Local pension fund assets shoot above P100bn
Mbongeni Mguni | Friday March 5, 2021 15:42
This, as returns from offshore equities and Big Tech firms such as Google, Apple and Amazon, helped defy market uncertainties brought on by the coronavirus (COVID-19).
Bank of Botswana (BoB) statistics released this week show that collective pension fund assets rose from P94.3 billion at the start of 2020 and had reached P102.5 billion by November 2020. By November, about P64.4 billion or 62.8% of these assets were held offshore in various asset classes, compared to 60.3% in January 2020.
Under current rules, local pension funds are required to hold a minimum of 30% of their assets locally, although momentum is gathering within government to raise this threshold to 70%. The BoB statistics show that the value of offshore equities rose from P43.9 billion in January 2020 to P49.9 billion by November, while pension funds’ investment in primary listed local equities declined marginally from P13.3 billion to P12.8 billion over the same period. Officials at local asset manager, BIFM, said offshore equities had driven the rise in local pension funds during the year. BIFM is the country’s largest asset manager with assets under management of more than P20 billion.
“While 2020 was a challenging year for most investors, it should be noted that over the 12 months period financial markets, particularly international equities, performed well and delivered exceptionally positive results,” BIFM officials told BusinessWeek. “The COVID-19 uncertainty in the first quarter did lead to a sharp sell-off of risky assets and the MSCI World Index shed 21.44% in US dollar terms.
“However, the subsequent recovery was swift and gained momentum for the remainder of the year with the MSCI World Index delivering 18.84% in Q2, 7.52 percent in Q3 and 13.63% in Q4, all in US dollar terms.”
The MSCI World Index tracks the performance of more than 1,500 companies across the world and is used as a benchmark for global stocks. BIFM experts said over the 12 months to December 2020, the MSCI World delivered a return of 15.9% (USD).
“Much of this performance was led by technology stocks that rallied as stay-at-home orders resulted in a shift in consumption and increased use of more digital platforms.
“Growth stocks in general, outperformed.
“The top-most technology companies Facebook, Apple, Amazon, Netflix, and Google (FAANG) delivered 33.09%, 80.75%, 76.26%, 67.11% and 30.85%, respectively, dwarfing the market performance,” the BIFM officials said.
The country’s two largest pension funds, the Botswana Public Officers Pension Fund (BPOPF) and the Debswana Pension Fund (DPF), both reported healthy returns late last year, saying their fund managers had optimally managed their investments. By October, the BPOPF was estimating its portfolio at P73 billion up from P66 billion in March, while the DPF said its assets rose by a net of P485 million between January and September. Observers had expected pension fund assets to come under pressure from the disruption COVID-19 wrought on global markets, restricting trade and impeding business operations.
“There should be a differentiation between economic performance and market performance as in this instance, the two were opposites from a performance perspective,” the BIFM experts said.
“The economic environment such as supply chains, operating hours, footfall was disrupted due to measures put in place to slow down the spread of the virus.
“However, the financial markets performed exceptionally well.
“From a Fixed Income perspective, this was driven by lower interest rates, while from an Equity perspective, this was driven by the growth stocks benefiting from lower interest rates and from stay-at-home orders as more individuals turned to digital platforms.
“As a significant portion of pension assets are invested offshore, particularly in equities, they may have been exposed to these assets that performed well in the year.” The rise of local pension funds above P100 billion has also resuscitated questions about the funds’ contribution to local development, particularly infrastructure. Social media commentators have even questioned why local pension funds have not proposed partnerships with government to procure COVID-19 vaccines directly from manufacturers. The BPOPF, however, in October did announce a P3 billion allocation for local infrastructure, noting that this had long been a desired diversification for the country’s largest pension fund.
“Pension fund investments are guided by their unique set of objectives and constraints, which are in turn based on their beneficiary profiles,” BIFM experts said.
“These objectives and constraints may vary across different funds and sometime limits allocation to local property and infrastructure investments. “Some of the constraints that limit pension funds investments in these asset classes are, illiquid nature, large capital requirement, required expertise and hands-on management to name a few.
“These constraints are generally felt more by smaller pension funds than larger ones due to required resources.
“Whilst this is true, smaller pension funds are able to invest through pooled funds such as BIFM Local Property fund in order to gain exposure to local property as an asset class.” The BIFM experts, however, said opportunities were being seen in infrastructure.
“Infrastructure investing is yet to be adequately explored and remains an asset class that presents opportunities for diversification, return realisation, etc.
“We anticipate that going forward as our market develops, this area will gain momentum and provide an avenue for pension fund investments through various forms.”