The heavy emphasis most private retirement funds place on investing in shares may not be best corporate practice, Brian Molefe, the chief executive of the Public Investment Commissioners (PIC), says.
Molefe, who was speaking at the recent Personal Finance/Old Mutual Actuaries and Consultants seminar on retirement fund governance, says retirement funds should pay more attention to achieving a proper balance between assets and liabilities (the payment of benefits to fund members). This entails making greater use of bonds (loans to large institutions such as the government).
The PIC manages the assets of the Government Employees Pension Fund, which is South Africa's largest pension fund.
Molefe says the Government Employees Pension Fund is about 30 to 35 percent invested in equities, while many private funds cannot justify the extent to which they are invested in equities.
This country's sophisticated bond market is unmatched by those in most emerging markets, he says.
Government bonds have been overhauled and consolidated to offer fund managers sufficient choice so they can use bonds as the main asset class to properly match assets to liabilities, Molefe says.
On top of this, bonds have out-performed equities over the past 10 years, and have out-performed inflation over the past 30 years.
He says too many retirement fund managers try to find out-performance, which involves taking risks, instead of ensuring their funds have sufficient money to meet their liabilities - the reasonable expectations of fund members.