STANLIB Pan-Africa Franchise · The Pan-Africa Franchise manages a range of ... Љ This considers the most attractive investment opportunities ... into the investment team’s decision-making

STANLIB Pan-Africa Franchise

Detailed Prospectus

01Our Belief Our Franchise Model

02Overview The Team

03Investment Philosophy Investment Principles

04Investment Process and Portfolio Construction

07Investment Risk Management

08Broader Risk Management Environmental, Social and Governance Factors (ESG) Capabilities Products for Institutions Contact Details

09Appendix

Team Profiles

STANLIBFocused Investing

1

Our BeliefThere is no ‘one size fits all’ investment solution for clients. Diverse clients need diverse investment outcomes. We therefore look at investments through many lenses and from many angles - this gives us an in-depth understanding of an ever changing investment landscape. Our investment model thus houses multiple focused units with unique philosophies, which cater for diverse client needs.

Our Franchise Model The STANLIB investment team consists of Franchises made up of specialist teams of investment professionals. They manage clients’ assets in their area of expertise, namely: fixed interest, property, equities, multi-asset allocation, multi-management and alternatives.

These specialist investment teams deal with market changes with agility and speed, as they are supported by dedicated research, trade, implementation, risk management and compliance teams.

Our Multi-Specialist Franchise Model truly reflects the complex investment world we operate in and echoes our desire to deliver tailored solutions for diverse clients. Result – A broad investment offering designed to deliver our investment promise to clients.

STANLIB is a leading asset management company in South Africa and manages assets of over R500 billion* for over 400 000 retail and institutional clients across the African continent. We have a physical presence in seven African countries and are also able to leverage from a wider Standard Bank Group Africa footprint.

STANLIB – Focused Investing

The Power of Focus and the Strength of Diversity

STANLIB - Built to meet the ever-evolving needs of our clients

*As at June 2013

2

OverviewThe Pan-Africa Franchise manages a range of listed equity and fixed income portfolios. Investors are able to choose a pooled solution or can structure a segregated mandate with specific regional exclusions or inclusions. The primary investment objective of the franchise is to achieve medium to long-term capital growth and in the process, outperform the relevant benchmark.

The TeamAs head of the Franchise, John has overall responsibility for all STANLIB Asset Management’s Pan-Africa Funds

John MackieHead: Pan-Africa FranchiseB.Com (Hons)

Thabo Ncalo Humphrey Gathungu David Makoni Khabele MofelehetsiPortfolio Manager and Research AnalystB.Com, CAIB (SA)

Portfolio Manager and Research AnalystB.Sc, CFA, CPA

Portfolio ManagerB.Sc (Hons)

AnalystB.Bus. Sc (Hons)

Equity Team Fixed Interest Team

3

Investment Philosophy

Equities

We believe that African listed equity markets are inefficient primarily because:

Љ Capital flows to and from the continent are not yet mature, and capital is often misallocated due to poor sell-side coverage and the use of imperfect indices

Љ Public information is limited and requires extensive in-country work and presence

Љ Africa is generally considered to be more risky than it really is

Fixed Income

Frontier fixed income markets are relatively under-developed and highly inefficient, providing opportunities for astute and well-informed investors to generate attractive investment returns. We believe frontier fixed income markets are inefficient for the following reasons:

Љ Scarcity of issuance supply in corporate and sovereign debt Љ Low levels of secondary market trading/liquidity in

corporate debt and long-dated government securities Љ Undeveloped derivatives and repurchase markets Љ Nascent and often fledgling regulatory regimes Љ Limited availability of research and analytical coverage on

market opportunities and trends

As a result of the above, securities tend to be mispriced and asset risks are often over-stated due to the limited availability of market information, providing positive asset valuation gaps in the fixed income markets.

Investment Principles

Equities

The principles we adhere to with respect to the stocks we invest in are:

Љ Long only investments, and the stock must be listed on an exchange

Љ Adopting a bottom-up research approach and remaining style-agnostic, meaning we do not limit ourselves to growth, value, technical, contrarian or any other defined investment style

Љ Looking to identify companies with sound and sustainable long term prospects

Љ Tendency to favour mid to large-cap stocks in our universe due to liquidity constraints

Љ No sector or country biases Љ Invest in companies that exhibit the following

characteristics: Љ Cash generative and sustainable business models Љ Within a stable macroeconomic and political environment Љ Within industries that are structurally sound and well

regulated Љ With sufficient liquidity

Fixed Income

We seek to maximize total returns while prudently managing risks by:

Љ Searching for African countries with sound economic fundamentals, acceptable political risks and favorable macro-economic outlooks over the medium-term

Љ Constructing a portfolio consisting of rigorously selected fixed income securities driven by opportunistic sector allocations

Љ Producing consistently attractive total returns (periodic income and capital growth) on an annual basis

Љ Managing the volatility of returns by hedging currencies where practical and seeking to maintain relatively short-to-intermediate asset duration

The above objectives require a very active investment management style coupled with in-depth market knowledge, solid credit skills and active monitoring of markets and obligors.

