Leading the way in a changing retirement landscape

In a panel discussion at Talking Investments with Coronation, we discussed the dynamic retirement landscape. Burning issues include the implementation of the two-pot system, the increase in the offshore allowance and the requirements to consider ESG and transformation in a fund’s investment approach.

Bongi Mkhize (CEO and Principal Officer of the KwaZulu-Natal Joint Municipal Pension/Provident Funds), Senzo Langa (Chief Investment Officer: Institutional Investments at Alexforbes*) and Sonja Saunderson (Chief Investment Officer at the Eskom Pension and Provident Fund (EPPF)) joined Coronation’s Azola Lowan on the stage. The following is an edited summary of the discussion.

Azola Lowan: 2024 heralded the launch of the two-pot system. Withdrawals have exceeded R30 billion as over two million individuals have applied for tax directives. Bongi, can you take us through how you prepared for this new system, your experience when you went live and how many members utilised the opportunity?

Bongi Mkhize
The KwaZulu-Natal Municipal Pension and Provident Fund is an 83-year-old pension fund established in 1942, with 24 000 active members and 10 000 pensioners and annuitants. The fund manages approximately R40 billion in assets.

The board oversaw the implementation of the two-pot system. Our preparation began with educating our members not just about the two-pot system, but about broader financial literacy. We also educated unions, given their significant role in our members’ lives, and provided training to our staff.

We prepared our system by testing mock scenarios and identifying potential bottlenecks. Before going live, we onboarded additional staff members to serve our members. Going live is never the same as testing mock scenarios, so when we went live, we had to refine our processes further.

Throughout the process, we continued to educate members. Only 45% of members decided to apply for a withdrawal, and we think the reason is because they were well informed.

Azola Lowan: Sonja, could you please tell us more about the EPPF and how you approach your investment strategy? 

Sonja Saunderson
The EPPF has a long history of providing benefits for approximately 80 000 members, half of whom are active members, and half of whom are pensioners. As a defined benefit fund, we closely monitor our funding and solvency ratios. The investment strategy is informed by pension increases, the stability of the increases and how well they keep pace with inflation, as well as the fund's financial sustainability. Our approach is about matching our asset strategy with a liability framework that will ensure stability and predictability for our members when they retire. In addition, our aim is that they retire in a healthy community and a healthy economy.

Each year, we undertake a detailed cash flow projection process for every member of the fund. We assess when they will retire and what benefits they are entitled to under the defined benefit structure. This allows us to implement a cash flow matching strategy that ensures we can meet our obligations. To execute this strategy, we follow a hybrid approach. We construct certain diversified risk premia, betas, or market exposures ourselves. But when we're looking for alpha and for skills that we don't have at the EPPF, we partner with external fund managers.

Azola Lowan: Senzo, please tell us about Alexforbes’ investment approach and the value you derive from investing with balanced managers.

Senzo Langa
As a multi-manager, by definition, we are a risk manager. Our process is risk-led with purposeful diversification. We combine traditional and alternative strategies with the aim of increasing and improving the probability of meeting our client solutions. Clients come to us for smooth and consistent returns.

The first part of the process is asset allocation. Within the investment team, there's an asset allocation team. The second part of the process is strategy selection, also known as portfolio construction. That is where the onshore/offshore decisions are made, how much you need to allocate to alternatives, hedge funds or private markets. That is where the risk premium harvesting process happens. The third part of the process is manager research. On the domestic side, there are 25 investment team professionals behind the process. We partner with Mercer for our global manager research.

Azola Lowan: Regulatory changes have widened the opportunity set and this invariably increases complexity. How have your respective funds navigated this challenge?

Bongi Mkhize
Diversifying beyond South Africa helps reduce concentration risk, given the limited local stock universe. However, as a fund, we maintained our offshore investments and complemented this with local opportunities, investing in alternatives that can make a meaningful impact on our country.

Sonja Saunderson
Given our long-term liabilities, a significant portion of our fund is allocated to South African long liability – predictable instruments such as inflation-linked bonds and infrastructure. We cherry-pick the opportunities where we see stability and predictability.

On the global side, while we haven’t made dramatic changes, we have tactically increased our exposure. We’re very mindful of currency effects. Sitting in an emerging market economy ourselves with a home bias by virtue of our regulations, we think about how we mitigate risks amid the current geopolitical uncertainty. We’ve also learned that it is not about asset allocation only – it is also about how we work with our partners, and which fund managers we consider. In South Africa, we have a strong contingent of really good global stock pickers that we like to support.

