For many trustees of retirement funds, offshore investing is becoming an integral component of their investment strategies. This trend is increasing following the announcement that National Treasury has increased funds’ foreign assets limit from 20% to 25
These developments have made it even more critical for consultants and trustees to consider the fundamental motives for members’ increasing offshore investment exposures. Furthermore, it is crucial that they enable themselves to make informed international investment decisions on behalf of their members.
According to Windall Bekker, Head of Investment Consulting at OMAC Actuaries & Consultants, choosing a strategy for offshore investing is one of the most important decisions that trustees of retirement funds and members will face.
“There are many things that both trustees and their consultants should consider - apart from diversification and risk reduction. These include how much to invest offshore, asset allocations, strategy relating to how each asset class in the portfolio is to be managed and finally, manager selection,” he says.
Bekker says selecting a manager to manage an offshore portfolio presents a few more challenges than manager selection for local portfolios. “There are essentially two avenues through which foreign exposure can be gained. Firstly, via local managers with global capabilities, or secondly, via offshore managers who manage global mandates from their foreign offices.“
According to Bekker, in the current South African market, simply having access to a universe of global managers and their asset capabilities is no longer sufficient for informed decision-making. He stresses that trustees and consultants need access to in-depth information about individual managers in order to select a manager who can meet members’ offshore investment objectives.
For this reason OMAC Actuaries & Consultants have partnered with a London-based analytical company, CAMRADATA Analytical Services Ltd, to distribute a co-branded fund-manager database tool with international capabilities.
Bekker says the database will assist trustees in understanding the international manager space. “Use of the quantitative and qualitative on-line data to easily screen, research, analyse and select potential international managers will afford trustees the opportunity to make informed decisions concerning their offshore investment strategies.”
According to Bekker, offshore exposure within an investment strategy serves to offer diversification benefits over the long term. By spreading investments across different geographic regions and currencies, offshore asset classes effectively give local investors the opportunity to diversify investment portfolios and reduce investment risk.
“On a strategic long-term basis, OMAC’s view is that bonds are the most effective assets for diversification among offshore assets, followed by cash. This is because these asset classes move together with foreign currency to the extent that when local markets are going down, these assets will move in the opposite direction, thereby cushioning local investors in local currency terms,” he says.