4

Investment Process and Portfolio Construction

Equities

The investment process begins by filtering a universe of more than 1000 stocks for viable portfolio investments, followed by visits to identified countries and companies. Upon gathering country, industry and company information – from interviewing company management and interrogating their financial performance – our portfolio managers then conduct company valuations by constructing financial models and coming up with investment recommendations to invest or not invest in the short-listed companies.

Stock Universe Filter

Company and Country Research Visits

Portfolio Construction

Portfolio Review

Sell Discipline

Portfolio Risk Management

Stock Universe Filter

The portfolio managers spend on average five to six months of the year travelling the continent, maintaining coverage of existing holdings and reviewing companies and markets for new opportunities.

The core portfolio’s potential universe comprises around 1000 companies listed on the 15 African stock exchanges (excluding South Africa) which we deem investable. However, foreign ownership restrictions, cross-holdings, free float issues and most importantly, liquidity considerations reduce the core portfolio’s investable universe to approximately 150 stocks. The investable universe is further increased by approximately 50 stocks through the addition of natural resource companies that are listed on developed market stock exchanges but which derive at least 50% of their turnover from African (excluding South African) based operations. These stocks are included because natural resources development will be an important driver of Africa’s future economic progress but due to the limited capital available in African equity markets, these companies tend to list on the exchanges of major financial centers.

The key filters we apply are:

Љ Market Capitalisation Minimum US$ 20 million free-float market cap

Љ Liquidity Monthly evaluation by an independent service provider

Љ Restrictions Foreign ownership restrictions – e.g. in Tanzania, the maximum participation by foreign investors in listed companies is capped at 60% and many companies on the exchange are already at these levels

Company and Country Research Visits

All existing and potential opportunities are visited at least twice a year by the portfolio managers. STANLIB has investment teams in a number of countries and we make extensive use of them for on-the-ground research; particularly in Kenya, Botswana, Namibia and Nigeria.

Fundamental analyst research on companies is divided along both sector and geographic lines.

Љ We leverage off the STANLIB Resources Team for coverage of commodities and African resource companies (regardless of market listing)

Љ The portfolio managers are responsible for various geographic groupings

Љ Our fixed income team provides valuable input across the board

Љ Particular attention is paid to a company’s management, disclosure and corporate governance


Preferred stocks are put through a rigorous eight-point portfolio construction process. Each point guides the portfolio manager on respective company weightings in the portfolio.

Attractive Valuation

Strong Cash Flow Generation/Dividend Payments

Track Record in Long-term Earnings/Listing History

Long-term Stock Liquidity Confidence through Cycles

Track Record and Calibre of Management (Stewardship)

Structural Industry Outlook/Commodity Price Forecasts

Country Macro-economic and Political Climate

Currency Exposure and Outlook

5

Portfolio Review

Љ Portfolio managers monitor company results/performance and forecasts are adjusted accordingly where necessary

Љ Company scorecards are reviewed on an on-going basis and adjustments are made where necessary

Љ Team meetings are held every Monday (travel permitting)

Sell Discipline

Selling decisions follow our portfolio construction process so portfolio stocks with consistently falling scores (as per our eight criteria process) will be reduced over time. In addition, the following factors are also considered:

Љ Deteriorating fundamental factors resulting in a change in the stocks rating or score

Љ Negative developments in country’s macro-economic and/or political climate

Љ Negative industry and sector developments (e.g. negative regulation, trade restrictions)

Љ Deteriorating specific company fundamentals (e.g. falling cash flows, intense competition)

Љ Negative changes in company leadership / strategic direction

Љ Fair value price achieved Љ Stock price increases significantly above fair value or

target price Љ Stock rating is significantly above peers or the market

Љ Correcting any mistakes made in our process

Portfolio Risk Management

Our key considerations in managing portfolio risk are:

Љ Political risk Љ Liquidity and tradability Љ Currency risk Љ Country specific risk Љ Portfolio implementation risk, and Љ Trading and settlement risk

6

Fixed Income

Our investment process can be summarized as follows:

