RisCura has been involved in building and implementing investment strategies for various clients globally for over fifteen years. Our clients in Zimbabwe (current and prospective) are no different to those we service in throughout Africa: all our clients are investors with a focus on investing, on a sustainable basis, the savings of their stakeholders. Some of our clients being pension funds and life insurers have longer term investment horizons; similarly others are investors with a short-term focus like general insurers.

For all our clients, we think it is imperative that the conversation starts and ends with this simple mantra: “goals-based investing”. The phrase might be new, but the concept is not. It has been around for a number of years in the pension world in the form of Liability-Driven Investment or LDI.

All our clients have investment goals they would like to achieve. For example, a pension fund would like to see their members retire and be able to afford a dignified lifestyle. Speaking to some members within the pension funds we service, a tangible member expectation is:

“To not be a financial burden on my children in my retirement years and be able to contribute meaningfully to the schooling of my vazukuru (grand-children)”

Therefore, when it comes to assisting Boards of Trustees in developing their investment strategies, we are mindful of the above-mentioned real goals. These goals must be assimilated into the crafting of the investment strategy as they form the foundation on which the investment strategy is built and its success measured.

Although LDI was originally developed around Defined Benefit (DB) scheme liabilities, over the years the concept of LDI has been generalised and applied to other types of clients like Defined Contribution (DC) funds, insurers and trusts, where investment strategies have been built around varying client goals.

For example, a DC fund may not strictly have a liability determined by the fund rules, but there is an expectation by the member as to the type of retirement they want to buy. It means that every member in a DC Fund is in essence running their own DB scheme, as expressed in their targeted replacement ratio. This is all well and good – what message is there for Trustees that wish to pursue goals-based investing?

To answer this question, perhaps it is easier for us to draw an analogy with another kind of strategy most will be familiar with: corporate strategy setting.

The parallels between setting and evaluating corporate strategy and setting investment strategy are clearly evident. Let’s develop this notion:

• Within your company, let’s assume you measure your success in achieving your company’s strategy on the basis of the strategic goals set by the Board of Directors (Trustees) who set this strategy to enhance returns for the benefit of the shareholders (members)?

• We can assume your Company’s strategic vision statement is framed over a set time period?

• Let’s assume you are the CEO of your company and your company sells WIDGETS. Your company’s vision is to be the number one online retailer of these WIDGETS. Textbook corporate strategy would tell you to set goals in line with this vision. For example, one of your goals could be to double your online sales of widgets by the end of the year. Year-end comes and your online sales have trebled. Were you successful in achieving your goal based on your vision? Yes, definitely!  Were you successful in beating your competitor’s profit numbers? Perhaps not, but does it matter? Perhaps not. No two companies are exactly alike and comparable on an apples-for-apples basis. What is more important is that as the CEO, you have set yourself a vision and you have put down tangible goals to measure your progress against as you move towards realising your vision. This is ultimately your guiding principle.

In our conversations with Boards of Trustees of pension funds, we are of the opinion the vision of the pension fund must be enshrined in the Investment Policy Statement (IPS). Any reader of the IPS must clearly discern the vison the Board of Trustees has set for the Fund. Perhaps it reads: The goal of ABC Pension Fund is to deliver at least a targeted replacement ratio of 50% for those members who have 5 or more years of membership in the fund. Your measure of success would be how many members retire with an actual replacement ratio of 50% or more. At year end, you pull the statistics and see that 90% of retiring members had a replacement ratio of 50% or more. Were you successful in achieving your goal based on your vision? Yes. Were you successful in beating your peers’ performance numbers? Perhaps not, but does it matter?

No two pension funds are exactly the same. What is more important is that as a Board, there is a vision against which you have laid down tangible goals to measure your progress. Without which it will remain very difficult for you to communicate to your members the progress (or lack thereof) the Fund is making towards realising your vision for the Fund.

– Gerald Gondo, Principal, RisCura

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