GIPF sweetener, very sweet
The country’s biggest pension fund has dished out millions in Management Fees to 11 private equity firms despite little investments to show for the exorbitant fees.
The Government Institutions Pension Fund (GIPF) announced on Monday that it had distributed N$95 million in fees in the past two years as upfront commissions to the private equity firms for investing N$720 million on behalf of the Fund.
As part of GIPF’s new investment strategy taken after the DCP debacle in which the Fund lost around N$650 million through dubious investment procedures and strategies, the Fund has now made a new commitment of 15% of its total assets for investment in unlisted investments.
Since 2010, the GIPF says it has signed agreements with 11 private equity firms and asset managers with a commitment to invest N$2.38 billion in various investments spanning different sectors of the economy. According to GIPF’s General Manager for Finance and Investments, Conville Britz, the private equity firms receive between 1% and 2% of the total value committed as management fees whether or not they make any drawdowns to invest or showing any success in the investment. However, the management fees that the GIPF has distributed of N$95 million reflects on average management fees of around 6.6% of the total value committed instead of the range of 1 and 2% as indicated.
Despite the trustees committing N$2.4 billion, only BFS, at N$140.2 million, is close to making drawdowns equivalent to the commitment of N$160 million. This is followed by property development firm Safland who at N$246 million has used more than half of the N$450 million committed to them by the GIPF’s Board of Trustees. Despite this, the GIPF has already paid N$95 million in management fees to private equity firms including the firms participating in the new round of unlisted investments. It is not clear on what basis management fees to asset managers are paid.
The GIPF has also committed N$150 million to Sanlam Investment Managers (SIM) for “the expansion of existing properties” but since the signing of the contract on 29 September last year, SIM has received only N$1.25 million. SIM was one of the main players in the original round of unlisted investments that turned sour.
Another firm, Koningstein signed an agreement worth N$150 million in August last year, but to date, the firm has received only N$16.2 million in drawdowns. Worse, VPB Namibia signed an agreement worth N$160 million in May 2010 but has only taken N$46.3 million. The same applies to IJG/African Alliance. The GIPF Board of Trustees committed an investment worth N$160 million on the same day as VPB Namibia, but only N$6.7 million has been “invested” while in the meantime the private equity firms continue to reap millions as management fees without making the intended investments committed by the trustees.
It was not immediately clear how much each firm received in management fees over the two-year period.
A source familiar with the unlisted investments questioned the rationale behind the investment agreements. He said: “How can the trustees commit millions of dollars without a time frame for the drawdown of the committed funds?”. He added that the absence of such a time frame was questionable as the equity firms can abuse the agreements by continuously receiving management fees without any investments to show for it. Furthermore, it appears that the GIPF does not have a fixed objective in respect of investment returns over time. A GIPF official could only state 20% when pushed for further explanation.
It also seems there are no commitment periods for drawdowns applicable to asset managers.
“If this is not specified you end up paying someone for doing nothing when management fees are paid on the basis of the total capital committed irrespective of the actual amount drawn down by the asset managers which reflects performance. Ideally, people earn income for the work that they do, in other words for adding value, but if people are paid for having capital committed to them without actually performing then there is a huge problem,” another source stated.
Still another source attributed the lower drawdowns to the “uneconomical” high return on equity demanded by the GIPF Board of Trustees. He said: “The conditions are not reasonable. Their money is very expensive compared to DBN which avails funds at prime interest rates.”
While it is not clear at this stage what investments had been made and to what extent has the Fund benefited from these, the asset managers appear to be the only benefactors of the new GIPF investment policy for now.