Online additional information 2016 24 Asset Management STANLIB provides wealth and investment management solutions for individual and institutional investors. These include Liberty policyholders, a variety of third-party investors such as provincial governments, municipalities, state-owned enterprises, retirement funds and medical schemes, as well as more than 500 000 individual investors. 2016 HIGHLIGHTS Listed the Liberty Two Degrees REIT (1) on the Johannesburg Stock Exchange (JSE) Expanded STANLIB s capabilities by launching Multi-Manager s Alternative Assets Fund of Funds solution and a new multi-managed Standard Bank co-branded fund range Launched STANLIB s new brand strategy and campaign in the market with the aim of demonstrating its multi-specialist capabilities Established the STANLIB Equity Franchise (1) A REIT is a regulated investment vehicle that enables investors to pool money together to invest in real estate which they typically could not acquire on their own. Successfully outsourced the STANLIB Retail administration business Investment team with over 1 200 years collective investment experience Total assets under management increased to R586 billion Named Best Africa Investment Management Team by Corporate Finance International (CFI.co)
Online additional information 2016 25 Overview STANLIB has distinct competitive advantages that have been strengthened over time, including: Multi-channel distribution with both banking and life insurance retail distribution channels. A diverse product range with a wide range of active, passive and alternative products. A competitive cost to income ratio. Being a multi-specialist investment business that leverages the strength of diversity and the power of focus. Having an established African presence with operations or representative offices in eight countries outside South Africa, being: Botswana, Ghana, Kenya, Lesotho, Namibia, Swaziland, Tanzania and Uganda. Dedicating its focus to ensure that customers are at the centre of service excellence. STANLIB s investment process and philosophy remain unchanged while its investment team continues to focus on achieving investment excellence. The longer-term investment performance across its core capabilities continue to deliver to customer expectations. Delivering on commitments 2016 STRATEGIC OBJECTIVES SELF-ASSESSMENT Deliver investment performance to build STANLIB s brand Optimise STANLIB s product range to meet investor needs Expand STANLIB s distribution capabilities to further its reach Continue to invest in people in order to attract and retain skilled employees ½ ½ ⅔ Substantially achieved ⅔ Good progress ½ Moderate progress Deliver sustainable financial results Performance review Performance indicators Rm 2016 2015 Headline earnings 362 629 South Africa 459 567 Rest of Africa (97) 62 Net cash flows (excluding inter-group) 5 764 8 454 Total South Africa (excluding inter-group) 2 801 5 694 Retail (2 327) 8 511 Institutional 3 091 (2 145) Money market 2 037 (672) Rest of Africa (excluding inter-group) 2 963 2 760 Assets under management and administration (Rbn) 586 579 South Africa 535 529 Rest of Africa 51 50 Operating cost to income ratio (%) 64,4 56,2 Service fee margin (%) 0,34 0,33 Number of employees (salaried) 619 699 South Africa 526 610 Rest of Africa 93 89 STANLIB s headline earnings of R362 million were 42% lower than the prior year. Continued low market returns and positive but lower external net cash inflows, higher once off costs relating to the implementation of the outsourcing of its retail and institutional administration business and costs relating to provisioning for tax and client exposures contributed to this result.
