The Security of Wealth in Emerging Markets���Strategies to ensure wealth preservation

P R E S E N T A T I O N B Y

Jarred Glansbeek

CEO, RisCura

W E A L T H S U M M I T

Managing Wealth in South Africa !"#$%#&'()*+$,-(,-./"'-(#&0*1,2*&,

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Daniël Kriel has been CEO of Sanlam Private Investments (SPI) since 1 March 2005. Prior to Sanlam, Daniël worked with ABSA Consultants and Actuaries for several years, where he developed South Africa’s first retirement and risk cover plan for blue-collar workers. While at ABSA, he also headed the first empowerment initiative in the employee benefits industry. Daniël joined the Sanlam Group in 1998, and was responsible for marketing, institutional sales and retail distribution at SIM before being appointed as CEO of Sanlam Private Investments in 2005. He is an exco member of Sanlam Investments, and serves on a number of boards of both local and international group companies. Under Daniël’s leadership Sanlam Private Investments has become one of the leading private client investment managers and stock-brokers in South Africa, and grown an expanding international footprint. SPI manages and administers some R60 billion and is widely regarded as being at the forefront of renewal in the private client industry. It is also one of the fastest growing companies in the Sanlam stable. Daniël holds a BA (Law) from Stellenbosch University and an LLB from RAU.

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Jarred Glansbeek is the founder and CEO of RisCura. RisCura is a global, independent financial analytics provider and investment consultant. RisCura services institutional investors with over $200billion in assets under management, as well as a significant number of asset management, hedge fund and private equity firms. The RisCura Group, in addition to investment consulting, has divisions that are leading providers of independent valuation, risk and performance analysis services to investors. Jarred established RisCura in 1999 to fill the financial industry’s need for a liability aware, independent risk-based consultant. Prior to this he was a director at the FirstRand Group. In the1990s he pioneered and implemented liability-driven investing while being part of a team managing new product development, derivatives, structured products and quantitative pension fund solutions at the FirstRand asset management units. Today, RisCura offers a comprehensive suite of services that meet these needs through its five autonomous and distinct business units - RisCura Analytics, RisCura Consulting, RisCura Fundamentals, RisCura Fund Service and RisCura Transition. Jarred is regarded a thought leader in the pension fund industry and is a pioneer of liability-driven investment processes. Jarred is a regular speaker at conferences and events around the world.

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Silvana BottegaGHIJKLM!"#"

is proudly supported by:

!

www.sa-la.org membership@sa-la.org +27 (0) 791787867

Jarred Glansbeek

March 2012

Security of Wealth in Emerging Markets

! Distinction between capital and income

! When to buy and when to sell: Value / Risk contradiction

! Markets - overview

! What can be done to secure ‘wealth’

Agenda

5

Distinction between capital and income

Why is asset allocation important?

7

Study shows that 93.6% of final performance of pension funds determined by their investment policy and asset allocation. Range of performance added by manager

selection – 6%. Both are important but asset allocation key! *

* Study published in 1986 in Financial Analysts Journal. Study based on 91 large ccorporate pension funds from 1974-1983.

Asset class - 30 year performance

8

Pension Payments

9

Annual Pension

Time

Bond performance

Bond performance

ALBI Index and ALBI Yield Since 1986

Bond performance

Insurance company A* R1000,000 to buy annuity for life, male pensioner aged 65

1.  Current 6972 11.6 3.7

2.  6 months ago 7307 (5.2%) 11.9 4.1

3.  12 months ago 6967 (-0.1%) 10.3 4.1

Monthly Income Interest % Real %

* Quote available on request

Goals: Pension cost

! If you are worried about income and interest rates dropping ! Buy bonds….not cash

! Careful on inflation

! If you are worried about capital values dropping ! Buy cash

! Careful on asset price inflation

! Selling when everyone else is selling is not a great idea! Its probably too late…

Principles

14

When to buy and sell?

