PRESENTATION TO THE SELECT COMMITTEE ON FINANCE
17 SEPTEMBER 2002
SAMANTHA ANDERSON
DIRECTOR OF FINANCIAL MARKETS
NATIONAL TREASURY
1

1.
2.
3.
4.
5.
6.
WHAT IS A COLLECTIVE INVESTMENT SCHEME?
HISTORY OF COLLECTIVE INVESTMENTS
PROFILE OF THE INDUSTRY
PROFILE OF INVESTORS
PRUDENTIAL AND OTHER MEASURES FOR INVESTOR
PROTECTION
INTERFACE WITH OTHER INVESTOR PROTECTION
MEASURES
2

WHAT IS A COLLECTIVE INVESTMENT
SCHEME?

A SCHEME THAT ALLOWS INVESTORS WITH SIMILAR
OBJECTIVES TO POOL THEIR FUNDS FOR INVESTMENT IN A
SINGLE PORTFOLIO OF SECURITIES/ PROPERTY/
PARTICIPATION BONDS THAT WILL BE ADMINISTERED BY
PROFESSIONAL MANAGERS

INVESTORS IN A PORTFOLIO DO NOT PURCHASE THE
UNDERLYING ASSETS DIRECTLY.

OWNERSHIP OF THE ASSETS IS DIVIDED INTO “UNITS OF
ENTITLEMENT” OR A “PARTICIPATORY INTEREST”
3

WHAT IS A COLLECTIVE INVESTMENT
SCHEME?

THE NUMBER AND VALUE OF THE PARTICIPATORY INTEREST
ACQUIRED BY THE INVESTOR DEPENDS ON THE UNIT PURCHASE
PRICE AT THE TIME THE INVESTMENT WAS MADE AND THE
AMOUNT OF FUNDS INVESTED

THE RETURN ON AN INVESTMENT IS USUALLY IN THE FORM OF
DIVIDENDS AND CAPITAL APPRECIATION DERIVED FROM THE
POOL OF ASSETS UNDERLYING THE FUND

INVESTMENTS CAN BE MADE EITHER AS A LUMP SUM OR BY
MONTHLY OR ANNUAL INSTALMENTS – OR BOTH

DEFINITION CONTAINED IN THE BILL & SECTION 62 DEALS
WITH A DECLARED CIS
4

HISTORY OF COLLECTIVE INVESTMENT
SCHEMES

CHANGE OF CLASSIFICATION FROM “UNIT TRUST” TO COLLECTIVE
INVESTMENT.

FIRST UNIT TRUSTS WERE ESTABLISHED IN THE 186O’s IN LONDON
FOR PURPOSES OF RAISING FUNDS FOR THE BRITISH COLONIAL
GOVERNMENT - “FOREIGN AND COLONIAL GOVERNMENT TRUST”

LAUNCHED IN THE US IN THE 1920’s AND ONLY BECAME POPULAR
IN THE UK IN THE 1930’s. IN OTHER COUNTRIES COLLECTIVE
INVESTMENT SCHEMES ONLY BECAME POPULAR INVESTMENT
INSTRUMENTS AFTER THE 1950’S
5


HISTORY OF COLLECTIVE INVESTMENT
SCHEMES
IN SOUTH AFRICA, FIRST UNIT TRUSTS LAUNCHED IN 1965

INDUSTRY GREW IN THE LATE 1960’s. THEN THE 1969 CRASH OF
THE JSE SPARKED A DECADE OF BEAR MARKETS WHICH ONLY
RECOVERED AGAIN IN THE LATE 1970’s

SINCE THE MID 1990’s THE INDUSTRY HAS GROWN
SUBSTANTIALLY

COLLECTIVE INVESTMENTS, HOWEVER, HAVE A LONG HISTORY
IN OUR CULTURE THROUGH THE PROLIFERATION OF STOKVELS

ALTHOUGH STOKVELS ARE AIMED AT PROVIDING ACCESS TO A
LUMP SUM OF CAPITAL, THE WAY IN WHICH THE CAPITAL IS
RAISED IS VIA COLLECTIVE INVESTMENT IN A FUTURE RETURN
6

PROFILE OF THE COLLECTIVE
INVESTMENT SCHEMES INDUSTRY
2.1 CORPORATE/OWNERSHIP STRUCTURE

THE MAJORITY OF CIS OPERATORS OR MANAGEMENT
COMPANIES ARE EITHER INSURERS OR BANKS, OR OWNED BY
INSURERS OR BANKS

THE MARKET IS DOMINATED BY 3 OR 4 LARGE COMPANIES THAT
HAVE THE LARGEST NUMBER OF MANAGEMENT COMPANIES
UNDER THEIR CONTROL

