12:15 13:00. Umbrella or Standalone which formula best serves your needs? Speaker: Speaker: Erich Krohnert. Chairperson: Nomsa Ntshingila

Transcription

1 12:15 13:00 Umbrella or Standalone which formula best serves your needs? Speaker: Speaker: Erich Krohnert Chairperson: Nomsa Ntshingila

2 Stand-alone vs Umbrella Funds a false choice? Lessons we can learn from motorsport Erich Kröhnert CFP Head: Strategy & Research

3 betamax vs VHS? Formula 1 vs IndyCar?

4 F1 vs Indycar Now here s a debate that has raged on for decades!

5 Formula 1 More than 1billion fans worldwide Most technologically advanced sport on earth 20 races in 19 countries on 6 continents Races broadcast around the world through Speed Channel, BBC, Sky, ten and FSN

6 Indycar 40 million fans mainly in USA Teams share common technology 15 Races in 4 countries on 3 continents Races are Broadcast on ABC and NBC Sports Network Indy 500 is the largest single-day sporting event in the world

7 2007 comparison Formula 1 Budgets at all-time high = $600m for Ferrari 11 teams 17 races, 17 countries, 5 continents IndyCar 2 separate series Budgets at all-time high = $40m 17 races, 3 countries, 2 continents

8 and then came 2008 financial crisis World financial markets lost over 50% in a few months Formula 1 costs became a problem Honda and BMW exited the sport IndyCar costs became a problem Champ Car World Series went bankrupt

9 4 main cost drivers Engines Chassis Tyres Drivers

10 Formula 1 response Engines Limited number of engines for a season Engine costs cut by 2/3rds Tyres End of tyre war between teams Single tyre provider Chassis Introduction of new technology to improve competition Drivers Increased requirements for super-licence No cap on driver salaries

11 IndyCar response Engines Only 2 engines of same spec Tyres Single tyre provider Chassis Single chassis provider Drivers Cap on driver salaries

12 The results Formula 1: Top-team budget: $600m reduced to $470m Viewers: 500m increased to 1bn Cost per viewer: $1.20 reduced to $0.47 (61%) IndyCar: Top-team budget: $40m reduced to $15m Viewers: Stayed at 40m Cost per viewer: $1 reduced to $0.38 (66%)

13 Relevance for retirement funding

14 4 main cost drivers Investments Risk premiums Administration Governance

15 Contribution to costs Measured by Reduction in Yield (RiY) For example: Assume salary of R per month Admin & governance = R60 per member per month Risk premiums = 3% of salaries Investment fees = 1% of assets

16 Thousands Reduction in Yield Gross Net

17 Cost contributors Admin fees Risk premiums Investment fees

18 Contribution to RiY 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Investment fees Risk premiums Admin fees

19 Where should our focus be? Increase in nett value Years of membership 20% admin reduction 20% risk reduction 20% investment fee reduction 1 0.8% 3.8% 0.1% 5 0.8% 3.8% 0.5% % 3.8% 1.0% % 3.8% 2.2% % 3.8% 3.4% % 3.8% 4.8%

20 Redefining the focus Formula 1 approach: Focus on main cost drivers Risk premiums Investment fees Improve performance through competitive technology More efficient administrators Tighten governance controls Better qualified trustees

21 Redefining the focus IndyCar approach: Overall cost reduction through standardisation Must reduce all costs to be effective Improve performance through shared technology

22 Redefining the focus Is the choice really between stand-alone and umbrella funds? When choosing what drives your retirement fund model consider the following: Will you reduce costs effectively? Will you improve service delivery using technology? Will we improve retirement benefits for our members?