Webinar: Quaterly Review | INN8 Invest

Regulation 28 changes – let’s test the limits

The National Treasure recently announced significant changes to Regulation 28 of the Pensions Fund Act. Among other changes, pension funds will be allowed to increase their investments in infrastructure projects, private equity funds, and hedge funds. These changes to Reg. 28 significantly open up the opportunity set for our local asset managers, particularly for multi-asset funds.

In August 2022, INN8 Invest’s Head of DFM, Leigh Kohler, sat down with Iain Power, CIO of Truffle Asset Management, Bastion Teichgreeber, CIO of Prescient Investment Management, and Richo Venter, Portfolio Manager for the INN8 Invest team, to discuss how they are seeking to use these changes to their advantage.

While Truffle (fundamental, bottom-up stock-pickers) and Prescient (systematic and quantitative approach) both manage multi-asset portfolios in the DFM solutions, they do so in very different ways.

To learn more about INN8 Invest, visit INN8.co.za.

[Music] morning everyone and welcome to the inaugural innate invest quarter review a series of webinars that are focused on understanding the world of fund managers and comparing and contrasting the best investment management skill not only in south africa but in the world and as most and also sort of exploring the most important topics affecting investment managers and financial advisors today um at innate invest we partner with financial advisors to create customized investment solutions for the unique needs of your practice and we can do so on any platform and what makes us different is our peer degree right we’ve been around for two decades managing money um as a multi manager we’ve got a team of 20 investment professionals focused on asset manager research on portfolio construction and our track record actually you know speaks for itself we our funds have been in the first and second quartiles over the last five and seven years and then our power is our second tenant the ability to leverage our large assets under stewardship so we look after 350 billion worth of assets and we use that really to make sure that our pricing the asset manager pricing that we incorporate into our solutions um you know really benefit the clients and then lastly it’s about a partnership it’s a partnership with our advisor and incorporating the voice of their advisor into the investment process and really enhancing the investment uh proposition for financial advisors and just a reminder that your dfm team our team was nominated for a raging bull award for the best south african fund manager the first dfg to receive such a prestigious nomination so the solutions are managed by one of the best investment teams in the industry our investment approach revolves around a concept we called enhanced diversification and our webinars over time will help demonstrate why we believe that this approach is the most suitable to navigate the choppy waters of our investment markets and it’s about how we use boutique splendid with large managers how we use flexible funds and those mandates in our portfolios and how we tilt our portfolios to sort of more active um overall while also including some some pastel solutions as well um we have an action-packed session today kicking off rico finter portfolio manager for dfm will give us the latest performance overview of the native sdfm solutions both locally and globally then we’ll focus our conversation um on the recent changes direct 28 now we know that the national treasury recently announced significant changes to race 28 and the most significant being the change of the investment um sorry the offshore requirement limit the 30 international and 10 african allowance has been replaced with a single offshore limit of 45 and in addition pension funds will also be allowed to increase the investments in infrastructure projects um as as the new regulations sort of recognize infrastructure as a separate asset class now the question is how are asset managers with very different views um of the world looking to create value for investors given these changes so we’ll unpack our both shuffle and prescient uh will look to take advantages of these changes direct 28 and i’m extremely excited to welcome bastian takriva of president and ian power of shuffle both managers that are represented in our solutions ricco fenter our senior dfa portfolio manager will be joined that discussion and will weigh in on how the dfm innate invest views these regulation 28 changes focusing on offshore infrastructure and how it will impact sort of our long-term strategic asset allocations so from a housekeeping perspective if you have any questions feel free feel free to pop it in the q a box uh we’ll be playing applying for cbd points for the web and also keep an eye out for the notification um the webinar will be recorded and available in the next few days along with the slides used for the webinar and then also follow us on our linkedin page um at ignatingbest for all asset manager performance and investment in market updates right so i’m going to introduce rico um one of our portfolio managers and senior portfolio manager um at innate base and rico started his career in 2004 as a live health key at live healthcare as a credit analyst in 2005 he got an opportunity to work for the feca as an analyst in the collective investment schemes department where his passion for unitized investment started he subsequently joined standard in 2007 and served in multiple roles including heading upstanding asset manager implementation and analytics team in 2013 he joined uh the standard multi-manager so just that you know the standard multi manager has been rebranded and we are now calling native base as a research analyst conducting investment research and building investment management tools for the business and since 2016 has been a member of the portfolio management team managing various multimanaged funds and and models ricoh completely has become honest come louder at the university of victoria in 2003 and he’s also a charterhold cfa chart holder and something we code it’s a little bit uh really in the face so you know he’s a very modest guy but rico was also recently included in one of the top five fixed income managers in the country by city wire so i’d like to welcome rico who will give us a performance update of the innate invest portfolios thank you girl thanks a lot for the introduction and welcome everyone to to the webinar i’m going to get started right away with with my presentation and it’s really just a very brief over with view today uh just to to provide the backdrop for some of the discussions that that we will have through through the course of this morning if you can maybe just confirm if you can see the slides on your site so that i know everyone’s seeing the slides yes we go perfect i’m gonna get straight away now it is quite an interesting date it’s the 31st of august uh it’s quite difficult to to make a prediction what what’s happening for the month of august because markets are also about volatile so most of the discussion today is going to be till the end of of july but i’ll bring in some thinking uh in august and as well as uh our forward-looking thinking from from this point onwards so i think a few key events and these have really been key events for a number of quarters now it’s high inflationary prints across the globe that we see and this has been followed by heights in interest rates not just in south africa not just in the us but in most parts of the globe now the problem with this is it’s putting a lot of pressure on consumer spending company earnings and it’s causing a lot of volatility in financial markets because financial markets are linked to interest rates it just affects every part of of of the economic economy and i think the big question we’re all asking ourselves now is have we reached the peak of inflation especially with no end in sight for the war in ukraine now i’m going to make a bit of a bold move a comment apologies and say obviously probably very close to the peak in inflation and i know uh bastion um repression’s got a fairly similar view at the moment but currently there is quite a a broad array of views uh in in the market on inflation and it’s just because it’s so difficult to call there there are so many uh aspects out of the control out of one’s control and it’s very difficult but we think we are close to to the peak at at least of of inflation doesn’t mean inflation is all of a sudden gonna drop but we’ve seen a lot of the inflationary drivers like oil prices i like many of the commodity prices rolling over a little bit still high but just reducing in price a bit and that should alleviate some of the current pressures we we are seeing what we’ve also seen in the years is two consecutive quarters of negative real gdp and now that’s quite scary uh because it is a technical recession although not classified as an official recession because of the strong labor market and other aspects of the u.s economy that that’s very strong at the moment however we try not to be too overwhelmed by the work recession it is really just a period of low growth and growth or negative real gdp and typically it recovers quite quite quickly so we try and be not too too negative just based around that word but that’s it south africa also starting to see some cracks and some challenging numbers coming out sl retail spending has declined in four out of the past five months and we know retail spending is one of the big drivers of south africa african gdp fortunately we saw in the week government tax collection still remains fairly robust and so a mixed bag of fairly positive numbers but also some cracks we’re seeing here in the economy now again some questions we and and the managers in the dfm solutions ask themselves can the u.s maneuver a soft landing a few months ago last month we would probably have said definitely but this is now starting to become less less certain we still think there’s a very good chance of the us maneuvering a soft landing and a soft landing is is really just meaning hiking interest rates bringing uh inflation under control in the us without putting the the us in in in a bad economic spot or a terrible recession now we think that’s still possible but something we and the managers are closely monitoring and really aligning the portfolios to uh to to be defensive against actual scenario and then important for south africa and the rest of the world can china pick up the slack now we know large parts of the world are going through a quite