TOTAL ASSETS UNDER CONTROL BY ALL REGISTERED
MANAGEMENT COMPANIES IS APPROX. R 176 billion
7

200,000
180,000
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
500
450
400
350
300
250
200
150
100
50
0
Assets No of funds
8

PROFILE OF THE COLLECTIVE
INVESTMENT SCHEMES INDUSTRY

RETAIL VERSUS INSTITUTIONAL - 21% INSTITUTIONAL ; 79% RETAIL

DATA FROM “ALL MEDIA PRODUCT SURVEY 2001” (“AMPS”) SHOWS
THE FOLLOWING BREAKDOWN OF CONSUMERS OF UNIT TRUSTS:
By age : 65yrs + 8.03% By race : White
50 - 64yrs 7.25% Asian
35 - 49yrs 6.45%
25 - 34yrs 4.62%
16 - 24yrs 0.92%
Coloured
Black
19.7%
9.52%
4.54%
1.75%
9

PROFILE OF THE COLLECTIVE
INVESTMENT SCHEMES INDUSTRY

OWNERSHIP ACCORDING TO HOUSEHOLD INCOME
( income per month)
+ R 16 000
R10 - R 16 000
R5 - R 10 000
R3 - R 5 000
R2 - R 3 000
> R 2000
30.37%
19.99%
13.38%
5.98%
3.41%
0.56%
SOURCE : “AMPS” 2001
10

South African Unit Trust industry assets under management and no. of unitholders
SOURCE: AUT [30 June2002]
200,000 3,000,000
180,000
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
2,500,000
2,000,000
1,500,000
1,000,000
500,000
0
198819891990199119921993199419951996199719981999200020012002
0
Assets No. of accounts
11

PRUDENTIAL AND OTHER MEASURES FOR
INVESTOR PROTECTION



EVERY SCHEME MUST APPOINT A MANAGER THAT IS RESPONSIBLE
FOR THE ADMINISTRATION OF THE SCHEME AND THE INVESTMENT
STRATERGY TO BE FOLLOWED. SECTIONS 2, 4 & 5 OF THE BILL
EXPLAIN THE DUTIES OF THE MANAGER OF A SCHEME
PART IX: SECTIONS 68 - 72 GOVERN THE APPOINTMENT,
QUALIFICATIONS, DUTIES & LIABILITY OF THE CUSTODIAN/
TRUSTEE - SUFFICIENT FINANCIAL RESOURCES; ALL OPERATIONAL
ACCOUNTS OF A SCHEME ARE CONTROLLED BY THE TRUSTEE
PART XII: SECTIONS 104 & 105 EXPLAIN THE DETAIL OF THE
SEPARATION OF INVESTOR FUNDS FROM THE MANAGER
12

MANAGER SCHEME
TRUST DEED
TRUSTEE
UNDERLYING ASSETS
PORTFOLIO
PORTFOLIO
PORTFOLIO
PORTFOLIO
13



PRUDENTIAL AND OTHER MEASURES FOR
INVESTOR PROTECTION
RISK ASSOCIATED WITH THE SALE OF THE WHOLE OR
PART OF A PARTICIPATORY INTEREST BY ONE OR MORE
INVESTORS FOR THOSE REMAINING IN THE SCHEME
THE MAIN PROVISIONS TO ASSIST WITH THE EFFECTIVE
MANAGEMENT OF LIQUIDTY IN A SCHEME ARE:
1. BORROWING BY MANAGERS OF A SCHEME AGAINST THE ASSETS
UNDER MANAGEMENT (ALL TYPES OF CIS’s)
2. “RING FENCING” OF SALE ORDERS FOR SCHEMES IN SECURITIES;
AND
3. CAPITAL ADEQUACY OF THE MANAGER
14





PRUDENTIAL AND OTHER MEASURES FOR
INVESTOR PROTECTION
IN TERMS OF SECTION 96 OF THE BILL BORROWING IS LIMITED
TO 10% OF TOTAL VALUE OF ASSETS (EQUITIES) AND IS
RESTRICTED FOR PURPOSES OF “BRIDGING LIQUIDITY”
FOR A PROPERTY CIS, BORROWING OF UP TO 30% OF ASSETS
UNDER MANAGEMENT IN THE SHORT-TERM
SECTION 58: FOR PARTICIPATION BONDS THERE IS A MINIMUM
INVESTMENT PERIOD OF 5 YRS. LIQUIDITY IS MANAGED IN
THIS WAY
REGULATIONS WILL DETERMINE ALL THE TERMS OF
BORROWING FOR ALL TYPES OF CIS’s e.g. REPAYMENT
SCHEDULES, INTEREST RATES ETC.
15

