This document provides an overview of Collective Investment Schemes (CIS) in South Africa. It defines a CIS as an investment vehicle that pools investor money to access investments individuals could not access alone. It describes the CIS landscape in South Africa, including total assets under management and number of registered portfolios. It outlines the major types of funds, portfolios, stakeholders, and legal framework for CIS. It also summarizes the typical corporate governance framework, key operational functions and processes, and common operational challenges for CIS.

1. consulting | research | contracting
Collective Investment Schemes (CIS)
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Developed by:
Kuda Mukova and Kevin Came

2. Agenda
1. Purpose
2. What is a CIS?
3. CIS landscape in South Africa
4. Types of funds
5. Type of portfolios
6. Major stakeholders
7. Legal framework
8. Typical Corporate Governance Framework
(CGF)
9. Operational functions of a CIS
10. Key operational processes
11. T Account
12. Operational challenges

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1.Purpose of this document
• Understand what a Collective Investment Scheme (CIS) is
• Understand the key stakeholders within the CIS environment
• Have an idea of the Legal Framework of a CIS
• Understand the corporate governance landscape
• Understand the operational environment and pain points
After going through this document you should:

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2.What is a Collective Investment Scheme (CIS)?
A CIS is an investment vehicle used by investment managers to pool investors
money together so they are able to access investments which they might not
be able to access in their individual capacity
Through a CIS an investor can invest in a number of different assets and
funds such as shares and bonds
One of the main draw cards of a CIS is that investors get to share the risks
associated with the stock market, the same is true for the benefits

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3.CIS landscape in South Africa
• R1.3 trillion
AUM at the end
of 2012
• 1 284 registered
portfolios
• Top asset
management
company in 2014:
• Coronation
Fund Managers
• 454 co – named
portfolios
*Figures as at March 2015, obtained from www.fsb.co.za/departments/cis/Pages/default.aspx

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4.Type of funds
Buys shares in companies and is managed by a dedicated, single asset manager
Single name
funds
Is where a funds investment decisions are handled by a particular asset manager
and the management of the fund i.e: investment admin, pricing, marketing etc. Is
handled by another party which hold a license to carry out the management and
control of the CIS and complies with legislative requirements
Co named
funds
Holds an investment portfolio of other funds rather than investing directly into stocks,
bonds or other securities
Fund of
funds
These funds make up a particular type of portfolio

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5.Type of Portfolios
Type of
Portfolios
Portfolios can be made up of anyone of the following, or they can be a mixture, such
as a Multi Asset fund

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5.Type of portfolios continued……
Money is pooled together and is lent to people or companies developing propertyBonds
Ownership of a share in a company, e.g.: SAB, Capitec, NaspersEquity
Money is pooled to invest in a number of different types of property like industrial,
factories, shopping centres etc.
Property
Holds an investment portfolio of other funds rather than investing directly into stocks,
bonds or other securities
Cash

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6.Major stakeholders
The following stakeholders and the role they play is important to know to understand the CIS
landscape
• Unit trusts must have a separate institution to act as
an independent decision maker
• The Trustees, usually a bank, act as a safe guard for
the funds and ensure the management company
(Manco) does not mismanage the funds
• The Trustees also need to monitor how the fund is
managed by the investment managers, i.e.: the
mandate of the fund and ensure daily transactions
are conducted in accordance with the Trust Deed
• If the Trustees suspect that the Manco is not acting in
the best interest of the investors they have the power
to replace the management
Trustees
• The Manco is a legal entity that acts on behalf of the
unit holders and is responsible for aspects of
management including but limited to marketing,
creating and selling of units, record keeping,
compliance, legal, finance etc. etc.
• The Manco earns an income by charging
administration fees for their management services
• The Manco must be registered with the Financial
Service Board (FSB)
Management Company (Manco)

