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INVESTMENT: Trustees Should Embrace the Importance Of Independent Advice


Recent Western Cape Business News

TOO many retirement fund boards of trustees still make poor investment manager choices based upon limited information, leading to unfavourable outcomes for the fund members which they represent.

Clive Eggers, Head - Investment Analytics at leading wealth and financial advisory firm GTC, believes this is partially attributable to trustees’ reluctance to employ the expertise of investment consultants, due to the perceived high costs related to this advice.

“Historically, investment-related costs have been high, with the last few years revealing a global drive from regulators and industry commentators to lower these. We believe this has contributed to improved fee structures, however, this drive should not come at the cost of long-term returns for investors.”

“Occasionally – even in the case of highly educated professionals – trustees believe they are able to choose an ideal combination of portfolio managers and/or asset allocations which will lead their fund to its desired investment goal,” he says.

He cautions that regardless of a person’s understanding of financial affairs or balance sheets, there are insights into, and relationships with, investment managers, which trustees are not usually privy to.”

According to Eggers, one of the key areas where investment consultants add value is their experience and knowledge of which managers are likely to perform better under a certain set of circumstances.

“No fund manager can perform equally well under all circumstances and this is why a retirement fund should use a combination of managers, strategies and assets to achieve optimal performance. The skill lies in arriving at the ideal combination for different times of the market cycle,” he explains.

“Trustees have far too important a responsibility to buy into funds on only the advice of a product provider.”

He believes too much emphasis is often placed on fund manager performance, instead of doing a more in-depth analysis on the contributing factors that generated the performance.

“Investors are often fixated on performance numbers, but pure underperformance (relative to a benchmark) is not necessarily a reason to fire a manager. There may be various factors involved in the underperformance, including the use of the wrong benchmark or an investment strategy which may not be suited to perform well in a particular market cycle,” he says.

The focus on performance is in part due to the lack of inflation-beating returns and corresponding low absolute returns in the current equity market environment.

“The local market has emerged from a period of exceptional returns over the past decade, during which the choice of manager was not particularly important, as any relative underperformance was masked by the high absolute level of returns achieved,” he says.

“In the current low-return environment it has never been more critical to understand how, and in what manner, different managers can add value to your portfolio.”

Eggers emphasises that every retirement fund portfolio is different and that trustees should take time and care to determine the ideal manager and strategy selection appropriate for the fund in question.

“It is vital to have access to an independent view and expert tools to navigate the myriad of managers, funds and asset classes amid various market conditions. This provides trustees with the insight and discipline to stick to an optimal investment strategy,” he concludes.

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