assets” in renewable energy.
The market price for Gaia shares will turn
on investor assessments of the portfolio being
built. Until then, basically a cash shell, it reflects
confidence or otherwise in management. That the
book-build went smoothly, inclusive of R200m
from the Public Investment Corporation, speaks for
itself. Managing director is John Oliphant, former Government Employees Pension Fund principal
executive officer, supported by a board that includes
four former PSG Group executives.
Gaia, according to its pre-listing statement,
aims to be a diversified infrastructure investment
company that “will directly invest in large-scale
energy, transport and water-related infrastructure
projects with a value in excess of R1bn”. It will target
low-risk investments that are operational or close
to operational, that will generate returns of cpi plus
6%, and that promise “visible environmental, social
and governance policy appreciation”.
For portfolio spread, it will make respective
investments of not less that R200m where the
assets have not previously been evaluated and
not less R100m where they have been. Once
accumulated, within 24 months, Gaia will apply
for reclassification from the JSE’s “non-equity
investment instruments” sector. As the foundational
R500m depletes, the listing offers the platform to
raise further capital.
Such is the magnitude of infrastructure
requirements that government cannot finance
them on its own. It’s reckoned that to date over
R160bn has been raised from the private sector for
specific projects. The opportunities are virtually
open-ended. Gaia could be the first of several
companies that seek similarly to enter the field.
Oliphant, who led infrastructure initiatives in his
GEPF capacity, reckons that the environment has
been a “bit too chunky” for smaller pension funds.
Direct investment would have taken up too high a
proportion of their assets, so they’ve tended to enter
though private equity funds that typically charge
fees of 2% for assets under management plus a 20% “carry” or performance fee.
Gaia, however, will charge a management fee of
only 0,8% and no carry. “The activist in me had to
answer the question of what’s fair for our scheme,” explains Oliphant. After all, as chair of the Code for
Responsible Investing in SA committee, he must set
How long is a string?
Remuneration levels for trustees are all over the place. From where are retirement funds to
get guidelines when they don’t exist?
Problem is that pay levles can range from zero,
where a company or trade union views trusteeship
as part of an employee’s job, to amounts that
might be considered as rewarding but perhaps
still ungenerous when compared with executive
directors charged with similar responsibilities in
terms of human and financial assets under their
Rarely do companies disclose trustee
remuneration. A good exception is the latest
Naspers annual report. It shows that trustees of its
Media24 pension fund will each receive R76 365,
paid by the company and not by fund, in the year
Compare this with the Government Employees
Pension Fund, much larger than the still-large
Media24. Its latest annual report – for 2013-14
being late indeed – can receive around R250 000 a
year depending on certain variables such as time
spent in committees. Trustees get a meeting fee and
a retainer fee, policy being that all trustees “must
receive the same level of remuneration regardless of
experience and expertise”.
The standard reference is the PwC trustee
remuneration survey, not updated since 2014 when
the burdens on trustees weren’t quite as formidable– relatively speaking – than what National Treasury
now intends (TT Sept-Nov).
The survey found, for instance, that only 28% of
standalone funds remunerated trustees. The median
range for “professional trustees” was anywhere
between R50 000 and R100 000 per year.
What’s fair? Who knows?
Dominant competitors for the administration of beneficiary funds are Fairheads and FedGroup, the former long established and the latter
trying its damnedest to make inroads. Only they
will know how the marketing war between them is
Field . . . family business
Trying to separate their respective claims and
counter-claims on costs and service — as well as
the most effective means to trace beneficiaries
(Fairheads is more personal and FedGroup
technological) — is best left for potential clients to
interrogate themselves. To that extent, the rivalry
can only be healthy. At least it helps to focus the
minds of retirement funds on why they should use
specialist administrators rather than act as do-ityourself
operators when effective interaction with
guardians and minor children is of the essence.
One objective point of departure is a JSE
listing. Fairheads, now part of Vunani, believes
that it enhances transparency and peer-group
comparability. FedGroup, director Scott Field
affirms, has no similar intention.
FedGroup is family-controlled and high-profile
in many financial offerings additional to beneficiary
funds. Field can be scathing about the vulnerability
of policyholders compared with shareholders: “In
good times, their interests are aligned. But when
backs are against the wall, it’s policyholders who get
That’s a general argument most intensely played
out in years prior to the Old Mutual and Sanlam
demutualisations, when they were pooh-poohing
the rivalry from JSE-listed Liberty Life. We know
how that resolved.
In the case of FedGroup, says Field, there’s
no need to raise capital: “We’re self-funded and
have no outside borrowings. On transparency, we
comply with King III and have a representative
on the committee of King IV to focus on unlisted
businesses. Some of the best businesses abroad,
several banks and vehicle manufacturers amongst
them, are unlisted and family-owned. It’s perfectly
acceptable there as we also consider it to be here.”
Then ask about things, in the Fairheads versus
FedGroup battle, like BEE credentials at company
level and tracing of beneficiaries at fund level. Go
ahead. Ask them. It’ll be good for the choices that
retirement funds should be making.
Simply as a report on progress, or lack of it, a High Court date has yet to be set for the appeal
of four umbrella-fund trustees against the Pension
Fund Adjudicator’s determination that they be held
personally liable for the rebuild of fund databases.
Having dragged on for more than two years (TT Dec ’13-Feb ’14), the matter will probably be set down
for hearing sometime in 2016.