Online additional information 2016 26 During the course of 2016, our Kenyan activities were mainly impacted by significant market changes such as restrictions around the offering of the Cash Management Services Product, the capping of interest rates for the banking sector and a number of second tier banks having been placed in receivership. Costs incurred in identifying, resolving and providing for potential exposures and write offs further impacted the results of the business in Kenya. Operations in the other African territories tracked expectation. Net customer cash inflows (excluding intergroup) amounted to R5,8 billion compared to R8,5 billion in the prior year. This result was mainly driven by lower South African non-money market flows and was partly offset by improved non-money market inflows from the African businesses. The asset management cash inflows improved considerably from the net cash inflows of R453 million reported at 30 June 2016. areas. The ten capabilities are supported by strategic shared services which provide administrative services and support. This model offers a centralised platform providing the capabilities access to the best in class processes and technology, allowing them to focus on delivering investment excellence to customers. This model also allows STANLIB to successfully incubate new capabilities to meet customer needs. Investment performance Short-term performance has shown a marked improvement for the single-manager active franchises with 60% of STANLIB s core retail funds performing in the top two quartiles, compared to 40% in 2015. Over a three-year period, 47% of our core funds outperformed the median. This is a significant improvement since the 2015 level of 13%. Place customers at the heart of our business decisions Delivering investment excellence to customers STANLIB s multi-specialist investment model appoints focused teams in highly specialised and distinct investment specialist Awards Recognition received in 2016 Corporate Finance International (CFI.co) Awards: STANLIB was named winner of the CFI.co 2016 Best Africa Investment Management Team Award. Raging Bull Awards: In the institutional market 25% (2015: 25%) of STANLIB s funds performed in the top two quartiles over 12 months and 42% (2015: 38%) of funds outperformed their one-year benchmarks. Performance in the three-year period improved slightly with 17% (2015: 8%) of funds ahead of their peer median. Top Outright Performers for best Offshore USA Equity General Fund and best Offshore Global Fixed Interest Bond Fund; and Top Risk-Adjusted Performers for best Offshore USA Equity General Fund on a risk-adjusted basis and best Offshore Global Fixed Interest Bond Fund on a risk-adjusted basis. Global Finance magazine: STANLIB named the Best Asset Manager based in Frontier Markets. Green Building Council South Africa: Sandton City s Atrium on 5th (part of the Liberty property portfolio) was awarded a 4 Star Green Star SA certification Sandton City (part of the Liberty property portfolio) won the following awards: Spectrum Award from the South African Council of Shopping Centres which recognises exceptional shopping centre marketing, innovation and creative achievements, with economic success. Gold Footprint Award for its empty shop initiative which allows visitors to donate clothes, toys, accessories and books. Two Gold Footprint Awards for its advertising of the EcoMobility Festival, and the Christmas Share the Joy campaign. Eastgate Shopping Centre (part of Liberty property portfolio) won a South African Institute of Steel Construction s (SAISC) Steel Award for balancing high-tech construction methods with ground-breaking aesthetics STANLIB Kenya won Best Fund in Absolute Returns at the Think Business Investment Awards
Online additional information 2016 27 Provide responsible financial services Liberty s approach to responsible investing is based on incorporating environmental, social and governance issues into investment decisions. External frameworks and principles provide guidance to the group. Liberty, as an insurance company, and STANLIB, as an asset manager, are both signatories to the Code for Responsible Investing in South Africa (CRISA) and this serves as the overarching framework for responsible investment across the group. CRISA s annual reporting requirements form the basis for accountability. Continuing to embed new investment capabilities STANLIB continues to seek earnings diversification by geography, customer segment and investment capability, through its direct property, infrastructure and private equity capabilities. Investor appetite for STANLIB s new capabilities is encouraging. Multi-Manager: STANLIB Multi-Manager maintained its position as the largest CIS multi-manager in South Africa, with over R150 billion assets under stewardship. During the third quarter of 2016, STANLIB Multi-Manager achieved a South African market first by launching a multi-managed Alternative Assets Fund of Funds. This fund, with group committed seed capital of R5 billion, will offer customers access to alternative assets including infrastructure and unlisted property from a range of asset managers across regions including South Africa, the rest of Africa and globally. During the fourth quarter, the STANLIB Multi-Manager team also launched a new range of co-branded multi-managed Standard Bank retail funds, which is expected to transform the existing Standard Bank Wealth investment proposition. STANLIB Africa Direct Property Development Fund: This fund was established with group committed seed capital of USD50 million. The fund offers investors exposure to commercial and retail property investment opportunities in selected countries, including Kenya, Uganda, Ghana and Nigeria, with a target internal rate of return in excess of 20% in USD. Three of the fund