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6.Major stakeholders continued….
• The FSB is the regulator of non banking financial
services. Their vision is to “Promote and maintain a
sound financial investment environment in South
Africa”
• They are responsible for ensuring that regulated
entities comply with the relevant legislation as well as
capital adequacy ratios to promote financial
soundness and protect the investors
Financial Services Board (FSB)
• Represents the majority of the country's asset
managers, collective investment scheme
management companies, linked investment service
providers, multi-managers and life insurance
companies
Association for Savings and Investment South
Africa (ASISA)
• Collective Investment Scheme Control Act 2002
regulates and controls the administration of collective
investments
• CISCA is the “go to” act for anything CIS related
• Knowledge of CISCA is important for all Legal,
Compliance and implementation resources
CISCA
• LISP is an independent investment administration
company that offers investors access to collective
investment schemes across a number of different
management companies. A LISP acts purely as an
administrator and does not manage fund assets nor
does it provide investment advice
Linked Investment Service Provider (LISP)

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7.Legal framework
Legal
Agreements
Co naming
agreements
Fee share
agreements /
Rebate
agreements
Portfolio
Management
Agreement
(PMA) /
Ivestment
Management
Agreement
(IMA)
Service Level
Agreement
• Outlines the
“rules” under
which the
Portfolio /
Investment
Manager will
operate
• Agreement between
two parties where both
parties names are
reflected on the fund.
• One is usually the
licensed manager, the
other the Investment
Manager
• Details all
fees, and
most
importantly
any rebate
that may be
applicable
• Signed
between the
Manco and
the (LISP)
Trust
Deed
• Sets out the relationship between
the Fund, Manco, the Trustee & the
unit Holder
Supplement
ary Deeds

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7.Legal framework continued…..
Legal
Agreements
All information relating to fees,
investment policies,
benchmarks, fund perfromance
criteria and mandates can be
found in the legal agreements
These agreements are the
starting point for all information
one requires about funds, the
Manco and their relationship with
investment managers
Legal agreements are imperative for control, governance, compliance and protection for all
parties involved

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8.Typical Corporate Governance Framework (CGF) for a CIS
The overall intention of a Corporate Governance framework is to ensure that the board directs continuous
performance improvement while meeting its governance obligations and simultaneously, adhere to legislative
requirements.
A good governance framework should summarises the principles, methodologies , people and procedures
required to support and enforce effective corporate governance.
There are a number of sources that can be taken into consideration in developing a governance framework for
a collective investment scheme.
In addition the structure and responsibilities of each committee are crucial to get the most effective
Governance for a CIS.
CGF is crucial for any business, and this is no different for a CIS. Governance has a crucial
role to play

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9.Operational functions of a CIS
Operational functions of a
CIS
• Enterprise Risk • Investment Compliance
• Performance and Risk Insight • Finance
• Change management
• Sales• Legal
• Marketing• Regulatory Compliance
• Portfolio Admin and
Unitisation
• In house Investment Admin • 3rd Party Investment Admin
These functions have very specific, detailed roles they need to perform to ensure a CIS
operates effectively

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10.Key operational processes
Sample of key
operational processes

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Debit Credit
Management Fees
– Standard fees
– Performance fees
– Portfolio management fees (As per the main
portfolio management agreement (PMA)
between the CIS and Asset Manager)
– Rebates (Obtained from PMA, fee share
agreement or rebate agreement
– Fund management fees
• Standard fees
• Performance fees
– Advisory/Distribution fees
– Multi manager fees
This is a typical T account for a CIS
11.T Account

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12.Operational challenges
Inconsistent culture
across various
fnctions
Use of multiple
systems
Undefined roles and
responsibilities
Lack of training & up
to date CIS knowledge
Manual operational
processes
These are the burning issues when it comes to the operations of a CIS Manco

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Kuda Mukova
Phone : + 27 11 259 4000
Mobile : + 27 71 450 5887
kmukova@iqbusiness.net
Kevin Came
Phone : + 27 11 259 4000
Mobile : + 27 74 977 0740
kcame@iqbusiness.net
Headquarters
3 Third Avenue, Rivonia,
2128,
South Africa
Phone: +27 11 259 4000
Cape Town
2nd Floor Block C
The Boulevard
Searle Street
Cape Town
South Africa
Melbourne
Level 20, 303 Collins
Street
Melbourne
Victoria
3000
Australia
For further information, please contact:
Sydney
Level 2, 131 York Street
Sydney
New South Wales
2000
Australia
Atlanta
2300 Windy Ridge Pkwy
Suite 520N
Atlanta, GA. 30339
United States
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