Asset managers’ systems ‘couldn’t cope’ with collapse
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The South African asset management industry has had “an extremely challenging week”, not only because of the losses incurred on portfolios, but also administratively, because some asset managers’ administration systems proved to be inadequate and managers were not prepared for the shock of African Bank collapsing, a multi-manager claims.
Sygnia Asset Manager, which combines the skills of other unit trust managers in multi-managed portfolios, says managers sent out continued revisions of numbers and inaccurate calculations on portfolios following the collapse of African Bank.
Magda Wierzycka, the chief investment officer for the Sygnia Group of companies, which includes a life assurance company, a linked-investment services provider and a unit trust company, says the responses of other asset managers were woefully inadequate and highlighted weaknesses in administration, credit risk assessment, investment analysis and honest communication.
Wierzycka says administration systems were not capable of dealing with negative yields and had to be overridden manually, which resulted in human error.
In addition, there were different interpretations on how to do the write down, and mistakes in yields, market values and performance impacts issued by managers.
One manager went into a “lock down” and implemented agreed-upon processes only days after the suspension of the shares, she says.
Meanwhile, retirement fund investors should not be too concerned about the collapse of African Bank, as retirement funds are required to be diversified across many investments.
In addition, if you have a long time horizon, your savings will have plenty of time to recover from any loss incurred now.
Rosemary Hunter, the deputy executive officer in charge of retirement funds at the Financial Services Board (FSB), was late this week unable to confirm the impact of the devaluation of investments in African Bank on the retirement funds under the FSB’s supervision. However, Hunter says that because of the investment limits imposed by regulation 28 of the Pension Funds Act, it is unlikely that the impact on any single retirement fund will be very severe.
Regulation 28 provides that the aggregate exposure of a fund’s assets to a single bank, such as African Bank, may not exceed 25 percent of the aggregate fair value of the fund’s assets. Hunter says it is unlikely that any retirement funds had an exposure that was that high.
Unit trust funds are limited by a board notice under the Collective Investment Schemes Control Act to hold no more than 30 percent of the fund in debt instruments of banks with a market capitalisation of more than R20 billion and no more than 10 percent in the debt of smaller banks, such as African Bank.
Unit trust funds are also limited to investing only five percent of the fund in the equity or shares of a company.