Institutional investment into pension funds used to be a distinct field from retail or private client investment.
Pension funds need to appoint consulting actuaries to ensure that the level of assets and liabilities is appropriate as well as to broker life and disability cover.
Over time, these actuarial firms such as Alexander Forbes and Fifth Quadrant (now Willis Towers Watson) set up asset consulting units that produced investment surveys measuring the returns from segregated portfolios.
The go-to survey when I was a fund trustee was the Alexforbes Large Manager Watch (LMW) survey of the top 10 balanced funds. We didn’t look at managers that weren’t included in the top 10. But this is now considered to be an old-fashioned approach.
There are many specialist portfolio managers that we never saw as they fell outside the LMW. Now the line between institutional and retail manager selection has blurred. The big consulting firms aren’t the only gatekeepers any more.
Many people, for example, are no longer in full-time employment and hold their accumulated savings in preservation funds. It’s simply not practical to hold preservation fund holdings through segregated mandates. They must be held through unit trusts.
A recent innovation is the Alexforbes Retail Manager Watch (RMW) survey, which focuses entirely on unit trust portfolios. There are several versions, the most important being the clunkily named RMW South Africa including Global Multi-Asset Survey — the counterpart to the institutional Global Balanced Survey. The other important tool is the RMW Equity Survey.
The investment returns are a duplication of the Morningstar or FundsData numbers, though they are published in arrears. At the time of going to press only the returns up to January 31 2025 had been published. But Alexforbes also offers information that, while it won’t mean much to the general reader, is useful to the manager selector, including the Sharpe ratio, tracking error and volatility.
The survey aims to filter out the more speculative funds that would not be of institutional quality
The survey aims to filter out the more speculative funds that would not be of institutional quality. In the stable (multi-asset low equity) category 17 funds make the grade. Allan Gray, not known for product proliferation, has two funds in this category. One, Allan Gray Stable, with R53.8bn, has been a commercial success. Another, Allan Gray Optimal, has been a commercial failure with less than R800m under management, even with the benefit of Allan Gray’s vast support from financial advisers.
Advisers pick the right fund. The Stable Fund has provided a 9.4% annualised return over five years; Optimal a feeble 4.1%, making it the worst performer from this curated list of funds.
The best performer from this list of the elite conservative funds is Fairtree BCI Select Cautious Fund with an 11.1% return. But with less than R1bn under management this fund still has considerable flexibility. The acid test will be if it is a commercial success and has to manage R5bn or more.
The curated list of 27 high equity funds includes the two big gorillas of the unit trust industry — Allan Gray Balanced and Coronation Balanced Plus. A simple, low-cost strategy is to split funds between the three large independent investment managers Allan Gray, Coronation and Ninety One.
Another option would be to invest in the AF Investments Performer Managed Fund, the sister to the giant R220bn Forbes Performer which operates in the institutional market. Few would dispute (other than its competitors) that Alexforbes is the premier multimanager in South Africa, so why try to reinvent the wheel setting up a new multimanager or discretionary fund manager to do the same job?
Over five years, Allan Gray and Coronation’s funds had a similar return of 11.2% and 11.7%. Ninety One Opportunity Fund was behind with 10%. This was attributed — following the kind of logic only a fund manager could understand — to its quality bias.
The AF Investments Performer Managed Fund returned an annualised 10.4% over five years, a little below the weighted average of the three funds. AF Investments, in its wisdom, ended its mandate with Coronation a few years ago, which turned out to be one of its worst decisions ever.
All these funds were nonetheless well ahead of the relegation zone, which included funds such as the Rezco Managed Plus Fund (5.1%), Sasfin BCI Prudential Fund (7%) and Sanlam Investment Management Balanced Fund (9.1%).
The top performers in the category have included PSG Balanced Fund with a 14.6% return over five years, High Street Balanced Prescient Fund (13.8%) and Centaur BCI Balanced Fund (13.3%).
But can these funds provide consistent returns into the future? Do they have a substantial bench of fund managers and analysts to navigate through different markets and conditions?
Of these three, PSG Asset Management has the deepest bench and therefore the least key-man risk. Centaur and High Street might be overdependent on their charismatic chief investment officers Roger Williams and Ross Beckley.
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