Alexander Forbes, SA's biggest pension fund administrator with R400bn in assets under management, believes there are finally some green shoots showing in the economy, saying the rate of retrenchments across its client base has slowed significantly since the highs of last year.
Speaking this week after the release of results for the year ended March 31, CEO Dawie de Villiers said late last year there was a peak of about 4,000 retrenchments a month among Alexander Forbes' client base, but the rate had now slowed to about 1,000 or fewer, which is closer to the "more normal" 600 to 900 a month before the pandemic began.
He says the group is a good bellwether for the economy because it has a wide range of about 4,000 corporate clients.
"The view is, and this has certainly been substantiated through our interactions with clients, that most of them, if not all, have stopped retrenching. We couldn't find one client that indicated they still have to do a retrenchment process. Most of them are back functioning, even the hotel groups and restaurants are back functioning and getting back to full capacity."
De Villiers says that with special dispensation being secured for companies to reduce pension fund contributions to enable staff to take home more pay during the hard lockdowns last year, there had been concern there was a risk people "may get used to it and not go back to full contributions".
4,000
The number of retrenchments a month Alexander Forbes experienced among its client base late last year
He said about a third of the group's corporate clients elected for premium holidays at some stage. "All companies except one are already back to full payments out of those who took the contribution holiday. And most individuals are back to pre-Covid contributions. That is a massive positive and the great thing about it is that people have seen that this nest egg is protected, and when it is needed it's there during tough times."
In terms of Alexander Forbes' results, the group said its operating income from continuing operations was in line with the prior year at R3.15bn, a "pleasing result given the challenging operating environment". Headline earnings per share from continuing operations were up 4% year on year. The group's profit for the year from continuing operations was down 10% to R685m.
De Villiers is optimistic in general about SA's economic recovery prospects, saying the government has started taking the correct steps regarding state-owned enterprises such as SAA and Eskom.
De Villiers was referring to the sale of 51% of SAA to a private consortium, Takatso, and the government allowing private companies to generate up to 100MW of electricity without needing a licence.
He said the government also seemed to be taking action against corruption and the vaccine rollout seemed to be gaining traction.
These are all very "positive steps for South Africa Inc".
"There are green shoots showing, things are looking better for the business environment. Yes, we have had a slow start to the vaccine rollout, but the big effort and planning around vaccines has been done and vaccination points have been identified and vaccines have been secured."
De Villiers says most South African asset managers are "underweight foreign" when it comes to investment, showing that others are sharing his optimism.
Referring to the 30% maximum threshold for offshore investment on the part of pension funds in terms of the regulations, De Villiers says most of the asset managers "are holding between 22% and 28% foreign" investments instead of the full 30%.
"We've spoken to them and a lot of asset managers are very positive about South Africa Inc because of all of these green shoots. It points to good growth opportunities for companies in SA and certainly for Alex Forbes who follows this growth."
There are green
— Dawie de Villiers
shoots showing,
things are looking
better for business
Charolyn Pedlar, co-founder of Platinum Portfolios, an investment manager for private clients, says her company is finding that asset managers are "currently not invested 100% offshore [in terms of the allowable threshold] mainly due to the elevated equity valuations of companies offshore".
She says that over the past 12 months asset managers have also increased "their South African exposure to certain sectors" but that the "purchases have not been broad-based". The stronger rand, however, has given "private clients the opportunity to make more money offshore".
Andrew Bradley, CEO of Fiscal Private Client Services, says in deciding whether to invest offshore or locally, "no client is the same. Each has different circumstances and requirements. If a client is building capital for their future, as a general principle they are allocating a maximum allowable portion of their funds offshore. If they are living off their capital, then they are allocating significantly less offshore," says Bradley.
"It is important to remember that clients can access offshore investments through numerous options. Within certain investment funds there are 30% limits. Within these investments, mostly due to the strengthening rand, many fund managers have found that they are now underweight offshore. Some are correcting this position and taking advantage of the strong rand to move offshore. Some are confident that there are better local investment options and they are consciously remaining underweight."
As for job losses in SA, De Villiers says though there is always a chance he may be wrong, he is convinced the "jobs bleed is over and that is evidenced from what we are seeing in our administration business with regards to retrenchments lessening, plus direct conversations with most of our corporates".
"We are very excited about the turnaround, certainly for South Africa in terms of growth, but also for our business because if companies start employing again we get extra members and also benefit from salary increases. If those companies grow, the equity market also grows as well."
Fiscal's Bradley says the South African economy is definitely recovering but the "excellent" GDP growth rates over the past six months are off an "extremely low base".
"We are still not back where we were before Covid. While there are green shoots, the divide between the survivors and those that are still restricted in their earning ability is getting wider and more significant. This will have long-term consequences which will put a severe strain on our economy," he says.
Pedlar believes the "green shoots in the economy" are a "curate's egg".
"The agriculture and mining sectors' recovery has been strong, but in other sectors, the outlook remains uncertain. It's our view that a broad-based recovery will only take place once the vaccine has been successfully rolled out."
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