Speaker 0:
joining me now. Marion Gordon, principal investment consultant at Seme A Consultants and actuaries. Welcome,

Speaker 1:
Marion. Thank you so much for having me.

Speaker 0:
So, Marian, what role do asset consultants play in the local investing market? And how has that role evolved over

Speaker 1:
time? Yeah, so so is a house. We, um, provide investment consulting services to institutional clients. So those would be your retirement funds, your beneficiary funds,

Speaker 1:
your Corporates, your medical schemes and the like, Um and, you know, I think we need to take one step back and and kind of realise why we're doing it. It's really to ensure that the members invested in those funds are well taken care of, uh, in the case of a retirement fund, ensuring that those retirees have the assets that they need for retirement. Um, and so it's a very important role. Um, with the boards of trustees, the investment committees, the bankers of these of these, um, institutional funds.

Speaker 1:
So a couple of years ago, uh, there was a big shift, uh, from defined benefit or DB funds to, of course, your DCU defined contribution funds. Um, and that really has shifted the way in which we, uh provide investment strategies, uh, to these retirement funds, Um, particularly because the risk is now borne by the member. Um, And if we consider the member at the heart of everything we do, uh, it really

Speaker 1:
had a you know, a lot to do with reshaping the way we implement our investment strategies and the things that we focus on with these, um, funds, for instance, communication being exceptionally important. So there's been a shift from DB to DC. More recently, we're also seeing a very big shift to the likes of the umbrella funds As an example, uh, and I'd say, you know, a couple of years ago, what we found was that it was the smaller funds

Speaker 1:
know, very low governance funds. Uh, that did that shift, um, more and more. Now we're seeing larger funds also partake, um, in in this kind of transition toward umbrella funds for multiple reasons. Um, and so it does place a spotlight in what the future looks like. And so, you know, I I think standalone funds will still remain as it is. I think there will still be quite a number of big mega standalone funds in the environment.

Speaker 1:
Um but more so. I I also think that the umbrella fund space is growing not only with smaller clients but also some of the larger funds in the industry. Um and so, you know, from our perspective and the way we've, you know, tilted our consulting framework over time, uh, is to ensure that we address the right risks at the right time,

Speaker 1:
and that really does depend on the governance structures of the funds. So you have low governance funds? Uh, those would be your smaller funds who do not want to make the decisions on asset allocation who do not want to make the decisions on which manages to select domestically and globally.

Speaker 1:
Um, and so, you know, that type of fund will have a very different, um, investment consulting, um, philosophy, Um, and a very different strategy compared to your higher governance funds. Um, and so, you know, we we look at funds from a bespoke solution. Uh, and we cater to their needs.

Speaker 0:
So then how does the EC differentiate themselves from other large consulting firms in the local investment and institutional market? I think

Speaker 1:
that's a very good question.

Speaker 1:
Uh, I think I touched on a little bit of that, which is that we really do focus on best advice. And that is based on rigorous asset allocation manager selection alternatives. You know, research in general is a very broad research base. Um, and so we have Fantastic. Um you know, um, businesses within the group as well

Speaker 1:
that we can leverage, uh, from a research perspective, along with the research that we provide within the make a space. Um, so that really guides our decision making, uh, in providing best advice solutions. And like I said, that will be very different. Uh, for a very small fund, uh, and a slow governance fund, uh, relative to to a a higher governance. Um, fund.

Speaker 1:
Um, we're not product pushers. And I think, as you know, as soon as you sit with any of our consultants, you'll see that the intention is really to guide the clients along the way. Um, based on your research based on the quants and the qualitative work you've done guiding the clients along the way without necessarily going and pushing a product on that fund. And the reason for that is simple, because we believe that member outcomes should be at the heart of your investment strategy. It should be at the heart of everything. You do

Speaker 1:
the fund. And so that's our main focus is ensuring that members, you know are well taken care of this. You know, the F S C. A results are clear that, you know less than 10% of retirees can afford to retire comfortably. So that's a very big financial pandemic. And it needs to guide our investment strategies and our communication strategies which have become crucial. And I think communication is one of those things as well where we've been getting, you know, very, very much into within the Seme space.

Speaker 1:
We have a full blown communication consulting offering along with our investment consulting offering in many instances, and that's really to provide members with infographics videos, you know, everything that they are required to make best informed decisions. Um and so we you know, we are not afraid to play in places that you know other people might not want to play in sonari and

Speaker 0:
then with e g responsible investing and

Speaker 0:
impacts investing, particularly in the South African markets. Getting prominence over the recent past. How is this informing your investment decisions. Yeah. So

Speaker 1:
responsible investing sustainable investing is certainly not a new phenomenon. Uh, we've seen it in regulation 28 when it was produced years ago. Um, and so more recently, we've seen this acceleration of the conversation, um, in the industry, which I think is a very positive thing.

