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Johannesburg - JSE-listed wealth management group Liberty Holdings said it sacrificed the chance to make short-term profits to reduce its risk exposure.
After the release of a trading update for the first quarter on Friday, CEO Bruce Hemphill said the group's main emphasis had been on reducing its exposure to interest rate and equity instruments. The company opted to hedge a "significant portion" of its equity exposure.
"It was always our strategy to de-risk," said Hemphill.
Asked whether reducted equity exposure will have a negative impact on returns when the market pendulum swings, Hemphill said: "We took a view in February, March this year that things looked pretty dire.
"It was in the long-term interest of policyholders and shareholders to sacrifice short-term potential profit for long-term balance sheet strength."
The group reported a loss of about R400m; its operating earnings of R350m were offset by unrealised investment losses of R750m.
Sales volumes were up 20.1% compared to the first quarter of 2008, and appeared to indicate consumer strength. However, Hemphill warned that the figures do not include April, which was "a tough month".
Unemployment risk
According to Hemphill, Liberty retains a degree of scepticism about recent upbeat economic data as well as stock market rallies.
"It's a very uncertain world," said Hemphill, cautioning that unemployment was a major risk both locally and abroad. He said that should US unemployment continue to rise, it would place further pressure on house prices which in turn would increase strain on the banking system.
The Public Investment Corporation (PIC) announced in March that it withdrew R8.3bn in assets under management from Stanlib, Liberty's asset management subsidiary.
The PIC has over the last two years re-evaluated its asset spread across various fund management companies, intending to reward those with higher black economic empowerment credentials.
PIC assets under management at Stanlib fell from R337bn in December 2008 to R326bn as at the end of March 2009.
Hemphill downplayed the loss of the PIC funds, saying: "We were the best performing manager and they (PIC) didn't take all their funds out."
- Fin24.com