Allan Gray Equity Fund Proposed Changes – How to Respond

allen-gray-changeRecently Allan Gray sent out a notice that they were looking to change some aspects of their equity fund, however, the actual implementation of these changes essentially boils down to whether their investors vote in favour of the new mandate or against it.  So what are some of the most important changes made to the fund?

Allow Offshore Investment

This change essentially provides the fund greater scope to invest outside of South Africa’s borders and has the added benefit of softening any domestic market slump through the fund’s new investment options abroad.  The fund’s various portfolio managers will seemingly have greater diversity in their investment picks.

Changing the Fund’s Benchmark

Directly related to the previously mentioned point, it follows logically that if the fund receives the mandate to invest offshore, then the local equity benchmark will no longer be applicable.  Having recognised this point, Allan Gray is proposing a shift away from the JSE benchmark to a benchmark made up of an aggregated return of the general equity sector.  Most funds in this sector already invest offshore, meaning a fair benchmark off which an investor can compare the returns from the fund to its rivals.

Changing the Fund’s Investment Management Fee

This is the proposed change that is probably the most relevant to the everyday investor and, although the changes are by no means drastic, they are definitely worth examining.  In short, the equity fund’s new management fee structure will look to do away with the majority of the minimum base fees currently in place, and instead, implement a shift towards fees based on the actual performance of the fund.  This means increased fees when the fund performs well and, conversely, reduced fees if it does not reach its goal.

Change To Allow the Use of Financial Instruments (Such as Derivatives)

There is currently a stigma in the financial world over the use of financial instruments following the 2009 market crash, however, when these instruments are properly regulated, they can be effective growth tools. Allan Gray is looking to make use of these financial instruments purely to increase their investment flexibility and make it clear that they will not be heavily relied upon as primary investment options.


The proposed changes to the Allan Gray equity fund seem well thought out and appear to benefit their investors as opposed to short-changing them.  The proposed mandate should ensure more dynamic investing with the option of offshore investments providing greater investing flexibility for the portfolio managers.  With regards to the management fees, the impending changes can also be viewed in a positive light.  Fees that need to be paid on a fixed basis have been cut, while few will complain about an increase in fees based on good performance. When it comes to enabling financial instruments, investors have a right to be wary, however, the public can rest assured that the fund will be closely monitored by the relevant authorities.

In short, the general consensus is that the changes to the Allan Gray equity fund will ultimately benefit investors, both in a reduction of fees paid and in the growth of their investments.  However, this is not to say that the fund’s mandate will actually change, as whether the changes occur or not boils down to how the investors in the fund vote.

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