The Government Institutions Pension Fund’s (GIPF)’s long-term investment target is slightly above salary inflation. By exceeding this return target the fund’s returns over the last 10 years, up to February 2023, have been 10.1% relative to its target of 9.9%.
Due to this rate of return, the fund’s latest market value of its investments, as at 28 February 2023, was N$152.1 billion.
This is according to GIPF’s CEO and Principal Officer David Nuyoma, who this week explained to New Era that the GIPF is required by law to invest a minimum of 45% within the domestic market. A substantial component of these investments is known as unlisted investments, which are basically capital injections for local private sector companies. These unlisted investments aid in the reduction of currency mismatches, systemic risks, microeconomic and fiscal risks but perhaps more importantly, they provide impetus for poverty reduction, employment-creation and economic growth.
The GIPF believes that its unlisted investment strategy allows the fund to better manage its investment risk through the diversification of asset portfolios. The basic idea is that the risk of carrying all its eggs in one basket is minimised when some assets are withheld from volatile listed markets, and instead directed to the unlisted investment sphere.
Monitoring mechanisms
Responding to queries from this publication, Nuyoma said the GIPF has numerous mechanisms of ensuring the safety of its assets. Specifically for unlisted investments, the fund ensures these are made in compliance with Regulation 14 of the requirements of the pension fund legislation, which sets the environment within which unlisted investments are to be dealt with. A few years ago, government phased in amendments to the minimum domestic asset requirements for pension funds and long-term insurers by introducing Regulation 13 (previously Regulation 28 of the Pension Funds Act of 1956). “Key to ensuring good governance is the formation of a Special Purpose Vehicle (SPV) with a Governing Board, which is separate from the fund manager who actually makes and manages the investments. The GIPF reviews and analyses quarterly reports and annual financial statements received from the various fund managers, detailing the performance and outlook of the underlying holdings of the SPV. Ongoing monitoring is also required to ensure the accuracy of fund manager and SPV reporting, including the evaluation of notices of distributions, capital calls as well as reviews of independent valuations. GIPF also prepares investment memos from time to time for discussion at Advisory Board meetings of various SPVs and for ad hoc meetings with fund managers,” Nuyoma stated.
There are monthly and quarterly reports provided by the unlisted investment fund managers. Also, the fund maintains internal trackers who monitor monthly adherence to strategic asset allocations and compliance to key metrics such as Domestic Asset Requirement, Dual-Listed Limits and Foreign Asset Limits.
“GIPF receives a monthly Mandate Compliance Report that focuses on mandate rule breaches. GIPF reports to the regulator, NAMFISA (Namibia Financial Institutions Supervisory Authority), through the Chart of Accounts on a quarterly basis. Annually, the Fund reports on compliance to Regulation 13 in its audited Annual Financial Statements,” Nuyoma elucidated.
The GIPF CEO added that ongoing monitoring of the GIPF’s Unlisted Investments and managing the portfolio of existing investments is supplemented by a database depicting compliance across vintages, financial instruments, tenors, sectors, etc.
Unlisted investment strategy
Besides the 45% investment exposure to Namibia, GIPF is also exposed to numerous geographies, which include Developed Markets (such as the USA, UK, Western Europe), Emerging Markets (such as Brazil, China, Eastern Europe), Africa (such as Egypt, Morocco, Nigeria) as well as South Africa.
GIPF initially approved an Investment Policy for Unlisted Investments in 2008, with an overarching objective to make a meaningful contribution to the economy and development needs of communities. This is to be achieved by providing development capital to the non-listed sectors with high growth potential.
Through this policy, GIPF adopted a broad-based view to socio-economic development through private equity.
According to GIPF, it is evident its unlisted investment policy has recorded success in job creation, infrastructure development and general economic growth. “The ripple-effect of our investments into this asset class is the multiplication of business entrepreneurs, an increase in the critical mass of sustainable businesses, and stimulation of market activities,” GIPF stated.
Meanwhile, CEO of Sanlam Investments Tega Shiimi ya Shiimi is of the opinion that investors need to find a way to redirect capital into tangible domestic investments to create the necessary development needed. Speaking to New Era, Shiimi ya Shiimi explained that “impact investing” encourages a positive social impact from investments.
“This strategy is very simple, because when you invest in your community, there is a real case for creating financial returns without compromising your risk-return parameter. You create a meaningful social impact, and you have shareholder satisfaction. This is not a social grant. This mirrors first-hand the capitalist ideals while still empowering your community through partnerships that address the current challenges of youth unemployment, skills development and lessoning the burden on government reliance through entrepreneurship funding and mentoring, a necessary intervention into addressing the gaps of the social contract all investors should fill,” he emphasised, referring specifically to unlisted or alternative investments.
The Sanlam Investments’ CEO noted that there is more and more globally sourced funding looking for investment opportunities in Africa. In fact, he said, billions and billions of dollars in foreign direct investment is invested in Africa, but he questioned to what extent Africans are actually empowered by these investments, and how much of these investments actually trickle down to the people and the continent’s entrepreneurs.
Shiimi ya Shiimi expounded on this that different investment formulas exist, but their basic idea is to identify the risk, the available capital, the duration of the investment, and the expected return on the investment. He also remains adamant that most unlisted investments tick all these boxes and have the opportunity to create decent jobs, specifically for the youth, and can significantly contribute to Namibia’s GDP growth. This asset class also serves as a good diversifier away from traditional asset classes.
In a recent op-ed, financial analyst at High Economic Intelligence, Arney Tjaronda, stated that Namibia’s biggest financier for many unlisted investment companies is the GIPF, following the provisions of Regulation 13 of the Pension Funds Act. The analyst pointed out that billions of Namibia dollars are pumped into these companies every year.
“However, looking at the market on the ground, there is no growth in the capital financing in the MSMEs of Namibia, despite the efforts made by the GIPF,” said Tjaronda, adding that perhaps the issue is not with the allocation of capital in the financial sector, but with the quality of unlisted investments.