Page 78 - Profile's Unit Trusts & Collective Investments - September 2025

Chapter 4 The CIS industry

In preparing a mandate, a CIS manager must propose a fund classification in terms of ASISA’s
classification structure, but this is subject to ASISA approval. Other information that must be defined
in the mandate includes:
R A concise statement of the fund objectives
R The investable universe of the fund, which includes a definition of the asset class or classes of
the fund (eg, equities, multi asset or interest bearing)
R The benchmark of the fund (only one, clearly defined benchmark is accepted by ASISA)
R Fund limits and constraints (eg, whether the fund invests only in SA or only offshore)
R Type of fund (retail or institutional)
R Nature of the fund (index fund, fund of funds, multi-manager, general or “other”)
R Details of the portfolio manager
A fund’s mandate will often include specific constraints limiting the investment universe to
particular types of shares, or limiting exposure to certain types of assets. In order to qualify for
membership of a particular ASISA category, the constraints in the fund’s mandate must obviously
conform to the requirements of the category as laid down by ASISA (see Chapter 8 which deals with
classification).

Discretionary fund managers
A discretionary fund manager (DFM) creates and manages portfolio investments on behalf of
clients. A DFM is not a CIS management company but a financial service provider (FSP). The rise of
DFMs, however, illustrates the overlap of portfolio management and discretionary advice and shows
how easily the demarcation gets blurred and confuses investors.
This blurring is particularly evident in comparing a multi-manager fund to a DFM. A multi-manager
fund is typically a unitised CIS, whereas a DFM manages a portfolio of underlying funds on a
per-client basis using a consistent set of advice and risk management principles. This means, in
practice, that similar clients will often invest in similar or identical model portfolios – which makes
the DFM offering look much like a selection of multi-manager funds even though they operate under
different rules.
The rise of discretionary fund management is linked largely to the FSCA’s Retail Distribution
Review (RDR), which is modelled on the UK’s RDR. The ever-increasing regulatory demands
make it difficult for independent advisers to fulfil the many requirements of a compliant investment
process; this situation has created an opportunity for DFMs.
The FSCA’s RDR proposals in 2014 suggested that financial advisers may be required to have a
“centralised investment proposition”. This follows the principle of consistent client outcomes, which
seeks to overcome legacy practices where advisers chose products for clients based on idiosyncratic
factors. A centralised investment proposition means that advisers have to be able to demonstrate
how client needs were assessed and why recommendations were made, a responsibility that is
daunting for many advisers.
An adviser working in conjunction with a DFM is able to use the DFM’s systems in the assessment
process and rely on the DFM for the applicable portfolio model. As a specialist in discretionary
advice, the DFM provides experts, tools and a range of wrappers or model portfolios that can be
applied to meet desired outcomes.
ASISA
The Association of Unit Trusts (AUT) was established in 1967 to represent the interests of South
African unit trust management companies and their investors. The primary aim of the Association
was to facilitate the development and growth of the industry.
With the advent of the Collective Investment Schemes Control Act (CISCA), the AUT changed its
name to the Association of Collective Investments (ACI). Under CISCA, the ACI became a licensed
body in terms of Part III of the Act. Schedule 4 of the Act sets out the matters to be provided for in
the rules of association. By licensing the ACI under the Act, the legislation allowed a degree of self-
regulation according to prescribed requirements.

76 Profile’s Unit Trusts & Collective Investments September 2025