s projects are well advanced and will be breaking ground in 2017. STANLIB Infrastructure Private Equity Fund 1: This fund, established in 2013 with R500 million in group committed seed capital, was fully subscribed at R1,2 billion upon its final close in 2014. The fund is focused on investment in early-stage infrastructure project developments in Africa. Current investments represent approximately 60% of total fund commitments and a pipeline of new opportunities exist for the balance of commitments. These investments include several projects located in South Africa under the Renewable Energy Independent Power Producers Programme (REIPPP) and an independent power development project located in Southern Africa. STANLIB Infrastructure Yield Fund: This fund was established in late 2016 with commitments of R1,4 billion. This fund will focus on acquiring a portfolio of long-term positions in operational infrastructure assets that will provide a blend of cash yield and capital growth over the long term. Initial investments include a portfolio of investments in three South African toll roads. Fahari Income Real Estate Investment Trust (I-REIT) in Kenya: Following its debut listing on the Nairobi Securities Exchange in 2015, the I-REIT completed the acquisition of three properties, namely a shopping centre with 16,116m 2 gross leasable area, and two office buildings with gross leasable areas of 2,566m 2 and 710m 2 respectively. This resulted in a 67% deployment of the Initial Public Offering proceeds in investment property, with the balance being held in high yielding cash investments. The management team is focused on initiatives to maintain confidence in the I-REIT s unique investment offering and ability to yield value to unitholders going forward. These initiatives include building a pipeline of quality investment assets and ensuring that the existing assets meet targeted investment returns. Private Equity: STANLIB s partnership with the founders of Agri-Vie Investment Fund made good progress as it achieved its first close of the Agrie Vie Fund II at the planned USD100 million early in 2017. This Mauritian private equity fund focuses on the food and agricultural business sector across Africa and allows both parties the opportunity to expand their alternative investment offerings. Liberty property portfolio Asset management and property development The Liberty property portfolio is one of the prime unlisted property income funds in Africa and it represents one of the only investment options through which an individual can gain access to some of Southern Africa s most iconic shopping centres, through a Liberty life-wrapped investment product. The philosophy is to invest in prime property with a long-term view and to continually maintain properties to attract top tenants at a premium. During 2016, Liberty s property portfolio delivered an annual gross return of 13,44% to policyholders in challenging market conditions, which exceeded the benchmark of CPI plus 5%, over a five-year rolling period. In December 2016, Liberty listed part of this property portfolio (Liberty Two Degrees) which offers institutional investors an opportunity to participate in a property portfolio anchored by these unique, prime assets that command a high scarcity value through co-ownership with Liberty policyholders. Property development and JHI Retail The strategic property management partnership between Liberty and JHI (a joint venture owned 49% by Liberty and 51% by JHI) which commenced operation on 1 May 2015 continued to perform well. During 2016, JHI Retail delivered a net profit of R44,3 million, which exceeded expectations. As at December 2016, the development company as well as the property manager are being managed by STANLIB REIT Fund Managers.
Online additional information 2016 28 Liberty property portfolio (continued) Utility consumption Liberty continues to invest in technical and equipment upgrades to improve energy and water efficiency and sustainability across its portfolio. In 2016, the electricity and water consumption showed a 5,2% and 10,3% decrease respectively, mainly due to energy and water saving initiatives being implemented. In addition, the leased buildings electricity consumption reduced due to STANLIB Melrose Arch moving from leased to owned buildings during 2016. Further information on Liberty s electricity and water consumption are provided in the 2016 sustainability report. Portfolio consumption 2016 2015 2014 Electricity owned and leased buildings 1 (kwh) 242 518 347 255 826 094 259 197 017 Water owned buildings 2 (kl) 1 022 529 1 139 920 1 183 512 (1) Total electricity includes Liberty s consumption in both owned (including tenants) and leased buildings. (2) Liberty does not currently record water consumption at its leased branches because of the availability of data. The tenants consumption at Liberty s owned buildings is included in the water consumption figures. Africa STANLIB remains committed to growing its footprint on the African continent and to being the preferred asset manager for flows destined for Africa. In East Africa, STANLIB Kenya strengthened its management team to ensure that it is well positioned to succeed in a challenging operating environment. In West Africa, STANLIB Ghana revised its retail portfolios to ensure that these continue to remain suitable for the target market. In Southern Africa, STANLIB Swaziland made inroads into offering large institutional clients access to alternative assets in the form of direct property. Enhance social relationships STANLIB continued to build a premium, global asset management brand to ensure trust, credibility and consistency through a consumer-centric approach. During 2016, STANLIB developed a new brand advertising campaign and corporate identity. These initiatives continue to assist in