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CAPE TOWN - Personal Finance was remiss in not covering the Steinhoff debacle last week – we received several emails from unhappy readers. A week later, perhaps some of the shock waves have subsided, and we can now more coolly and rationally examine the implications for individual investors and retirement fund members.

Huge figures of how much asset managers have lost have been bandied around in the media. Although the overall numbers are large and the wider implications for corporate South Africa and the investment industry shouldn’t be underestimated, the immediate, direct effects for individual investors have mostly been relatively slight, though widespread.

What happens to Steinhoff and its complex web of companies is still very much anyone’s guess. There’s a possibility that a leaner, smaller but stronger entity will emerge. Hopefully, that company will have a more transparent structure of which good corporate governance will be a cornerstone.

Some analysts estimate that such a company’s fair-value share price would be about R26. This is vastly up on the low of R6 that Steinhoff hit after its dive last week, but very far from the R90-odd peak it reached in May/June last year. For the past few months, since rumours of its troubles have been circulating, Steinhoff has been trading at about R50, so R26 would be about half that.

This would probably be the best-case scenario.

The worst-case scenario is that all Steinhoff’s viable assets will have to be sold off to cover its liabilities and nothing will remain. Its shares will be worthless.

Discretionary investments

Investors holding Steinhoff shares directly have been the worst affected, depending on how large Steinhoff featured in their portfolios. Pity its largest individual shareholder, Christo Wiese, who saw many billions of rands wiped off his net worth within a few days.

Whether you sell your shares for what you can get for them or hang on in the hope that you can recoup some of your losses is up to you, with guidance from a stockbroker or financial adviser.

Second-worst affected have been people invested in unit trust funds and exchange traded funds (ETFs) with a high level of exposure to Steinhoff.

Some of the worst affected funds were those in the South African Equity Industrial category, with Absa’s NewFunds S&P Givi South African Industrial 25 Index ETF having 12.44% of its portfolio in Steinhoff at the end of September, according to its fact sheet. (Interestingly, the Satrix Indi ETF had only 4.34% exposure at the end of October, according to its factsheet.) Industrial funds with exposure of between 7% and 9% at the end of September included those managed by Old Mutual, Coronation and Momentum.

Some general equity funds also had relatively high exposure (of between 6% and 7%), including those from Community Growth, Denker, Truffle, Coronation (Top 20 Fund) and Foord.

Also high on the exposure list are two shariah funds: the Absa NewFunds Shari’ah Top 40 Index Fund (7.6% at the end of September) and the Stanlib Shariah Equity Fund (7.16%).

If you are invested in a more diversified multi-asset fund, the Steinhoff fallout will probably have barely affected you. Multi-asset funds exposed to Steinhoff would have probably had only about 2% to 3% of their portfolios in the share.

An exception is the Nedgroup Investments Opportunity Fund, a medium-equity multi-asset fund managed by Abax Investments. Medium-equity multi-asset funds are limited to having 60% of the portfolio in equities, and are rated medium risk. However, this particular fund had 7.6% of its entire portfolio invested in Steinhoff at the end of October.

The price, therefore, of your discretionary unit trust or ETF might have dropped last week by between zero and about 6% (unless you were in the NewFunds S&P Givi SA Industrial 25 Index ETF), and possibly recovered slightly this week. But the drop may not have been too far outside the regular ups and downs of the fund.

In a passive index-tracker fund, Steinhoff is likely to fall out of the index or move lower down on the index, so when the fund next rebalances it will be forced to sell some or all of its Steinhoff shares, whatever their value.

In actively managed funds, it is very much up to individual managers whether they will continue to hold Steinhoff or cut their losses.

Retirement funds

Retirement fund members have been least affected by the Steinhoff collapse, although its broader effects on retirement funds are less obvious and may be less quantifiable.

All retirement funds (employer-sponsored pension and provident funds, umbrella funds, preservation funds and retirement annuity funds) are subject to regulation 28 of the Pension Funds Act, which decrees, among other things, that funds can’t invest more than 75% of their assets in equities and no more than 10% in any single company.

The Steinhoff exposure is likely to have been similar to that of a multi-asset fund – up to about 3%. Many on-the-ball retirement funds have sent out notices to members outlining their Steinhoff exposure. If yours hasn’t done so, it might be a good idea to approach your human resources department or fund directly for clarification.

One large number bandied about in the media was the Public Investment Corporation’s R28-billion exposure to Steinhoff. Strangely, this was not put into context: the PIC’s total assets under management (of which about 87% are managed on behalf of the Government Employees’ Pension Fund, or GEPF) were, at March this year, R2.1 trillion. In other words, not much more than 1% of the PIC’s assets were affected. (By the way, the GEPF is not subject to the Pension Funds Act and regulation 28.)

If you’re a government employee, you have another, stronger reason not to worry about Steinhoff (or any other share collapse, for that matter): the GEPF is a defined-benefit fund, which means your retirement benefit is not dependent on the fund’s returns. This also applies to other defined-benefit funds around the country.