Investment Philosophy

2018 | www.efbc.co.za

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Introduction fficient Benefit Consulting Pty (LTD) (EFBC) offers specialist knowledge and skills and believe in offering independent advise and investment strategies. The following sections provide for an overview of our company and place an emphasis on the value add we offer from an investment

consulting (asset consulting) perspective. We look forward to building a strong relationship with you as we take on the investment journey together.

Group Overview EFBC is partially owned by various stakeholders within the Efficient Group (51%), an integrated JSE-listed financial services company offering a comprehensive value proposition in financial services to private clients, institutional investors, and clients of financial advisers.

Company Overview

EFBC is a subsidiary of the Efficient Group and falls within the Services and Solutions cluster. EFBC identified the need for independent support and advice to clients in the ever-changing retirement fund industry. We are committed to assisting boards of trustees and management committees with the management of their retirement fund assets to achieve their goals and attend to members’ pre- and post-retirement needs. We have unlimited access to group expertise and product specialists from the investment cluster, which is evident in our Joint Investment Committee (JIC) methodology explained next.

E

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Investment and Asset Consulting Services Investment philosophy and strategy EFBC takes the stance that members of a retirement fund need to understand the risk of retiring with inadequate savings. Care needs to be taken on how to achieve financial independence and our consulting process will assist them in their journey to a more comfortable retirement. EFBC’s consultancy process includes effective objective setting and investment mandate design. These two factors balance the need for diversification and how risk and return interact. By educating members on the need to understand their own fund’s definition of risk, the fund empowers them to take control of the inherent trade-off required for long-term and more aggressive wealth accumulation from investing versus short-term, capital preservation. Portfolios are thereby allowed to capitalise on long-term market returns and opportunities while limiting portfolio drawdowns over shorter periods. In our opinion, it is not about timing the market, but rather time in the market. If members, however, invest in unsuitable investment strategies they stand to lose out in the long run. In setting the investment objectives, EFBC makes use of a default life-stage model by utilising the portfolios to allocate capital based on the fund’s underlying member characteristics, as depicted below:

EARLY TO MID-CAREER

LATE CAREER EARLY RETIREMENT RETIREMENT

Investment objective

Provide capital accumulation and growth

Transition from balanced growth to preservation

Preserve capital and reduce volatility

Protect capital and provide liquidity

Required returns Inflation + 6% Inflation + 4-5% Inflation + 2-3% Inflation + 1-2%

ASISA category Multi-asset high equity

Multi-asset medium equity

Multi-asset low equity Multi-asset income

Market risk High Moderate to high Moderate Low to moderate

Time horizon Long term Medium to long Medium Short to medium

Investment solutions required

Balanced growth Cautious Life or living annuities

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By providing a default solution we can guide members who do not normally participate actively in a fund. For members who wish to select their own portfolios, EFBC together with the trustees of a fund, will enable a select few investment alternatives that are not duplicative or over diversify their portfolios. These individual member choice portfolios are quality controlled and vetted to provide for complimentary styles while aiming to achieve their stated real return objectives.

Investment policy statement and supporting documents Once the fund’s objectives and constraints have been identified, the fund will receive their very own Investment Policy Statement (IPS), be it an umbrella or freestanding dispensation. The IPS will explain all the relevant strategies and processes in use with regard to risk management, asset allocation, investment vehicles, implementation strategies, monitoring structures and other guidelines pertaining to the fund’s benefits. All of these are structured in an easy to understand format, allowing Fund Management to educate members of the fund. In this IPS the following matters as per PF 130 will be listed and explained in full: • Who the fund’s investment advisers are • Where applicable, who the custodian of the

investments are • Whether the fund has a socially responsible

investment policy, and its definition of such investment type

• Whether the investments of the fund are in the form of an insurance policy or a segregated mandate, and the reasons therefore

• What the targeted performance benchmarks are in respect of each asset manager and asset class

held by the fund, and what the previous year’s actual performance was in relation to the fund’s benchmarks, as well as the tracking error

