The increase in the offshore limit allowed to institutions, funds and asset managers could see up to R400bn in assets leave South Africa and go into international investments, according to Laurium Capital co-founder Murray Winckler (pictured below).

‘There is probably between R200bn and R400bn that would eventually go offshore – over the next three years – maybe shorter,’ he said during a Nedgroup Investments webinar. Winckler is the co-portfolio manager of the Nedgroup Investments SA Equity fund.

On 23 February, National Treasury announced that the offshore limits would increase to 45%. The previous foreign limit for collective investment schemes, life insurers and investment managers was 40%, with an additional 10% allowed for Africa outside of South Africa. The old offshore limit governed by Regulation 28 of the Pensions Fund Act was 30% for retirements funds, with an additional 10% allowed for Africa outside of South Africa.

Winckler said Laurium recently looked at MSCI equity indices data from 1970 until this month.

 ‘Over the last 51 years, South Africa has matched the US MSCI index with a 17% compound return per year. So, if you wanted to bring your risk down, you would have stuck with 41% offshore and 59% South Africa [over that time].’

However, the MSCI All Country World index has returned an annualised 12% over the past six years, and South Africa gained an annualised 10%.

‘If you optimise over that period – just on your equity component – you would have had 49% in offshore and 51% in South African equities.’

Winckler said the South African equity market was in a great space in the short term because of booming commodity prices.

‘We could see South Africa doing pretty well. The currency is holding up well in a risk-off environment. So tactically, South Africa could be a good place to be for a while, but longer-term – people will shift [their money offshore].’

Wider choice

This is because an increase in the offshore limit will widen South African investors’ choices.

‘It is going to give a much bigger opportunity for the managers.’

Foord Asset Management CIO Dave Foord (pictured above) said that the increase in the offshore limit would improve diversification opportunities for local investors. Foord is the portfolio manager of the Nedgroup Investments Stable fund.

‘It is a big move, and there is a long history behind it. We are used to having tight exchange controls. The administration has been under pressure to open up.

‘I think this move is [because of pressure] from the international community, the Bank of International Settlements, the International Monetary Fund, the World Bank etc.,’ Foord said.

‘Are we going straight to 45%? No. We need to balance the risks, rewards, and developments in the global economy,’ Foord said.

‘Bonds and equities are reasonably priced in South Africa, so there is no immediate rush to go offshore. Because of the [new] opportunity set, there will be many opportunities to enhance returns.’

Jannie Leach (pictured below), Nedgroup Investments head of core investments, said that the increase in the limit was positive for average South African savers.

‘I think the vast majority of high-net-worth individuals have already taken a lot of their investments offshore. But for the average pension funds investor, I think this is a way to reduce the risk associated with their long-term retirement liabilities. Offshore investing is the best way to diversify your investments,’ he added.