a challenging growth phase china is and has come out of uh lockdowns uh the economy is not in a great space they they’re implementing various stimulus uh measures to try and get the economy going and we really hope the economy can get kick-started and help south africa that’s so reliant on china importing various things like commodities uh from from south africa and also to supporting the globe uh in in general now looking at performance numbers and as i mentioned this is end of july august august was a good month um until a few days ago and so but let’s see how august ends and not a terrible month but if we look until the end of july global equities and nice nice recovery after a challenging june uh we saw global equities rebounding quite nicely part of that came from uh randy appreciation but uh nice balancing global bonds uh good returns these are all in random so this is from a south african investor’s perspective sa is also a fairly good month over three months the likelihood is a three-month number still uh in negative territory uh essay property we had a disastrous uh june july what pretty much recovered all the losses from june so we were quite quite pleased with that especially some of the dfm portfolios to have some property exposure and that really helps if property can uh deliver good returns really helps the the equity allocation in the phone and then sf bonds june again was not the best month for bonds quite quite strange that bonds and we’re sold off and that’s just because of selling pressure from a lot of foreigners is exiting our market because because of fears or this risk off event we we experience uh but again july quite a quite a good month for for sf bonds now if you look at the the portfolios the the race got a track record of of about seven months so it’s not a long track record but bear in mind the managers used in these portfolios have got got very long and successful track records so we’re quite happy to look at some of the back testing numbers we use in these solutions which represents how the numbers or the managers are combined from the solution so longer term you can see really confident that these managers can can continue producing the good returns especially versus the cpi objectives and then also very importantly against the average of peers in the industry so very successful long-term track record and then if we focus on the six-month period which is more or less the time period since the the models have been launched it has been unfortunately a challenging period across the markets uh we’ve seen like global equities being sold off local equity sold up very very challenging but i think the the important thing is the defensive nature and especially from the strong active managers and i’ll touch a bit on that like that as i go through some of the attributions the active managers like truffle have done an exceptional job for us in in squeezing out positive returns during a challenging period the flexible income uh over the last six months two point two percent yes not exciting returns but one ahead of the average income fund in the portfolio and really excited about the current positioning in the portfolio and i’ll touch on some of the asset clauses here in the slide or two start the stable growth portfolio which is a typical low equity fund with some excellent active managers in the portfolio also producing a positive return bear in mind the average of other low equity mandates in the industry actually all slipped in into into the ring over the last six months and then that’s really the the story across across the range you can see very very good out performance from the moderate the medium equi guitar portfolios or the moderate growth portfolio very good performance versus ps high growth again good alpha and then the flexible growth portfolio the portfolio with a high global exposure now bear in mind global equities i showed you earlier just over the quarter big negative returns and and this portfolio fortunately did provide quite a nice defensive uh solution for clients regardless of the high global exposure in in this portfolio and as you can see longer term the the investment uh combination of these managers really performing exceptionally well for us so in a nutshell while it’s been a challenging six month period in financial markets across most asset classes uh we’re very happy with the outcome of the solution relative to to our competitors and the defensiveness these models have shown and looking forward we are extremely excited of what we can achieve and i’ll touch on that right now just maybe a few notable performers in in the solutions and why the solutions have managed to to provide such good protection over the last six months and do so well versus peers now um maybe on the income side uh uh notable performer alawani uh they’ve their defense of nature has done pretty well also very good credit selection uh prescient invasion that’s with us to today also they incommanded doing fairly well especially over the last 12 months very defensive in a volatile period if we look at a low equity manager that’s done well one of the boutiques abecs the absolute mandates done very well equity protection strategies and good use of inflation linked bonds uh really comes coming through strongly for abex uh truffle that’s also on the pool with us today truffle has been amazing for for the portfolios and we use them in a various um in various of of of the models uh just really strong stock picking from truffle that’s probably the best way to summarize they’ve been in the more defensive british american tobacco they’ve built been in uh the old stocks over the last number of quarters like charlottesville and they’ve also picked up some of the smaller opportunities like mediclinic a share that ran it really hard um due to a takeover that’s a really good stop picking from truffle and and then not to exclude some of the other boutiques and in in the models in general the boutiques have done well 361 a good example uh we use them in the in the flexible uh growth mandate doing very well for the portfolio laureum another boutique and that’s been very successful in in in the solutions as well as battalion there are other there are plenty other others that have done well but i think these are some of the notable performers that i’ve highlighted here the global portfolio some ancient global portfolios really came under pressure so these are the us dollar portfolios um while they’ve come under pressure since launched these three portfolios we think are fairly well positioned at the moment global equities in particular have been beaten down severely and we really start are starting to think there’s some nice entry points especially from some of the strong active managers we are using in in these us dollar models then on a forward-looking basis um now it’s been it’s been challenging but when we speak to the managers uh managing the the underlying portfolios uh in the solutions we’re getting very very good signals from uh on sf bonds the managers really like the yields currently on offer they think that the essay government is in a fairly good position to to repay debt um at yields of over 10 percent the essay government bond bonds provide a very good long-term real return or expected real returns at least sa equities uh while i mentioned earlier you know recessions are starting to be uh become a possibility across the globe uh south african equity markets are just so cheap at the moment both in absolute terms as well as relative to many other markets and and the strong active managers for using the portfolios really find very very good opportunities and once you just look past the next quarter past 2020 we think at some point these sa equities um will will be right um earnings will come through there will be some good upside with these equities and on top of it we’ve got the strong active managers picking those great opportunities they’re really excited on on on sa equities is that property some good upside but landmines to avoid a really an asset class again where we think active stock picking will will really be rewarded and then on the global side double bonds not as excited to some of as the local bonds and even the local cash once you go out a bit on the yield curve becoming quite quite interesting and so not as excited from the global side that remains a good diversifier to always have a little bit in the portfolio and just uh especially during these tough times and global equities uh i’ve said quite quite often and during this presentation so for active management being very important in the current environment and we think um especially on the global site where there are so many expensive stocks to once you should avoid um the strong active skills we’ve got at the moment can really navigate through through the global markets and find those very good opportunities currently globally that is it from my side lee um i’m gonna hand over to you and happy to take some questions later on thank you thanks so much rico and yeah i mean really it was a tough start to the year the first off of 2020 two was actually one for the record books um and it’s it’s really good to hear that most of the managers that we that we use in our solution that partner with they really have a better forward looking view for h2 and we’ve seen that july and august has already been better so so thanks rico we’ll chat you a little bit later so next i’m going to introduce bastian thai creamer the cio and co-head of quantitative analytics and prescient investment management um bastian joined president in august 2015 as a portfolio manager and was responsible for various multi-asset strategies in 2018 he stepped into the role of head of president’s asset allocation capability and in 2019 to a head of investment research in 2021 bastian was promoted to chief investment officer his tenure includes developing actively managed investment strategies across the asset classes and has been closely involved with the management of optimal fixed income allocations uh within the multi asset class funds basting holds fba honors degree in banking and financial management from the ravensburg university of cooperative education in germany and in 2009 he obtained the master of science in banking and financial management from the university of liechtenstein he’s a cfa chart holder and completed his financial risk management certification in 2012 welcome bastian and looking forward to you sharing some you know some nice insights about president and multi-asset portfolios particularly thanks a lot lee yeah