New perspectives for the intelligent investor

MOST upmarket investors are well aware of the need to diversify their portfolios into offshore investments but often they feel restrained by the limited local options available, administrative hassles and the seemingly high costs.

Phone most investment houses and you'll have a pretty poor chance of getting things right first time. It generally requires quite a phone-around to strike the most appropriate person.

The alternative is to operate through an intermediary, which may be a lot easier but will certainly involve an upfront advice and administrative fee of up to 5% of your underlying investment.

Credit however has to be given to Western Cape-based Glacier by Sanlam, that specialises in the provision of a wide range of tailor-made investment solutions for affluent clients. It has closely analysed difficulties local investors encounter in seeking offshore exposure and has concertedly attempted to address these.

The person responsible is Tomi Kulcsár (29) who was born in Budapest, Hungary; came to SA at age five and was raised here; matriculated at Cape Town High School; went on to graduate at Unisa with a B Com (Hon) in financial management; and is a level 2 candidate in the CFA programme.

His task largely is to keep up to date with offshore markets and fund industry developments. This includes focusing on South African asset swap funds and Financial Services Board (FSB) approved offshore funds marketed in SA.

Says Kulcsár: "We feel strongly that there is a need to advise and assist South Africans on the investment possibilities abroad, particularly intermediaries because at the end of the day they're the ones that give advice".

He laments that in the South African context the intermediary is deprived of adequate input on offshore investments. "They may attend one or two investment conferences a year, but they don't have the benefit of ongoing institutional offshore roadshows comparable to local roadshows.

"It's often extremely difficult to get an objective view on the selection of offshore assets and fund managers available. A fund manager may come to SA once a year, and a local intermediary may feel bent on using him or her because of minimal exposure to the alternatives. That's no basis to work on".

Glacier assists clients with investments on its platform and/or direct investments abroad. It advises them on the most appropriate choices of instruments and funds and provides the required documentation to simplify the process.

Kulcsár explains that Glacier offers 65 FSB approved offshore funds on its platform which is a lot less than, say, 300 on other platforms.

"This is very deliberate. We believe in keeping the platform simple while ensuring all asset classes are reflected in the offering. We also aim to provide a strong support service. We don't believe in offering funds with little information and administrative backup. We don't offer guaranteed structures. And we don't at this stage have any products that require policies to be drawn up".

The minimum investment is usually a lump sum R100 000 and a maximum R2 million for direct offshore investments, in line with the Reserve Bank's forex controls.

Case for offshore investments

Kulcsár says his point of departure with most clients is getting them to recognise their need for investing offshore. "If it is merely about diversifying a total portfolio, that's one thing. If it's about emigrating, that's another. And if it's about ultimately retiring abroad, that's yet another factor.

"If it's merely about diversification of a total portfolio, asset swap offshore funds may be more than adequate. They also have the advantage of easy liquidity. But if it's about emigrating or retiring abroad, there is clearly a need to invest some or all of your resources directly offshore".

Kulcsár strongly advises that South Africans investing directly offshore do so via a reputable local financial institution rather than through some unregistered and seemingly low cost company. Numerous investors trapped in the latter have had great difficulty redeeming their funds. Besides, there is always the danger of scams.

Foreign currency exposure

This is often dismissed by advisers as unimportant, but Kulcsár contests that view. He argues that currency diversification lowers the volatility of portfolios and in the case of South Africans immunises them from SA-specific risks such as the current high interest rate environment.

He says that if people wish to move offshore permanently, the more hard foreign currency that they have available when they eventually move makes a lot of sense. "Then you're not dependent on the timing of your exit from SA which may or may not be politically fragile at the time. If you send money off gradually, you'll get a rand average exchange rate which may be to your benefit".

An alternative for some may be exposure to rand denominated currency funds offered by the major local investment houses or via the Glacier platform. Glacier in fact offers an international multi-currency fund that most recently was exposed to the US dollar (39%), euro (25%), yen (10%), sterling (9%), and the rand (17%). It has generated an approximate 14% return a year during the past three years.