Can pension funds do more?

QUESTION ASSUMPTIONS ABOUT INVESTING Does investing in the JSE really support this country’s economy?

South Africa has a pension fund pool of around R4 trillion. This is a significant collection of assets. However, Alexander Forbes Research Institute’s Anne Cabot-Alletzhauser questioned whether this money is currently being used in the most optimal way.

“Our savings are the biggest potential driver of economic growth,” said Cabot-Alletzhauser. “How can you take that power and transform it into something even more significant?”

Currently, pension funds are invested predominantly in listed markets. “From the individual’s perspective, I’m hoping to be able to get growth out of those assets that exceeds inflation,” Cabot-Alletzhauser said. “The notion is I can use this to fuel economic growth and create employment.”

However, she suggested it may be time to question those assumptions. One has to question how much investing in the JSE really supports this country’s economy.

“We know that 65% of revenue generation on the JSE comes from abroad,” Cabot-Alletzhauser pointed out. “So when I put money on the JSE, am I creating South African jobs?”

It is widely accepted that large listed companies are not the primary vehicles for job creation. In fact, they are more likely to shed jobs.

“Where job creation is taking place is in smaller, emerging, disruptive companies.”

A question worth asking is whether pension funds are currently investing in a way that is most impactful for their members. Is it enough to just build their retirement capital, or should they be contributing so that the society their members retire into is better than it is now?

SA has a shortage of facilities offering long term care to those who need it. The country has 4.4 million people over the age of 60 and 1.5 million with mental health problems, but only 44 000 subsidised long-term beds. “We could use retirement savings to solve that problem,” Cabot-Alletzhauser said. “If I can use retirement funds to create community-based solutions to take care of people, not in some retirement village, but in their own communities, am I not doing something incredibly powerful?

“I solve for the health of that community, for unemployment in that community, and I create a multiplier effect.

“That is a very powerful investment.”

65% of revenue generation on the JSE comes from abroad