Speaker 1:
So I mean, there's a lot of research First of all that shows that sustainable investing and, you know, investing in, you know, e s g risk management within your investment strategy, um can in fact, produce additional returns. It can enhance your alpha. But even if you don't believe that, even if you don't believe the research, I think what's also important is to to notice that you know, E S G risk management can also reduce your losses or cap capital losses. Um, or, you know, where you have

Speaker 1:
fent, um, cases, et cetera, from an E s g perspective. Um, so they certainly you know, the research does show that sustainable investing is in fact, a good thing. And so, from a from a consulting perspective, it's really about rethinking the notion of good returns. It's no longer just competitive returns at all costs within a fund. Um, you know, I think a lot of trustees and a lot of institutional clients are now realising that you can get the competitive return,

Speaker 1:
but also do good at the same time. And so our philosophy as it as it pertains to sustainable investing, is really around active shareholding. Um, we place a lot of emphasis on ensuring that asset managers, um, vote their proxies and that they engage with underlying EE companies. And we want to see that coming through in the K p. I s of these institutions and that, you know, fundamentally means that we're not very keen on negative screening,

Speaker 1:
and there's multiple reasons for that. But, you know, the most prominent reason from our perspective is that negative screening has unintended consequences If we decide to simply disinvest from a, uh from a ee company simply because, you know, they have, you know, carbon emissions or whatever. We also need to consider the negative consequences of that company closing down, which is, you know, um, impact on jobs and impact on poverty,

Speaker 1:
et cetera, et cetera. Um, so there's a lot you know we need to kind of balance, um, the one S d g with the other S d g, um, and that all needs to be encompassed within the investment strategy. So we believe in engaging with investing companies, ensuring that, you know, they change the underlying in the underlying business structures the underlying k p i s and strategies, um, to be and to promote sustainability within their organisations.

Speaker 1:
I think if you take it one step further and this is specifically for those funds that have a higher governance budget,

Speaker 1:
they're able to invest in things like impact funds, which is something you've mentioned, uh, which has a very specific And I mean, you know, these these fantastic returns that can be earned in these impact funds, um, across asset classes, Um, but more so, it has such a direct impact, in many instances to some of the underlying S d. G s so really targeting, you know, a specific problem and trying to alleviate that problem. Um and so you know those funds that have a higher governance budget that are able to invest in those solutions? Absolutely.

Speaker 1:
I I I think it's it's you know, if you do your proper due diligence, make sure that you're investing in the right fund. I think it's an a fantastic opportunity, uh, to address both both of those, uh, key elements.

Speaker 0:
Absolutely. So Marion, now to close off the session with the recent changes to Regulation 28. Infrastructure has its own separate limits, although isn't considered a separate asset class per se. Is infrastructure a relevant means for some to drive for clients impact investing agenda? And what other means are they?

Speaker 1:
Absolutely. So

Speaker 1:
28 changes were fantastic. Uh, and I say fantastic because it was a very market friendly approach. Uh, and it does kind of did increase, uh, the the opportunity set for a lot of funds. Um, particularly if you consider your higher governance funds, those that make asset allocation decisions, those that actively allocate to alternatives within their strategies. Um, and so the regulation at 28 changes really increased private equity. Specifically. I mean, private equity

Speaker 1:
exposure is now sitting at 15% and even more so, private equity and hedge funds and other alternatives are no longer competing for assets. So we have this much broader scope, uh, to invest into alternatives, uh, which I think is a positive thing um, you know, we always talk about risk free assets or risk free returns. We also need to keep in mind that you can also have return free risk. Uh, and so let's keep out your diligence on point. Uh, let's make sure that all of these decisions are

Speaker 1:
backed by a fundamental fantastic, um, research process. So infrastructure, as you've mentioned, is not a new asset class. In fact, you'll find it within asset classes both in the, you know, listed and unlisted space. Um, and our clients, in fact, many of them have already had infrastructure exposure. Well, before, um, you know, the the new regulations have brought that to light. Um, I think what's great from the regulation perspective is the fact that they will now be reporting on infrastructure

Speaker 1:
across asset classes. So even those funds that assume they have no exposure might well see that they do, Um, and more so I think it's, you know, an an an interesting asset class. Um, particularly if you consider the domestic landscape. If you consider, you know, some of the structural issues we have. Um, domestically, I think that you know these allocations to the likes of infrastructure funds. Whether it's in, you know, your your bond or your equity space can certainly provide enhanced returns and again have a significant impact.

Speaker 0:
Marian, thank you very much for taking us through some ECA consultants and actuaries. We appreciate your time.

Speaker 1:
Thank you so much for having me.