Љ We follow a top-down macro-anchored investment approach, allowing for opportunistic sector allocations Љ This considers the most attractive investment opportunities available in each target market and allows for greater flexibility in

managing the trade-off between risk and returns

Љ We will only invest in fixed income securities whose relative pricing provides a sizeable margin of safety over an investment horizon

Љ ‘Margin of Safety’ = Our fair/relative value estimate less the ‘market’/offer price

Љ We will not commit client capital to excessive or unknown risks by relying on our proven track record of managing investments in the rest of Africa

Initial Deal Screening

Investment Analysis

Issuer Selection


Asset Allocation

Monitoring and Risk Management

Ƭ Idea generation from in-depth country and market knowledge

Ƭ Strong relationships with Africa-focused arrangers/financiers and issuers

Ƭ Reverse enquiries through current equity investments

Ƭ Market listings Ƭ Secondary

trades

Top-down analysis:

Ƭ Politics Ƭ Business

Environment Ƭ Interest Rates Ƭ Exchange

Rates Ƭ Government

Finances Ƭ Inflation

Bottom-up Considerations:

Ƭ Quantitative Analysis

Ƭ Qualitative Analysis

Ƭ Issue Structure

Ƭ Credit Quality Ƭ Legal Review Ƭ Risk/Return

Assessment Ƭ Approval by

existing credit committee

Ƭ Sovereigns Ƭ Corporates Ƭ Banks Ƭ Supranationals Ƭ Other

Financial Institutions

Ƭ Securitisations, etc.

Ƭ Country Allocation

Ƭ Sector Allocation

Ƭ Obligor Size/Amount

Ƭ Currency Ƭ Asset Class/

Instrument Type

Ƭ Maturity/Tenor

Ƭ Interest Rate Structure and Duration

Ƭ Cash (Structured Deposits)

Ƭ Commercial Paper

Ƭ Promissory Notes

Ƭ Treasury Bills Ƭ Government

Bonds Ƭ Corporate

Bonds Ƭ Credit-Linked

Notes Ƭ Asset-Backed

Securities Ƭ Syndicated

Loan Participations

Ƭ Country/Company Visits

Ƭ Daily Country Monitoring

Ƭ Regular Issuer Reviews

Ƭ Liquidity Analysis

Ƭ Scenario Testing Ƭ Currency

Hedges Ƭ Fund Guideline

Review and Compliance

Ƭ Attribution Analysis

Ƭ Roll-overs and Maturities

Ƭ New Investments

7

Investment Risk ManagementInvestment Risk at STANLIB is proactive, which means being prepared for unlikely events and learning from market crises. This applies to both market risk and nonmarket risks such as counterparty, operational, leverage and liquidity. Risk is the responsibility of the portfolio manager and is integrated into the investment team’s decision-making process. Each franchise is responsible for the monitoring and measuring of investment risks and the implementation of internal risk controls consistent with their risk appetite, investment philosophy and process. The oversight for investment risk is the responsibility of the Portfolio Analytics, Risk and Implementation (PARI) Team and for operational risk is the STANLIB Compliance Team. These oversight functions ensure independence, clear accountability and enable the portfolio manager to improve his/her investment process. The risk management framework should be aligned with the investment objectives and investment horizon, and tackle multiple aspects of risk, not limited to a single measure such as tracking error. Furthermore, an effective, integrated risk framework should measure, monitor and manage exposures to economic and fundamental drivers of risk and return across asset classes in order to avoid the overexposure to any one risk factor.

Portfolio Analytics, Risk and Implementation

The Portfolio Analytics, Risk and Implementation Team (PARI) at STANLIB provides an oversight function via a consistent and unbiased process for evaluating investment risks for each franchise. The objective of the PARI Team is to verify that the portfolio managers are investing in line with their investment philosophy and within risk limits. The Team monitors and manages the following investments risks:

Љ Credit; Љ Liquidity; Љ Derivatives; Љ Market concentration; and Љ Investment risk.

The objective is to quantify, decompose, evaluate and communicate both benchmark and peer-relative risk and return. In order to achieve these objectives, the PARI Team:

Љ Makes all investment risks transparent to the franchises; Љ Identifies and communicate to senior management all

risks that may lead to extreme performance; and Љ Identifies each franchise’s strengths and weaknesses via

detailed performance and attribution analysis.

This function complements the STANLIB’s Compliance function, which is responsible for ensuring that the Franchises are operating within client-specified guidelines and regulatory limits.

There are three components to STANLIB’s risk management framework:

Љ Risk Measurement: the Team does not rely solely on aggregate portfolio risk such as volatility or tracking error, which rely on individual volatilities and correlations of asset classes and managers. Volatility, tracking error and correlations capture the overall risk of the portfolio but do not distinguish between the sources of risk, which may include market risk, sector risk, credit risk and interest rate risk etc.

