Complex offshore investing requires a multi-minded approach

Selecting the right investment option in a sea of offshore funds

Following treasury’s decision to increase offshore investment limits earlier this year, almost a third of any South African retirement fund can now be allocated to offshore investments. However, with the sheer number of offshore funds available, how do local investors navigate these complexities and select an offshore fund that best suits their evolving retirement goals?

Monene Watson, Chief Investment Officer, Old Mutual Multi-Managers – a manager of multiple managed funds – explains how a vast universe of global funds is reduced to just a few investment options by following a prudent investment approach. “Drilling down from hundreds of funds to a handful is no easy feat, but multi-managers can do this on an on-going basis by designing a process of selecting managers that is well thought through and anchored in a sound philosophy.”

Watson believes that skilled multi-managers with a robust framework are best placed to navigate the complex sea of offshore investment opportunities, in order to minimise risk and maximise growth for retirement savings. “Multi-managers have access to a broad universe of funds on a global scale, and are able to combine managers to fully diversify their offshore exposure over time.”

This process allows multi-managers to curate an assortment of varied asset managers, each with their unique investment style, in a complementary way that provides flexibility, enhances investment performance and minimises risk. Multi-managers access this information using a comprehensive database that covers a broad universe of funds – from large corporate firms to smaller boutique investment managers.

The first step in this process, says Watson, is screening this universe of options. “Once we have our defined universe, we are able to begin filtering the most appropriate funds within each asset class in terms of both managers and mandates. This stage in the process involves identifying a minimum track-record, a risk profile that falls within our desired parameters, and a mandate that is aligned with our own.”

From this point, Watson says a thorough bout of quantitative analysis is applied to the remaining funds. “The first set of quantitative filtering we do is based on returns, which means we are looking purely at what the manager has achieved, to determine whether they possess a certain level of skill. What we’re looking for here are managers who have demonstrated the ability to generate consistent returns over the long-term. We also try and ascertain their ability to add value from a broad range of stock picks by looking at their stock holdings over time,” she adds.

After narrowing it down to a smaller, more manageable universe, Watson says the qualitative analysis begins. “This part of the process begins by with telecoms with the managers where we’ll try to understand their unique value-adds. This includes checking for a stable team, and that the culture and the skill of the team are such that consistent results can be produced through varying market environments. For the managers that remain, a thorough due diligence exercise is performed, which includes a face-to-face meeting where any outstanding questions can be asked,” she says.

With thousands of options available, the global offshore investment landscape can be complex and intimidating for many investors, leaving many overwhelmed, concludes Watson. “In essence, a multi-manager reduces the complexity in terms of choice – essentially honing in on the best possible expertise in order to do the job of fund selection on behalf of the investor.”