GIPF: What you need to know about unlisted investments
What is the GIPF Unlisted Investments?
GIPF generally invests in listed equity, bonds, property, derivatives, cash and money market instruments. These assets provide returns that assist in immunising the pension fund’s liabilities. Since 2010, GIPF started investing in Unlisted Investments, which are defined as assets not listed on a stock exchange. Common stock exchanges being referred to are the Namibian, Johannesburg and New York Stock exchanges, etc.
Therefore, these are investments that entities like the GIPF have invested in through appointed Fund Managers by taking up either shares, debt instruments or a combination of both in exchange for a stake in the business, and expects to profit from these investments as growth prospects and potential changes to strategic direction is effected and investments are realised for more than what was invested for initially. Investors in this space invest in order to grow and realise the investment after a certain period of time. The strategies for investing in Unlisted Investments can either take the form of Venture Capital, Debt Funds, Private Equity, Infrastructure or Developmental Funds.
Why did the GIPF invest in Unlisted Investments?
Unlisted Investments were considered because they offer above average risk adjusted returns that when compared to traditional assets listed above, they have proven to yield better returns. Therefore, in order to enhance its return profile, the fund considered to invest in Unlisted Investments.
Additionally, they offer diversification and in the process, investments in this space create economic growth in the local economy, bring about market sophisication, build business, improve management skills, build entrepreneurship and create supportive industries. Investments in these produce tangible results that are beneficial to society, the fiancial sector and the economy at large. These investments go directly into the economy compared to listed assets were you buy an asset on the stock exchange without tangible impact. Examples are direct developments (the provision of serviced land, housing, health services, water, etc…) and the beauty is that these can be achieved while meeting the hurdle rate. These investments are now regulated by NAMFISA and therefore it is required of the GIPF to invest 1.7 percent - 3.5 percent of its fund assets into this space.
What is the GIPF’s strategy for investing in Unlisted Investments?
The GIPF has an Unlisted Investment Policy Statement which outlines the strategy for investing in this asset class. The Fund uses a Wholesale Approach which entails the use of Unlisted Investment Manager (‘UIM’) with specific skills, track record and has a desired Special Purpose Vehicle (SPV).
In the end, GIPF does not invest directly into entities, but uses the UIM to achieve its objectives. The UIM will in turn invest in portfolio companies that bring development in the country, build strong enterprises, create jobs, deepen the financial services sector, invest in infrastructure, healthcare services, ICT solution etc. Applying this strategy require constantly monitoring of these investments by the Board of Trustees to ensure that at all times these are aligned with the overall goals of the Fund; which is to provide sustainable retirement benefits to members and their dependents.
What is the process for investing in Unlisted Investments?
The GIPF will make a capital commitment alongside the UIM co-investment into an SPV. This capital will then be made available i.e. ‘drawdown’ whenever a substantive investments is found by the portfolio manager after through due diligence. Further to this, the role of the UIM will be to find, make, grow and exit from these investments at an appropriate time.
How are the mandates awarded to the different SPV/UIMs?
As a public entity, transparency and accountability is of essence, therefore all mandates are advertised in public newspapers in both Namibia and South Africa and interested participants are requested to submit proposals on how they can manage these funds. These expressions of interest would then be received and evaluated by GIPF. The common core areas that are tested for at the evaluation are:
1. Registration of the SPV/UIM - we look at private equity as a core business, capacity to service, etc.
2. Investment Team - we look at direct product (sector) experience, manager/team skill, depth (back-up), team incentive, etc.
3. Management and Governance Structure - we look at ownership/incentive, management, integrity, succession plan, value addition, compliance, etc.
4. Investment Operations - we look at valuation, risk, operation and due diligence process, etc.
5. Investment Process - we look at deal tracking system, monitoring and value add, portfolio construction, etc.
6 .Risk, Compliance and ESG - we look at conflict of interest, risk management process and ESG considerations, etc.
Kindly elaborate on the different mandates the GIPF invests in?
The different mandates that the GIPF invest in are as follows:
2. How are their terms of appointment governed?
The appointment of the UIMs is governed by the management agreement and investors have recourse to terminate the agreement for cause or without cause.
The termination for cause could be inability to perform as required by the signed founding documents and or the investment charter. Other documents intergration are either the Trust Deed and or Company Founding Document and Subscription agreement.
3. How much has been invested since conception?
As at 30 June 2016, we have committed N$3.3 billion and of this N$2.3 billion has been drawn-down for investments
4. How have the returns been thus far?
All the funds are still in their investing period and non-have been realised, however, from the unrealised gains we see good progress, with the full picture only emerging when we exit from these investments.
5. Any future developments?
We have committed an additional N$2 billion to private equity investments, debt and infrastructure and expect that the deployment of these funding will make a tangible contribution to the economic landscape of Namibia.
- Financial Sector Namibia 2016