Over five years to the end of 2024, multi-asset retirement funds with an offshore component fared only marginally better than funds invested wholly in South Africa, showing that, although there has been a significant shift towards offshore investments in that time, the domestic market has managed to provide solid returns.
The annual Alexforbes Manager Watch™ Survey of retirement fund investment managers tracks trends in the industry that are relevant to both retirement fund trustees and members, looking at investment performance, investment strategies, the B-BBEE credentials of asset managers, and environmental, social, and governance (ESG) integration, among other things. And although the survey applies only to institutional funds, which are different in many respects from retail investment funds, parallels can be drawn, and the trends tend to apply across the asset management industry.
Fund composition and performance
Retirement funds fall under the Pension Funds Act and are subject to stricter regulations than retail collective investment schemes. Regulation 28 under the Act imposes limits on exposure to higher-risk asset classes and to offshore investments. Funds may not invest more than 75% of the portfolio in equities, and they may not invest more than 45% offshore.
The Alexforbes survey makes a distinction between institutional multi-asset funds that invest 100% in South Africa (Domestic Best Investment View category) and those that have an offshore component (Global Best Investment View category). In the most recent survey, to the end of 2024, the report noted “a strategic shift towards international investments”.
The report says: “By December 2024, 39 out of 47 managers (in the Global BIV category) held more than 30% of their portfolios in global assets, with 10 exceeding the 40% mark. The average international exposure of asset managers in the survey increased to 35.2% in December 2024, compared to 34.2% the previous year. This marks a steady rise from 29.9% in December 2022 and 27.3% in December 2021, highlighting an ongoing trend of increasing global allocations. The shifts in allocation demonstrate how managers are balancing global opportunities with domestic risks, adapting their strategies to evolving market conditions.”
The table shows total returns from domestic versus global multi-asset funds compared with local and global indices and Consumer Price Index inflation. The large differences in the equity index returns do not translate into similar differences in the median fund returns, and over a year, the domestic funds slightly outperformed the global funds.
RETIREMENT FUND vs INDEX PERFORMANCE TO END 2024
|
1 year |
5 years | 10 years | |
| FTSE/JSE All-Share TR | 13.44% | 12.16% | 9.03 |
|
MSCI World TR in rands |
22.99% |
18.60% |
16.06% |
| SA All Bond Index TR |
17.18% |
9.56% |
8.65% |
| Domestic Multi-Asset BIV (median) | 16.16% |
11.62% |
8.77% |
| Global Multi-Asset BIV (median) | 15.63% | 12.05% | 10.08% |
| CPI | 2.93% |
4.89% |
4.92% |
Multi-managers gain ground
A notable shift in the investment management industry is the continued rise of multi-managers, which invest in a range of funds or portfolios rather than directly in securities. Multi-managers have significantly gained ground on single managers over the past five years: in 2019, multi-managers managed just 15 cents for every R1 managed by single managers; by 2024, this had almost doubled to 29 cents.
B-BBEE ratings reach new highs
Broad-based black economic empowerment (B-BBEE) remains a strong theme in the South African investment industry. The 2024 survey shows that 52 of the 79 asset managers surveyed are now rated as level-1 B-BBEE contributors, up from 51 in 2023. All of the top 10, and 19 of the top 20, asset managers achieved level-1 status, underlining the industry’s ongoing commitment to transformation and inclusive growth.
Responsible investment on the rise
Investing with attention to ESG factors continues to gain traction among local asset managers. The number of signatories to the Code for Responsible Investing in South Africa grew by 32%, from 56 in 2021 to 74 in 2024. Similarly, the number of asset managers signed up to the UN’s Principles for Responsible Investment rose by 49% over the same period, reaching 64. “These increases indicate the industry’s growing commitment to responsible and sustainable investment practices,” the Alexforbes report says.
Fees: competitive and transparent
While retirement funds tend to pay lower investment fees than retail funds because of economies of scale, it’s important for fund members to know that the fees they are charged on their savings are reasonable and transparent. The report notes that funds across asset classes demonstrated a continued trend of fee transparency and competitiveness.
On a pooled Global BIV portfolio, depending on the size of assets under management, the average annual fee ranged from 0.81% to 0.86%, although the highest was 1.01% On a pooled Domestic BIV portfolio, the average fee ranged from 0.68% to 0.80%, with the highest being 1.00%. On bond and money market funds, the fees were far lower, at around 0.40% on a pooled domestic bond portfolio and around 0.21% on a pooled money market portfolio.
* Hesse is the former editor of Personal Finance.
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