From our own staffing perspective, managing the bigger global allocation means we need appropriate skills and coverage. We’ve learned that we need to have sufficient skills in-house to be able to understand the market risk, and that we have to be more selective about our manager selection. Don’t just turn to the global houses for the offshore component. Also consider how South African fund managers can complement their domestic component with a broader opportunity set.  

Senzo Langa
The benefit of working for a large organisation like Alexforbes is that we’ve been managing global portfolios for a long time. Over the past 10 years, I’ve led a team responsible for managing over £200 million in UK pension assets. What we’ve learned is that offshore investments play a crucial role in mitigating drawdowns during periods of heightened volatility. Offshore also helps you to hedge SA-specific risk and provides access to growth opportunities. There are times when South Africa offers limited growth opportunities, and you want to have some growth offshore. The US has proven to be the source of that growth over the past five years.

In the alternative space, we have a long history of managing infrastructure funds. When the regulation changed, we didn’t have to adjust our alternative exposure, as we already held exposure in terms of alternatives and hedge funds.

Azola Lowan: Transformation is another important topic for us as South Africans, and we’re thrilled that Coronation is now a majority black-owned investment firm. Ownership remains only one element of transformation and over the years, we have been deliberate about making sure that all the various aspects of our business transform. I’m keen to hear how you consider transformation in your organisations.

Bongi Mkhize
As a fund, we have a transformation policy with which the managers in our stable have to comply. Every time they present to us, one of the topics they have to cover, is transformation. Our transformation policy requires managers to have 40% black investment professionals. We want to see women given an opportunity to manage money as well. Coming from the municipal space, where the majority of the asset owners are black, we are pushing for transformation. We are looking at it holistically, though, and extend our requirements beyond the investment professionals to the stockbroking businesses. We want black-owned stockbroking businesses to be given the opportunity to participate in the investment activities. Beyond matters of race, the capability of the firm is important as we need to deliver alpha for our members.

Azola Lowan: The EPPF released their social policy last year, emphasising diversity, equity and inclusion with your appointment of managers and service providers. The EPPF has played a significant role in transforming the industry. Can you take us through some of the EPPF’s achievements and provide a view of the fund’s aspirations.

Sonja Saunderson
Transformation and equality, whether from a gender perspective, a disability perspective, or a racial perspective, is part of the DNA of the EPPF. All of us have a vested interest in South Africa becoming a more equitable society that’s fairer and more reflective of our population, because we believe that it will make for better financial outcomes for our members. Yes, we care about a more equitable society because our members and their children one day want to have those opportunities. But it is more than that. We also really believe that there is enough evidence that proves greater equality will lead to better financial outcomes for the members.

Our industry has done a tremendous job by putting in place codes, practices, scorecards, surveys and more to measure ourselves. But we all know that even though we’ve made progress, we haven’t arrived yet. That is why we’re committed to thinking about how we can do this differently. What are some of the challenges preventing black staff, especially black women staff, from rising to the top in some of our organisations? As an industry, are we as attractive as we should be? Why do we lose certain people along the way?

Fund managers often look to the EPPF and other asset allocators to sponsor assets, but we’ve realised that we should structure our approach not only around financial sponsorship, but also allyship. How can we partner across the industry to build an alliance to address this problem?

We remain committed to transformation and equality, but we’re doing introspection and moving from a compliance culture to an active culture that focuses on influence and implementation.

Azola Lowan: In 2022, Alexforbes released their transformation policy, emphasising the critical need to significantly increase the pipeline of black investment management firms and professionals. How has that been received by the industry?

Senzo Langa
Our transformation policy stipulated a three-year phase-in period for incumbent managers, and we gave guidance as to what we would like to see from asset managers. We requested a minimum BEE-level of 3, and 40% of the investment team must be black. 16% of the investment team must be black female. We would also like to see 40% senior black leadership, where they participate in strategic decisions.

We’ve seen very good year-on-year progress. South Africa is a very progressive country, and especially the traditional asset managers have done very well. Where we see room for improvement is on the alternatives side. What we see as a challenge for most asset managers is targeting females. The other requirement that we’ve seen to be a challenge is black senior leadership.

As you will appreciate, you cannot have a transformation policy and not walk the talk. 60% of our investment professionals are female.

Azola Lowan: Regulation 28 requires that boards of funds consider environmental, social and governance (ESG) factors before investing in an asset. Bongi, how does Natal Joint do this?

Bongi Mkhize
We take ESG very seriously. We started incorporating Crisa (Code for Responsible Investing in South Africa) principles into our IPS as early as 2011. When asset managers present to us, we ask them to demonstrate how they incorporate ESG considerations into their processes. We also want to understand how they are voting on ESG matters.

