It’s time to meet Kenny

If you look up “Kenny” on a search engine, the main references are to football legend Kenny Dalglish and Kenny Mccormick of the South Park TV series. You will probably have to run several dozen searches before you see a reference to Kenny Rabson, head of Discovery Invest and Employee Benefits.

That should change as he rolls out Discovery’s new umbrella fund. But which Kenny will he most closely resemble? Maybe, given Discovery’s showbiz approach, the country singer Kenny Rogers will be the template.

The umbrella fund market has been dominated by the large life offices as well as the largest specialist administrator, Alexander Forbes. Much of the business has been won on price, as it is almost always a more cost-effective route than the standalone pension fund. But Rabson argues that the fight over a few basis points of fees is missing the point. It is no surprise that Discovery is fighting on an added-value platform rather than on price. And, as we expected, it is adding complexity when the trend is towards simplicity.

Saving for retirement plays into the Discovery shared-value approach. This requires behavioural change, as there are inadequate contribution levels and there’s insufficient preservation on changing jobs. And, of course, there is increased longevity, ironically because of the success of wellness programmes such as Discovery Vitality.

Open umbrella funds have 39% of total pension assets, with industry-based umbrella funds holding another 3%. The two largest umbrella funds are run by Old Mutual and Alexander Forbes.

A few consulting firms, including Willis Towers Watson, NMG and NBC, have umbrella funds, but the first pure asset manager to enter the market was Allan Gray in April 2017. It has 12 investment portfolios and has attracted about 100 employers.

Discovery is taking contributions only from July 1, but it has spelt out some of the bells and whistles. Based on Vitality status, there will be a 15% boost to monthly contributions, and up to 50% boost to retirement income — for those responsible enough to draw down their capital at one of the lower rates, such as 2.5% or 5%/year. The inevitable Kauai smoothie or Vida cappuccino is given to members who engage digitally with Discovery early on.

When members transfer into the umbrella fund their capital is boosted by 5%-15%, as long as they invest in Dis- covery funds. And there is a special bonus of 6% for those who join before December 31 2018.

New lease

Discovery was one of the pioneers of target date funds. Commercially they have not been among its best sellers.

But in the context of the umbrella fund, they should get a new lease of life.

The funds target a predetermined retirement date, as short as 2020 and as long as 2050. The asset mix is then changed as the date gets closer. The property and equity allocations are reduced and cash and fixed income increased, though in a less crudely mechanistic way than in the early years. It allows a life-stage investing process to take place in one fund.

Discovery has simplified some aspects of the fund. The admin fee per member is R25/month, if the employer has at least 500 staff, though it is free for those earning less than R5,000/month.

Allan Gray will make money on its umbrella fund from additional investment business. Its administration will wash its face. Discovery just rebadges investment funds, but already has a highly profitable group life and disability business that will be the main beneficiary of the new fund. It’s milking time.

The inevitable Kauai smoothie or Vida cappuccino is given to Discovery members who engage digitally early on