Government will introduce a number of derivatives and investments assets by the end of the first quarter, which will help soften pension funds’ skewed investments in the equities market and property sector. These entities’ investment in properties currently means their funds are tied down for near-term obligations.
An analysis of data from the Insurance and Pensions Commission (IPEC)’s latest quarterly reports show that the total value of the country’s pension funds (consisting of insured funds, self-administered funds and stand-alone self-administered funds) amounted to just below $10 billion (approximately US$622 million). Of the US$622 million, US$244 million was invested in equities with US$225 million invested in property, while a total of US$47 million was invested in prescribed assets, with around US$28 million invested in cash or money market instruments.
This state of affairs has hamstrung pension funds’ liquidity positions. “They (pension funds) have no other liquid asset to call upon except for equities but these too are illiquid; on a good day the market trades just US$500 000,” says Imara Asset Management CEO John Legat in a recent note.
“Property is likely totally illiquid in this environment without significant write downs being incurred to force sales through. Putting the pension fund industry in perspective then, available liquidity for new investments amounts to well below US$30 million and at today’s black market rate less than US$20 million at best.”
Given the noted concerns, Finance and Economic Development Minister Mthuli Ncube yesterday said Government is putting in place measures to improve the liquidity of pension funds’ investment portfolios. “I have noted that the pension funds industry is heavily weighted in equities and property. Actually, that’s the right thing to do, I can confirm that you have good fund managers.
“That’s how you protect assets in an environment in which inflation and currency volatility has become an issue. “But we need to do something for you as Government. I think that your exposure to the property side is on the high side. I can understand why you are doing it, but we need to create liquidity in that sector,” he told stakeholders attending a meeting arranged by IPEC.
“We want to ensure that you can introduce products that enable you to create liquidity from the property portion of your portfolios through Real Estate Investment Trusts (REITs). We want to introduce this to allow you to create liquidity on the property portion, so watch this space. We have to work on the tax registration to make sure that REITs can take off in a meaningful way.
“Over time as well, as investors will see the launch of other products such as Exchange Traded Funds (ETFs) which should lower the cost of getting in and out of the equity market. “These are definitely coming.“I think we should be able to launch the first ETF by the end of March. I’m the one pushing the industry to say launch before the end of next month. It’s good for the industry and it’s good for the economy.” Currently, the Zimbabwe Stock Exchange (ZSE) is the backbone of the country’s capital market. However, a general lack of diversity in securities and derivatives has worked against capital raising by both the listed firms and investors.
Minister Ncube added that the upcoming designation of resort town Victoria Falls as an international finance centre (IFC) will provide the industry with additional opportunities to hedge foreign currency denominated products. “What we also want to do, if you recall, we designated the Victoria Falls as a Special Economic Zone, as well as having an offshore financial centre in there. “We are determined that this be launched in the first half of the year.”
Introduction of the proposed derivatives and investment classes is likely to improve the pensions and insurance sector’s view of prescribed assets, which had become a topical issue due to rising inflation and a depreciating currency.
Said the chairperson of the newly established Zimbabwe Insurance and Pensions Apex Council (ZIPAC) Tassius Chigariro: “You don’t need to worry about prescribing (assets), if we sat together and identified national investments that are beneficial both to the investor and the country. “This industry is in search of assets that demonstrate to the world that there are opportunities for attractive investments in Zimbabwe.”
By Tawanda Musarurwa