“It follows therefore, that directors or trustees are expected to be informed by up-to-date and state-of-the-art knowledge, familiarity, understanding and prudence in discharging their responsibilities,” BoB’s Linah Mohohlo said on Wednesday. She officiated at the Botswana Retirement Funds’ Conference, the second - ever retirement conference to be staged in Botswana. Mohohlo said the theme of the conference “Investments, Governance and Communications within Retirement Funds”, was relevant as the pensions industry is growing substantially.
She told the more than 250 participants that trustees and fund managers have a responsibility to uphold the principles of good governance and the pursuit of transparent and sound policies at both national and regional levels, as a precondition for Africa’s renewal. This means having the right people and policies to manage countries and institutions well. She said it also means having the right principles and practices that guide businesses or organisations in pursuing their mandates, goals and objectives. “It is, therefore, incumbent on everyone with stewardship responsibilities (managers and directors or trustees of retirement funds) to be keenly and constantly aware of what those responsibilities entail,” warned Mohohlo.
“This advice underscores the heavy burden of responsibility placed upon the custodians of retirement funds and trustees. They (fund managers) are obligled to uphold the highest standard of corporate governance and to ensure that, at all times, they command public confidence and trust as competent, stewards in the industry in which they conduct business,” said Mohohlo, adding that trustees must equip themselves with the requisite skills for discharging their fiduciary responsibilities, and acquaint themselves with and follow all applicable legislation, rules and regu1ations.”
Mohohlo further added that fund managers and trustees are expected, “if not required”, to provide ongoing fair, accurate and timely information to retirement fund members. “After all the members themselves should be provided with relevant information’ so that they can make informed assessments of the performance of investment portfolios, as well as the performance of individual trustees,” she said.
Mohohlo told participants that such a requirement is particularly important when a significant part of the retirement pension funds have adopted the defined contribution plan where employers’ commitments are limited only to the extent of making periodic contributions to the retirement accounts of eligible employees. She said it is imperative that trustees are well versed with the determinants of investment policies, and appreciate the risk profiles of their investment portfolios using appropriate tools, including standard deviation and correlation coefficients, which shed light on expected return.
It follows, therefore, that pension or retirement funds trustees must seek to diversify the investment of their portfolios to minimise potential losses to members, particularly given the volatility of capital markets in recent times. “This issue is even more important in the context of Botswana, where the financial and capital markets are not diversified, eligible investment instruments limited, and the market for many of these instruments invariably illiquid,” the governor lamented.
In order to successfully carry out their duties, Mohohlo advised trustees that they must be armed with the know-how to conduct an effective search for fund managers and then select the best for respective investment mandates. She added that the selection of fund managers could include those that may have under performed in the recent past, given the overwhelming evidence that past performance is not necessarily a predictor of future performance.
“As you are probably aware, in modern day asset management, there is a cardinal feature of outsourcing certain functions to consultants or advisors”, said Mohohlo.
The retirement funds play an important part in any economy. Mohohlo said at the individual level, retirement funds are there to provide the necessary financial security when one is no longer actively employed.
And, at a macro level, these funds provide resources that are available for investment purposes. In Botswana, the post-employment funds’ sector has grown phenomenally in the last few years and, by current estimates, the total portfolio is in the region of P20 billion which, if properly managed, can contribute positively to the broader economic diversification initiatives.
