Sixteen months after Truffle took over as managers of the Nedgroup Investments Managed Fund, the unit trust is effectively being given a clean slate. The Association for Savings and Investment South Africa (Asisa) has decided that because there has been a material change in the fund’s investment policy, its historical performance should no longer be published.
The fund was previously managed by RECM, but Nedgroup Investments replaced them with Truffle in November 2015. At the time, the fund was the worst performing unit trust in the South Africa multi-asset high-equity category over one, three, five and ten years, since RECM’s deep value strategy had gone through a long period of not being rewarded by the markets.
This decision brought a complication, which was that Truffle already had its own multi-asset high-equity fund – the Truffle Balanced Fund. The agreement with Nedgroup Investments was however that it would only manage funds for Nedgroup Investments in this category.
Initially, the plan was simply to merge the two funds, but this proved problematic. Nedgroup Investments was therefore left with two funds in the same category, with the same mandate, which regulations do not allow.
Its solution was to propose a change in investment strategy for the Managed Fund. It balloted investors to get approval to restrict the fund’s investment universe to only South African assets. In other words, it would no longer be allowed to use its 25% offshore allowance.
This was approved and from November 1 2016 Truffle immediately began to align the fund to this new policy. All through this period the fund had maintained its long-term performance history.
The change in investment strategy however necessitated a review by the Asisa fund classification standing committee.
“The standing committee reviewed the application and all relevant information, including historic asset allocation for the fund,” explained senior policy adviser at Asisa, Sunette Mulder. “It was decided to approve the change in investment policy, but with a loss of performance history.
“The reasoning of the standing committee was that the investment policy of the fund is now materially different and the investor experience in the restructured fund could be expected to be fundamentally different,” she added. “As such it could be misleading to potential investors to present past performance for this fund.”
Mulder said that the actual track record of the fund played no part in this decision. It was purely made on principle.
The decision by ASISA has drawn some concern in that it has allowed Nedgroup Investments to effectively bury the extended poor long term returns the fund had produced. This didn’t just include the last few years for which RECM was the manager, but also the first year of Truffle’s management in which the fund lost a further 10.3%.
However, the head of Nedgroup Investments, Nic Andrew, stressed that it had not motivated for the performance history of the fund to be dropped. It had simply presented Asisa with the information it needed to make an assessment on the change in investment strategy.
“The Asisa guidelines say that a manager can motivate for a change in performance history when there is a change in investment strategy, but because we understand the sensitivities we didn’t want to do that,” Andrew told Moneyweb. “And the feedback we got is that the investment policy was materially different and that historical performance should no longer be published.”
He pointed out that until the guidance had been received, the fund’s track record had been maintained.
“We haven’t run away from the very disappointing performance of the fund,” Andrew said. “We have engaged a lot with clients because it has been a massive disappointment for us.”
Even though the new fund fact sheets can no longer contain the historical track record, Nedgroup Investments has kept a live link to the October 2016 fact sheet on the fund’s page on its website. This is the last fact sheet that can legally show the performance history, since it was the last month before the change in mandate took place.
“We’re very conscious of our responsibility to the existing investors,” said Andrew. “We have tried to make it very clear where they can get the history. But the reality is that for new investors the most appropriate track record is the Truffle track record, and that will be the new track record.”
Together with the change in mandate of the Managed Fund, Nedgroup Investments also received approval to rename the Truffle Balanced Fund. This is now being offered as the Nedgroup Investments Balanced Fund, and will keep its previous track record.