The volatility value contradiction

16

0,00%  

0,50%  

1,00%  

1,50%  

2,00%  

2,50%  

3,00%  

3,50%  

0  200  400  600  800  1000  1200  1400  1600  1800  

5/9/2000   5/9/2001   5/9/2002   5/9/2003   5/9/2004   5/9/2005   5/9/2006   5/9/2007   5/9/2008   5/9/2009   5/9/2010   5/9/2011  

90  DAY  VOLATILITY  

MSCI  Global  Index   90  Day  Vola?lity  

The volatility value contradiction

17

0,00%  

0,50%  

1,00%  

1,50%  

2,00%  

2,50%  

3,00%  

3,50%  

0  200  400  600  800  1000  1200  1400  1600  1800  

5/9/2000   5/9/2001   5/9/2002   5/9/2003   5/9/2004   5/9/2005   5/9/2006   5/9/2007   5/9/2008   5/9/2009   5/9/2010   5/9/2011  

90  DAY  VOLATILITY  

MSCI  Global  Index   90  Day  Vola?lity  

0

50

100

150

200

250

300

350

Jan 99

May 9

9

Sep 99

Jan 00

May 0

0

Sep 00

Jan 01

May 0

1

Sep 01

Jan 02

May 0

2

Sep 02

Jan 03

May 0

3

Sep 03

Jan 04

May 0

4

Sep 04

Jan 05

May 0

5

Sep 05

Jan 06

May 0

6

Sep 06

Jan 07

May 0

7

Sep 07

Jan 08

May 0

8

Sep 08

Jan 09

May 0

9

Sep 09

Jan 10

May 1

0

Sep 10

Jan 11

May 1

1

Sep 11

Jan 12

VIX

Buy cheap…sell expensive

18

0,00%  

0,50%  

1,00%  

1,50%  

2,00%  

2,50%  

3,00%  

3,50%  

0  200  400  600  800  1000  1200  1400  1600  1800  

5/9/2000   5/9/2001   5/9/2002   5/9/2003   5/9/2004   5/9/2005   5/9/2006   5/9/2007   5/9/2008   5/9/2009   5/9/2010   5/9/2011  

90  DAY  VOLATILITY  

MSCI  Global  Index   90  Day  Vola?lity  

 -­‐        

 5,00    

 10,00    

 15,00    

 20,00    

 25,00    

 30,00    

 35,00    

 40,00    

 45,00    

0  

200  

400  

600  

800  

1000  

1200  

1400  

1600  

1800  

1/4/2000   1/4/2001   1/4/2002   1/4/2003   1/4/2004   1/4/2005   1/4/2006   1/4/2007   1/4/2008   1/4/2009   1/4/2010   1/4/2011   1/4/2012  

