Stewardship: Why trustees must understand what the fund owns

South African retirement funds invest huge amounts of workers’ money. Yet many trustees still struggle to answer a basic question: what does the fund own?

This matters because trustees cannot properly protect members’ money if they do not understand, at least broadly, where it is invested, how those assets work, and what risks come with them.

This applies to all retirement funds. It does not matter whether the fund is defined benefit or defined contribution, or whether it is in the public or private sector. Trustees have the same duty to act with care, diligence and in the best interests of members.

Modern portfolios can be complex. A fund may invest not only in listed shares and bonds, but also in property, infrastructure, private debt and other alternative assets.

These investments can support economic growth, create jobs and add long-term stability to returns. But that does not mean trustees should accept them without question.

Complexity is not the real problem. The real problem is when investments are poorly understood or badly explained. Trustees should never be left in the dark about where members’ money is going.

For organised labour trustees, this means asking practical questions. How easy is it to sell the asset if the fund needs cash? What are the main risks? Is this a long-term investment that may take years to pay off? How does it create value? What could cause it to lose value?

These questions matter because assets behave differently. A listed share can often be sold quickly. An infrastructure project or private market investment may take far longer to exit. That is why trustees need to understand liquidity, risk and time horizon. A fund must still be able to pay benefits when members resign, retire or pass away.

Trustees also need enough transparency to explain the fund’s investments in plain language. Members may ask where their money is invested. They deserve clear answers, not confusing jargon.

This is part of stewardship. Trustees act on behalf of ordinary South Africans who will never attend an AGM or question an asset manager directly. Trustees are their voice in the investment system.

Knowing what the fund owns is therefore not micromanagement. It is a basic part of good governance. Trustees do not need to be investment experts, but they must understand enough to ask the right questions, spot concerns and make informed decisions.

In simple terms, trustees cannot protect what they do not understand.