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Trustees generally rightly focus on governance and administration, but this is often to the detriment of the investment strategy of a fund. This may have something to do with the complexity of investments and the reliance on asset consulting experts, as trustees generally do not have the appropriate level of expertise. Yet just as there are good and bad administrators, so there are also good and bad asset consultants. It is imperative that trustees have a thorough understanding of the investment strategy and its implementation.

The investment strategy is embodied in an Investment Policy Statement, called the IPS. Far too often the IPS is a vanilla document drafted by the asset consultants, approved by the trustees and filed away. This is not enough. The IPS should be specifically tailored to meet the needs of the fund and be formally reviewed at least annually.

For example, two similar funds with different invest-ment strategies may have significantly different performances but while the better performer may be considered the winner, the risk profile may be totally inappropriate. This is the case for beneficiary funds and umbrella trusts. Trustees often compare the performance of these funds to retirement funds, notwithstanding that the objectives and risk profiles are significantly different.

Beneficiary funds have almost entirely replaced umbrella trusts and are defined in terms of the Pension Funds Act as retirement funds. The investment strategy of a beneficiary fund is however distinctly different from that of a retirement fund. Individual members of a beneficiary fund have very different needs and this requires an asset allocation matrix for each category of members. Essentially this is a type of member/investor choice, but determined by the trustees. For example, a one year old member will have very different needs from a 16 year old member in high school and

therefore would fit into a separate asset allocation matrix (similar to a life-stage in a retirement fund.)

Members (or beneficiaries) in our industry have two primary needs: subsistence needs which are met through monthly income payments and other needs which are met through capital and/or income to facilitate ad hoc payments in respect of a member’s maintenance, education and general well-being, including medical costs. Fairheads and the trustees have paid a great deal of attention to the investment strategy of The Fairfund Trust and the Fairfund Umbrella Beneficiary Fund over the past 18 months. With the assistance of Riscura Consulting we believe we have significantly enhanced the strategy to better meet the needs of the members. The process commenced with extensive data and statistical analysis. Approximately 90% of ad hoc payments were found to be education related. Statistically we are of course unable to forecast accurately the needs of beneficiaries: however this exercise did assist in establishing sound principles for the asset allocation model.

A beneficiary fund is essentially a “widows and orphans” type fund and thus requires a very conservative investment strategy which incorporates capital preservation. With the average member fund balance being only R80 000, it is difficult to meet all the members’ needs without taking on disproportionate risk and volatility. It is a difficult balancing act to provide sufficient monthly income and educational costs without eroding capital. The monthly income distribution in reality often only supplements a family’s income. The current economic environment has had a significant impact on members’ needs and added to this are a low interest rate cycle and weak equity markets. Trustees could be persuaded to taking on more risk under these conditions and hence the need for a well thought out and strategised IPS. The IPS should be able to withstand both bull and bear markets, as well as low interest rate cycles.

INVESTMENT STRATEGY KEY TO BENEFICIARY SUCCESS

Benefit Services (Pty) Ltd

November 2010 Issue 18 Authorised financial services provider

Southern Africa’s leading independent service provider of beneficiary funds and umbrella trusts

By Richard Krepelka, CEO

Continued on Page 2

It is imperative that trustees have a thorough

understanding of the investment strategy and

its implementation.

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There are many factors affecting the asset allocation model at the member level. These include the age of the member, the amount of the member’s funds, minimum liquidity requirements and the income requirement. The initial asset allocation matrix design takes all of these factors into account, resulting in 14 different categories with each category having a further six sub-categories. In other words, there are 84 different initial asset allocation categories into which a new member account can be placed. Each category has a combination of three investment vehicles in different proportions, namely a cash component, an income fund and a balanced fund. There are also rules that are superimposed on the asset allocation. For example a minimum rand amount is held in cash for liquidity and no investments are made in the income fund if the time horizon is less than two years and less than four years in the balanced fund. This is to factor in market volatility and reduce the risk of capital loss.

One of the most important issues is to ensure that the ongoing asset mix is appropriate as it often distorts over time due to market movement and payments to members. Fairheads has established a rebalancing model which will rebalance each member’s investments annually on their birthday. The rebalancing model has 14 categories and seven sub-categories, resulting in 98 different possible allocations. The new model will replace our existing rebalancing model in 2011. This sophisticated asset modelling at member level is only possible if supported by an integrated administration platform and Fairheads has developed extensive administration programmes to manage this process.

Once the appropriate investment strategy has been determined for each category, the investment managers and investment vehicles need to be selected. Unit trusts (for umbrella trusts and beneficiary funds) and pooled portfolios (for beneficiary funds) are most suitable provided they are unitised and priced daily, all of which has to be built into the administration platform. Investment fees are also key and trustees need to ensure that competitive institutional fees are charged by the investment managers.