• The level of risk attributed to each asset class and asset manager

• Whether or not the fund exercises its ownership rights in respect of the investments it holds (and if so, what the proxy voting policy is) and, if not, the reasons therefor

The depth and breadth of the manager research resources We strive to design top-performing multi-asset class strategies. The key drivers of performance for these strategies is based on five core competitive advantages we target, being a: • Well-defined, globally competitive, robust and

repeatable investment idea generation process • Intellectually-grounded, fundamental valuations-

driven asset allocation process

• Cutting-edge portfolio construction capabilities • Prudently informed manager selection process • Rational and thus unemotional manager

deselection process As part of our service, we share insights in our high-conviction investments ideas, as well as views around asset allocation strategies – broad and comprehensive overview of asset class valuations and how to exploit any prevailing opportunities. We believe that the following two key aspects best illustrate the breadth and depth of our manager research process: 1. Our manager research team 2. Our manager research tools

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Our manager research team To provide the very best investment research and results, we have created a Joint Investment Council (JIC) consisting of the following key role-players in the Efficient Group:

REPRESENTATIVE CONTRIBUTION AND CURRENT ROLE IN THE GROUP

NIC DU TOIT MComm, B.Comm Hons (Fin An); CFA Candidate Head of Institutional Investment Consulting (EFBC)

ROBERT WALTON CA(SA); B.Acc Hons; CMA Head of Investments (Group)

PIERRE DE KLERK CFA; B.Comm Hons (Act. Sci) Chief Investment Officer and Research Team (BIP)

DIAAN JANSE VAN RENSBURG CFA; B.Comm Hons (Fin An) Portfolio Manager and Reporting Specialist (Naviga)

RICO ERNST, ETIENNE VILJOEN AND DAWIE ROODT B.Comm Hons (Inv Mg); M.Comm (Econ - Cum Laude) Portfolio Management and Economic Research (EFPC)

Each of these individuals lead teams of investment, research and investment analysts and contribute to the collective knowledge and insight of managing institutional retirement fund solutions.

Our manager research tools

MANAGER RESEARCH TOOL MAIN AREAS OF RESEARCH

Morningstar Direct Qualitative and quantitative manager research (global)

Per Trac Quantitative manager research platform (international)

Bloomberg Qualitative and quantitative manager research

I-net Quantitative manager research inputs

Moneymate Manager performance monitoring

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Our manager review process is informed by both quantitative research as well as qualitative research, and the chart below best reflects the process:

Investment solutions – research and recommendations To ensure that true value is added to your fund, EFBC in partnership with our specialist research team (Boutique Investment Partners – a fully-owned subsidiary of the Efficient Group Ltd), approach fund research and recommendations through an in-depth process, which covers the universe of funds or manager processes as pertaining to reviews, ratings, recommendations, and selection. This analysis is conducted to construct investment solutions or portfolios that can address stipulated client investment objectives, as well as other requirements. We believe that “active” and “non-active” managers both have a role to play in well-constructed investment portfolios and our universe of managers, therefore, covers both active-manager and nonactive-manager investment strategies. We also believe that “quantitative approaches” have the ability to strongly complement purely bottom-up fundamental research-driven approaches, so at a generally high level, our universe will also consider managers pursuing “highly quants-driven investment approaches”. Additionally, our ongoing research efforts reveal that the approach to investments by most distinguished managers is continually evolving, and the innovative multi-manager is best positioned to exploit such trends. Our universe of managers also covers these new and specialised investment opportunities, where despite the evident skill and potential to add value, extensive performance track records may not exist. We rely heavily on the qualitative research framework of our manager research process to make decisions in such fields. At a regional level, we cover both local managers as well as offshore managers, where offshore in our view speaks to three main regions being Africa Markets, Emerging Markets, and Developed Markets. Locally, we also cover managers across all size spectrums (large, medium and small investment houses).

