The Fund’s obligation is to pay the benefits defined in the rules. As such, the Fund must establish and maintain a funding status.  An investment process that maximises the probability of maintaining a positive funding status and minimises the event of a shortfall must be core to the Fund’s investment philosophy.

In summary, managing the risk of not meeting these liabilities is as important to the process as achieving optimal return.

1. The primary driver in meeting the Fund’s long-term obligations is the Strategic Asset Allocation (SAA) as set out by the Asset Liability Modelling (ALM) process.

2. Retirement investing is primarily a long-term investment process. It needs to provide returns equal to the funding requirements over a prolonged period of time. Accordingly, the following is considered:

2.1. Consideration of the impact of the Fund’s investments on future generations.

2.2. The Fund is a signatory to the Principles for Responsible Investing (the “Principles”) and subscribes to the Codes for Responsible Investing in South Africa (“CRISA”). The principles are a set of global best-practices for responsible investment and have become the global benchmark for responsible investing. By incorporating environmental, social, and governance (“ESG”) criteria into 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 relevance of environmental, social, and corporate governance issues to investment practices.

2.3. Investment managers are encouraged to also consider the impact and long-term consequences of their investment decisions by mandating and incentivising them appropriately. Assessments of manager decision-making and performance should invariably incorporate these considerations.

2.4. The Board recognises the role of the Fund as a responsible and active asset owner. As such, the Board maintains a proxy voting policy. Any voting rights accruing to the Fund in its capacity as a shareholder will be exercised and this function must be monitored accordingly.

2.5. Invest in areas where outcomes may only materialise slowly, such as developmental investing.

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

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

3. The Board recognises that the Fund is one of the largest funds in South Africa and with size comes:

3.1. Responsibilities:

3.1.1. To act in a responsible manner in the markets.

3.1.2. To be cognisant 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.

3.2. Restrictions:

3.2.1. In terms of the speed at which transactions can be implemented in the markets.

3.2.2. In terms of the implementation of hedging and insurance strategies.

3.3. Opportunities

3.3.1. To develop emerging asset managers and service providers as per the Fund’s Investment B-BBEE policy.

3.3.2. To engage in developmental investment initiatives.

3.3.3. To develop innovative investment strategies without assuming significant risk.

4. Diversification provides an important foundation for the investment process in that it:

4.1. Efficiently harvests the risk premia of each asset class.

4.2. Accesses additional returns through different investment strategies.

5. 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.

6. Risk Principles

6.1. In achieving the Fund’s investment objectives, risk does not need to be minimised but optimised for the needs of the Fund. These demands:

6.1.1. Clear assignment of responsibility and accountability.

6.1.2. The resources, processes, and systems to identify, measure, and control risks inherent in the various investment strategies employed.

6.1.3. A culture in which understanding and managing risk is everyone’s responsibility.

6.1.4. An acknowledgement and understanding of the fiduciary responsibilities that are crucial to managing risk.

6.1.5. Timeous, relevant, and accurate performance reporting that identifies whether the investment strategies are rewarded for the risks taken.

6.2. A risk budgeting approach demands a specialist approach to managing the Fund’s assets relative to the liabilities to ensure that each level of risk budget parameters can be addressed. This entails:

6.2.1. Identifying the optimal combination of specialist portfolio mandates to address risk budget considerations for each asset class will be a primary consideration.

6.2.2. The Board adopts a “best of breed”/” best of need” approach insofar as it seeks to appoint and retain the best investment talent available viewed against the potential / expected value to be added to the blend of investment managers, net of costs and fees.

7. Costs

7.1. Managing costs is an important form of delivering on the return objectives of the Fund.

7.2. If the after-cost value-add of an active management strategy for an asset class cannot be measured, a lower-cost passive solution will be adopted.

8. To support the beliefs above, the following is required:

8.1. Adequate resources to ensure that these beliefs are correctly translated into the investment process and that it can be demonstrated how they add value.

8.2. An effective governance framework that balances the ability of the management team to execute efficiently and timeously what is required to meet these obligations with well-defined parameters that can provide those who are responsible for governance oversight with the assurance that any such exercise will be well-defined and controlled.

8.3. Recognise that these beliefs will evolve as resources and research inform better insights. As such, constant interrogations and re-assessments are encouraged.

8.4. Ultimately, a commitment to pursuing global best practice is always made.