PRUDENTIAL AND OTHER MEASURES FOR
INVESTOR PROTECTION

IN TERMS OF CONDITIONS DEFINED BY THE REGISTRAR, PROVIDED
FOR IN SECTION 114 (f) OF THE BILL, A MECHANISM FOR THE “RING
FENCING” OF ASSETS IS PROVIDED FOR

THE “RING FENCING” PROVISIONS ARE NOT APPLICABLE TO
INVESTORS WITH LESS THAN R50 000 IN A SCHEME INVESTED IN
EQUITIES

AN INVESTOR WITH MORE THAN R50 000 IN A SCHEME THAT WISHES
TO SELL ITS PARTICIPATORY INTEREST MAY BE REQUIRED TO WAIT UP
TO 20 BUSINESS DAYS FOR PAYMENT - PRICE DETERMINED ON EACH
DAY DURING THE PERIOD OF SALE

INVESTOR CAN CHOOSE TO CANCEL A SELL ORDER
16

PRUDENTIAL AND OTHER MEASURES FOR
INVESTOR PROTECTION

CHANGES TO THE CAPITAL ADEQUACY REQUIREMENTS - NO
LONGER THAT THE ASSETS ARE IN-FUND BUT ARE HELD BY THE
MANAGEMENT COMPANY

SECTION 88 – 90 : CAPITAL REQUIREMENTS OF THE MANAGER
AND ISSUES OF FINANCIAL RECORD KEEPING
17

PRUDENTIAL AND OTHER MEASURES FOR
INVESTOR PROTECTION

THE MOST COMMON PRUDENTIAL MEASURE IS LIMITATIONS ON
THE TYPES OF INVESTMENTS PERMISSABLE IN A PORTFOLIO e.g
5% IN A SINGLE SHARE OR 5% OF TOTAL VALUE OF MARKET CAP
IN A SINGLE SHARE - VARIES BETWEEN DIFFERENT TYPES OF
PORTFOLIOS

SECTION 46 OF THE BILL MAKES PROVISION FOR CONDITIONS
DEFINED BY THE REGISTRAR TO GOVERN THIS ASPECT OF THE
BUSINESS OF A MANAGER

AN EXAMPLE IS THE REGULATIONS PERTAINING TO THE USE OF
DERIVATIVES IN A SCHEME - ALL EXPOSURES MUST BE COVERED
18

PRUDENTIAL AND OTHER MEASURES FOR
INVESTOR PROTECTION

DISCLOUSURE IS THE MOST IMPORTANT NON-PRUDENTIAL
INVESTOR PROTECTION MEASURE

SECTION 3 OF THE BILL DEALS WITH DISCLOSURE OF
INFORMATION

SECTION 93 GOVERNS PERMISSIBLE DEDUCTIONS FROM A
PORTFOLIO - NO HIDDEN COSTS, FEES OR COMMISSIONS TO THE
INVESTOR

ALL ADVERTISING AND PROMOTION MATERIAL DISTRIBUTED BY
A MANAGER MUST BE LODGED WITH THE REGISTRAR AND CAN
BE WITHDRAWN FROM PUBLIC CIRCULATION
19

INTERFACE WITH OTHER INVESTOR
PROTECTION MEASURES

MOST IMPORTANT TO REMEMBER THE ROLE THAT THE FAIS BILL,
2002 WILL PLAY ONCE PROMULGATED

PROVISIONS TO ENSURE THAT FRAUDULENT OR
INAPPROPRIATE SCHEMES ARE NOT SOLD TO INVESTORS ARE
CONTAINED IN THE FAIS BILL

WITHIN THE CIS BILL, PROVISIONS FOR INDUSTRY
ASSOCIATIONS AND THE INTERFACE WITH THE REGISTRAR
PROVIDE TWO LEVELS OF SUPERVISION IN TERMS OF THE
CONDUCT OF MANAGERS

FOREIGN SCHEMES MAY ONLY OPERATE WITH PRIOIR LOCAL
APPROVAL BY THE REGISTRAR

SECURITY SERVICES BILL AND THE UNDERLYING STRUCTURE OF
THE INVESTMENT MANAGEMENT INDUSTRY
20

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