far too generous intro as always thanks to everybody for um joining such a big audience always great to see so many participants giving us opportunity to talk to and yeah our last but at least also thanks to the n8 team for having us um it’s obviously a particular honor to be part of the first in eight webinar so um yeah we’re quite excited about this i’m going to kick off with a quick intro on prescient just briefly five minutes most of you know already um who president is but it’s important for us to just share that before we start the panel discussion a bit more in detail okay so we have been accepted 24 years ago i’m quite proud of that it’s interesting to see on the floor that the first yeah junior um quant analysts or the first grad students are actually now turning out to be younger than the company so that’s um quite interesting it obviously stands testament to our investment process our investment philosophy and shows that we have basically um yeah stood the test of time so to say and um yeah we’ve been through different market cycles and we’ve got the experience to basically outperform through these market cycles um we have also um been proud to be part of the group so 100 of um present investment management is owned by the president group um and that’s important to us because in the group we are obviously are focused on investment management but we’re also part of a group which has a stock broking business and which has its own fund administration and all of that helps to keep the costs low and to leverage efficiencies and we are obsessed with efficiencies and keeping costs low um we have a team of 58 staff members at present investment management that’s something which we quite proud of um so it’s a big team and again more half of a team sits within the investment team which just highlights that yeah we are geared towards out performance we get towards getting the investment process right um but it’s important to highlight the growth journey um growth journey also when it comes to the assets under management so 113.3 billion is what we show as the end of july as we speak we have already grown past 115 billion so it’s good to see this acknowledgement from the market um except like understanding our fund range more and more and seeing that um yeah that there’s a lot of benefit to investing with us okay and i also want to highlight that we are um subscribed to um a level 1b rating uh we are strongly subscribed to being esg focused it’s a big part of our investment process we have our own foundation and yeah it’s just important for us to take investing further than just looking at returns so um we also want to invest um for the greater good so to say our capabilities span around um multi-asset fixed income equities and we do this locally and globally so this is important for us to highlight because it really um explains a little bit um about where our journey is coming from where we’re coming from where we’re going so we have and this is what we basically show the next that we have won quite a few um awards through time and we started off winning these awards mostly um in the fixed income space starting 2013 2014 sorry in the multi-asset space 2013-2014 many awards in the years before i said we were accepted in 1998 but then over the years 2015 2016 2017 we got very known for being good in the fixed income space and what is good to see is that 2020 we actually got a raging bull for being part of the best managers in the country and that’s really since um everything comes together so our fixed income knowledge and our asset allocation knowledge and leveraging these core skills across the board is really what’s what what sets us apart okay so just in terms of our investment philosophy um we are rational rules-based and evidence-based and data-driven so what that means is just um we process a lot of information in a very rational way so very mathematical almost sounds a little bit boring but we really like to go um with the evidence so this helps us to make unbiased decisions which is crucial so we cut out the emotions we think fear and greed are poor advisors when it comes to making investment decisions and we don’t suffer from these problems so we have clear defined strategies our portfolio managers know every morning once they come into the office what to do and what they read in the news is almost irrelevant okay so all the information is already in the system the day we start working and why are we doing it because we really think that this data-driven approach is absolutely key to create long-term art performance okay just from here quickly i’m more into the philosophy we are guided by numbers not by narratives we really like to look into the evidence um not into the smart stories we believe in the power of time not in the power of timing the calls um absolutely crucial academic evidence and empirical evidence strongly supports that market timing doesn’t work and we’ve got a proven investment process we’re not biased by making point four costs or predictions predicting where asset losses go doesn’t work but it does work to have a good process which i bet identifies certain environments and whether these are conducive for growth or not um we believe in a team approach so i mentioned we’ve got a strong team of more than 30 people in the investment team so we don’t have superstar fund managers for us it’s more about having a broad-based collaborative innovative approach and that’s really how we operate that’s what we think will take us much further than relying on two or three key people and all of this is done to create certainty so we want to create peace of mind for ourselves to be honest because we know what to do without stressing about markets because all the analysis is done on a daily basis and that’s what we go with but most importantly obviously for our clients so um i just want to speak very quickly about two funds which have entered in eight solutions i’m going to start by speaking about the president defensive fund it’s a traditional low equity fund it’s active in every instance so we have an active asset allocation in the tis there’s an active asset location when it comes to a strategic asset location we do generate within asset class alpha by being good on the fixed income side but also by following enhanced indexation process on the equity side but we don’t stockpile all of this comes at a fee of just 30 pips and then on the other hand if you take one step up the risk later we also have a press imbalance fund a very similar story again very low costs again just 30 bibs and again we are maximizing the return per unit of peer is taking so we try to get the best return which we can achieve but we are trying that by minimizing the risk of underperformance and if you measure the hit rate of how often we are ahead of our peers you basically end up with a number well above 80 and that’s actually um we are almost the highest in the industry so within the high equity balance fund and we are targeting cpi plus six and we have a peer benchmark of 65 percent equities and an offshore benchmark of 25 percent we’re going to speak about offshore more just now we’ve moved 45 offshore but um that’s a little bit of a spoiler um before i go into those details i’m going to hand over back to you lee an absolute spoiler video i was going to bring that in with later but i still will um thanks thanks for that we’ll see you soon um next i’d like to introduce ian power i mean ian is the cio and director truffle asset management and very well known in the industry ian completed his become honors in investment management at the university of johannesburg in 1992 and started his career at rmb asset management in 93 ian held various investment roles at rmbs management including being a member of the board of directors as well as the management board while being a senior investment professional in the equity team after 16 years with rmb asset management ian joined truffle in may 2010 as its chief investment officer welcome ian and we’re looking forward to hearing what you have to say in just your camera and your mic please there we go sorry can you guys see my slides we can great i just want to say uh thanks to innately rico everyone for inviting truffle on the inaugural presentation it’s a privilege to be here and a privilege to be a partner of innate and yeah hopefully the partnership will be fruitful over time maybe i guess just before unpacking some of our flagship solutions and giving you some insight into the fun just to give those of you perhaps not aware of uh truffle a little bit of history about the business uh from a travel perspective um truffle is a uh uh truffle is a a boutique business which effectively has grown from sort of 14 years ago being a fairly small business of a few billion up until today we’re sitting at about 65 billion of aum under management uh the businesses got you know certainly we enter our second decade of experience and when one looks at the team the team is very very experienced so notwithstanding the fact that the business is sort of 14 odd years old we have lots of experience in our business and people who have seen many many cycles one of the big differentiators that many of you will probably be aware of truffle is it’s we believe that generating the superior returns that investment clients need over time is not just about picking those winners but it’s also about avoiding users and permanently impairing capital so we have a very strong process which focuses on downside risk management and what one will find is uh the excellence of our returns is is also about protecting uh and being defensive as ricco said earlier when we think it’s appropriate to be so and i think that that really then puts our clients on the front foot and puts us on the front foot in terms of generating the real returns that they need so we’re an owner-managed business and we certainly are client-centric so our clients come first and we really are obsessively focused about generating the returns that our clients require we have a collaborative culture uh we have a performance um culture at truffle and where the best ideas find their way into client portfolios and a very robust team discussion to make sure that those ideas are tested through the experience of all individuals and many of the individuals who you know have seen multiple cycles uh some of which have over three decades of experience from a track record perspective we’ve got a top decile track record uh pretty much all of our products uh i have have done well and many of them are leaders in their in their