Numsa Investment Company, the investment arm of South Africa’s largest trade union, has applied for a section 13B licence to set up an umbrella fund such that employees at small factories will be able to invest in its retirement fund.
Khandani Msibi, CEO and executive chairman of Numsa Investment Company, said factories with ten to 150 employees will be able to invest in the new fund, which is to be based on a similar model to its joint venture with financial services firm 10X Investments.
“10X will do the investments, but costs will be the key driver of the system that we are coming up with,” Msibi told reporters at an investment roundtable in Johannesburg.
He said the decision to set up an umbrella fund follows numerous requests by employees at small factories, who had heard of the relative success of the existing Numsa Investment Company-10X passive investment model.
This, after the historic investment returns on its joint venture retirement fund – servicing employees at a Ford motors plant in Port Elizabeth – outpaced the returns on the automotive company’s own fund, he said.
“Last year, the returns for Ford were around 5.5% and 10X was 9% and they were claiming it was because of Nenegate but we said ‘10X was also exposed to Nenegate – everybody who was investing was exposed’. The numbers, when we compare them, show a R3.6 billion benefit to workers over 20 years given the two styles of investment,” he said.
According to Steven Nathan, CEO of 10X Investments, the average automotive industry worker has around R400 000 in their provident fund, largely due to a union-mandated contribution rate of around 17% and low staff turnover in the industry.
Speaking at the launch of 10X’s #StopDaylightRobbery campaign, Nathan also said that high investment fees are likely to have a damaging long-term effect on investors’ retirement income.
“That is the harsh reality of investment costs: they compound in an unexpected and dramatic manner, and have a disproportionate impact on the long-term savings outcome,” he said, noting that fees have been shown to be the single biggest indicator of how investments will perform.
Msibi told Moneyweb that the umbrella fund will fall under the domain of Numsa Investment Company’s 360 Financial Services Group; its subsidiaries Union Life and UiPlay will provide administrative support. He expects the Financial Services Board to formally grant Numsa Investment Company the section 13B licence in the coming weeks and is aiming to launch the umbrella fund at the Numsa Special National Congress in mid-December.