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The plunging rand has had many unexpected consequences for South African stocks and investors. Most recently, Allan Gray announced that due to the weakness of the rand and the strength of its offshore portfolios, it was being forced to close its offshore funds to new investors in order to remain within exchange control rules. South Africa’s exchange control regulators allow unit trust managers to hold up to 35% of their assets offshore. As the rand has weakened and dollar- and euro-denominated assets have strengthened, Allan Gray has seen the proportion of its offshore assets by value increase. As a result, the company will be closing off its offshore funds to new investment, although investors in certain products will still be able to use the offshore funds as a component of their asset portfolio. It’s a temporary move that will likely be reversed in time, but serves as a stark reminder of the many ways in which rand weakness affects South African investors.
Below is a copy of an announcement of the decision issued on behalf of Allan Gray.
[D]ue to offshore capacity constraints, [Allan Gray] will close the following funds for new discretionary investments effective 17 October 2014 at 14h00:
Allan Gray-Orbis Global Equity Feeder Fund
Allan Gray-Orbis Global Fund of Funds
Allan Gray-Orbis Global Optimal Fund of Funds
The above funds will no longer be available for new discretionary investments (this includes additional contributions as well as switches and transfers into the funds). Existing debit order arrangements will be allowed to continue unaltered. Investors will, however, still be able to choose these funds as underlying investments in the following Allan Gray products:
Allan Gray Endowment
Allan Gray Living Annuity
Allan Gray Pension Preservation Fund
Allan Gray Provident Preservation Fund
Allan Gray Retirement Annuity Fund
Why have the funds closed?
As you know, the South African Exchange Control allows unit trust companies to invest up to 35% of their retail assets under management in foreign investments. Due to the weakness of the rand, strong performance of the underlying foreign funds and the continued popularity of these funds, Allan Gray’s Unit Trust Management Company is no longer able to accommodate further offshore investments. Capacity is, however, still available through the product entities mentioned above. The funds will reopen as soon as Allan Gray is able to do so.
Investors can use their offshore allowance to invest in the Orbis funds
Investors can still, of course, use their own offshore allowance to access the Orbis funds and funds from other offshore managers via Allan Gray’s offshore platform. For more information, please click here to access Allan Gray’s offshore brochure.
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