This article highlights some of the complexities involved in meeting individual members’ needs. Trustees of retirement funds should insist on understanding the IPS of their beneficiary fund or umbrella trust service provider. Is it appropriate, are the right investment vehicles and managers being used and are the fee structures appropriate? Once you are satisfied, make sure you receive regular investment reports covering these important areas. That way you will know that members’ needs are being met at the all-important investment level.

INVESTMENT STRATEGY 1by Richard Krepelka, CEO

FAIRHEADS WINS PRESTIGIOUS INDUSTRY AWARD 3

BUSINESS & ARTS AWARD 3

GUARDIANS APPRECIATE FACE-TO-FACE CONTACT 4by Giselle Gould, Business Development Director

FEEDBACK FROM OUR MEMBERS 6

B-BBEE AND ENTERPRISE DEVELOPMENT 8by Marilyn Brown, Financial Director

FAIRHEADS/UCT CLANWILLIAM ARTS PROJECT 9

WHO IS GLENN GIDEON? 10

WHO IS NOMBI TSOEU? 11

OTHER NEWS 12

CONTENTS

The Fairheads Times is published as a service to our clients and other interested parties.

The information contained herein is for general guidance only. Any reader intending to base a decision on information contained in this publication

is advised to consult a director of Fairheads before proceeding.

CAPE TOWNTel +27 21 410 7500 | Fax +27 21 410 7994

E-mail benefitservices@fairheads.com

SANDTONTel +27 11 883 9755 | Fax +27 11 883 4791

E-mail nancy@fairheads.com

JOHANNESBURGTel +27 11 491 6247/50 | Fax +27 11 838 3035

E-mail davis@fairheads.com

DURBANTel +27 31 368 9260 | Fax +27 31 368 9270

E-mail andile@fairheads.com

Beneficiary call centre0860 102 919 (share call)

www.fairheads.com

Continued from Page 1

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We are proud to announce that Fairheads Benefit Services was acknowledged as the best Trust and Beneficiary Administrator of the Year at the Imbasa Yegolide Awards for professional excellence in the retirement fund industry.

The event was held in Sandton on 30 May 2010 and hosted by the Principal Officers’ Association and Global Pensions. The award vindicates our hard work over the past few years in the new beneficiary fund industry, as well as our 20 years of experience in the umbrella trust industry. Our success would not have been possible without the support and loyalty of our clients and staff. Thank you very much.

FAIRHEADS WINSPRESTIGIOUS INDUSTRY AWARD

Business &Arts award

On 30 August we won a Business & Arts South Africa (BASA) award for the Fairheads UCT Clanwilliam Arts Project, in the category of Youth Development. This project is now in its tenth year and has introduced the children of a poor rural community to a world of creativity through art and drama. See page 9.

Marilyn Brown (Financial Director), Richard Krepelka (CEO), Giselle Gould (Business Development Director)

Left to right: Nikki Jacobs (Fairheads Client Consulting Director),Mark Fleishman (Head of Drama, UCT), Giselle Gould (Business Development Director),

Richard Krepelka (Fairheads CEO), Lucy Reyburn (Fairheads PR)

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The simple community hall near Empangeni served its purpose. The participants were all guardians of minor beneficiaries of beneficiary funds and umbrella trusts. They were mainly gogos (grannies) and they were going back home to “spread the gospel” as one of them put it.

The gospel was the good news that at last guardians were getting a chance to understand the mechanics of trust and beneficiary funds in their own language and to ask questions about the specific funds of the children in their care.

The Empangeni workshop was the second of three workshops Fairheads Benefit Services had held in KwaZulu-Natal in August. The workshops were for guardians whose wards are members of the Mineworkers Trust Fund and the Fairfund Trust Fund, though beneficiary fund guardians also attended. Earlier in the year, five-day stints were held in Lesotho, the Eastern Cape and Mozambique and in October Fairheads’ Commissioner Street offices were converted into a workshop space for five successive days.

Guardian workshops, although sometimes logisti-cally challenging, are proving a cost-effective and valuable way of communicating. Attendance has been varied, with more participants in urban areas than rural areas, but we estimate we will have reached more than 1 000 guardians face to face this year through the workshops. We anticipate that attendance will grow as the idea spreads by word of mouth and the use of community media.

The workshops take the form of a presentation followed by an open-floor session for questions, and individual guardian specific queries. The presentation covers the basic concept of beneficiary funds/umbrella trusts and then explains specific aspects such as how to claim for special expenses, the need to update contact details in an annual certificate of existence and what to do in the event of a beneficiary passing away. Fairheads representatives are ready with laptops in the question session to assist guardians in specific queries relating to their funds.

