Investing in SA

ASISA is transforming the financial sector into a force for good

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The South African financial sector ranks in the top ten financial systems in the world, ranking 7 out of 144 in terms of efficiency, trustworthiness and confidence of the financial market, and 6 out of 140 as regards availability of financial services – ahead of the financial sectors of top economies like Norway, the USA and the UK.

The positive benefits that result include relatively inexpensive borrowing to fund infrastructure and socio-economic development, foreign investment to grow the economy, and liquid investment markets allowing for the growth of citizens’ savings and pensions. These benefits, in turn, are subject to fiscal discipline and stability, credit ratings, and the need for stability and governance in the financial market. No small share of the credit for these benefits must go to the Association for Savings and Investment SA (ASISA), the not-for-profit organisation that tirelessly champions the cause of the financial sector at the highest levels while leveraging the sector’s pull to drive transformation across the economy. We spoke to ASISA CEO Leon Campher to find out more.

At the upper echelons of governance, ASISA plays an active role in crafting the conditions that will ensure that South Africa’s financial sector remains on a good footing. A good example is ASISA’s hands-on engagement with the crafting of the new financial regulations known as Twin Peaks. As Campher explains, “We’ve been part of the conversation all along. We have a board, and then we have technical committees, each chaired by a board member. On these committees are the industry experts employed by ACISA, as well as representatives from our members. So when it comes to the Financial Sector Regulation Bill, for instance, we then pass it on through our people here, who are semi-retired industry experts who don’t have to work but are doing this because they want to. They all have deep industry experience, so they can add value to the discussion, and they coordinate and drive the input from our members. This is duly submitted to the authorities as the ACISA input into a bill. We don’t force consensus, so if there are minority views they go in together with the majority view.”

Whereas ACISA was once viewed as a comfortable old boys’ club, the Board is now about 60% black, including a lot of small and medium-sized black asset managers. “The beauty of it,” says Campher, “and to the best of my knowledge, it’s a first, is that at Board level, it’s one man one vote–you don’t vote according to the size of your business.”

Speaking from a position of insight, Campher is optimistic about impact of the regulatory changes. One important change concerns the future role of the Financial Services Board, which historically regulated all the life offices, fund managers, unit trust management companies, multi-managers and LISPS that make up ASISA’s membership. “With Twin Peaks coming,” says Campher, “there will be a prudential regulator, which will sit within the South African Reserve Bank (SARB), and there will be a market conduct regulator, which will be what is left of the FSB, because the insurance division and all of that will move to SARB. Prudential will deal with structures and institutions that require capital and could create systemic risk if something goes wrong with them. Apart from regulating the banks in terms of the Banks Act, SARB will now also regulate the market infrastructure, which is the JSE, other exchanges, the CSD straight, etcetera, as well as the payment system, in terms of the Financial Markets Act. The final Act that needs to be signed off is the Insurance Bill, which has gone through Parliament, it’s now at the Council of Provinces and hopefully it will be signed into law by the middle of the year, at which point all the required legislation for the Prudential Authority will be in place. Of course, the proof of the pudding will be in the eating – we’re still busy with the Conduct of Financial Institutions Act which will create the market conduct authority. By its nature, the Reserve Bank deals with a lot of very important matters, and they’ve got really good people, so the good thing is that you will have everything housed in one place, where you can monitor and look at issues that affect the prudential soundness of your major institutions.

Consequently, if something goes wrong somewhere, it’s easy to monitor it and control it. The financial sector has lots of conglomerates: for example, Standard Bank have a huge stake in Liberty, so if something goes wrong in Standard Bank, it could affect Liberty, or Liberty could affect Standard Bank. Similarly, until recently Old Mutual had a controlling stake in Nedbank. The upshot of the matter is that the ability to manage and monitor prudential risk is now properly housed in one body. What’s more, the Reserve Bank is very engaging and consultative, so we’ve got myriads of our people sitting on various committees within the Reserve Bank at the moment dealing with all kinds of things.”

