Pension funds drift offshore

Mbongeni Mguni | Thursday January 9, 2014 15:36

By October, 57.9% of the P56.6 billion in local pension funds was invested across various asset groups offshore, compared with just 51.5% in January 2013.

While asset managers have traditionally preferred the offshore market for its diversity of assets and returns, local pension began drifting homeward early in 2012 due to global uncertainties, the perceived insulation of the domestic market and the introduction of new asset vehicles locally.

From an average of 60% in the years before 2012, the percentage of pension funds invested offshore dropped to 52.2% in March 2012 before reaching a low of 50.3% in December of that same year.

By law, local fund managers are allowed to invest up to 70% of their Botswana assets offshore. The Non-Bank Financial Institutions Regulatory Authority (NBFIRA) however, hopes to change the law to 70% domestic and 30% offshore by 2030.

Latest Bank of Botswana figures show that pension funds retraced their steps offshore beginning in July of last year when the percentage held externally rose from 52.3% to 56.4.

By October, P32.8 billion or 57.9% in pension funds assets was invested offshore, with P25.3 billion equities, P4.3 billion in bonds and P3.2 billion held in cash or near cash.

“The higher value of pension funds invested offshore is not so much about portfolio realignment by asset managers, but rather a reflection of the higher returns earned on those holdings,” said a local analyst.

“The figures show that there has not been a deliberate effort to reduce local holdings in favour of any class of offshore assets. Instead, the value of the offshore equities and bonds has risen which suggests better returns in the midst of maintaining of portfolio policies.”

The central bank’s figures indicate that asset managers, however, deliberately boosted their cash and near cash holdings offshore, which grew from P551 million in July to P3.2 billion in October.

Offshore equities also rose from P20.8 billion at the beginning of the year to P25.3 billion in October.

The Botswana Stock Exchange has similarly noted resurgence in demand for equities in 2013.

In an earlier interview, Product Development Manager, Thapelo Tsheole said the high returns recorded on the local bourse last year were likely a result of higher investor confidence and optimism in equities as a result of improving forecasts for the global economy.

“It has generally to do with the belief that the global economy is recovering,” he explained.

“When there are prospects for recovery and greater confidence, people tend to switch to higher risk assets such as equities as they believe these will perform well.”

The rosier prospects for developed economies as well as the higher interest in global equities, was reflected by data showing that stock indices in all 24 developed countries rose last year to their strongest collective gains since 2009.

Indices in eleven of these countries recorded advances of more than 20%, including in Greece and Germany, as global growth warmed up to a 24-month high.