ensuring STANLIB s vision and intent to become a leading asset management brand. An integrated media approach was finalised towards the end of 2016 to drive the brand positioning in the market place and will continue into 2017. Strengthening distribution channels across the group and in the third-party arena STANLIB continues to widen its distribution channels across sub- Saharan Africa. During 2016, the integration of the distribution teams into a single STANLIB distribution function was finalised and aligned to the client value proposition of quality (investment excellence), relationships (distribution) and functionality (breadth of capabilities). The global distribution team being established in Europe continues to leverage the group and other partners whilst the establishment of an office and distribution licence is being completed. The primary focus is on creating awareness, in the European and Middle Eastern markets, of STANLIB s Pan-African and alternatives capabilities. STANLIB continues to build relationships and leverage commercial agreements and drivers within the group s distribution channels, in order to maintain and grow support and flows. Increasing third-party flows remains a key focus area for STANLIB. The customised solutions team continues to expand in order to grow third-party flows, with the aim of having further STANLIB investment capabilities on key gatekeepers buy lists, both for retail and institutional customers. Risk management STANLIB continues to monitor and implement initiatives to mitigate its top risks. Management continues to report progress on the mitigation of these risks to the various governance structures. Further details on the group s robust enterprise-wide risk management approach are provided in the 2016 integrated report. Attract, develop and retain quality employees STANLIB recognises that the asset management industry is highly competitive, especially when it comes to attracting the best talent. The success of the business is therefore highly dependent on having exceptional talent and strong teams and that its people translate STANLIB s brand promise into a brand experience. The implementation of its shared values proposition, The STANLIB Way, is being further enhanced and progressed by building a culture that can unlock the power of individuals and teams. During 2016, an improvement was noted in general staff turnover of 13,3% (2015: 16,4%) and investment professional turnover of 7,0% (2015: 14,5%). STANLIB also achieved its employment equity targets through significant strategic recruitment and promotion of key black talent. Ensuring responsible investment STANLIB, as a custodian of customer interests, is active in the pursuit of good governance and responsible investment practices. The principles of responsible investing as represented by environmental, social and governance (ESG) issues are core to STANLIB s research process. STANLIB believes that the incorporation of ESG principles allows for a better assessment of risk, which ultimately impacts cash flows and therefore valuations. By using its shareholdings and significant influence, it is able to encourage companies to be better corporate citizens. As part of this responsibility, STANLIB is a signatory to the United Nations Principles for Responsible Investment initiative and endorses the Code for Responsible Investing in South Africa.
Online additional information 2016 29 Looking ahead In 2017, STANLIB will focus on the delivery of the following key objectives: Delivering investment performance to build STANLIB s brand by ensuring that investment capabilities are well resourced; Optimising STANLIB s product range to meet investor needs; Creating execution capacity to support a multi-specialist cross jurisdictional business; Optimising service for retail customers post the outsource migration; Completing the institutional outsourcing programme; Enhancing and expanding STANLIB s distribution capabilities to further its reach; and Continuing to invest in people in order to attract and retain skilled employees. Summarised product offering PRODUCT NAME Unit Trusts Tax-Free Savings Account (TFSA) Linked-Investment Service Provider (LISP) Exchange-Traded Funds (ETFs) Segregated Mandates Alternative Investments PRODUCT DESCRIPTION A range of collective schemes, ranging from fixed interest, equity and money market funds. STANLIB funds range includes passively-managed funds and funds which are are actively managed by our single managers and multi-managers. Investment into these funds can be made either directly, through the linked investment vehicle or retirement plans. STANLIB offers tax-free savings accounts to both direct investors and via Linked-Investment Service Providers (LISP). The products are managed in accordance with the legislation on Tax-Free Savings Accounts. The main wrappers available under LISP are: Classic Investment Plan, Classic Retirement Annuity, Classic Preservation Pension and Provident Plans. A range of unit trust funds, model share portfolios, ETFs and structured products is available under the various LISP wrappers. STANLIB manages ETFs listed on the JSE covering the traditional asset classes (bonds, property and equity). In addition to unit trusts, STANLIB offers a wide range of institutional investment solutions (including multi-asset, equity, direct and listed property, fixed interest, absolute return, Pan-African and alternatives solutions), through pooled vehicles. STANLIB's team of investment professionals can tailor segregated bespoke investment solutions to customers needs. In addition to the passive solutions sold through unit trust funds and ETFs, STANLIB also manages a number of alternative investments which include private equity, infrastructure investments and direct property investments for institutional investors.