Offshore funds, managed by large international groups and sold to SA investors, have been through boom and bust. Soon after the offshore investment allowance was introduced in July 1997, the Financial Services Board began the exercise of approving offshore funds for sale in SA.
To win approval, funds must either set up a local office or find a benevolent local institution to "host" their funds. That burden has chased some world majors away from what they see as a marginal market.
The most successful international fund management group has been Fidelity, thanks to its strategic alliance with Standard Bank (and now with Stanlib), giving it a formidable distribution infrastructure.
Franklin Templeton, which set up an office a couple of years before offshore allowances were introduced so as to build its profile among brokers, has also done well. The high profile of Mark Mobius, who manages the Templeton Emerging Markets funds, has contributed to this - arguably rather more than the company's brief alliance with NIB ever did.
Otherwise, Investec, Old Mutual, Ashburton (owned by FirstRand) and Coronation have made the biggest impact on the SA retail market for offshore funds.
According to the Association of Unit Trusts there are R47bn of legal SA assets in offshore funds, of which R15,3bn is from retail investors and R31,7bn from institutional investors (investing into the Frank Russell and SEI multimanager funds, for example). This can be compared with R18,4bn held in rand-based asset swap funds, almost all by retail investors.
Stanlib Wealth Management deputy MD Ian van Schoor says the demand for offshore products is strongly correlated to the rand but, perversely, demand is highest when the rand is weak. This is illogical, as it is the time when offshore assets offer the worst value for money.
When the rand was at R7,25/US$, in early to mid-May, it would have been a good time to buy offshore funds.
But in the March quarter retail clients took R144m out of offshore equity funds and institutional investors took out R2,5bn.
Retail investors continued to use their R750 000 allowance to invest in fixed-interest funds, which attracted R640m in new flows. Institutions pulled R95m out of offshore fixed-interest funds.
Retail investors proved to be more astute than the supposedly better-informed institutions in the June 2002 quarter, when the rand was far weaker . They pulled R209m from offshore equity funds, while institutions poured R8,46bn into the same funds, destroying considerable value for clients.