The popular touch

Unfortunately, as has been well documented in the press, the Reserve Bank’s role is not fully understood by everybody that should understand it. That holds true for perceptions of the financial sector as a whole, which, as pointed out in ASISA’s submission to the Standing Committee of Finance, “is often considered synonymous with ‘banks’”. Combating this perception, and foregrounding the financial sector’s contribution to the economy as a whole, is part of ASISA’s mission. This is where the ASISA Foundation comes in.

“As a collective,” Campher explains, “our members agreed to create the ACISA Foundation, which our members contribute to, and through that foundation we are running programs on financial literacy, we’re doing trustee training by using the ACISA Academy, which is also accredited, so that we can promote understanding at various levels of how the financial sector works, from the basics, like budgeting, on up. We don’t do it by boring lectures, we run industrial theatre, and through Genesis Analytics we do quite independent monitoring and evaluation to study the impact.”

Initially conceived to provide training and development for people within the ASISA member base, the Academy was quite narrow in its focus when it started, targeting the investment arena, to breach the gap between the theory learned at varsity and the practicalities of becoming an analyst or a fund manager. “It’s academically rigorous,” says Campher, “because it’s accredited, but the lectures are provided by industry professionals who do it pro bono–so, for example, young aspiring analysts can attend an equity analyst boot camp run by some of the top fund managers in the country, whether they’re in competition with each other or not.”

Since then, the Academy has expanded considerably. “At the demand of our members,” Campher continues, “we ran life underwriting courses, claims assessing, and now we’re running middle and back office for our members so that people understand who tend not to be in the investment team but in the support team can understand the trade cycle, how a unit trust works, how it’s priced, what are the different instruments that trade, etcetera, and we’ve taken that a step further: we’ve now gone to some of the universities and offered to inject these academy courses as an elective in their degrees.”

The impact has been dramatic: “A lot of the students have chosen this elective. They come for their lectures to the Academy and then go on to intern with our members. The hit rate from intern to permanent employment is about 98%. Most of the candidates that have come through the Academy–I’d say probably 90% — are black and at least half if not more are women.”

Broad-based transformation

Transforming the financial services sector through education, internship and job placement is admirable in its own right, but ASISA’s transformation initiatives don’t stop there. The ASISA Enterprise and Supply Development Fund targets small, medium and micro enterprises that are in or could enter the supply chains of its members. Under the watch of full-time professional fund managers, ASISA is engaged in developmental work with hundreds of SMMEs from every walk of life.

“There are all sorts,” says Campher, “from the most incredible young techies that have developed software which is applicable to our members to panel beaters. In the case of a panel beater, many of our members control short-term insurers, and in the context of the new code and procurement, that’s a very underdeveloped area. As a panel beater, you really have to up your game to get into the short-term insurance supply chain. So we’ve done quite a lot of work there, and we’ve had some ups and downs, but we’ve also had some remarkable success stories. We’ve got to start by getting them to understand that it’s a business, we’ve got to provide support for them for life after enterprise development, implement proper management, proper accounting systems, get them to understand that they can’t live out the till even if it’s their business. Then, if we’re confident to go ahead, we invest with new equipment, etcetera, and they go up the scale with the short-term insurers. Ultimately, they reach the top of their game, where they are doing serious work for a lot of the insurers, where once they would never have got past a credit committee in a bank. Once we’ve invested, we provide seven years post-investment development.”

Campher cites another example: “We identified a little family business in one of our member’s supply chains that is passionate about the environment, so they were collecting dry waste from this member then recycling it and selling it. We started working with them at a basic level, like routing the truck efficiently (we put them in touch with an old expert in logistics), then we put capital in and new equipment and new trucks, and they expanded their base to other ASISA members, until they got the contract as a sub-contractor to the big contractor for the City of Cape Town dry waste. Now they permanently employ 120 people who came straight out of the shelters. Of course, that presents a further problem – we’ve got to send people in and draw up a basic employment contract and work with them on VAT returns, PAYE and UIF, because they’re great at what they do but they don’t have a clue about these other things.”

A measure of ASISA’s EDF fund is that it is now heading towards R600 million. “It’s grown so fast, we’re now looking at opening a second fund, although it might have a little bit of a different approach, so we’re still debating that,” Campher concludes.

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