##ity and buffer tranches were sufficient to cover both known and unexpected outflows, we started to increase our risk appetite by setting the investment tranche to target higher returns. of course, shortly thereafter, in 2008, the global financial markets would be roiled by a global financial crisis. notwithstanding this, our saa actually enjoyed good performance given the global investor flight to quality that ensued. page 4 of 13 securities lending although the robust saa framework shielded the performance of the actively managed portfolios, both during and even after the global financial crisis, challenges were experienced in the area we had viewed as the most conservative part of the reserves : the securities lending programme. on the cash collateral reinvestment part of the programme, we had limits on the duration of the instruments into which the securities lending agent could deploy the cash collateral but there was less of a restriction on credit quality. through this reinvestment, and at the height of the global financial crisis, we found ourselves with some debt that would eventually trade at a few cents on the dollar. the losses, most of which were valuation losses at the time, raised many questions and provoked intense introspection on our part. however, we later recouped the bulk of the valuation losses and eventually settled for a small realised loss on the paper in question. this experience led to an overhaul of the controls around our securities lending programme, with one of the key lessons being that every element of the reserves management value chain should be actively monitored and stress - tested. in 2015, we completed a formal review of our securities lending programme. we concluded that the securities lending activity should be viewed as a value proposition in its own right and, as a result, in 2016 we transitioned to a third - party securities lending agent model. the south african reserve bank ’ s second and third strategic asset allocation returning to my discussion on the evolution of the sarb ’ s saa, the gradual growth in reserves over the years created a need to review the saa implemented in 2006. taking into consideration the valuable lessons learnt from our first saa, and the significant amount of infrastructure and skills development picked up through our partnership with ramp, we drafted our second saa in 2009, which preceded the second review of our external fund management programme. page 5 of 13 the 2009 saa performed relatively well but was not without its own challenges, this time in the form of the eurozone crisis. at the time, we had modelled europe as one single entity in our sa

##a process and not as individual countries. as a result, and given our allocation to the eurozone as a whole, we had exposures to greece, ireland, italy, portugal and spain. with spreads widening dramatically, a decision was made to exclude these countries. this resulted in a number of challenges. firstly, a decision had to be made on whether to sell the existing positions or hold them to maturity. secondly, all the benchmarks used for the european portfolios had to be customised, a process which took a considerable time while spreads continued to widen daily. this event also started an important discussion on when and how a breach of the investment guidelines would be handled. eventually, a defined breach management process was deemed necessary to be included in the investment management agreements. the sarb ’ s third saa, implemented in 2013, marked an important turning point in a number of areas. at that time, gross reserves were close to us $ 50 billion and we now needed to seek a balance between accumulating reserves and the cost of holding foreign reserves. during this time, we had migrated to a much more defined approach to tranching, using the jeanne - ranciere model as a guide to the optimal amount of reserves to hold. as a result, the three tranches were reduced to two tranches. the liquidity and buffer tranches were consolidated into one tranche, whose purpose was to provide insurance against a sudden stop in capital flows. any excess reserves were allocated to the investment tranche, the purpose of which was to recoup the cost of holding the now singular buffer tranche. the investment tranche, however, remained subject to the constraints of capital preservation and liquidity. a number of other important changes were made in our third saa framework. we expanded the investment universe for internal portfolio managers to include australia, china, japan, south korea and sweden. page 6 of 13 the aim of these changes was to include higher - yielding assets and high - quality commodity currencies. furthermore, we introduced new asset classes : united states ( us ) mortgage - backed securities, dollar - denominated supranational bonds, eurocovered bonds, and the use of bond futures to enhance the efficiency of internal portfolios as global yields normalised. at that stage, however, the existing systems could not effectively support the expansion of the reserves into additional asset classes and markets. the new asset classes also came with a requirement for more sophisticated risk analytics. as