respective classes so just really i guess to showcase some of our products and really going from the low risk all the way up to some of our high risk profile products and you know what what we’re showing you here is the funds that we run as well as their relative rankings versus the peer group and one can see whether it’s our income plus our low equity funds um our balanced fund um you know pretty much all of these funds are either number one or in the top three of their respective categories and and and some of these funds uh have a track record which is well over a decade so i think a pretty good and consistent performance where our clients have benefited from these from these returns so the fund really that i’d like to highlight today is our flexible fund one of our biggest funds uh from a truffle perspective the fund is around about nine odd billion so a fairly big fund um and i think when one looks at the fun performance over time which is highlighted in the blue line here one can see that it’s been a consistent performer you know beating cpr plus five comfortably over the last you know decade plus but also beating the all share index as well as the category average by by quite some margin so in effect what you’re getting is a fund which you know delivers out performance relative to the market but at much lower risk the the volatility is almost half the market and certainly has has beaten most of our peers so why partner with with truffle and i think lee and you know sort of rico have already alluded to the benefits of investing with some of the boutiques which are smaller and nimble but really just to unpack i guess from a truffle perspective firstly what you get when you partner with us is a very very rigorous process we are process orientated we don’t invest on the basis of feelings we are driven by data and this enables us to make our performance repeatable and has been what has helped us deliver the decade plus top decile returns which uh which our clients demand i think the the persistency of performance ultimately is is really what investors are looking for and i think if you have this uh process which is rigorous together with the combination of a deep bench of intellectual capital and that obsessive focus on downside risk which we have at truffle has really given us the ability to generate these consistent and persistent returns and then i think finally agility i think it’s fair to say and the evidence would suggest that as managers get much much bigger and they get to sort of the supersize super tankers it’s very difficult to be agile it’s very difficult to take advantage of volatility in the market and of course the opportunity set for much much bigger managers is much smaller than perhaps what it would be for a smaller manager like truffle managing 65 odd billion so we are much more nimble and we are much more able to take advantage of the market volatility uh to the benefits of of our clients so i guess you know the question is why this particular fund because we have this focus on on downside risk management and you know while it sounds like a bland statement i think i can’t stress enough the benefit of not losing money during difficult markets when you see drawdowns because it puts us in a much much a better position to then compound off a higher number and generate those real returns that our clients need so i think this i can’t sort of overestimate how important this this focus on protecting capital is when we think uh those those risks are high and then to maintain an element of flexibility the rate of change and disintermediation in markets at the moment is unprecedented we all know what’s going on around the world and one needs to have flexibility to take advantage of that and you certainly get that through our fund and through partnering with uh with truffle and then finally you know the track record uh stands i think um you know really is the is the proof uh of of our process and what it shows is we’ve really been able to deliver those those real returns consistently over the long run to the benefit of our clients so that really is just a quick overview from uh from a truffle perspective and really now just to hand back to um lee for for a panel discussion great thanks thanks ian and i’d like to invite bastian and we go back to uh sort of back back to having a little chat so yes our focus is on regulation 28 and those those big changes right um you know the the change from sort of 30 um offshore 10 percent africa to full on 45 percent offshore has really changed the game across the board and we’re here to explore um you know how significant those are so you know so let’s just stay with you right so how significant is the latest change to rate 28 to investors specifically on the offshore side the 45 um increase let me just give us a give us a view on how significant it actually is yeah lee i think it is very significant i think you know to the extent that one has access to a much wider universe um from i guess a global perspective and you know you get to invest in industries businesses uh uh geographies which are growing at different growth rates which you know clearly i think ultimately is a good thing for for investors because the more levers you have to pull in a portfolio the more opportunities to pull those levers means that you can build more robust portfolios from a risk perspective and trying to achieve and maximize you know i guess the returns that that most of our investors require the time so i think it is significant and i think over the long term i think it’s a it’s a good move um for for investors and ultimately our clients great thanks thanks ian now bastian i mean you know i’m almost thinking that while a from an opportunist opportunity said perspective yeah there’s a great opportunity there and a wider basket of opportunities for asset managers to select from but what what could this mean for local assets right if large investors like pension funds now start to rapidly move assets offshore yeah good question lee thanks for that um just let me start by also jumping on the first question which actually i guess ian has already answered to perfection but just also to say it’s a very positive thing so we have it’s positive for industry so we can diversify build better client solutions which means it’s better for our clients um we get better outcomes we can pull more levers as in names but at the same point in time also on highlight it’s a very good thing for south africa because we are operating in an environment where basically a lot of other emerging markets are kind of like becoming uninvestable there’s a crisis in china around taiwan there’s a war in russia and we are doing the right thing we are sending the right message that we are opening up so that’s basically to your point what does it mean if now a lot of asset managers move overseas first of all we don’t have to guess here we can measure it so what we do at president is that on a daily basis we measure the factor exposures of all the peers in all the categories so by doing that we can actually statistically back out um what they’re holding and by applying this approach we can see that as we speak we estimate just between three and five percent bigger offshore allocations for the multi-asset high equity category so a lot of the guys haven’t really moved and that’s the first bit which is really interesting to see as you know we’ve moved 45 percent a lot of the industry um peers have not really moved and again speaking to one of the points i mentioned earlier let’s also not be too focused on the risk of the short term of other asset managers leaving i mean yes that would be short-term volatility to the rent to our equities to bonds but the reality is there’s a bigger picture at play here so if we are continuing to send the right message long term we will basically get better equity returns better bond returns better currency returns in south africa so so you said also what is the average um offshore exposure now so it moved up by roughly well we measured it at roughly just below 25 percent in the high multi-asset high equity peer group and we think we just above 25 percent now from what our numbers and our research yeah so i mean you guys you see we might as well just get to that right you’re at 45 percent you guys just went there um and so maybe just some of the rationale for for that quick move and then ian i’d allow you to weigh in on that because you guys the last time i checked it could be you could have moved you’re about you’re at 30 um in the flexible fund so maybe just you hope you passed it and you can jump in there okay sure so um yeah there’s just two answers to this question why did we meet 45 and there’s two two key points to make the first one is um because we are so convinced it’s the right thing to do and the second point is because we can okay so i’m not supposed to sound arrogant so i’m going to basically um unbank what i basically break down what i said in detail so first of all it’s the right thing to do because we are running such a concentrated capital market here in south africa so we are just one percent less than one percent of global gdp from an economic point of view we less than one percent to global market cap when it comes to our equity market and on top of that our equity market is very concentrated for example in resources a little bit of financials a little bit of technology which is in the end just naspers and process so basically very concentrated market if you have 55 percent in sa i.e you move 45 offshore you’re still running a very concentrated portfolio so that’s really what worries us and that’s really why we said from an asset allocation point of view 45 is an absolute no-brainer we would actually like to take more but um why did i say because we can um because the biggest risk which you take if you move 45 offshore is currency risk and the rent is a very volatile currency and we can’t just blatantly move 45 offshore and hope that the rent goes weak that is not our approach so what we do apply then is we use currency basically a currency overlay to make sure that we get the offshore asset class exposure we get all the diversification benefits but we not exposed 45 to the dollar so that exposure is much lower on our side and i mean the ability to currency hedge is important to have we’re doing it since many many years more than a decade now and a lot of our good track records for example the track record of our balance fund has been built by always having an element of currency hedging in in our solution okay fantastic so so i mean