Botswana pension fund industry is one of the most competitive sectors of the local economy and there is always doubt when a new player comes into the market.
When Coronation Fund Managers set up in the country in 2005, skeptics felt the industry was crowded and the thinking was it will find it tough to compete.
This week the company’s Managing Director Kumbulani Munamati explains to Sunday Standard that Coronation has experienced growth over the years.
“We are part of a group that has been in the business for 17 years and international scene. This speaks volumes”, explains Munamati.
“The key is performance and you have to demonstrate a level of consistency. That is what the clients want”.
Coronation set up business five years back with no assets to manage, but currently it has four clients with a total of P2.1 billion assets under its management.
The company’s performance is also recognised by Alexander Forbes, which regularly conducts market surveys on the pension fund managers and the industry.
Coronation is in competition with nine other industry players that include Investec, Bifm, Allan Gray, Flemming, Imara amongst others.
The company, which provides institutional clients with investment products says its performance has been good even during the recession that wiped out investments.
Munamati says last year, it gave clients 20 percent against the benchmark of 9 percent.
“This is outperformance looking at the scale we gave ourselves”, explains Munamati.
Despite, its successes, the fund manager says there are challenges in the country including finding investment opportunities in the local illiquid market.
Pension fund managers usually invest the funds on listed stocks or equities and bonds.
The market complains that even when there is issuance in the market, it is usually difficult for the industry to trade government and corporate bonds because of the quantity issued to the market.
Munamati proposes that there is a need for an ‘overall strategy’ for the industry to influence the use of domestic funds because pension funds are generated locally.
The Botswana pension fund industry is worth P30 billion with most of the money coming from civil servants.
He says it might be cheap for the government to borrow outside the country from donors, but the problem is that ‘borrowing outside has its complications’.
Currently, the industry is trying to come up with an organisation that will address concerns in the industry.
He however says Coronation is ready the buy bonds if there is issuance especially that government is in need of cash to finance the deficit of P12 billion to be financed through sovereign reserves and domestic bonds.
“We are well positioned. But the problem is that the quantum is small and it is difficult to get allocation”.
It is also difficult because some investors look for high yields with the pricing making the yields not attractive.
Currently, in tandem with regulation for the industry, Coronation has invested over 50 percent of the funds to offshore.
“Our market is small”, says Munamati adding there are 20 counters with limitations as the rest is held by major shareholders.
The other challenge in the industry is serious shortage of skills. For example, when graduates join the industry like it is the case with Portfolio Manager at Coronation, Amohelang Motseta, she was sent to South Africa for some time to gain necessary skills.
She is also now a qualified Chartered Financial Analyst. “We have to take people out and spend money on them”, explains Munamati adding that currently all their employees are Batswana.
Currently, Coronation only deals with institutional investors, but it has filled a license application with regulators for a license that will allow it to extend the scope to retail market.
He explains that going retail will help in the branding because ‘when you deal with institutions, you miss out on branding’.
Like any other manager that is the custodian of pension funds, Coronation was hit by recession in 2008, but they were saved by the bold move to diversify portfolios.
The fund manager has spread investments across markets from developed to emerging and developing ones like Africa.
Motseta explains that because of diversification, when the developed markets were hit, the developing ones were not hard hit.
“It is a little bit of balance”, explains the Portfolio Manager.
“Yes 2008 did hit everybody, but we came out strong in 2009 because of diversification of portfolios”, adds Munamati.
Coronation says its funds are diversified along the regions including Asia and countries like Nigeria, South Africa and even Mauritius.
The current legislation stipulates that 70 percent of the pension funds should be invested offshore, while 30 percent for the onshore investment.
Coronation like the rest of the investment houses is looking at new listings on the Botswana Stock Exchange (BSE) with interest.
Companies eying listing on the local bourse include Wilderness Safaris, which has presence in The Okavango Delta and Firestone Diamonds.
Looking at the long term, Motseta sees a mixed picture especially for the developed markets.
In the US where the crisis stared, unemployment numbers are reducing while house prices are going up. The problem is also going to be on lower interest rates impact on inflation.
“If interest rates are low, we will have a runaway inflation. They will take long to take the rates up”.
Motseta says in the emerging markets, which were affected because of the US were fundamentally stronger than the developed ones.
Then the question going forward is ‘can emerging markets support the developed markets’.
For Botswana, Motseta sees 2010 having a balance compensating for the consumer while the mining sector will recover.
“We think it is going to be difficult year for the consumer”, she says.
Since Eskom was given a green light to hike tarrifs by 25 percent by the regulator, the impact will filter to Botswana thus threats of inflation that will remain stable for now and rise during the year.
She sees company earnings affected this year especially the banks and consumer related stocks.
Coronation Fund Managers (Botswana) (Pty) Limited is owned by Johannesburg Stock Exchange listed, Coronation Fund Managers (51%), Botswana staff (25%), a citizen trust (14%) and Club M10 (10%), a group of female business professionals involved in different aspects of the Botswana economy.
It provides institutional clients with investment products which are tailored to meet the needs of the majority of investors, both locally and internationally.
The business commenced operations in March 2005, and is staffed and managed by Botswana citizens, supported by Coronation’s network of diverse and specialist resources in Cape Town and London.