As part of Fairheads’ member communication strategy, focus groups are held both before and after the workshops to gauge how much has been understood and whether the information content is useful to guardians. Feedback at this early stage is as follows:

• Guardiansverymuchlikethereassuranceofface-to-facecontact(we even had some comments about “it is nice you appeared in front of us and we know you are not another Fidentia”)

• Cellphonecommunicationisontheriseandwecanuseourexistingsms system to better effect (every guardian had a cellphone and indicated they would like to receive notifications by sms)

• Knowledge levels are fairly high, certainly in urban areas,whenit comes to understanding the difference between interest and capital, and the need to leave capital intact.

GUARDIANS APPRECIATE

By Giselle Gould,Business Development Director

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FACE-TO-FACE CONTACT

• Mostguardians feel that the fundscanbestbeusedtoeducateminor children.

• Fairheadscancertainlyimprovecertainaspectsofitsservice.Thismeans we can use the guardian workshops as a measuring tool to assess ourselves and improve services according to our guardians’ needs.

In short, guardian workshops are proving to be exceedingly educational and informative – both for guardians and for us as the service provider. Word gets out and positive perceptions are created.

The above article was written for the coming issue of Pensions World SA

Participants at the Gauteng workshop for guardians of beneficiary funds and umbrella trusts

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FEEDBACK FROM OUR MEMBERS

Fairheads receives many letters from beneficiaries and guardians thanking us for what we have done for them. These letters provide a glimpse into the lives of ordinary people who have managed to do extraordinary things through the careful management of money. Most frequently the letters we receive show how children have managed to receive an education despite difficult family circumstances.

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Fairheads receives many letters from beneficiaries and guardians thanking us for what we have done for them. These letters provide a glimpse into the lives of ordinary people who have managed to do extraordinary things through the careful management of money. Most frequently the letters we receive show how children have managed to receive an education despite difficult family circumstances.

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The details of the various elements if pursued by businesses will make a positive difference to the lives of the people of South Africa.

Take for example the element of enterprise development. To earn 15 points on the scorecard a business should spend 3% of its after-tax profits on enterprise development. For a small to medium sized business it could be daunting trying to find a way to spend the money in such a way that it makes a difference and has a visible impact on others in society.

Fairheads researched various enterprise development initiatives and decided to pursue an ongoing partnership with The Business Place.

The Business Place is a network of walk-in centres for entrepreneurs, with relevant support and information services clustered under one roof. Anyone who wants to start or grow a small business or micro enterprise is welcome. At The Business Place help is offered with the “how to’s” and “next steps” for anyone who wants to start, improve or expand a business. The Business Place currently has 10 branches situated all over Southern Africa and includes locations in Botswana and Lesotho. The branches are located at accessible venues, bringing together relevant, affordable services under one roof.

Fairheads client consulting director, Nikki Jacobs and I visited the Philippi branch in Cape Town and Giselle Gould, Fairheads business development director, visited the Johannesburg branch, to get first hand experience of what is offered at the Business Place. We could not believe the size of the network already in place and identified immediate areas where our contribution would make a difference to aspiring entrepreneurs and other stakeholders in the communities.

The Fairheads contribution will be used to create a Client Business Lounge in the Business Place Johannesburg office, and an Entrepreneurial Village at the Philippi site. Both initiatives will offer a place for entrepreneurs to enjoy free and/or discounted office and business services and facilities in order to develop their businesses.

We often hear the comment that B-BBEE is not working and that it only benefits a few. This is clearly a misconception as all of the elements cover a broad base of stakeholders, as is evident with enterprise development mentioned in this article.

Fairheads has embraced all of the elements of the B-BBEE Codes of Good Practice and is aiming for a Level Three Contributor score by 2011.

B-BBEE ANDENTERPRISE DEVELOPMENT

The B-BBEE Codes of Good Practice comprise seven elements: ownership, management control, employment equity, skills development, preferential procurement, enterprise development and socio-economic development.

By Marilyn Brown, Financial Director

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The Fairheads/UCT Clanwilliam Arts Project celebrated its tenth year with a performance on Sunday 12 September. This year the story, taken as usual from the LLAREC archive at UCT, was “Tears become rain.” It was about the boy /Xue who transforms himself into various creatures and then uses his ability to transform to escape from difficult circumstances including a difficult relationship with his father. UCT head of drama, Mark Fleishman, said the message of the performance was for young people to develop the capacity for imagination which will hopefully encourage them to aspire to transform their futures.

The project has been acknowledged through the recent winning of a Business & Arts SA (BASA) award in the category of youth development (see page 3). Fairheads CEO, Richard Krepelka, said: “It is particularly rewarding to see the project take root in the community. Some of the children who migrated through it have formed a 20-strong local drama group, which performs regularly and also works with young inmates in the local correctional services facility. The project is starting to spawn careers in the arts, with two participants being accepted onto the Jazzart Young Adult Training and Job Creation Programme in Cape Town in 2009/2010.”