moving offshore but reducing the risk through currency aging that’s great in your view on on your asset allocation in why maybe you guys are at around 30. yeah lisa i think from a truffle perspective we certainly don’t want to diversify just for the sake of diversity evaluation and value is important so you know to us it doesn’t make sense selling a very very cheap basket of assets whether they be sa fixed income or sa equities to buy a more expensive a basket of of global equities just for the sake of of diversity so we think perhaps tactically there’s there’s still an opportunity with an essay to harvest some of the i think the excess returns that that that ricco sort of alluded to when he sort of introduced i guess some of the um you know the real returns on the table from a from a fixed income point of view and certainly from an equity point of view you know our local equity market is trading at deep discounts to its long-term sort of median multiples with earnings from sa businesses which generally have still being upgraded versus global earnings which we starting to see a down a downgrade cycle you know in line with slowing global gdp and of course global multiples are nowhere near as discounted to what you’re seeing in sa so we think you know there is still an opportunity to to harvest some of the excess returns in essay and then once you know we have sort of extracted that and you have that that that mean reversion we will look to to gradually then switch some of that exposure uh offshore uh as and when we see better value uh offshore you know unfortunately at the moment from a fixed income perspective offshore there’s not really a lot of great uh returns and you know from and from an equity perspective i think we’re starting to see better valuations offshore but it’s still uh you know doesn’t doesn’t compare as favorably to some of the local assets that we think you know can really give investors that cpr plus six plus seven plus eight percent that we think will you know hopefully be able to be unlocked over time right so so two very different views so even you so you say these little opportunities in essay and opportunity oh you know you’ll take those opportunities offshore when you when you see them in this value um rico i mean one of we really value as a pf and we value the the asset allocation skill set of our asset managers and obviously with this 45 increase um offshore you know we we also seen a couple of managers sort of doing different things and and our expectations of these flexible multi asset managers you know are all that they will take these opportunities maybe just a view on what you got what you see from from our perspective as a dfm and how the managers are taking these opportunities yeah thank thanks lee um i think if if we just look look at it we we probably expected the managers to to use the offshore allowance much much earlier and so but in fact the shift’s been quite slow but asean mentioned the average um portfolio in the industry sitting at 25 percent we’ve we’ve seen yen and some of the other boutiques shifting up in small increments and many of our other managers and or portfolios that we use not really utilizing that 45 limit and it comes it all comes back to yen’s point earlier the managers are really seeing great great opportunities uh locally uh i mean even some of the managers we use like 91 in their portfolio and this is a manager that typically runs a portfolio with a high global exposure they haven’t utilized the the full the full exposure and it’s it’s those great opportunities we are currently uh seeing locally but we’ve been discussing this with the managers and pretty much all of them are telling us it’s just a matter of time at some point they’re going to be sitting in the 40s but but it’s really the flexibility that they really value and especially a flexible manager type of manager that we extensively use through the models it really gives them an opportunity to go beyond the 75 limit now the flexible managers aren’t regulation 28 compliant so they don’t have to stick to the 75 maximum equity rule but we do use them in regulation 28 compliant models to a large extent but this gives them confidence to just put in more more equity at points in time where we often find many of the flexible managers kind of got stuck in the 60 to 70 percent uh range they never really went beyond that because they weren’t confident to put as much um of the exposure in in local equity so so i think that some of the uh to summarize this then i think maybe not this year but definitely in the near future we’re going to start seeing some of these managers uh obvious impressions moved already but many more managers moving into the 30s and 40s great ricoh thanks for that and you know the it really shows the value of staying close to the managers and understanding where they’re moving to really start anticipating how uh we perceive performance going to be going forward um in maybe just a little bit of a changing attack in terms of the question so i mean we we know that shuffle has done really well over the last few years and received some major mandates i’m not gonna name the the uh the groups that have been allocating but it’s been very public um with very quick and chunky acid growth are you not worried that you know your acid growth will constrain your flexibility um that you speak about that we like um as a dfm um you know as a boutique manager so maybe just a view on that yeah no lee i think that’s right i think truffle has grown its assets uh quite quite nicely over the last sort of 18 months i think the important thing to note though is that when we look at first of all replicating our best view in our new mandates we’ve had no problem in terms of i guess replicating you know some of our best ideas so all the new money that’s come on has been able to uh really mimic what are what our best viewers been so i guess that talks to the investable universe still being very much in play for us and i think the the the last point is that um asset size does make a big difference to your returns and the ability to access a bigger opportunity set and be nimble and i think it is something that investors need to watch and from a truffle perspective because we’ve done so well in the multi-asset risk profile range uh even though we’ve got 65 billion the actual sa equity portion that we have is around about 40 odd billion so you know just compare that to to i guess some other boutiques who perhaps have more equity-centric uh um mandates and it gives you a sense that we still have a significant runway uh you know to be able to grow i guess our business but also importantly generate the returns that our clients require and you know if i just take this year to date as an example uh you know certainly we are still well ahead of our peers and notwithstanding you know some of the growth that we’ve seen we are still able to to to access the x top 40 uh opportunity set um you know i think rico made mention of some of those mid caps that we’ve been able to participate in to the benefit of our clients and then and then obviously you know we are we are a very very agile managers and i think those those levers for our clients or benefits are still very much in play uh when one compares us to you know some of the bigger managers uh you know you have either the 100 billion 200 or you know some of the mega managers at five six hundred billion so i think stock picking across all the asset classes and the ability to stop pixel very much in play for us um and you know i think that’s that’s evidenced in our ability to to consistently still generate the the top uh dsl returns great thanks uh thanks ian just i i recently just had a look at um some of the the sizes of some of these funds out there and the largest balance fund out these a multi asset high equity the largest balance fund is more than double the size of the entire flexible fund category so just to put that into perspective so i suppose that helps a little bit in and thanks for that answer um so sebastian you guys aren’t making stock single stock decisions right um correct if i’m wrong but i don’t think i’m wrong here um and like ian and the guys do um in your the equity component of your fund so maybe a couple of questions in this so what drives that you know the asset allocation or asset class exposure and does size count for you guys yeah 100 so first of all we are making an active decision to go for maximum diversification and there’s a good reason for that so academic and empirical research massively supports the thesis that taking idiosyncratic risks is not paid for over the long term i mean there’s been noble prices um being awarded for this series simple cap m we’ve all went through it through school so let’s go with the facts and um from there we obviously then say okay why stock pick you will not get paid for it over the long term so that’s why we avoid that that’s why we go for an index enhanced annexation approach which is not passive by the way so we’ve got eight years of positive equity alpha in a row so it speaks towards the consistency of a more humble enhanced indexation approach which just basically utilizes um all the opportunities within the asset clauses which we can use so does science become a problem then of course not for us because we are so well diversified i mean we are holding more than three thousand shares in our balance fund um if we allocate to five percent more or less um the global market would not even feel it so absolutely zero size con constraints for us and that again speaks towards um our obsession with low cost investing efficient implementation doing the things which actually work and which generate long-term outperformance um what are the factors you mentioned that also earlier like i mean obviously we believe in active management we just don’t believe in stock picking so what are the factors driving our asset allocation decision so though what we’re applying is a purely systematic enhanced um purely systematic um quantitative multi-factor model which basically uses some of the factors which we are all very well known familiar with for example we look at different valuation metrics across asset classes we look at different economic factors across different regions we look at financial conditions and different currency sets and we look at market sentiment um basically to identify whether markets become oversold or basically overbought so all of this plays a crucial role this is where the 100 million data points which we process on a daily basis come together and this is where