UCTRF MEMBER INVESTMENT CHOICE AGENDA • Design of the Fund • Your main risks • Channels offered by the UCTRF • Your choices • Common mistakes The design of the Fund • The UCTRF is a defined contribution provident fund. • So, the amount available for your retirement will depend on : – Your contributions allocated to retirement savings, and – The net investment returns earned on your retirement savings. • The Fund and its associated schemes also provide benefits on resignation, retrenchment, death and disability. Three KEY RISKS • Inflation risk • Final payment risk • Contributions insufficient INFLATION RISK • Your retirement savings do NOT earn a sufficient return to provide reasonable retirement income after long service • Investment return of 5% to 6% p.a. above inflation needed to provide reasonable retirement benefits FINAL PAYMENT RISK • You retire, your funds are in the market, and take out your retirement benefit at a time when the market is low • Not important if you resign and re-invest your benefit in a similar vehicle for your retirement Contributions Insufficient • The UCTRF SIP targets a replacement ratio of 75% to 85% of your pensionable salary after 35 to 40 years of contributions • If your contributions are below the guideline levels or you contribute for a shorter period this will reduce the funds available to provide a pension on retirement MANAGING RISKS • Optimal asset class mix – equities generally best protection for inflation risk; cash best for “final payment risk” • Time horizon for which retirement savings invested – longer investment period, lower risk of capital loss • Diversification UCTRF Investment Channels • Income Fund (Portfolio A) – designed for “final payment” risk • Smoothed Bonus Fund (Portfolio B) – designed for mix of inflation and “final payment” risk • Market Portfolio (Portfolio C) – designed to deal with inflation risk REAL INVESTMENT RETURNS @ 31.12.2008 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% Since Inception 1 year 3 years 5 years 7 years (1/01/95) Portfolio A (Target: 1.0%) 3.2% 1.8% 2.7% 2.8% 4.0% Portfolio B (Target: 3.0%) -2.4% 9.8% 8.9% 5.8% 5.9% Portfolio C (Target: 5.0%) -11.5% 4.0% 11.6% 6.5% 8.1% Statement of Investment Principles (SIP) Portfolio Investment Objective Investment Horizon Market Portfolio 5% p.a. (net of costs & taxes) 7 years + (Portfolio C) above CPI over rolling 7 years Smoothed 3% p.a. (net of costs and taxes) 3 – 5 years Bonus Fund above CPI over rolling 5 years (Portfolio B) (insurer capital guarantee of all contributions/lump sums) Income Fund 1% p.a. (net of costs & taxes) 0 – 2 years (Portfolio A) above CPI over any 12 month period, with minimal risk of capital loss over the same period Statement of Investment Principles (SIP) cont Portfolio Summarised Broad Strategy Market Portfolio •equities offer the best inflation protection and real (Portfolio C) return prospects over the long term •compensated via higher real returns for the volatility risk •Markets inefficient over short term •Markets more efficient over long term Smoothed •Insurer product to provide a reasonable return Bonus Fund with capital preservation over s/t to medium term (Portfolio B) •Equities with inv. Smoothing & insurer guarantees as a cost effective trade-off btw lower inv. Returns & lower volatility Income Fund •money market instruments (with duration less (Portfolio A) than 3 years) with high credit quality •positive returns with minimal risk of capital loss over short term for those with a very low appetite for volatility and capital risk. Income Fund Portfolio A • Assets are invested in money- market and short-dated bond instruments with maximum term of 3 years – • Targets investment return 1% p.a. above inflation • Designed mainly for members wanting “final payment risk” protection SMOOTHED BONUS FUND Portfolio B • Insurer smooths investment returns over a period of 5 and 10 years • Over long term bonus reflects return earned on underlying assets less Insurer charges • Insurer guarantees contributions (including transfers from other channels) but not the investment return • Targets investment return 3% p.a. above inflation over the long-term TWO ACCOUNTS • Vested Account – Guaranteed portion • Non-vested Account – Non-guaranteed portion VESTED ACCOUNT • Retirement saving contributions plus transfers from other portfolios; plus • Vested bonuses declared monthly – minimum monthly bonus 0% after deducting fees • Balance in Vested Account guaranteed by Insurer subject to policy conditions NON-VESTED ACCOUNT • Part of monthly bonus may be non- vesting, which means that the Insurer has discretion to remove it (in full or part) • Balance in Non-Vested Account reflects accumulated non-vested bonuses declared • Up to 5% of balance in Non-Vested Account transferred to Vested Account every 6 months STRATEGIC ASSET ALLOCATION Strategic Asset Allocation at 31-Dec-2008 Cash, 4.2% Property, 7.7% Equities, 49.9% Brait HFOF, 3.6% Infrastructure ("Future builder"), 2.6% Hedge Funds, 3.2% Bonds, 16.5% Foreign, 12.2% KEY FEATURES • Multi-manager investment strategy (reduces risk to Metlife Asset Management significantly) • Governance provided by the Discretionary Participation Committee ito FSB directive 147 • Smoothing formula specified to and monitored by Governance committee SWITCHING LIMITATIONS • If you switch out (and have invested in Portfolio B for less than 5 years) you will receive lesser of: – Balance in vested + non-vested account; and – Market value of underlying investments • Care needs to be exercised in switching out at a time when the smoothing reserves are low MARKET PORTFOLIO Portfolio C • Get full return on the underlying assets (after expenses) • no smoothing and returns will be negative from time to time • No guarantee • Targets to provide a return of some 5% p.a. above inflation over the long-term ASSET ALLOCATION 31 December 2008 Asset allocation at 31-Dec-2008 Bonds Equities 20.8% 53.7% International Cash 22.8% 2.7% UCTRF GOVERNANCE • Trustees select the investment managers for Portfolios A, B and C • Statement of Investment Principles (see http://www.uctrf.uct.ac.za/) • Investment Committee monitor performance on an on-going basis INVESTMENT MANAGERS • Income Fund (Portfolio A) - Prescient • Smoothed Bonus Fund (Portfolio B) - Metlife Multi-Manager Smoothed Growth Fund • Market Portfolio (Portfolio C) - SA equities: Investec;Allan Gray - SA bonds: Prescient - International: Orbis (Allan Gray) YOUR CHOICES You can decide separately how you want to invest your: – Accumulated retirement savings (includes TRR) – Future retirement savings (monthly contributions) Choice permitted twice yearly (31 March and 30 September) 1st switch free, other R235 LIFE STAGE MODEL • Designed for members that are happy to follow a structured model • Model reflects normal retirement age of 65 for all UCTRF members • Model simply varies investment strategy on period to assumed normal retirement age • Members are invested 100% in Portfolio C until age 59, thereafter 20% of savings is transferred to Portfolio A every year until age 65, when 100% is in Portfolio A. TWO COMMON MISTAKES • Trying to “time the market” – no evidence that investment professionals can get this right consistently • Too conservative choice NEXT STEPS • If you do NOT want to change your strategy, there is no need to fill in an option form • If you wish to change your strategy fill in the option form and return it by 6 March 2009 Nomination of Beneficiaries • You MUST complete the nomination of beneficiaries under the separate Group Life Assurance Scheme: complete and return form HR155 • You MUST complete the recommendation of beneficiaries under the UCTRF: complete and return form HR151 • Thank you • Any Questions?