Pula Fund sheds P6.7bn in global equities rout

Pelaelo says the Pula Fund has already bounced back PIC: PHATSIMO KAPENG
Pelaelo says the Pula Fund has already bounced back PIC: PHATSIMO KAPENG

The Pula Fund, which houses the country’s sovereign savings comprising decades of budget surpluses and diamond revenues, lost P6.7 billion in the last quarter of 2018 as investments made in global equities took a hammering.

The Pula Fund’s investments are managed on a 50/50 between the Bank of Botswana (BoB) and several leading asset managers appointed by the central bank. The Fund’s investments are across asset classes all outside Botswana and include equities held in top Western markets.

In the last quarter of last year, global investors saw more than $7 trillion wiped off their holdings in equities held in major markets, led by a dramatic fall on Wall Street starting in October. The country’s pension funds lost P3.7 billion last year, mainly due to their investments in the global equities and mainly as a result of the fourth quarter collapse.

Data released by the BoB indicates that between September and December last year, the Pula Fund fell from P61.9 billion to P47.5 billion. The biggest drop during that period occurred between November and December, when the values held in the Pula Fund fell from P59.3 billion to P47.5 billion.

Central bank officials explained that global equities rout was largely behind the drop, but added that the losses were ‘unrealised’.

Unrealised losses refer to the potential loss an investor suffers from owning an asset that has lost value. The loss is considered realised if the investor sells the asset at that reduced value.

“In the final quarter of 2018, the value of assets held in the Pula Fund was negatively affected by short-term volatility in several major global markets in which the Fund is invested resulting in unrealised market losses of P6.7 billion,” the BoB’s head of communications and information services, Seamogano Mosanako told BusinessWeek in a written response to enquiries.

“In particular, global equity markets experienced significant declines.”

She said over the long-term, it is expected that these valuation losses will be recouped through better market performance.

“For example, in the first quarter of 2019, most of these losses had been substantially reversed,” she said. The central bank said the Pula Fund’s drop between November and December was also due to large drawdowns made to cover short-term foreign exchange requirements in the local market.

“In early December 2018, there was a substantial transfer of funds from the Pula Fund to fund the Liquidity Portfolio, where balances required for transactional purposes had fallen below desirable levels due to a period of sustained net outflows,” Mosanako said.

BoB governor, Moses Pelaelo told BusinessWeek that the drawdown was in line with the reserve guidelines which require the central bank to ensure local foreign currency levels do not fall below three months of import cover.

“When that liquidity portfolio drops below a certain threshold, we are required to replenish by taking excess money that we had put in the Pula Fund,” he said on Wednesday.

“It is like when you see your current account is low and you take money from your savings account.

“The agreement with government is that when the liquidity portfolio drops to below three months of import cover, we have to fund it to a neutral position.”

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