The country’s citizen economic empowerment drive is expected to reach new highs in the coming year with the mushrooming of private equity funds as pension funds are clamouring for the support of green fields companies in an attempt to diversify the economic base of the country.
Under the trail-blazing move, pension fund industry valued at over P 23 billion has given mandate to fund management companies to come with the strategies of assisting in the development of private equity funds which will see part of the money being ploughed into start-up companies-largely owned by Batswana.
“We now have a policy in place which says the fund managers should invest up to 2.5 percent of the money that we allocate to them to green fields companies,” head of Botswana Public Officers Pension Fund (BPOPF), Ephraim Letebele said, adding that but the move has been slow because of the technical requirements of setting- up private equity funds.”
“We have realized that alternative investments can be a very profitable business with the potential of bringing three to four-folds of what you have invested in, but, it has high risks and needs to be carefully investigated,” he added.
The new initiative has led to growing appetite to establish private equity fund outfits with at least two expected to be established as early as next year.
BPOFP is the largest pension fund in the country with its assets having grown to up to P 20 billion since its inception in 2002 and its voice has led to the growing impetus from fund managers to assist and support in the growth of private equity fund industry.
The pro-empowerment strategy is said to be not in contrast with Bank of Botswana policy which stipulates that pension funds in Botswana can invest up to 70 percent of the money off-shore while the remaining 30 percent in the country.
However, under that arrangement most of fund managers have not been concerned about innovative and long term strategies but only concerned with beating benchmarks by targeting the listed companies while the remaining part invested on Bank of Botswana Certificates.
The new move will see part of the BPOPF being aggressively invested in unlisted and start-up companies which ordinarily do have complicated management structures – including corporate governance issues. The first such move ever was taken was with Mascom some years back which proved to be a cash-cow in as far as the money residing in the country is concerned.
“We strongly encourage the setting up of private equity funds but fund managers should understand that we should be able to share the risks and the profits together,” Letebele said, adding that going forward the expectation would be that when we allocate some money to pension funds we expect them to invest some on private equity funds which can help in the long term goal of diversifying the economic base.
Observers have repeatedly attacked government on its failed attempt in the diversification of the economy from mineral, especially diamond industry. Critics say some of the avenue that should be looked at should include the capitalization of Batswana companies that do have the potential to compete at region level- given that there is still a lot o reconstruction to be done in countries such as Angola, Democratic Republic of Congo, Zambia and even Zimbabwe, when it returns to normality.
However, sources pointed out that a number of private equity funds are in the offing with two expected to enter the market early next year- pushing the number of those independent of government to five. That includes African Alliance, Bifm and Debswana-De Beers’ Peo Holdings. Those affiliated to government are CEDA and Venture Capital, which does some work for CEDA.
“The money from pension funds will be huge and the other good thing is that, with private equity funds the structure will be different from that of CEDA,” one source said, “and I do not see why fund managers would not support them.”
Unlike under CEDA, the private equity funds are taking a shareholding in the company and insisting on having a seat on the board. And once the business is standing on its feet they pull-out.