Љ Risk Monitoring: Enables the Team to monitor changes in the sources of risk on a regular and timely basis. Portfolio decomposition plays an important role in stress testing. The sources of risk are stressed by the Team to assess the impact on the portfolio. Risk is managed for normal times but being cognisant of and aim to be prepare for extreme events.

Љ Risk-adjusted investment management: This function aligns the investment decision making process with the risk management. It suggests ways that portfolio managers can adjust their portfolios in response to expected changes in risk.

These three components of the robust risk management framework is essential: risk measurement means having the right tools to measure risk accu-rately, risk monitoring means observing the risk measures on a regular and timely basis and risk-adjusted investment management means using the information from the measurement and monitoring of risks in order to ensure that the portfolio management process is aligned with expectations of risk and risk tolerance. Moreover, each component is interdependent and should be aligned with our clients’ investment objectives. This interconnectedness is essential for a robust risk management framework at STANLIB and for the investment process to be fully aligned and integrated.

8

Broader Risk ManagementCompliance and Investment Risk Management are the cornerstones of our business. To this end, we have robust risk management, compliance and governance structures. Our highly experienced Middle Office consists of Compliance, Legal, and Risk Management, which provide systems and processes to ensure that mandate compliance are monitored.

In addition to the portfolio monitoring tools mentioned above, we use the STATPRO system to measure our performance relative to benchmarks and indices, where appropriate. STATPRO is also used for performance attribution. Risk management is effected through appropriate diversification across sectors and counters and ensuring that investment sizes are within limits.

We have made provision for IT and business recovery facilities including office space. Our robust systems are designed to ensure that our organisation operates efficiently at all times. Insurance policies for professional indemnity as well as directors’ and officers’ liability are always in place, through Standard Bank Insurance Brokers (Pty) Ltd.

Environmental, Social and Governance Factors (ESG)STANLIB is committed to and is a signatory of the:

Љ United Nations Principles for Responsible Investing (UNPRI)

Љ Code for Responsible Investing in South Africa (CRISA)

The work done with respect to the full implementation of these principles includes but is not limited to continuous monitoring of corporate governance and reputation risk, assessment of health and safety as well as environmental practices and shareholder activism.

CapabilitiesIn addition to providing centralised fixed income research support to STANLIB’s in-country asset management businesses outside South Africa, our team has the investment capability to manage Pan-African fixed income and equity portfolios, in line with prescribed client risk and return objectives. Our capabilities are focused on meeting the needs of both South African and offshore-based investors seeking exposure to the growing frontier Africa equity and fixed income investment universe.

Products for InstitutionsSolutions we offer to our clients are:

Љ Standard Africa Equity Fund (UCITS) Љ STANLIB Africa Equity Fund (FSB) Љ Segregated mandates – Equity, Fixed Income and

Balanced

Contact DetailsShould you have any questions about the detail provided in this document or if you would like to meet the portfolio manager to discuss his management style in greater depth please contact us using the following details:

Jerry MnisiHead of Institutional Distribution

T +27 (0)11 448 5197E [email protected]

Brendan HowieSenior Client Fund Manager


Gareth ConnellanSenior Client Fund Manager


Letshego RankinSenior Client Fund Manager


Bongiwe KhumaloClient Fund Manager


Cindy InacioClient Fund Manager


Erdmuth MoremiClient Fund Manager


Hannes ViljoenClient Fund Manager


Lucky le PadimaClient Fund Manager


9

AppendixTeam Profiles

John Mackie – B.Com (Hons)

Franchise Head: Pan-Africa

Industry Experience: 28 years

As head of the Franchise, John has overall responsibility for all STANLIB Asset Management’s Pan-Africa Funds. He also chairs STANLIB’s Africa Credit Committee, which covers all credit exposures in Kenya, Uganda, Botswana, Namibia, Swaziland and Lesotho. John has effectively worked within the asset management industry – and the group – for his entire professional career, and has almost three decades’ dedicated experience in the investment industry.

Thabo Ncalo - B.Com Business Finance & Accounting, CAIB (SA)

Portfolio Manager: West & Southern Africa


Thabo holds a B.Com in Business Finance (Investments & Corporate Finance) & Accounting from the University of the Witwatersrand, South Africa and is a Certified Associate in the Institute of Bankers, South Africa (with an Advanced Diploma in Treasury & International Banking). He has focused on analysis and management of African equities since 2007 with a specific focus on the Nigerian, Ghanaian, Zimbabwean and Mauritian markets. Before this, Thabo was with Investec Asset Management in S.A. from 2003 – ending as an Equity Analyst on the South African stock market with a focus on various South African industrial and small / mid-cap stocks.