FAIRHEADS/UCTCLANWILLIAM ARTS PROJECT

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WHO ISGLENN GIDEON?

When did you join Fairheads?I joined Fairheads in April this year as operations manager of the Fairheads flagship products, The Fairfund Trust and the Fairfund Umbrella Beneficiary Fund. I came from Momentum where I had been portfolio head in employee benefits, and prior to that I worked for 10 years as the leader of a large team in Old Mutual’s employee benefits business. This has stood me in good stead for my work at Fairheads as I sat in frequent meetings with principal officers and understood what people go through, especially during a death claims process. I started my career as an administrator at Southern Life while I was studying for my BComm.

Describe your jobI manage a group of 42 people, comprising four teams and their leaders. We are jointly responsible for the smooth administration of Fairfund. The umbrella trust and beneficiary fund together have approximately R1.4 billion under administration and service some 25 000 beneficiaries around Southern Africa.

One of my strengths is building strong human relationships as I believe that if you build the right relationships in a team, the results will follow, reflecting the strong teamwork. I therefore try to engage personally with each team member on the floor at least once a week. I am hoping to work closely with HR in growing this people-oriented approach.

Challenges?This year Fairfund has held guardian workshops around the country. This has been an incredibly valuable exercise for our staff as they have come face to face with guardians and their individual life stories. It is all too easy working as an administrator in an office to view clients as statistics and all the staff who have attended workshops have said how helpful it was.

The workshops have led to an increased administration workflow which is good but challenging as it is keeping us exceedingly busy. The peak administration period is coming up at the end of the year and, as I am new to the company, I am looking forward to seeing how this is tackled. I am the sort of person who needs a constant challenge!

What about your hobbies?I have recently completed a Diploma in Business Analysis which kept me busy but not to the detriment of family time. My partner Elaine and I have a son of four and a daughter of two. I enjoy rugby and I devote quite a lot of time to my model car collection. I have collected 132 cars and am currently building a BMW325is. Elaine thinks I am mad!

Operations Manager, Fairfund

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WHO ISNOMBI TSOEU?

Tell me about your backgroundI joined Fairheads in Johannesburg in 2005 when the Mineworkers Trust Fund was started. My previous career was as a correctional services officer which I practised for seven years in Kroonstad, my home town.

I work in the Fairheads walk-in offices in Commissioner Street which are situated right next door to the walk-in administration centre for the Mineworkers Provident Fund (MPF). There are three of us in the Johannesburg Fairheads office and we keep in close contact with the Sandton office, as well as our administration colleagues in Cape Town.

What does your job involve?My job is very interesting. The various mining houses are allocated different days for employees and their dependants to come in and get advice on settling claims and so forth. If there is a death claim, they can come straight to Fairheads. Both guardians and beneficiaries visit our offices. We provide them with counselling and explain how the beneficiary fund works if they are new to the product. For existing trust fund or beneficiary fund clients, I have access to Tricon Online for speedy resolution of any questions. I am lucky to speak a number of languages so I can generally address people in the language of their choice.

What about training?Often dependants of deceased mineworkers will go to the mine for advice and help. Our job is to train the mine officials about beneficiary funds so that they can give the necessary information. This requires me to travel to the various regions about four days a month. We also train the MPF trustees and make five report-backs per year to the section 37C trustee subcommittee.

Highlights and lowlights?I love the contact with guardians and helping them to solve their problems. On the downside, we are seeing a growing number of orphans as a result of the Aids pandemic. Child-led households are often open to abuse by so-called caregivers who sometimes do not even tell the children they are fund beneficiaries. As an industry we urgently need to come up with solutions to this terrible situation.

What do you do after work?I am a mom first, then a daughter and then a sister. I have two boys of my own and a daughter I have looked after since her mother passed away. I love cooking and reading and still play the occasional game of yolk pin (jukskei in Afrikaans) which I learnt when I was with Correctional Services. I am currently doing a course on HIV/Aids counselling through UNISA to assist me to go the extra mile in my job.

Client Liaison & Training Officer

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OTHER NEWS

New website

On 1 October we launched our new website at www.fairheads.com. The site was developed by Malossol and is designed to be a user-friendly experience. Over the next year we will be developing a member portal for electronic interaction with our clients.

IRF Conference stand award

Fairheads participated as usual in the IRF Conference which was held in Sandton from 20 to 22 September this year. We were proud to have jointly won the Best Small Stand award for the innovative stand design that was created by Xzibit. The stand brief was to bring alive our focus on our member beneficiaries.