we’re making informed forward-looking um decisions as set um used by only um an approach which has tested been tested through time and through thorough research great thanks so much um to the audience guys if you have any questions feel please remember feel free to pop them on the on the q a box and i’ll i’ll definitely try to get to them um so while we’re waiting i’ve got i definitely have a few more questions here so in um with this increased offshore exposure again stock picking offshore stock begin particularly your approach becomes um a lot more important for your team right so um is your is team size in this global space and maybe even not only team size but location um is it important um as this opportunity increases offshore and how it creates your team to cover a broader global opportunity set yeah so lee i think it is i think it is a factor and i think one clearly has to be well resourced but i think it’s also unreasonable to expect you know any investment business in the world to cover actively every single stock in the in the global uh mscr equity or you know whatever the index is so so pretty much what you find is uh most investment managers and truffle does as well uses a multi-factor quantitative model to funnel the opportunity set down to something which is a lot more manageable in terms of those companies which display those attributes which we think uh direct us towards a potential pool where we confession where those companies are likely to generate the excess returns or the real returns that our clients are looking for and you know in essence um the way we get there is might be slightly different offshore because we’re using a filter but the things we’re looking for are exactly the same as what we’re looking for when we look at the local universe where you know we’re looking for a decent or solid business which has temporarily lost its way which implies mean reversion and we have factors globally in our filters to to identify these these assets where we can then do secondary analysis on a reduced universe to see if many of these assets are eligible for for inclusion in the portfolio to the extent that they can beat our cpr plus plus hurdles so i think you know eventually it all gets back to you know i guess at a process level looking for those same things but the way in which we do it offshore is different because you’ve got such a vastly bigger uh universe in terms of stocks that you know one is obviously fishing in great um um what i’m going to do now always so i’m still waiting for questions guys so so you know please um send them send them through um you know one of the questions that i’ve been asked in the past and i’m gonna ask you bastian particularly is this sort of china the china risk and what’s happening the um you know real estate issue the taiwanese potential issue you guys have feet on the ground in china right so maybe expand on your views of what what’s going on what are you guys anticipating what are the real risks here to a south african investor or maybe a global investor in that case yeah it’s a good question um yes we do have feet on the ground um we think it’s important in china which is a very different market um to to actually be there once you once you invest in china but i guess the same applies to basically the previous question what about the team and the skill set and i mean ian mentioned that they’re using some filters and i guess you have to acknowledge that it’s difficult with the global universe being so so different we have to acknowledge that you need quite a lot of information to really beat capital markets and it’s not an easy it’s not an easy task to do so the way we go about and yes we have people on the ground in china but the way we go about it is um through a broadly diversified approach again so it comes down to yes we are exposed to china but we are only exposed to china through our emerging market exposure and that in itself is once again well diversified what’s our view on china so um yeah we obviously are are worried by the most recent circle developments politically we know there’s long-term demographic challenges so um it becomes a difficult market to invest and um yeah the real estate market um yeah i don’t want to call it collapse but the downturn of the real estate market is again something which which raises concern so i guess china is one of these good examples where you have these amazing long-term growth opportunities where everybody was like extremely optimistic one couple of years ago and then things take a sudden turn very quickly by for example largely driven by political circumstances which basically are impossible to foresee and yes we’ve got people on the ground but again there’s a lot of external shocks which you still cannot foresee and that’s why we yes we like china exposure over the long term and yes we like emerging market exposure over the long term but let’s also be humble and accept that you have to um invest into these markets in a very measured way in a diversified approach all right thanks pastor another another question and actually we had a webinar sort of dedicated on on um the gray listing of essay and the potential impact there and we had a speaker but i’d like maybe just quickly um in your view on the potential impact on on investment markets let’s call it um from that perspective on of a potential listing yeah so lee i think um you know once again in a world where uh one is is the world is obviously getting more focused in terms of governance esg and i guess you know risks around terrorist financing and transparency um you know to the extent that south africa does not comply with the requirements in terms of the um action task force uh there there are potential consequences where you know essay then could find itself in a bit of a backwater to the extent that we seen as a market that’s not really one economy that’s not really serious in terms of stamping out corruption and ensuring the necessary hygiene and transparency in terms of capital flows from our banks you know back and forth globally so i think you know we’ve sort of seen maybe a little bit more pressure um of late and i’ve seen a few more sort of action papers going back and forth between some of the the regulators to get views um i think south africa always is sort of slow and and ma you know painfully slow in terms of making decisions um you know my sense is we will we will get there it would be it would be a big negative i think and a step in the wrong direction for us if we did not adhere to what these global best practice and and and standards are uh you know particularly given our constitution and a lot of things we say uh in the media so i guess you know saying is one thing and we want to see the doing now great before i hand over to rico i’m going to ask you guys just don’t define maybe a final question and you can you could even hang on after that after it goes it is time to ask on some more questions if you guys have time but maybe best thing to you and me going forward when we have our investors and advisors on the call here now who are using the innate portfolios you guys are represented in there what can um you know weeks what are the big opportunities and what are the big threats going forward and in terms of your positioning and your portfolio so the multi-asset function invested in the flexible fund for you uh you maybe just give you on that yeah sure so i think um i guess the big opportunities which we see are really um and i mean ian alluded to it earlier the the repricing of south african assets which we have seen so and and i mean i guess where we’re coming from is we have been through two major shocks to markets we started off with having um yeah inflation upside the price after inflation upside the price after inflation upside surprise and all of these were like traditional supply side shocks um coming out of covey to be basically headed into a russian ukrainian war coming out and not even coming out of the russian ukrainian war but on top of that we had basically another covet-driven supply-side shock with china basically following through on their covet zero strategies so inflation is a big problem um but we expect inflation to come down sharply and the next problem is now after this inflation shock we’re looking into an economic shock so he’s now priced for a big recession around the corner and um indicators suggest that we are already in a recession i mean rico mentioned in the intro to negative um gdp prints in the states that’s what we’ve seen already um but our indicators also tell us that this recession is not going to be a particularly deep one so the opportunity and that back to your answer in our view is really that especially in south africa we have seen an aggressive reprising of s losses based on those two negatives inflationary fears and the recessionary fears but both of these scenarios or negative scenarios might not turn out to be as significant as they have been priced for so it creates value in the south african fixed income space be it at the front of the curve be it at the back in the curve it creates a value in the source african equity space creates value across the board in south africa so now you might ask though why did you guys need 45 offshore so let me just answer that as well in one go and the answer is because i think it’s really important to differentiate between a short-term tactical outlook and defining what is long-term optimal so we are clearly of the view that south african assets are undervalued we are overweighting these asset clauses but we still have to be clear what is your long-term optimal asset location and for the sake of the arguments which i’ve made earlier we continue to believe that the 45 cent offshore allocation so that’s how um that comes together i’m going to be quiet now to also give ian some time to answer the question lee so i think um you know it’s a big question you know what i guess what are the risks and then what are the opportunities i think the first thing to say is uh that from a from a risk point of view is i think the world has had uh interest rates which have been way too low for way too long you’ve also had a lot of qe you’ve got a lot of stimulus there’s been a lot of risk taking and that risk taking has manifested itself you know i guess in a big misallocation of capital and what we’re starting to see now is the unwind of that process as monetary policy and fiscal policy normalizes and what that’s going to mean is you know as as truffle we are we believe from a philosophical point of view that markets are efficient it