Humphrey Gathungu - BSc IBA (Acc), CPA (Kenya) and CFA ®

Portfolio Manager: East & North Africa


Humphrey holds a Bachelor of Science degree (cum laude) in International Business Administration majoring in Accounting from the United States International University in Kenya. He is a qualified Certified Public Accountant (Kenya) and was also awarded the CFA Charter in 2003. Humphrey has been responsible for analysis of the East and North African stock markets (Kenya, Uganda, Tanzania, Zambia, Malawi and Egypt) since 2007 within the STANLIB Africa Equity funds. Prior to this, he was the Chief Investment Officer at Stanbic Investment Management (Kenya) responsible for client equity and credit portfolios in Kenya, Uganda and South Sudan from 2003 to 2007. Humphrey was previously with Old Mutual Asset Managers Kenya and Deloitte & Touche Kenya.

David Makoni - B.Sc (Hons) Management

Portfolio Manager


David oversees the STANLIB Africa credit function, and is Portfolio Manager for STANLIB’s Pan-African fixed income strategies, including a number of Swazi fixed income funds. He joined STANLIB in 2008 from Absa Capital’s investment banking division, where he was the Associate Principal responsible for Balance Sheet and Capital Structuring Services.

He previously spent six years as Associate Director with international ratings agency Fitch Ratings, within the Structured Finance and Corporate Finance groups, covering both the South African and other African markets.

David began his career in financial services as an investment analyst with Robert Fleming & Co, where he built several years’ experience researching listed companies across various sectors on the regional stock markets of Botswana, Ghana, Mauritius, Malawi, Tanzania and Zimbabwe. He is a graduate of the London School of Economics and Political Science.

Khabele Mofelehetsi- B.Bus.Sc (Hons)

Credit Analyst


Khabele joined STANLIB in 2009 as an Investment Analyst covering both equity and credit analysis. He is currently a dedicated fixed income analyst, focusing on researching investment opportunities within STANLIB’s wider Pan-African space.

He began his financial services career with Standard Bank Lesotho, and within a year became the bank’s foreign exchange dealer in the Global Markets division, responsible for buying and selling forex, liquidity management and overseeing investment of the bank’s excess funds.

Khabele holds an honours Bachelor’s Degree in Business Science (Finance) from the University of Cape Town, and has passed all three levels of the CFA program.

Legal Notices

Information and ContentThe information and content (collectively ‘information’) provided herein are provided by STANLIB Asset Management (“STANLIBAM”) as general information for information purposes only. STANLIB does not guarantee the suitability or potential value of any information or particular investment source. Any information herein is not intended nor does it constitute financial, tax, legal, investment, or other advice. Before making any decision or taking any action regarding your finances, you should consult a qualified Financial Adviser. Nothing contained herein constitutes a solicitation, recommendation, endorsement or offer by STANLIBAM.

CopyrightThe information provided herein is the possession of STANLIBAM and are protected by copyright and intellectual property laws. The information may not be reproduced or distributed without the explicit consent of STANLIBAM.

DisclaimerSTANLIB has taken care to ensure that all information provided herein is true and accurate. STANLIB will therefore not be held responsible for any inaccuracies in the information herein. STANLIBAM shall not be responsible and disclaims all loss, liability or expense of any nature whatsoever which may be attributable (directly, indirectly or consequentially) to the use of the information provided.

STANLIB Asset Management LimitedRegistration No: 1969/002753/06. A Financial Services Provider licensed under the Financial Advisory and Intermediary Services Act, 37 of 2002. FSP license No: 719.

Document relevant as of 11 December 2013

Compliance number:

17 Melrose Boulevard Melrose Arch 2196 PO Box 203 Melrose Arch 2076T 0860 123 003 (SA only) T +27 (0)11 448 6000 E [email protected] W stanlib.comGPS coordinates S 26.13433°, E 028.06800° W

STA

NLI

B A

sset

Man

agem

ent L

imite

d | R

eg. N

o. 19

69/0

027

53/0

6 | A

utho

rised

FSP

in te

rms o

f the

FA

IS A

ct, 2

00

2 (L

icen

ce N

o. 2

6/10

/719

)

Documents

STANLIB Pan-Africa Franchise · The Pan-Africa Franchise manages a range of ... Љ This considers the most attractive investment opportunities ... into the investment team’s decision-making