The outcome is critical for trustees generally
because it will indicate whether their own pockets
should be hit. The determination was that they
should be, for want of an alternative, and the
trustees will contend that it must be set aside,
arguing around ownership of fund assets and
whether trustees could lawfully debit the credits of
Meanwhile, earlier this year, the affected IF
funds and the Dynam-ique fund were placed in
liquidation. Liquidator Francois Rosslee of Argen
Actuarial Solutions reported that, to ensure a
fast and fair resolution for all stakeholders, the
trustees had prioritised the completion of the funds’ database rebuilds and other matters before the
funds would be finally liquidated.
Good and bad
There are pension funds and there are pension funds. Outstanding amongst the good, for
receiving creditable awards in recent months, are
the Natal Joint Municipal Pension Fund and the
Sentinel Retirement Fund.
Bottom of the class, for being censured yet again
by the Pension Funds Adjudicator, is the Municipal
Employees Pension Fund for its “unending noncompliance
with existing registered rules when
computing a withdrawal benefit”. Adjudicator
Muvhango Lukhaimane ordered that the fund
pay the member, who’d successfully complained, a
withdrawal benefit amounting to three times his
contribution (although the rule was subsequently
changed to allow for only 1,5 times) plus interest at
15,5% a year as a punitive measure.
The award shows that Lukhaimane has grown sick and tired of the MEPF’s misbehaviour. The
award being against the fund, however, it’s innocent
members who’re penalised.
Lukhaimane . . . MEPF undeterred
A way should surely be found to smack the guilty
parties in their own pockets. Are all the trustees
really “fit and proper” for their jobs, and should
questions not also be asked of administrator Akani
that operates under licence from the Financial
As in previous years, the Adjudicator’s report for
2014-2015 is informative and attractively presented.
A general comment worth noting is Lukhaimane’s
concern that, for the most part, members and
beneficiaries are paid out only after they’ve lodged
These complaints might be negligible when
compared to the number of benefits that the
pension-funds industry pays out annually, she says,
but it is nevertheless disconcerting: “The financial
distress that might befall a complainant, whilst
waiting for his or her benefit, may be irreparable.”
Against the world
By comparison with other major pension systems, SA does not rate terribly well in the
2015 Melbourne Mercer Global Pension Index. It’s
graded with a C – an index value of 50-60 out of
100 – together with France, the US, Poland, Brazil,
Austria, Mexico and Italy.
This grading represents “a system that has some
good features, but also has major risks and/or
shortcomings that should be addressed,” the study
finds. “Without these improvements, its efficacy
and/or long-term sustainability can be questioned.”
In the A category, with an index value of over
80, are Denmark and the Netherlands. Both have “a first-class and reliable system that delivers
good benefits, is sustainable and has a high level
of integrity”. Australia gets a B+ while Sweden,
Canada, Chile and the UK are amongst those
graded at B.
The overall value for each of the 25 countries’ systems MEPF undeterred represents the weighted average of three sub-indices: 40% for adequacy; 35% for
sustainability and 25% for integrity. Grading
appears to be based on rules and not necessarily on
The overall index value for the SA system, says
the survey, could be improved by:
- Increasing the minimum level of support for the
poorest aged individuals;
- Increasing the coverage of employees in
occupational pension schemes, thereby
increasing the level of contributions and assets;
- Introducing a minimum level of mandatory
contributions into a retirement savings fund.
In the UK the Financial Conduct Authority has decided not to standardise how fees of advisers
and wealth managers are disclosed. This isn’t exactly
music to the ears of SA regulators.
Earlier this year the European Union issued its
second MiFID (Markets in Financial Instruments
Directive), requiring advisory and discretionary
firms to provide a full breakdown of all costs and
charges from January 2017. It does not prescribe
how this information should be presented but
allows member states to opt for a standardised
Although supported in the UK by the
Investment Association, which had urged the
FCA to standardise disclosure “in order to assist
consumers to make meaningful comparisons across
all investment products and services”, the FCA is
concerned that it couldn’t develop a standardised
approach that would work for all consumers and all
business models – and that it could actually impair
innovation in this market.
FT Adviser quotes a spokesperson for the
FCA watchdog in responding to the Investment
Association: “Instead, we want to give firms the
freedom and flexibility to design that disclosure
with information provided to your clients around
your business model and the needs of your clients.”
RI index anomalies
Literally moments too late for the launch of the JSE/FTSE Responsible Investment index
series came the announcement of MTN’s debacle
in Nigeria. MTN is included in the index. Compare
this with the prompt removal of VW, following
revelations of manipulated emissions tests, from the
Dow Jones Sustainability Indices.
Then compare these with the MSCI, a leader
in the field of sustainability indices, which focuses
on forward-looking measures. It had de-rated VW
prior the emissions announcement. The MSCI team
on ESG (environmental, social and governance) looks, for example, at a company’s carbon footprint
and governance practices to assess likely impacts on
its future profitability.
The team has discovered “tremendous value”,
reports RisCura’s Malcolm Fair, in using big-data
techniques to scour the web for backwards-looking
negative press and worldwide regulatory findings.
It was through this process that misdemeanours at
VW had been picked up early. “I found this to be
an interesting use of big data in risk management
emanating from an ESG screening process,” he says.
As for screening processes, there are horses
for courses in considerations of “responsible
investment”. On ethical criteria, BAT (tobacco) and
SABMiller (alcohol) are automatically excluded
from certain FTSE4Good series. Both, however, are
in the top 30 of the JSE/FTSE RI series. Because of
their huge JSE market capitalisations and free floats,
relative to other shares on the local bourse, the
index wouldn’t hold much appeal without them.