Monday, September 28, 2020

Pension funds growth sparks debate over foreign reserves

The dramatic growth of the pension fund industry over the last five years is opening a fresh debate revolving around localization of the management of the country?s foreign reserves, which are largely in the hands of foreign fund managers.

According to an update by pension fund administrators, Alexander Forbes Botswana, in this week?s Sunday Standard, the industry has ballooned by 320 percent to P 29 billion over the last five years.

?Indeed, the pension fund industry was worth just over twenty nine billion at the end of December 2006, up from nine billion in December 2002, an increase of approximately 320 percent,? Alexander Forbes said.

The report stated that the growth in assets was driven by a number of factors, such as, the conversion from defined benefit to defined contribution- mostly from the government sector.
?In addition, strong returns by pension funds, bolstered by buoyant local and international markets, as well as the weakening of the pula (70 percent of assets allowed to be invested outside Botswana) have also contributed to the growth in assets,? the report added.

However, the move has raised debates from some quarters who say that within a short period of time local fund managers have proven that they have the capability to manage large funds and they should be given more challenges to deal with the country?s foreign reserves.

?I think all what is needed is some form of regulation first to keep away some fly by nights and then they be given the challenge to manage the foreign reserves,? one observer said.

?Companies like African Alliance and Bifm have built themselves some names over the period. And we have others, such as, Allan Gray, Coronation and Investec who would have the backing from their parent companies in managing the reserves,? he added.

The Bank of Botswana has for a long time used foreign multi managers in the management of the country?s reserves which stand at around P 37 billion. Some of the multi managers used by the Bank include some of the most expensive houses such as Frank Russel and Templeton among others. But just a fraction is being managed internally by the Bank of Botswana.

?In real terms, what these foreign fund managers are doing is not different from what all these local fund management firms are doing. And it will benefit the country a lot because some of the money will be used locally to promote government?s initiatives, such as PPPs, to grow the economy.

The move also comes at a time when Botswana stocks are ranked No. 7 in terms of returns, according to Birinyi Associates, a stock market research and money management firm in a report that was published by ?The Motley Fool?, the world?s premier multimedia financial education company.

It said Botswana stocks, in terms of return, shoot-up 74 percent just behind Peru at 168 percent, Venezuela at 156 percent, Vietnam at 145 percent, China at 121 percent, and Russia at 92 percent and Costa Rica at 77 percent.

Further, observers stated that, given the trend, it is unlikely that the BSE would be down in the next five years as it would be helped by an increasing interest in the country?s mining sector.

?The awarding of mandates to manage the foreign reserves will go a long way to promote this economy and it will also raise the profile of the local fund managers across Africa where they might one day be looking for similar business,? observers said.

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Sunday Standard September 27 – 3 October

Digital copy of Sunday Standard issue of September 27 - 3 October, 2020.