Page 80 - Profile's Unit Trusts and Collective Investments 2021 issue 2

CHAPTER 4

Trustees and Custodians
Under the Unit Trusts Control Act, all unit trusts had trustees. CISCA, however, makes
provision for collective investment schemes which, from a legal point of view, are not trusts,
but other legal entities. As only a trust can have a trustee, the custodian plays the same role
where the collective investment scheme is structured as, say, a company rather than a trust.

Outsourcing of the administrative component of unit
trusts has also become popular. For many years new CISCA “Deed”
entrants in the industry were deterred by the need to have Definition
teams of staff members and technical systems in place to
handle the administrative side of unit trust buying, selling CISCA defines the Deed as
the agreement between a manager
and switching. Now smaller asset management companies and a trustee or custodian, or the
are able to outsource this function to one of several document of incorporation whereby a
companies operating in this area. collective investment scheme is
established and in terms of which it is
Trustees and Custodians administered.
The importance of the role of the trustee is highlighted
by the fact that an entire section of CISCA is devoted to the appointment, necessary
qualifications and duties of the trustee or custodian.
In terms of the Act, a trustee can principally be a public company, a bank, or an insurance
company. Trustees must be registered with the registrar, and must maintain capital and reserves
amounting to not less than R10 million. The registrar must be satisfied that the company or
institution is one of good standing, and is equipped to carry out the duties of a trustee.
The trustee must be independent, and cannot be a subsidiary or holding company of the CIS
manager.
An important function of the trustee is to ensure the separation of portfolio assets from those
of the manager. The trustee or custodian acts as caretaker of all cash and securities, holding these
on behalf of investors. Another important function of the trustee is to ensure that the CIS is run
in accordance with the deed of the scheme and in terms of the requirements of the Act.
Other specific responsibilities of the trustee include:
Ensuring that participatory interests are priced correctly on sale and repurchase
Ensuring that cash flows and portfolio assets are transferred timeously whenever
transactions take place
Verifying that income accruals are dealt with correctly
Preparing an annual report regarding the correct administration of the fund, ascertaining
reasons for any non-compliance, and setting out steps to be taken to rectify any
non-compliance
Making sure that the legal entitlement of investors to portfolio assets is assured
Ensuring that appropriate internal controls are in place to keep track of the nature and
value of all portfolio assets
The Deed
The deed (which was called the trust deed under the Unit Trusts Control Act) is the central
defining document in terms of which a collective investment scheme is established. It defines the
operating parameters of the fund, setting out what the scheme will invest in, how much it will
charge for its services, and on what basis it will repurchase participatory interests from investors.
Schedule 1 (Section 97) of CISCA sets out the matters which must be provided for in the deed
of a collective investment scheme.
The investment policy which will be followed by the CIS manager
Exactly how the assets of the portfolio are to be valued

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