We understand that with our limited universe you’ll be left with no stocks to invest in if you decide not to invest in any company with an ESG issue. But we want to see our asset managers engaging with the powers that be to make a difference.

Azola Lowan: Sonja, the EPPF has taken a very firm stance – you are a signatory to the Net Zero Asset Owner Alliance. Can you talk us through how you made that decision and what impact it has had on your investments? Can you also comment on the recent anti-ESG backlash, especially under the Trump administration?

Sonja Saunderson
I think it’s more than a backlash – it’s a wave of things that’s been coming for a couple of years. The BlackRocks and JP Morgans of the world all started saying they’re not part of the official UN net zero movement anymore. But what people don’t hear, is that they are still saying they are on a net zero path. What I’m seeing is that it doesn’t seem like the reason for their decision (to leave the Net Zero Asset Managers initiative) was because they don’t believe in it anymore. The very next day after Larry Fink announced that BlackRock was leaving the NZAM, they launched a climate fund. They are still working on those plans to address climate change but how we get there, is where we’re having different opinions.

Why did we sign up for the net zero initiative? Purely because we feel it’s the right thing for our members. Why do we feel it’s the right thing? Our government is committed to a net zero path, and our sponsor, Eskom, is committed to it. Much of the debate among our trustees is about how their salaries, bonuses and longevity as employees at Eskom are linked to the energy transition to a more climate-friendly world. We felt it was the right thing to do to be part of a global movement that sets practices and can show us what to do for the future. We also believe it is the right thing to sit at the table and have these conversations with global players. It helps them to understand our challenges and the fact that we’re a carbon-based economy that still needs to go through a lot of change.

Azola Lowan: At Alexforbes, you also focus on responsible investing and active stewardship.

Senzo Langa
At Alexforbes, we are big when it comes to ESG, and we want to be market leaders here. It comes through in two components. First, at group level, we’ve established an Impact Academy, which we view as a centre of excellence and where we house all our ESG and responsible investing ideas, SDG goals, and climate change reporting. Second, on the investment side, every team member is a manager research analyst and also an ESG analyst. For each manager that we do a due diligence on, an analyst assigns an ESG rating. 

BIOGRAPHIES:

Azola Lowan – Fund Manager at Coronation
Azola Lowan is a Fund Manager at Coronation. She joined the company in January 2019, bringing a wealth of experience across multiple roles in financial services. She has 21 years of industry experience. Azola holds a Master of Business Science degree (Economics) from the University of Cape Town and is a CFA charterholder.

Bongi Mkhize – CEO and Principal Officer of the KwaZulu-Natal Joint Municipal Pension/Provident Funds (NJMPF)
With over 15 years of experience in the pension fund industry, Mkhize has risen through the ranks at NJMPF, starting as Finance Manager before progressing to Chief Financial Officer, Deputy CEO and now CEO and Principal Officer. He completed his South African Institute of Chartered Accountants (SAICA) articles with the Office of the Auditor General and he holds postgraduate qualifications in Finance, Banking and Investment Management from the University of KwaZulu-Natal. He is currently pursuing an MBA with MANCOSA.

Sonja Saunderson – Chief Investment Officer, Eskom Pension and Provident Fund (EPPF)
Sonja joined EPPF in November 2022 and is part of the executive and investment teams responsible for driving its strategic agenda. Before joining EPPF, she was Chief Investment Officer at Momentum Investments. Prior to joining the industry, Sonja lectured Actuarial Science and Statistics at the North-West University School for Business Mathematics and Informatics. She studied a BSc in Mathematics and Computer Science at North-West University, after which she completed a BCom and BCom (Hons) in Economics and Statistics. She also holds an MCom in Statistics and Economics and completed an Advanced Certificate in Financial Planning. Sonja has 22 years of investment industry experience.

Senzo Langa – Chief Investment Officer: Institutional Investments at Alexforbes
With a focus on traditional asset classes, Senzo plays a pivotal role in shaping the investment landscape of the organisation while bolstering its capabilities in traditional asset class investments. Senzo joined Alexforbes in 2011, prior to which he spent four years at RMB Asset Management. Senzo holds a Master’s degree in Finance and Investments, and is both a Chartered Financial Analyst (CFA) and a Chartered Alternative Investment Analyst (CAIA).

 ^{*Senzo Langa, previously deputy CIO at Alexforbes, has been promoted to CIO: Institutional Investments, effective 1 April 2025.}

^{Insights Disclaimer}