SCREEN UNIVERSE

Performance Analysis

Risk Analysis

Short List

Fee Analysis

Portfolio Analysis

Due Diligence Meeting

FINAL SELECTION

Qualitative Questionnaire

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Performance measurement and reporting Our attitude to performance is that, in addition to both absolute performance measures, as well as relative performance measures, it must also take into account the risk assumed by the fund’s investment strategy to achieve that performance. Such risk measures to be meaningful, however, need to be evaluated over meaningful investment horizons. One simple way to measure such risk is the standard deviation of returns. The lower this is, the more stable the outcomes, and hence the higher the odds that the stipulated benchmarks will be achieved more consistently. We therefore evaluate performance by specifying appropriate risk benchmarks as well. Pulling it all together, performance must also be evaluated in terms of the risk of losing capital, or alternatively, the ability to achieve stipulated investment objectives. This should be done, however, while also seeking to preserve capital over those members needing it in the short term and grow savings over the long term. The following chart explains this balance wherein the lowest blue line shows the worst returns that can be achieved by a CPI+5% investment strategy over various rolling investment horizons. So, for example, over a rolling 12-month period, the worst loss that has historically been achieved by this strategy was 20%. This period is, however, too short to make any meaningful performance evaluations for such a strategy.

CHART: RISK AS MEASURED BY CAPITAL PRESERVATION

Over a more meaningful period, which is 5 years, or rolling 60-month periods, the lowest return to ever be achieved by this strategy is a positive 8%. This suggests that one’s attitude to performance needs to be calibrated in the context of meaningful investment horizons. Overall, our attitude to performance is that it must also take into account the risk of losing capital, and this can be evaluated using maximum drawdown statistics, as was the case above. Over shorter periods, it is expected that some investment strategies could encounter meaningful losses, but over time, this risk needs to become less meaningful.

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We strategically and continually review our clients’ investment portfolios to make all recommendations required to ensure that these investment portfolios remain optimally positioned relative to the prevailing market and economic environment. This will include ongoing reporting on: • Underlying manager performances relative to

their respective performance benchmarks, as well as risk benchmarks

• Positioning of the underlying managers, as well as the key changes in this positioning

• Basic performance attribution of the portfolio • Market values of the fund’s default and member

choice portfolios

• Economic overview and market analysis • Recommendations on any required changes if

necessary • Fund fact sheets • Effect of fees and other expenses • Other reporting requirements requested by the

client

Performance of the fund and its assets are then reported on quarterly. The fund will receive formal feedback from EFBC, and underlying investment managers on their performance, as well as further education on all regulatory requirements. Their investment policy statement (IPS) will then be updated to reflect any changes made to the policy and remain a living document that prescribes the respective investment, implementation and monitoring strategy of the fund.

Investment consulting service structure We offer various service levels within investment and asset consulting, but this is indicative of our most comprehensive service offering: INVESTMENT STRATEGY CONSTRUCTION / REVIEW AND IMPLEMENTATIONS: • Drafting, formulating and providing an annual

review of the investment policy statement (IPS) • Determining investment objectives, identifying

investment constraints, amendments and risks relevant to a fund

• Finding acceptable investment solutions to cater for pre- and post-retirement needs of the members of the fund

• Advising trustees on investment manager selection and performance evaluation

• Advising and formalising investment benchmarks and targets where applicable to the fund

• Asset manager research: EFBC makes use of proprietary models for strategic asset allocation estimates that consider current and forecasted economic conditions in conjunction to asset manager returns and risk-adjusted performance. Third-party asset managers will be surveyed and reviewed periodically to provide a fair and consistent view of available investments.

• Implementing agreed-upon strategic amendments with third-party service providers and key stakeholders and minimising any potential adverse and other cost implications

INVESTMENT PERFORMANCE MONITORING AND FEEDBACK: • Monitoring and evaluating investment managers

and how they invested the fund assets according to the agreed-upon mandates

• Report-back session on a quarterly basis at your offices. You as the client determine the frequency and the tier of the service offering

• Providing the trustees of the fund with quarterly investment reports

• Pro-active and ongoing communication on market commentary: As a consultancy service, EFBC will ensure that you remain informed about macro developments in the global and local economy and the potential implications it might have on asset classes and investments

