Old Mutual urges trustees, advisers to remain calm in 2009

Pension fund trustees and advisors must stay focused on the bigger picture and the longer-term and avoid making decisions based on single events or individual pieces of bad news.

That is the advice of Old Mutual Corporate MD, Seelan Gobalsamy (pictured), who says that while aggressive international policy stimulation may pull the world out of the current downturn towards the end of 2009, in the short term, extreme volatility is likely to continue, and episodes of panic selling will almost certainly still occur.

Old Mutual Investment Group SA (OMIGSA) Chief Economist Rian le Roux says that despite slowing growth and rising unemployment, South Africa is likely to weather the very difficult worldwide economic conditions ahead for 2009 better than many other countries, with conditions for consumers starting to improve in the second half of the year thanks to falling inflation and interest rates, and higher real income.

"So while in the first half of the year we will still experience some very difficult conditions with some sectors in deep recession (like automobiles, residential construction, mining, commodity exporters and small business) and job shedding in some instances, by the second half conditions should start to stabilise," says le Roux.

Gobalsamy says that within the retirement fund industry, it is trustees, advisers, consultants and intermediaries who have the responsibility to remind fund members and employers that retirement investment is, in general, a long-term plan.

However, he cautions that trustees may need to give special attention to the needs of members within 5 years of retirement. These members do not have time on their side so if the trustees did not proactively manage the investment risk, some disaster management may be required.

“Investors or fund members must avoid making decisions based on single events or individual pieces of bad news. Fund investment policies must be reviewed regularly, to ensure the same prudent, long-term approach is upheld. Most importantly, members must be advised of the likely short-term drop in value that may occur, and be warned against the risk of exiting their investments prematurely as a result.

He says it is also important that retirement fund members are assured of the stability of the institutions managing their funds. “Whilst the international crisis has undoubtedly led to local financial services institutions taking a number of knocks in recent months, our country’s financial institutions remain sound and investors should have full confidence in their credit quality.”