On Wednesday, 6 December 2017, Mr Markus Jooste resigned as CEO of Steinhoff International after Steinhoff’s auditors declined to sign off on its financial statements. Following the resignations, it was revealed that the group was potentially involved in accounting irregularities. The Steinhoff share price declined significantly, falling from R55.84 per share on Friday, 1 December 2017 to as low as R6.00 on 8 December 2017.

Prior to recent events, some investment managers held no or very low exposure to Steinhoff and cited concerns about the sustainability of Steinhoff’s low corporate tax rate, business model and pending law suits. Other investment managers held some exposure or have even been overweight to Steinhoff and pointed to the value that was expected to be unlocked.

Steinhoff’s weighting in the Shareholder weighted index (SWIX) was approximately 1.9% on 5 December 2017. The Multi-Manager’s local active equity blend that is used in the Sanlam Lifestage Accumulation Portfolio as well as the SMM70, SMM50 and SMM30 Portfolios had an exposure of 2.1% on this date. A slight overweight position given Steinhoff’s appeal as a Rand-hedge stock. On 6 December 2017 Steinhoff’s weighting in the SWIX reduced to 0.8% with our managers having a 0.9% exposure. On 30 November 2017 the Sanlam Lifestage Accumulation Portfolio only had a 1.9% total exposure to Steinhoff at portfolio level. Please refer to the attached document for further information on the Steinhoff exposure for the Sanlam Umbrella Fund’s other portfolios as at 30 November 2017.

Our sense therefore is that the likely impact of these recent events is to reduce investment returns on our balanced portfolios by less than 1%. It is important to keep in mind that the retirement savings of our members are invested in well-diversified portfolios across the equity board, asset classes and geographies to mitigate risk. An example of risk is the significant decline in the share price of Steinhoff International and therefore this situation emphasises the importance of diversification.

If we consider this minor blip in the context of the very nice inflation-beating returns that Sanlam Umbrella Fund members have earned in 2017 (attached), we can conclude that our members’ retirement savings have been adequately protected by the diversification strategies that are in place, and that our members continue to benefit from the excellent governance of the Sanlam Umbrella Fund.

There is no need for our clients to submit any details to the Financial Services Board (FSB) in respect of Sanlam Umbrella Fund investments. Following the Information Circular PF No.5 of 201 issued on 8 December 2017, The Sanlam Umbrella Pension & Provident Funds, as well as the Unity Umbrella Provident Fund has submitted the requested information relating to the respective funds’ exposure to Steinhoff International Holdings, Steinhoff Investment Holdings and Subsidiaries. Note we will report on all assets in the Sanlam Umbrella Fund, and not any assets remaining in any previous standalone funds as it is the PO of those standalone funds that must respond.