The local pension fund industry appears to be struggling to comply with domestic asset requirements as contemplated under Regulation 13 of the Pension Fund Act.
Figures from NAMFISA shows that the subsector had more than N$100 billion or 59.67 percent of total fund assets invested outside the country as at 31 March 2019, which is more than the N$63 billion or 54.78 percent of total fund assets that was invested outside the country as at 31 March 2018 before the new investment rules came into force.
The Ministry of Finance announced in September 2017 that it will cut the percentage of funds under management that pension funds may invest abroad to 55 percent from 65 percent as government seeks to increase investment at home.
Announcing the new rules at the time, Finance Minister, Calle Schlettwein, said the changes were in recognition of the fact that no country can rely on other countries’ resources for its own development.
The new rules were going to see the assets invested at home rising to 40 percent by January 2018 and to 45 percent by October the same year. However, the minimum percentage of assets to be invested in Namibia was only increased to 45 percent on 31 March 2019.
According to the non-banking sector financial services regulator NAMFISA, the new rules are aimed at fostering prudent investing by restricting the maximum exposure to each asset class, ensuring that pension fund investments are properly diversified across both asset class and geographic region and promoting investments by pension funds in Namibian assets, among others.
This week, NAMFISA said that investments in domestic assets by pension funds accounted for 40.33 percent at the end of the first quarter of this year, which falls short of the 45 percent domestic asset requirement.
“…on aggregate the industry did not comply with the statutory domestic asset requirement,” NAMFISA spokesperson Victoria Muranda admitted to the Windhoek Observer upon enquiry.
Muranda said “a number” of pension funds have been granted exemption from complying with the domestic asset requirements until a later date, but did not say how many funds had been granted the exemption or until when.
Namibia has more than 100 pension funds.
Muranda noted that Regulation 13(14) provides that, “ The registrar, on a written application by a fund, may grant such fund written exemption from any of the provisions of this regulation upon such conditions as he or she may impose, but the registrar may only exempt a fund from sub-regulation (5) after having obtained the approval of the Minister.
She added that it is a fund’s responsibility to provide substantial compelling reason why it is practically impossible for them to invest in the domestic assets that are available.
“The Registrar will then apply his mind based on the merit of such application,” she said.
Economic analysts have in recent years complained that the new investment rules might be over ambitious for a country that has limited investment options to choose from.
They say that many of the pension funds are already over-exposed to government bonds and there are only a handful of Namibia- only listed stocks on the Namibia Stock Exchange which does not provide the benefit for the economy that was intended by Regulation 13.
Southern African Venture Capital and Private Equity Association (SAVCA) CEO Tanya van Lill told an industry gathering in Windhoek last year that one option to mitigate against limited local investment opportunities would be for pension funds to invest in unlisted infrastructure funds.
According to van Lill, these funds provide attractive returns over a long-term, typically around 15 years, mostly in the form of inflation-linked income as well as some capital gain over the long term.
“The current barrier for pension funds to invest in the new infrastructure fund is the limit that the Pension Fund regulations have placed on their investment into unlisted investments – a maximum of 3.5 percent of total assets.
“Many funds are already close to this allocation given their initial investment in unlisted assets when the regulation came into play. It is clear that for the full benefits of the localization of pension fund money to be felt, this limit needs to be increased so that funds have flexibility to invest in funds that can have a direct benefit in the economy – rather than keeping their money in banks,” she said.
In South Africa and other neighbouring countries the limit is 10 percent of assets, allowing pension funds flexibility to invest both into private equity, which stimulates the private sector, and infrastructure funds, which stimulate the economy and provide social benefits.