13 months ago

Blue Chip Issue 82

  • Text
  • Financial
  • Advisors
  • Investments
  • Equity
  • Wealth
  • Offshore
  • Asset
  • Portfolio
  • Investing
  • Global
  • Momentum
Welcome to our Investing Offshore Special Edition of Blue Chip. a quarterly journal for the financial planning industry and the official publication of the Financial Planning Institute of Southern Africa NPC (FPI). Blue Chip publishes contributions from FPI and other leading industry figures, covering all aspects of the financial planning industry.

COLUMN The nuts and

COLUMN The nuts and bolts of offshore investing Practical considerations for investing in global markets Liam Dawson, Investment Analyst, PortfolioMetrix Liam Dawson’s career began as a mechanised mining applications consultant in the mining and metals industry. Then, driven by a passion and curiosity for investing, he joined PortfolioMetrix in 2015 to apply his mathematical and reasoning skills to investments under PortfolioMetrix’s distinctive risk-based approach. Liam holds a Bachelor of Engineering (Mechanical Engineering) and is a CFA®, CAIA and FDP Charterholder. The industry has already made a strong case for investing offshore. However, the nuts and bolts of how to invest offshore are often overlooked or not adequately considered. This can serve as a significant barrier to “exit” for investors. To address this, I’ve outlined some practical considerations when looking to invest offshore. Should you keep the investment in rands or take the money offshore first before buying into a foreign investment? Accessing a foreign investment in rands means that you will not externalise the investment, ie the investment remains within the purview of South African authorities since you are using a local investment platform. In many cases, this is not a concern for investors (such as within retirement savings vehicles), but for investors wishing to diversify across regions and outside local regulatory parameters, you will need to externalise the assets first. This involves a transfer of hard currency to a reputable custodian, and in some cases, permission from the South African Reserve Bank. From a tax perspective, externalising means only being taxed on the investment growth, whereas a local unit trust will expose you to both investment growth and rand depreciation. What is the full global opportunity set? It is easier to identify a foreign investment that is domiciled1 in South Africa. This is because these 585 funds2 are actively marketed to South African investors and are easily accessible – however, they represent only half a percent of the global opportunity set. Many funds are overlooked because the fund managers did not apply to have them marketed in South Africa; approximately 124 000 funds fall into this category. The complexities of selecting an offshore investment Investing offshore means analysing multitudes of investment styles, strategies, philosophies, benchmarks and personalities, and that is assuming you will get what is written on the tin. To some an opportunity, to others a paralysing task – narrowing the 124 000 funds down to a manageable amount that allows for detailed analysis of portfolio data and engagement with the fund management teams will be demanding but a labour well worth the spoils. You must also ensure that your selected custodian is prepared to offer your selected fund on their platform, and availability is not guaranteed. Then, should you invest, be prepared to perform ongoing monitoring and performance evaluations. Frankly, these layers of complexity can make it difficult (and time-consuming) to select and maintain the correct foreign investments. And besides, as an advisor, would you not prefer to add value by spending time with your clients instead? Our distinctive approach to investing globally PortfolioMetrix appreciates the challenges of investing globally, which is why we have designed a ready-built solution for you and your clients. We dedicate our research capabilities to identifying specialist managers beyond the locally approved funds, consider how these managers interact with one another, and then provide a portfolio design that ensures each part of the portfolio works together to generate a successful investment outcome. We conduct ongoing monitoring of each manager, their fund performance and team. We determine prudent allocations to each manager and use our collective assets under management to negotiate access to cheaper, and often restricted, share classes. The “cherry on top”: we provide this global investment solution in the form of a domesticdomiciled fund as well as a fully externalised Irish-domiciled option across multiple investment platforms. This ensures easy access to a consistent and specialised foreign investment opportunity. 1A fund’s domicile refers to the country that it is registered in, and the regulatory environment that governs it. 2 FSCA Section 65 Approved Foreign Investments Schemes, as of 2021/12/03 PortfolioMetrix Asset Management SA (Pty) Ltd is an Authorised Financial Services Provider in South Africa and PortfolioMetrix Asset Management Ltd is authorised and regulated in the United Kingdom by the Financial Conduct Authority.

MONEY LAUNDERING RISKS To mitigate threats of criminal exploitation, financial services providers must be cognisant of the money laundering and terrorist financing risks their clients pose. COMPLIANCE submitted to the FIC. These records must be kept for five years from the date of the business relationship being established and/ or transaction being concluded. Criminals may try to exploit the vulnerabilities of financial services providers (FSPs) and abuse their products and service offerings for purposes of laundering proceeds of crime. The providers of these services must therefore remain vigilant and consider factors including clients, product or service features, delivery channels, and geographic areas regarding their clients. Adopting a risk-based approach As a business sector identified in the Financial Intelligence Centre Act (FIC Act), FSPs are required to fulfil compliance obligations that are geared to protect the financial system. FSPs must apply a risk-based approach when establishing a business relationship and/or conducting a single transaction with a client. The application of a risk-based approach when implementing controls allows FSPs to understand and mitigate money laundering and terrorist financing risks. Controls put in place by the accountable institution must be in proportion to the identified risks their clients pose. Different clients present different levels of risk. Authorised users should consider what money laundering/ terrorist financing/proliferation financing (ML/TF/PF) risk the client presents as a result of the type of clients the client provides products and services to, that is the “client’s client”. Risk management compliance programme FSPs must develop, document, maintain and implement a risk management and compliance programme (RMCP) setting out how the institution will manage their money laundering, terrorist and proliferation financing risks, as set out in Section 42 of the FIC Act. Record-keeping FSPs must keep records of client identification and verification information, transactional information and regulatory reports Customer due diligence FSPs must conduct due diligence (CDD) on their clients, persons on whose behalf of the client is acting, and the client’s beneficial owners. CDD includes identifying and verifying clients, obtaining information about the nature and intended purposes of the business relationship, as well as the client’s source of funds. Where there are heightened risks of money laundering, terrorist and proliferation financing, the accountable institution must conduct enhanced due diligence and monitoring on the business relationship or single transaction. Training of employees The accountable institution must provide training for its employees on the FIC Act and the institution’s RMCP. Registration An FSP must register as an accountable institution under item 12 of Schedule 1 to the FIC Act on the FIC’s online system called goAML. Reporting The accountable institution must file various reports with the FIC on the goAML system. There are three primary reporting streams for accountable institutions which include cash threshold reporting – on cash received or paid by the accountable institution exceeding R24 999.99, suspicious and unusual transaction reporting – where a person becomes aware that a transaction is unusual or arouses suspicion in terms of money laundering, terrorist financing activities or proliferation financing, and terrorist property reporting – property associated with terrorism, proliferation financing and related activities. The FIC analyses the reports it receives to compile financial intelligence. If necessary, this financial intelligence is shared with law enforcement, prosecutorial and other competent authorities for their investigations and applications for asset forfeiture. Refer to the FIC's guidance note 7, which indicates different factors that must be taken into account when assessing money laundering, terrorist and proliferation financing risks. For more compliance information and guidance offered to accountable institutions, refer to the FIC website ( For further information contact the FIC’s compliance contact centre on +27 12 641 6000 or log an online compliance query by clicking on: 19

Other recent publications by Global Africa Network: