Bad experiences of GIPF in unlisted investments
Chairman of the GIPF Board of Trustees, Adv Ellaine Samson, addressed a meeting of the Retirement Funds Institute, during the week.
Regulation 28 of the Pension Funds Act lays down prudential limits and other investment requirements and thresholds that govern the investment decisions of pension funds. In 1996, the Government Institution Pension Fund (GIPF) established its first attempt with unlisted investments. This became known as the so-called Development Capital Portfolio (DCP). At the time, the GIPF was the only pension fund in the country that had dedicated a portion of its assets to unlisted investments.
The implementation of the now defunct DCP was seen at that time as a foray into uncharted territory. According to Regulator 28 of the Pension Funds Act, pension funds are required to have at least 35% of their investments in Namibian assets. “Given the size and nature of the Namibian stock market, this would have meant a portfolio heavily skewed towards dual-listed investments in order to achieve this weighting. It was therefore natural that the DCP be formed with the specific goal and intention of investing GIPF in unlisted investments in the Namibian economy,” said Advocate Ellaine Samson, Chairperson of the GIPF Board of Trustees.
Samson says the biggest flaw that contributed to the failures of the DCP was the fact that Trustees, given that they did not have adequate skills in investments, and given that they were not running the DCP on a full time basis, were making investment decisions impossible to monitor as per the design of the portfolio. Another defect of the DCP, according to Samson, was the fact that Trustees were directly retailing the funds instead of concentrating on lending the funds on a wholesale basis to fund managers who in turn would retail funds to entrepreneurs. The Trustees were supposed to manage the portfolio on a broader strategic level.
“There is no doubt that much of the criticisms leveled at the DCP are justified, but at the same time it is critical to look beyond the failures, and even more critical to realise that the establishment of the DCP was entirely appropriate not only from a compliance point of view but also from the point of view of the nature of the Namibian economy at that time,” Samson emphasised. By 1996, Namibia had few fund managers registered. [Those] in Namibia were in most instances franchises of South African companies.
In their quest to continue investing in the country’s economy and for the sake of compliance, the Board of Trustees approved a new Investment Policy for Unlisted Investments in 2008. The overall goal of the policy is to use GIPF funds to contribute to the development of the Namibian capital market with regard to unlisted investments.
According to Samson, the Trustees came up with this policy through detailed studies of global best practices; they used lessons learned from the failed Development Capital Portfolio as well as the potential of unlisted investments providing an alternative asset class.
The Unlisted Investment Policy is fashioned in accordance with the provisions of the draft Regulation 29 of the Pension Funds Act. It makes provision for the establishment of special investment vehicles (SPV) controlled individually by designated trusts.
These trusts are managed by selected Trustees with skills in the particular mandate of the Trust. The Trusts are administered by Fund Managers appointed by the trustees. The policy also aims at heeding the call by government for increased repatriation of domestic assets and compliance to changes made to Regulation 28 for pension funds to invest a minimum of 3.5% of the total assets in unlisted investments,” Samson stated.
But the GIPF has earmarked 15% of its total assets to investments in unlisted shares, shares listed on a Development Capital exchange of stock exchanges within Africa excluding Namibia, debt and shares listed on the Development Capital exchange of the Namibian Stock Exchange (NSX) as well as property in Namibia. As at the end of September 2012, an amount of N$471 million has been invested in unlisted investments in Africa, while an amount of N$720 million was invested in Namibia in unlisted investments.
Samson stressed that investing domestic savings in the economy was long overdue. “We can no longer defer the wealth and resource distribution to the next generation. Postponing action could result in an economic revolution by the destitute and the poor. The challenge is for us to choose whether we are ready to bear the financial, economic, social and political costs that would result from our failure to address the poverty of our people, ” she reinforced.