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Ad-hoc services not included in the service fee (billed should there be material time and effort spent): • Pro-active and ongoing support and analyses services. Our team is always available via phone or email for any

reasonable requests, as well as to present and discuss investment-related matters • Fund and member analysis, which provides the Net Replacement Ratio (NRR) for each member of a fund

Member education sessions are conducted as required and are in addition to the trustee training provided to a client

Value proposition of the Efficient Group with EFBC

INVESTMENT ANALYSIS

Individual and institutional investor investment and

portfolio review INVESTMENT PROPOSALS

Individual and institutional investor portfolio composition

INVESTMENT MANAGEMENT

Multi management Investment consulting

INVESTMENT REPORTING

Consolidated individual investor reporting Portfolio level reporting Fund and member health checks for institutional and prospective retail clients

INVESTMENT COMMITTEE

Management of product investment committees

Communication MARKETING AND SALES SUPPORT

One-on-one Client functions

PRODUCT DEVELOPMENT

Product design and development

Specialised products

MODEL PORTFOLIO ADMINISTRATION

Comprehensive investment administration

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Investment independence EFBC is not affiliated to any investment platform provider or administration systems. We strive to deliver unbiased and independent financial advice at all times. We do have investment managers within the Efficient Group, but limit their involvement to the insights, experience, and valuable knowledge they contribute to our Joint Investment Committee (JIC). This means that we do not use any investment portfolios which are structured for retail clients of Efficient or subsidiaries of the Group. With our own involvement on the JIC, we aim to deliver in-house multi-managed solutions wherein the underlying asset managers are not our own, but rather “best-of-breed” from the industry. Such institutional investment solutions will limit the exposure to any qualifying portfolio within the Efficient Group to no more than 15% in total and can be made available as an additional investment strategy for cost-saving orientated clients. In doing so EFBC will be able to offer cost-effective institutional investment solutions to clients with no restrictions to assets under management (AUM) and minimum investments, and deliver specific objectives befitting the requirements of such portfolios and client needs. The single purpose of creating these portfolios are therefore to better align clients to revised regulatory reforms, offer investment fee savings, optimal diversifications, and gain access to specialist asset managers in the form of both well-known and boutique managers.

Fee Structure EFBC will negotiate a consultancy fee upfront. The price you pay should be based on the value you get! EFBC may earn fees for investment consulting advice and services (maximum of 0.20% per annum excluding travel) on all assets under management (AUM) and is based on the various service levels available to the client. Due to the complex environment most retirement funds find itself, we have found that we can provide substantial savings which more than make up for our incremental charge. This means that the fund might end up saving on fees currently being paid in the investment industry by appointing us. We will be appointed for the retirement fund, but on behalf of the members in the fund and thereby protect both parties against profit seeking service providers. Note that our appointment does not have to mean that all your investment service providers and products need to change, rather we work closely with the industry to ensure that the most favorable outcome to the client is structured, even when using the same investment platforms, managers and associated providers. Our fee will be negotiated beforehand and does not have to be reviewed or escalated based on inflation annually, thereby providing certainty of what you pay and what to expect in return. EFBC could also earn limited income from bespoke structured investment portfolios that address specific needs. All fees will be fully disclosed in full as we believe in full transparency and treating customers fairly. Formal pricing will be confirmed upon the final report and proposal.

Our Senior Representatives Your business will be allocated to an experienced employee benefits team from EFBC and the JIC. The following senior staff from EFBC will be responsible for the overall consulting and intermediary services to your retirement fund and group risk benefits:

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Marius du Toit Marius is the Managing Director of EFBC, holds a BCom degree and an Advanced Postgraduate Diploma in Financial Planning (Retirement Funds). Prior to joining the Efficient Group, Marius worked for two large financial services companies and headed up the employee benefits consulting divisions for the Southern Regions at Absa Consultants and Actuaries. He has 28 years’ experience in the retirement fund and group benefits industry and consulted to various large and medium-sized retirement funds.

