Pension fund trustees face a deceptively simple question: is the capital entrusted to you working as hard as it could be? Not just whether it’s invested in the right asset classes, but whether the way it’s being managed is getting the most out of every rand.
This question shapes not just which equities you hold, but how the decisions get made, and whether the process behind those decisions is built to deliver consistent results over the kind of time horizons that retirement savings demand.
Why consistency is so hard
Generating alpha in any given year isn’t actually that unusual. The harder part, and the part that matters for retirement savings built over decades, is doing it consistently. This is where human decision-making runs into some well documented problems.
Behavioural finance research has shown that even experienced investors are subject to systematic biases. Overconfidence makes us hold losing positions longer than we should, because admitting we were wrong is uncomfortable. Loss aversion pushes us to bank small wins too quickly, cutting our winners short. And recency bias means that whatever happened last quarter tends to carry more weight in our thinking than it probably deserves.
These aren’t character flaws, they’re how our brains are wired. But in equity markets, where the margin between outperformance and underperformance is often slim, these biases compound over time. The S&P SPIVA scorecard puts some hard numbers behind this: 95% of actively managed South African equity funds underperformed their benchmark over the past ten years. And even among those that do outperform, consistency is rare. For trustees responsible for retirement savings being accumulated over 30 or 40 years, that inconsistency is a real problem.
What we mean by systematic investing
A systematic equity process can be built to address exactly this – investing through a systematic, rules-based framework rather than relying on subjective judgement calls. The investment research (what drives returns, what signals to respond to, how to manage risk) should be done upfront and embedded into the process itself. When the data says to adjust, the portfolio adjusts. When it doesn’t, it holds.
This isn’t about replacing human thinking with a black box. The ideas behind the models come from real investment insight and rigorous research. The difference is in how those ideas get applied. A systematic process applies them the same way every time, without the emotional noise that tends to creep in when markets get volatile. It doesn’t get nervous after a bad week or overexcited after a good one.
The result is a more repeatable source of alpha. And that repeatability turns out to matter a great deal, because it unlocks something bigger.
Making alpha portable
Portable alpha is the idea that you can separate where your capital sits from where your return comes from, effectively giving you two exposures out of one pool of money.
That concept works best when the alpha you’re porting is well understood and consistent. A systematic equity process fits that description well. Because the alpha comes from a repeatable framework rather than a concentrated set of subjective bets. Think of it as an engine that can be installed in different vehicles. The alpha source stays the same; the application is flexible.
This is where things get interesting for trustees, because portable alpha doesn’t just offer the prospect of higher returns. It changes the risk profile of the portfolio in some meaningful ways.
Diversification and downside protection
The structure of a portable alpha equity fund means you’re getting two things at once: broad equity market exposure, plus an independent alpha source on top. Because that alpha is generated separately from the market return, it gives the portfolio a return stream that doesn’t just move with the index. In a market like South Africa’s, where a handful of large counters can dominate performance, that independence is genuinely useful.
There’s a natural cushion built in too. The alpha-generating part of the portfolio tends to sit in lower risk instruments, which means the overall fund behaves differently during selloffs compared to a conventional equity portfolio. For members approaching retirement, where the order in which returns arrive matters as much as the returns themselves, that’s a meaningful benefit.
Keeping costs honest
There’s a practical benefit worth mentioning too. Systematic strategies scale efficiently. The intellectual capital lives in the process itself, not in a large team of analysts covering individual stocks. That means a disciplined, alpha-generating approach can be delivered at a fee level that makes sense over long time horizons. Even small differences in fees compound significantly over a 30 or 40-year savings journey.
Why this should be on the trustee agenda
Every rand in a retirement portfolio started as someone’s salary, hours worked, sacrifices made, trust placed in the system. The responsibility of making that capital work efficiently is not a small one.
A systematic approach offers transparency: trustees can see exactly what the process does and why. It offers consistency: no style drift, no key-man risk, no changes of direction mid-cycle. And when that process is designed to produce portable alpha, it means every rand can contribute to more than one source of return and more than one layer of protection. And that feels like a conversation worth having.