means that many of the expensive assets out there in other words assets that are still trading at big premiums to what they’re worth um are likely to still come down and and and mean revert so i think from a risk point of view i think that that risk is certainly still there and then on top of that you know we’ve got things like uh heightened geopolitical tensions more nationalist type policies and at the same time and inevitably how these things happen um you know global warming climate change is real you’ve got a third of pakistan which is underwater uh there are rivers in europe which are just too low to be able to transport steel and fuel up and down uh there are big changes that are that are taking place you know in the world uh in which we live and i don’t think markets are fully priced in what that means and perhaps some of the solutions which talks to my opportunity which i think are are going to come into the future so i think discretionary spend general from a sort of a general perspective is likely to be under pressure um as discretionary spend is crowded out by some of these these grudge purchases but more and more i think we’re going to see governments recognize the fact that they need to be able to provide for their constituencies water electricity at sustainable prices and rates and i think that’s going to see an increased pivot towards the investment in sustainable energy grids and a lot of the infrastructure that’s needed to deliver that and why is that a positive it’s a positive because south africa is a resource producing country and i think many of these metals and and and products are things which we can also supply and i think that bodes well for our long-term terms of trade and at least i think gives us or makes the probability of unlocking this big discount in essay assets both fixed income assets as well as equity makes that unlock uh seem more and more likely so so i think you know longer term um and i mean we certainly can’t forecast you know recessions and and we don’t we don’t uh believe that you know people can can can forecast those things at all and i think that’s what the the evidence would suggest so we really try and focus on value and and and where assets are mispriced and i think we can see some clear mispricing of assets in essay that’s where our portfolios have have certainly got big chunky allocations and we’ve been playing defensively on a global uh sort of stage where we think perhaps some of those risks that are alluded to which have resulted from the excessively low interest rates are yet to still wash out of the system um so yeah i mean i think there there is a good potential returns for our clients on the table we just can’t say when they will be unlocked but i think the probability of that happening certainly looks uh better than average fantastic i mean i think ladies and gentlemen two clearly very different approaches to tackling the challenges of investment markets um you know on stage here with us and you know i’d like to thank both best unit ian for their time these are the leaders of the investment leaders of the respective companies and and really um you know the custodians of of of billions of assets out there so guys thank you so much um for your time um rico i’m going to ask um you two to now chat to us you know we’ve heard about um you know from both truffle and president and how they view the offshore and location um and how do we as a vfd think about it you know given that we manage different solutions with different outcome expectations and benchmarks what is our view on offshore allocation in this new world and and how does our long-term asset application view change given these changes um you know so and maybe you can also incorporate some insights on infrastructure and that component as well um yeah so yeah thanks uh thanks lee yes and i and i think what we’re trying to try to illustrate is how do we incorporate these very different strategies so ian and bastian two very successful uh managers in the industry with very different views on how to get to the right uh outcome and how to be as as a as an adfm navigate with these different managers and and find the right outcome for our for our clients and i also touch a bit on on infrastructure it’s quite topical at the moment and through the likes of oppression to our clients already get very uh good infrastructure renewable energy exposure uh through depression portfolios and just how we think we can gain more exposure in future and generate good real returns for our clients so so i’ve pretty much covered the agenda already but especially on the global side we’ll just dig in a bit around the new regulation on especially regulation 28 what we think is the optimal global allocation and i think even for an advisor listening today if you don’t necessarily use the nadfa models i think it’s quite a nice um road map just to make sure your portfolios are positioned correctly you are thinking about these type of limits in your portfolios how we implement it in the portfolios and and also look at some of the current positionings that ties up with with what the managers have said until now now if i could first just touch on the on the new regulations over the years the allowable global allocation has increased for regulation 28 compliance as well as cisco solutions now cisco is quite important it’s a collective investment schemes control act or the typical unit trust you’ll find in the industry and and in the in the dfm solutions we make use of collective investment schemes or crs funds but if these if our solutions are regulation 28 compliant we need to comply with both sets of regulations which is great protection for clients in in terms of diversification required etc now until recently at a location of 30 outside of africa was allowed in in a regulation 29 compliant uh portfolio plus another 10 to the rest of africa but we know very few managers actually use that 10 discretion for the rest of africa and then maybe just uh at uh had a percentage in the portfolio so in effect for most uh asset managers you can then almost think of this limit increasing from 30 to 45 percent uh for them so it’s quite a big change so why this these limits have crept up slowly over the last 15 years or even longer we’re not all of a sudden have this big job but we think this requires for each fresh thinking in terms of portfolio construction it also places a bigger onus on essay managers to sharpen up their skills on the global side as an essay manager you or locally based managers you can’t get away uh without necessarily being strong on the global markets anymore so we think that’s very important for portfolio for from our perspective at least we also think having an integrated view is becoming more important giannis an example from truffle uh he’s got salsa on his local portfolio and he’s got shell on the global side you need to really think how these assets combine it’s not it’s not as easy anymore just to buy offshore when your limit is is bigger can the local managers compete with the global counterparts it’s another important question and our dfm business for uh it’s now over 20 years that we’ve been involved in both the local and the global market we do due diligences on global manages the biggest and some of the boutiques globally and we really have seen what works and quite often it’s it’s not the obvious it’s not necessarily the biggest managers at work they’re all very good big global asset managers but they’re also very good boutique managers globally and on the local side the same thing it’s not to say that biggest managers go on big good global stocks and it’s also not to say that the small managers can’t pick global good global stocks so it all comes down to the skill of these managers and how they can pull it all together in a solution for clients and and i think that’s where we do a huge amount of work and we and i think that we are very good at that and then after all of this what is the optimal global education uh and and that’s really what our the presentation is going to focus on now the example is often used if if an alien nation or an alien investor has to land in on planet earth and he gets to new york or singapore or wherever and he comes here with his spaceship would he invest in south africa and he’s got lots of money where would he put it and south africa is only 0.4 of the global economy why would he put any meaningful chunk of his assets um in south africa and and we would agree with that point we think as a global investor he or she would only put a large exposure to south africa if there’s really a very good active reason for that so either they want to gain exposure to our yields at the moment on bonds it’s that’s very attractive to the rest of the world so that might be a temporary tactical view or diversified for some unique reason like wanting to get em exposure in south africa being liquid is a nice space to get get that or get some precious metals exposure our market’s got a lot of those type of counters where you can get such exposure so we would agree with that however if you’re a south african investor with future brand liabilities which is just your living expenses uh will be in south african future you don’t plan to immigrate in the near future um so euros are african that expect to stay here for for a long period of time it’s not as clear-cut and alluded to it earlier it’s it’s this currency is just a such a big swing on over any period of time so for south african investor currency brings in a lot of volatility uh also rent liabilities or future expenses are linked to local economic drivers like gdp inflation exchange rates as an example those you will you will all know interest rates in south africa are much higher in in global than in most other global countries and that’s because of a higher inflation over time compared to other countries so being in south africa you experience over time high inflation than developed nations but you get compensated through high interest rates as well so those are the type of things you have to start thinking about and we then think you need to find a balance between not being too exposed to a volatile global currency in randoms and finding the right amount of diversification to create a portfolio that’s optimal for clients now how do you find that and and there are various ways to do it but to find the best way or the combination of asset clauses with the right global exposure that provides the lowest risk volatility given the required real return you need some tools to do that it’s not that intuitive necessarily