Nic du Toit Nic heads up the institutional investment and asset-consulting division. He holds an MCom, BCom Hons and BCom degrees with specific focus on Investment and Business Management. He is a CFA candidate with the US based Chartered Financial Analyst (CFA) Institute and also accredited with PRINCE2® from the UK. Prior to joining the team, he served as a senior asset consultant at Absa Asset Consultants. His experience in the roles of financial management and asset consulting allows him to create and implement investment strategies for clients varying in size and complexity.

Kobus Kunz Kobus heads up the employee benefit consulting division and holds an Advanced Postgraduate Diploma in Financial Planning (Retirement Funds). Prior to joining EFBC he headed up a team of employee benefit consultants in the central region. He has 35 years’ experience in the retirement fund and group benefits industry.

Benita Bodkin Benita holds a Postgraduate Diploma in Financial Planning. Prior to joining EFBC, she worked as a senior employee benefits consultant at Absa Consultants and Actuaries, consulting to small, medium and large retirement funds. She has 26 years’ experience in the retirement fund and group benefits industries.

Hein Strydom Hein is the Group Risk Specialist at EFBC. He holds a Post Graduate Diploma in Financial Planning. He initially worked for a large financial services company from 2002. Prior to joining EFBC, he worked as the Coastal Regional Manager for the group risk division of Discovery Life. He has 16 years’ experience in the retirement fund and group risk benefits industry.

EFBC has a national footprint and offers the following services:

• Retirement fund consulting and intermediaryservices

• Group risk benefit management services andconsulting

• Asset/investment consulting and investmenthealth checks

• Investment and economic research• Fund and member analysis services• Legal and technical support• Member education workshops• Retirement fund councilor

• Retirement fund and related benefits inductionprogramme to employees

• Member exit services• HR employee benefit training services• Management of section 14 transfers and liaise

with the Financial Services Board• Attend all Management Committee and/or

Trustee meetings and provide secretarial services• Independent principal officer duties• Trustee training

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FAIS Disclosures Although every effort has been made to ensure the accuracy of the content of this report, Efficient Benefit Consulting (Pty) Ltd accepts no liability in respect of any errors or omissions contained herein. The forecasts stated in this report are the result of statistical modelling, based on a number of assumptions. Forecasts are subject to a high level of uncertainty regarding future economic and market factors that may affect actual future performance. The forecasts are provided for information purposes as at the publishing date of this report.

Efficient Benefit Consulting (Pty) Ltd assumes no obligation to provide updates or changes to this data as assumptions, economic and market conditions, models or other matters change. Several investment managers have sourced the data contained in this report and research professionals trusted by Efficient Benefit Consulting (Pty) Ltd, and should be independently verified before further publication or use.

The contents of this report cannot be construed as financial advice and does not confer any rights whatsoever, enforceable against any party and does not replace any legal contract or policy which may be subject to terms and conditions. Past performance is no guarantee of future performance.

Efficient Benefit Consulting (Pty) Ltd retains the right to amend any information contained in this report at any time and without prior notice. Efficient Benefit Consulting (Pty) Ltd, its affiliates and individuals associated with it may (in various capacities) have positions or deal in securities (or related derivative securities), financial products or investments, identical or similar to the products and securities stated, but do not hold material positions, nor seek to profit from the report.

Should a conflict of interest between your interests and those of Efficient Benefit Consulting (Pty) Ltd be identified, Efficient Benefit Consulting (Pty) Ltd will use reasonable endeavors to disclose such conflict, together with details of any measures taken to avoid or mitigate the conflict situation. Such disclosure will include, but not be limited to, details of any ownership or financial interest (apart from those considered immaterial) that Efficient Benefit Consulting (Pty) Ltd may be or become eligible for. Such disclosure will be made in sufficient detail for there to be a reasonable understanding of the nature of the relationship or interest and the resulting conflict of interest.

Efficient Benefit Consulting (Pty) Ltd is an authorised financial services provider, FSP 48026.

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Contact us: e: marius@efbc.co.za t: +27 (0)21 276 1987

The icon in our logo symbolises the company’s ambition for growth and expansion, both for our investors and for our company