Alexander Forbes’ launching of the Lifestage Model (LsM) is part of the company’s long term investment strategy of ensuring that the members’ retirement fund grows at least 5 percent annually above the inflation rate at the time of encashment, its Managing Director, Paul Masie, has said.
Masie, who is also AF Retirement Fund Principal Officer told Sunday Standard during the company’s Annual Investment Day held in Gaborone last week that the reason behind the introduction of LsM is that it facilitates strategies aligned to the attainment of a 5 percent growth rate in Retirement Fund above the going Consumer Price Index, as yields fall and bonds become more expensive so do annuity rates.
Batlhalefi Phale, Alexander Forbes General Manager, said that LsM caters for three age groups: 56 ÔÇô 60, 49 ÔÇô 55 and 18 ÔÇô 49 years with 25 percent, 50 percent and 75 percent equities, respectively.
To be effective, LsM requires significant Trustee, Administrator and member communication involvement. The fund managers’ inherent tasks involve different portfolio design, mismatches, unit price calculation, and on-going management with members on board.
Masie said the year 2012 also witnessed the launch of an umbrella pension fund for 90 different pension fund management companies.
Yearly, Alexander Forbes hosts fund managers and gives them an opportunity to announce investment returns during the past 12 months. The Fund at the moment amounts to P350 million with over 10 000 members, making it the second largest in Botswana after government.
Masie said the deterioration in the Pension Fund Index Value can be attributed to the fact that bond yields have diminished since June 2002. As a result, returns from bond yields have also diminished, which is how the pension fund managers have to be alert and consider offshore alternatives.
In the absence of some quantitative easing (QE) in the form of readily available cash benefits, retiring pension fund members will not be able to afford the annuities as had been the case a few years back. This is why Alexander Forbes allows retirees a maximum encashment of one-third of the full benefits to allow paying off mortgages or car loans.
“When you retire after attaining 60 years of age, the assumption is that one has already paid up mortgages on residential properties, car loans, children’s education and other life’s basics,” said Masie. “In a majority of the cases, apart from food items, medical bills begin to show an increase, especially among those diagnosed with chronic illnesses.”
Masie said Alexander Forbes has four Asset Managers, Allan Gray, Investec Asset Management, Stanlib and Botswana Insurance Fund Management (BIFM) responsible for the diversification of the investment portfolio enhanced through LsM in local or offshore markets.
Currently, RF offshore investments amount to 62 percent, which is below the 70 percent threshold due to shortages on the local markets. The most common offshore markets are in the United Kingdom, US and European Union. However, there is a tendency to increase local versus offshore as a hedge against foreign exchange risks.
Alexander Forbes RF has a lot of catching up as a relatively new development in Botswana, unlike those of neighbouring countries that have been in existence since the 1950s. Against this backdrop, the historic performance of Alexander Forbes benchmarks with the region’s best, Masie said.