to uh to just say oh 45 is the right global bringing in some tools on board makes this decision much much easier and that that’s where our optimization process comes in into play and many of the managers we will use will also have their own optimization processes now just a few simple steps in this process i’m not going to go into detail and we use 120 years of data to establish what’s a normalized return for the asset philosophy then established how do these different asset clauses behave relative to each other to establish what’s the right way in the opposite history isn’t always perfect and we need to make some adjustments here in the so african property is a great example we just don’t have a lot of history and we have to improvise and and and establish what’s a fair normalized return for property over time bear in mind we’re using skilled active managers so while a lot of our and quantitative work is based on indices and index returns over time we also need to realize that our active managers that we pick do produce alpha and incorporate that into our thinking there’s then a lot of number trade crunching happening and ongoing review in this process of establishing uh an optimal or optimized asset allocation now for those of you that have studied finance or finance courses we then come up with what’s called an efficient frontier and that’s just the um highest return level of risk taken but also what makes it slightly more complex is there’s an efficient frontier for each type of portfolio that we’ve got so for an income portfolio as an example that’s got its unique constraints this we generate an efficient frontier for a high equity portfolio we generate an efficient transit etc and maybe just one thing to recognize you’ll see not a lot of property coming into our efficient front here on uh in later slides or optimal allocation no note how volatile said african property in randy’s it’s the most volatile asset class so typically when you think of an optimization a very volatile asset class and it should probably give you a high real return or the optimizer would typically not like it too much and you’ll see some of that results uh in the next slide now firstly i’ve just used two examples uh for an income fund what the typical asset allocation is to gather that optimal global exposure we’ve been talking about and an income front is typically a portfolio where we don’t want a lot of volatility we typically try and avoid any quarterly negative returns and already you can just by me saying that you can imagine as soon as you’re putting too much global in an income portfolio it becomes very difficult to avoid a totally negative return and that’s that’s a simple way of thinking it from from an income portfolio as you can see from this optimization very little income coming or global coming through in the portfolio literally five percent is the optimal global and maybe just to explain the range the expected real return is gross or fees so we typically target from it almost three percent or around that three percent before fees is how we would construct a portfolio so not a lot of global uh required in such a portfolio and you can see a very little um uh property so pretty much we think for an income portfolio it comes down to great selection of local bonds and credit type of instruments now just my next example is a high equity balance balances this would be your your typical balance phone you can see over 25 probably around 35 the optimal global allocation according to our modeling once you drive or optimize for portfolio we see a real return of around six to seven percent gross of of any fees so that’s really the crux of the presentation we think 45 is not the optimal number according to our modeling around 35 is the optimal model however how do we implement it we’ve got this roadmap now that we’ve established we’ve got managers that implement diff that have different views and that’s exactly what we want we want managers like bastian that’s got different views and ian it’s got different views now and to implement global implemented views we’ll monitor it from a high level we make sure in the long term more or less the managers have been combined in the construct more or less follow this this road map that we’ve said however over time and technically we want them to change these views and then explore fixed interest assets globally if they think it’s the right call or go to 45 global if it’s the right we’ll go to 20 global if we think it’s it’s not or if they think it’s too expensive and we really want this dynamic approach that’s how we think we generate alpha and that’s how we think that’s been one of the key aspects of our business over the last 20 years of generating this the very successful alpha that we we have generated and then always very important to consider ideas and other factors like like liquidity this is just briefly where the portfolios are currently in terms of global and we can see the managers as eon alluded to earlier uh currently underweight global because of the the great opportunities low locally the flexible portfolio at 61 global that’s not a regulation 28 compliant portfolio more meaningful clients that want to maximize offshore but still make use of local opportunities um in his universe so that’s it on global and apologies i’m speeding up just literally two or three slides before we close off i really just wanted to take a touch on infrastructure now i’m not going to go through the definition of infrastructure you can read it in your own time after the presentation but the new regulation from nature allows 45 infrastructure unit trust regulation a bit more restrictive but we think our managers can get more than enough exposure through unless the debt which allows 10 in unit trust uh we’ve got other ways to get exposure through private equity type of um instruments that get it converted in unit trusts or repackaged in unit trust so we think through the two sets of regulations i spoke about this ample opportunity to get enough infrastructure exposure so while this infrastructure currently very very attractive opportunity we think in the market decades of under investments in south africa has resulted in our infrastructure being um very poor south africa currently only in this part of in infrastructure and productive assets compared to the rest of the world you can see the chart on the right at 13 we at the moment rest of the world double that we need to invest 30 in infrastructure and productive assets to alleviate poverty in south africa now we’ve got this huge electricity demand water shortages etc and through the through private investing we’ve seen very very good returns uh possible prescience got it in their portfolio cpi plus four and a half we’ve achieved through those investments and we think that sort of in returns are of very possible and we try to get exposure for our clients um and then lastly apart from the good returns that we expect it’s great diversification and then the right thing to do it’s a catalyst for exponential exponential job creation poverty alleviation and it aligns very closely with esg principles like decarbonisation for renewable energy projects etc so my last slide how do we aim to implement and i showed you lots of quantitative work that we we we do and combined with our qualitative and due diligence work earlier on but we encourage managers to invest where they see appropriate the oppression has invested there some of the other managers are exploring it alawani is investing in indeed notes and infrastructure and renewable energies and we think that’s the way to do it we we provide the managers maximum flexibility to find the best infrastructure type of investments that they can hold from our side we apply rigorous oversight it provides us with great liquidity we don’t get stuck and we put it in liquid assets because we’ve got various sources of liquidity with within various portfolios that we will invest for the united clients and then we’re currently busy with a a survey just trying to push the managers further the ones that aren’t necessarily looking at that space and really pushing them asking them to investigate and see if they can find great opportunities and then lastly it’s an evolving sector so why we do understand that managers might not currently exploit to the full extent we think there will be lots of these projects and opportunities coming up over the next five years and we’ll definitely be there for our clients to take opportunity and take the opportunity uh hands-on thanks a lot for your time and i’ll hand over to lee just to close off thank you oh that’s that’s fantastic thank you so much for going and ladies and gents i hope that gave you some insights into how um you know the art and the science of around constructing portfolios we’ve introduced some of the managers um you know that we we use in our portfolios and and to showcase how different managers with different views can be used to um you know combine a portfolio using some very scientific techniques um through our asset allocation approach our tech both um strategic and tactical um and how we use that to blend portfolios to to achieve the the to increase the probability of achieving um the investment returns required by the client so for those of you who have already partnered with us as a dfm thank you and you know i can i can assure you that you are in really good hands for those who who haven’t been looking for a good dfm partner um a dfm with pedigree a dfm with the power to negotiate really really good um um fees with asset managers and then a dfm that looks to partner with you that brings in your voice into the portfolio construction process please contact us um and in a nutshell you know new times require solutions and new approaches and we believe that the innate invest dfm solutions are designed to be future fit we use this approach called enhanced diversification using boutique investment managers with some of the largest skill managers incorporating the what we believe is an underused category in portfolio construction that’s the flexible funds along with increased active managers and active approaching we believe that this dynamic approach increases the probability of achieving investment outcomes and navigates uncertain markets with a lot more flexibility so again thank you so much for for joining us in our first webinar and we look forward to seeing you in november thanks so much and keep on bye [Music] innate is a registered trademark of stan lib wealth management pty limited an authorized financial services provider