MSCI  GLOBAL  PE  

MSCI  Global  Index   MSCI  Global  PE  

Markets

20

All Share - Monthly

FTSE/JSE Africa All Share

Monthly 1995/06/30 – 2012/02/24

21

ALSI vs. Earnings

ALSI Index

Daily 1995/06/30 – 2012/02/24

0

100

200

300

400

500

600

700

800

900

1000

Jun 9

5

May 9

6

Apr 9

7

Mar 9

8

Feb 9

9

Jan 0

0

Dec 0

0

Nov 0

1

Oct 0

2

Sep 0

3

Aug 0

4

Jul 0

5

Jun 0

6

May 0

7

Apr 0

8

Mar 0

9

Feb 1

0

Jan 1

1

Dec 1

1

Price*EY Price

Source: I-NET

SA Equity (ALSI) – Yields

-

5.00

10.00

15.00

20.00

25.00

30.00

Jan 6

0

Oct 6

1

Jul 6

3

Apr 6

5

Jan 6

7

Oct 6

8

Jul 7

0

Apr 7

2

Jan 7

4

Oct 7

5

Jul 7

7

Apr 7

9

Jan 8

1

Oct 8

2

Jul 8

4

Apr 8

6

Jan 8

8

Oct 8

9

Jul 9

1

Apr 9

3

Jan 9

5

Oct 9

6

Jul 9

8

Apr 0

0

Jan 0

2

Oct 0

3

Jul 0

5

Apr 0

7

Jan 0

9

Oct 1

0

Jul 1

2

Apr 1

4

EY

DY

EY Forecast

23

Prime Overdraft Rate

Prime Overdraft Rate

Monthly 1969/12/31 – 2012/02/24

24

SA Listed Property Valuation

SA Listed Property - R186

Effective date: 2004/07/31 – 2012/02/24

-3

-2

-1

0

1

2

3

Jun 0

4

Dec 0

4

Jun 0

5

Dec 0

5

Jun 0

6

Dec 0

6

Jun 0

7

Dec 0

7

Jun 0

8

Dec 0

8

Jun 0

9

Dec 0

9

Jun 1

0

Dec 1

0

Jun 1

1

Dec 1

1

%

25

Rand Dollar Exchange rate

Source: I-NET

0

2

4

6

8

10

12

14

Dec 7

1De

c 72

Dec 7

3De

c 74

Dec 7

5De

c 76

Dec 7

7De

c 78

Dec 7

9De

c 80

Dec 8

1De

c 82

Dec 8

3De

c 84

Dec 8

5De

c 86

Dec 8

7De

c 88

Dec 8

9De

c 90

Dec 9

1De

c 92

Dec 9

3De

c 94

Dec 9

5De

c 96

Dec 9

7De

c 98

Dec 9

9De

c 00

Dec 0

1De

c 02

Dec 0

3De

c 04

Dec 0

5De

c 06

Dec 0

7De

c 08

Dec 0

9De

c 10

Dec 1

1

PPP

ComRand

FinRand

26

MSCI - Monthly

Morgan Stanley World Index US$

Monthly 1969/12/31 – 2012/02/24

27

MSCI vs. Earnings

Morgan Stanley World Index US$

Daily 1995/08/01 – 2012/02/24

0

50

100

150

200

250

300

350

Aug 9

5

Mar 9

6

Oct 9

6

May 9

7

Dec 9

7

Jul 9

8

Feb 9

9

Sep 9

9

Apr 0

0

Nov 0

0

Jun 0

1

Jan 0

2

Aug 0

2

Mar 0

3

Oct 0

3

May 0

4

Dec 0

4

Jul 0

5

Feb 0

6

Sep 0

6

Apr 0

7

Nov 0

7

Jun 0

8

Jan 0

9

Aug 0

9

Mar 1

0

Oct 1

0

May 1

1

Dec 1

1

Price*EY Price

MSCI Equity – Yields

28

1.00

2.50

4.00

5.50

7.00

8.50

10.00

11.50

13.00

14.50

16.00

Jan

70

May

71

Sep

72

Jan

74

May

75

Sep

76

Jan

78

May

79

Sep

80

Jan

82

May

83

Sep

84

Jan

86

May

87

Sep

88

Jan

90

May

91

Sep

92

Jan

94

May

95

Sep

96

Jan

98

May

99

Sep

00

Jan

02

May

03

Sep

04

Jan

06

May

07

Sep

08

Jan

10

May

11

Sep

12

Jan

14

EY

DY

EY Forecast

Datastream Consensus - 1 and 2 Year earnings growth forecast.

MSCI Equity – Yields

29

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

Feb

77

Jun

78

Oct

79

Feb

81

Jun

82

Oct

83

Feb

85

Jun

86

Oct

87

Feb

89

Jun

90

Oct

91

Feb

93

Jun

94

Oct

95

Feb

97

Jun

98

Oct

99

Feb

01

Jun

02

Oct

03

Feb

05

Jun

06

Oct

07

Feb

09

Jun

10

Oct

11

Feb

13

EY/LR EY/LR Forecast

Datastream consensus USGB10 & MSCI EY:1 and 2 year forecast

Developed Countries Yields

30

Developing Countries Yields

31

US vs Emerging markets (USD)

32

80

85

90

95

100

105

110

115

120

125

130

Dec 0

9

Jan

10

Feb

10

Mar

10

Apr 1

0

May

10

Jun

10

Jul 1

0

Aug

10

Sep

10

Oct 1

0

Nov 1

0

Dec 1

0

Jan

11

Feb

11

Mar

11

Apr 1

1

May

11

Jun

11

Jul 1

1

Aug

11

Sep

11

Oct 1

1

Nov 1

1

Dec 1

1

Jan

12

US Outperformance

S&P 500 TR MSCI EM USD

Protecting ‘Wealth’

! Understand income needs vs. capital desires

! Income ! Protect income with fixed interest instruments

! Take (low) risk with interest rate sensitive asset classes

! Equity highest of normal asset classes

! Capital ! Protect capital with cash

! Take (low) risk with capital sensitive asset classes

! Equity highest risk of normal asset classes

! Offshore diversification ! Currency of emerging markets is indicator for risk aversion

! As local gives protection for risk aversion

! Establish ‘price of risk’

! Take risk when risk is cheap

What can we do to protect wealth

34

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