Investment Overview

Our investment strategy has been developed with long-term capital market expectations. 

We’ve developed our investment strategy with long-term capital market expectations and multi-year projections of actuarial liabilities in mind. Accordingly, our investment objectives and strategies emphasize a long-term outlook. We view interim performance fluctuations with the same perspective.
With input from the Fund’s independent actuary, our Board of Funds has established the primary investment objective for EPPF.

We aim to earn an annual return of at least 4.5% (as measured by the South African Consumer Price Index) after inflation, applicable taxes, and investment fees and costs over a rolling three-year period.

We apply a long-term investment time horizon.

Investment Principles and Beliefs

EPPF is obligated to pay the benefits defined in the Fund Rules and we must establish and maintain a funding status. An investment process that increases the chances of maintaining a positive funding status and minimises the chances of a shortfall is core to our investment philosophy.

Therefore, managing the risk of not meeting our liabilities is as important to the process as achieving optimal return.

Our Strategic Asset Allocation, as set out by the Asset Liability Modelling process, is the primary driver in meeting our long-term obligations.

Retirement investing is primarily a long-term investment process. It needs to provide returns equal with the funding requirement over a prolonged period. We therefore consider the following:

The impact of our investments on future generations

EPPF is a signatory to the Principles for Responsible Investing and we subscribe to Codes for Responsible Investing in South Africa. The principles are a set of global best-practices and a benchmark for responsible investment. By including environmental, social and governance (“ESG”) criteria in investment decision-making and ownership practices, the signatories to the principles are influencing companies to improve performance in these areas. The principles reflect the increasing need to consider environmental, social, and corporate governance issues in investment practices.

We encourage investment managers to also consider the long-term impact of their investment decisions by giving mandates and incentives that drive this. Assessments of manager decision-making and performance also considers this.

The Board recognises our role as a responsible investor and active asset owner. As such, our Board maintains a proxy voting policy. Any voting rights that the Fund has in its capacity as a shareholder will be exercised and this function must be monitored accordingly. Invest where outcomes may only materialise slowly, such as developmental investing.

Invest in strategies that may be illiquid over a short-term period

A long-term perspective will tolerate more volatility in asset values and returns than a short-term perspective. This long-term period also informs how we assess our success.

The Board recognises that EPPF is one of the largest funds in South Africa and with size comes responsibilities:

To act in a responsible manner in the markets.
To be mindful of the economic impact of decisions on the Fund’s external investment managers and service providers. And ensure that all parties understand these economic risks should services have to be terminated.

The following restrictions must also be considered:

The speed with which transactions can be implemented in the markets.
The implementation of hedging and insurance strategies.

Here are the opportunities:

To develop emerging asset managers and service providers as per our Investment B-BBEE policy.
To engage in developmental investment initiatives.
To develop innovative investment strategies without assuming significant risk.

Diversification provides an important foundation to the investment process because it:

Efficiently harvests the risk premiumsof each asset class.
Accesses additional returns through different investment strategies.

Where it is believed that value cannot be added through the active management of a specific strategy or asset class, the default position is a passive strategy.

The Fund considers these risk principles

In achieving our investment objectives, risk does not need to be minimised but optimised to the needs of the Fund. This demands:

Clear assignment of responsibility and accountability.
The resources, processes, and systems to identify, measure and control risks associated with the various investment strategies employed.
A culture in which understanding and managing risk is everyone’s responsibility.
An acknowledgement and understanding of the fiduciary responsibilities that are crucial to managing risk.
On time, relevant, and accurate performance reporting to identify whether the investment strategies are rewarded for the risks taken.

Our risk budgeting approach

A risk budgeting approach demands a specialist approach to managing our assets relative to the liabilities to ensure that each level of Risk Budget parameters can be addressed. This includes:

Identifying the best combination of specialist portfolio mandates to address Risk Budget considerations for each asset class.
The Board appointing and retaining the best investment talent available, keeping in mind the potential value to be added to the blend of investment managers, minus the costs and fees.

Here’s how the Fund manages costs:

Managing costs is an important part of delivering on our return objectives.
If the value-add (after costs) of an active management strategy for an asset class cannot be measured, a lower cost passive solution will be adopted.

To support the investment beliefs above, we need:

Adequate resources to ensure that these beliefs are correctly translated into the investment process and their added value can be demonstrated.
An effective governance framework that balances the management team’s ability to execute efficiently and on time, and well-defined parameters that give oversight to those who are responsible for governance, with the assurance that any such exercise will be well-defined and controlled.
To recognise that these beliefs will evolve as resources and research give better insights. As such, constant interrogation and re-assessment is encouraged.
A commitment to pursuing global best practice.