Established for municipal workers of the old Transvaal province, the Joint Municipal Pension Fund (JMPF) has 208 active members, with the youngest aged 40 and 1,100 pensioners and beneficiaries.  In 2002 the fund faced significant losses in the high-risk agricultural derivatives market, on the back of an investment manager that failed to stick to its mandate, investing heavily in maize futures. Over a few short months, the fund lost more than R1.9-billion or 44% of the fund value, which led to the high court appointing trustees and placing the fund under curatorship. By the end of 2006, the fund was once more in a fully funded position, meaning it was able to meet all its liabilities or financial obligations.

A combination of trustee appointments with financial experience in mind, regular training and careful selection of the right investment manager was part of the success story along with a liability-driven investment (LDI) strategy. The fund’s investment consultant, Monika Kraushaar from RisCura, explains that a liability-driven investment strategy focuses on the long-term future pension payments required and the construction of a portfolio of asset classes relative to these pension liabilities.

The higher-risk strategy not only improved the fund’s financial soundness but meant it has been able to afford above-inflation pension increases and generous bonuses for pensioners over the past five years. It is currently 170% funded — before the 14th cheque payments at the end of April.

In contrast to South Africa, the UK’s approach to LDI focuses on matching assets to liabilities to minimise the impact of market volatility on the balance sheet. In the UK’s low-risk, low-growth environment, many pension funds leverage their low-risk assets to achieve higher returns. This approach, known as leveraged LDI, led to a major liquidity crisis for pension funds during the bond crisis of September 2022 when significant tax cuts were unexpectedly announced. 

Wessel Gouws, chairperson of the fund notes that the fund’s success is a testament to innovative investment strategies, dedicated leadership, and committed service providers. 

“As South Africa navigates the challenges of an ever-changing economic landscape, the fund serves as an example of how pension funds can weather difficult times and provide much-needed financial security to their members,” he says.

When it comes down to the actual investment strategy, Kraushaar says the core of the investment portfolio has always been diversified with exposure to growth assets such as listed equity, listed property, nominal bonds and inflation-linked bonds. 

“Inflation-linked bonds are a strong anchor specifically within the liability-driven investing because that helps the fund keep up with the income that pensioners are actually receiving,” she says. 

Over the years, as the fund became more fully funded (built up its reserves), Riscura enhanced diversification by investing in emerging markets, with a small allocation to China, unlisted investments and impact exposure in the form of renewable energy investments. 

Principal officer, Brigitte Roos, says the board of trustees includes three independent members who must have financial backgrounds and expertise, to add a layer of oversight when it comes to the investment strategy. The trustees are also actively involved with the investment manager, attending regular monthly meetings where Roos says “robust debate” is often the order of the day. BM/DM