How large asset managers collaborated to ensure you cannot invest your
assets overseas.
How large asset managers collaborated to ensure you cannot invest your assets overseas.
In a shocking development, proof has come to light that a handful of members of ASISA, a lobbying body purporting to represent all asset managers, unit trust companies and life insurers, wrote to the FSCA, National Treasury and SARB demanding suspension of the recent Circular that allowed all South African retirement fund savers to increase their overseas investments to above the current 30% limit. Their reason, not backed up by independent legal opinion and merely referencing “our view”, was that it conflicted with Regulation 28. Sygnia had already obtained independent legal opinion from a top pension funds lawyer which confirmed that there was in fact no such conflict and that the legal effect of the Circular on Regulation 28 was clear. ASISA did not consult all of its members regarding the Circular (despite professing to represent the industry with “one voice”). Sygnia is in the process of establishing who the authors of “our view” were, but it appears that these were primarily large asset managers including Coronation and Ninety One. Sygnia, despite being a member of ASISA, was certainly neither consulted nor informed of the letter and its contents, and the flurry of correspondence from ASISA to its members having learned of my knowledge of the letter showed panic and leads me to believe that very few other members are aware of its existence. ASISA is thus in blatant contravention of its own mandate and can no longer hold itself out as a representative body.
A remarkable and shocking justification used in the letter was that albeit “the industry supports the gradual relaxation of exchange controls” (words subsequently repeated by Ninety One in its commentary on the matter), “as controls are relaxed further, microprudential management by fund managers becomes more important in order to manage the foreign currency and country risk that arises in portfolios that are unconstrained by exchange control.” Basically a handful of large asset managers who control the wealth of most South African investors have seemingly appointed themselves the custodians of all decisions relating to foreign investments, thereby disempowering the boards of trustees, actuaries, investment consultants, financial advisers, and average South Africans from making the decisions the very legislation they reference bestowed upon them. It is not up to asset managers to determine the degree of foreign exposure appropriate for a particular investor: asset managers do not have insight into their clients’ liabilities, and it is up to an individual or board of trustees, supported by advisors who can help devise a customised strategy for each investor based on their circumstances, to do so. To claim that power for fund managers alone is the height of arrogance, as is the pressure applied to the SARB to reverse its earlier decision.
Just last week – before ASISA’s interference – the SARB confirmed the Circular, but the letter ends with a demand to the regulators to issue guidance on it by Monday, 23 November 2020, and it is possible that the SARB complied because ASISA presented itself in the letter as “the industry”. The letter did not come from “the industry” but from a handful of large asset managers protecting their multi-million rand bonuses at the expense of the rest of South African investors. The suspension of the notice also prejudices the smaller emerging asset managers, who due to size constraints often only manage local asset portfolios. With the local investment universe being so limited, the opportunity to include inwardly-listed foreign ETFs would have expanded their opportunity set significantly and allowed them to compete better with the established large players.
Large asset managers, acting in an anti-competitive manner, have just stopped every investor in the country from accessing additional offshore investments. Not in the interest of South Africans or clients who trust them, not in line with Treating Customers Fairly, but motivated by self-interest and greed. One can but hope that the highest regulatory bodies in the country see how they have been manipulated into giving in to ASISA’s demands and take a firm stance against ASISA. One way would be to allow the Circular to stand as is and invite comments to amend or expand it – to suspend it is not in South Africa’s best interests. I have nothing but the utmost respect for the National Treasury, SARB and FSCA, who have done a sterling job in these difficult times and have been misled by a handful of self-interested parties who do not share the same values as many other financial services providers. If the Circular remains suspended, Sygnia will make comprehensive representations to the SARB to reinstate the Circular in the interests of South Africa and its investors, and we will invite every South African to sign the submission.
I have no doubt that the large active managers are currently congratulating each other on successfully protecting their turf, with no concern that their self-interested actions have prejudiced the rights and investment growth of ordinary savers and breached the trust placed in them to act in the best interests of their clients.