Botswana Public Officers Pension Fund (BPOPF) says the drive to invest more pension money domestically is unlikely to materially weaken member returns, although it acknowledges that Botswana offers a much smaller pool of investment opportunities than global markets.
BPOPF Chief Investment Officer Tshephang Loeto told the Business Weekly & Review that the fund is currently around 45 percent invested locally, broadly in line with the wider pension industry, as retirement funds work towards higher domestic allocations under NBFIRA’s Pension Fund Investment Rules (PFR2).
Under PFR2, individual pension funds must hold at least 47 percent of their assets domestically by the end of 2026, rising to 50 percent by the end of 2027.
The industry, however, remains below the first threshold.
Latest economic and financial statistics show total pension assets increased by more than P9 billion in the six months to June, from P167.2 billion in December to a record P176.4 billion.
Most of the growth came from offshore investments, which increased by P6.2 billion to P97.6 billion.
Local investments also increased, rising from P75.8 billion to about P78.8 billion, but at a slower pace.
As a result, the offshore share of the pension pool increased to 55.4 percent from 54.7 percent in December, while the domestic share declined from about 45.3 percent to 44.6 percent.
At the June asset level, calculations by this publication show that a 47 percent domestic allocation would require about P82.9 billion to be invested locally — roughly P4.1 billion more than the P78.8 billion currently invested domestically.
The figure is an industry-wide estimate because PFR2 compliance is assessed at the individual fund level and pension assets can change before the December deadline.
For BPOPF, Loeto said the fund is currently around 45 percent invested locally and will ultimately have to increase its domestic allocation to 50%.
He does not expect the shift to materially hurt investment performance, arguing that the practical adjustment facing pension funds is smaller than the headline regulatory change suggests.
Before PFR2, retirement funds were permitted to invest up to 70 percent of their assets offshore. But Loeto said the 70 percent limit was a regulatory ceiling rather than the level at which the industry was actually invested.
Historically, he said, pension funds had been closer to a 60 percent offshore and 40 percent domestic allocation.
The practical adjustment under PFR2, therefore, is closer to a shift from 60:40 to 50:50 than from 70:30 to 50:50.
“So from an actual movement, we are being asked to move from 60 to 50, not necessarily 70 to 50,” Loeto said.
He said this smaller adjustment meant BPOPF was not overly concerned that localisation would significantly weaken returns.
“We are not too worried to say it is going to dampen performance materially,” he said.
Nevertheless, Loeto acknowledged the challenge posed by Botswana’s relatively small investment market as more pension capital is directed domestically.
“Botswana is a drop in the ocean compared to what is available globally,” he said.
The disparity is reflected in pension fund portfolios.
Bank of Botswana figures show offshore equities were worth P76.6 billion at the end of June, more than three times the P23.3 billion invested in local primary-listed equities.
Loeto said the smaller investment opportunity set in Botswana could result in some local investments generating lower returns than opportunities available in global markets.
However, he said it was difficult to quantify the potential difference and that BPOPF did not consider it significant enough to raise concerns about the fund’s overall performance.
“By how much, very difficult to quantify, but is it a figure that would worry us? The answer would be no,” he said.
Loeto also cautioned against assuming that offshore assets would always outperform domestic investments.
BPOPF’s performance attribution, he said, had shown periods when local markets were among the strongest contributors to returns, while offshore investments had led performance at other times.
The fund had also begun increasing its exposure to local assets before the PFR2 requirements were announced, after identifying domestic opportunities it wanted to pursue, particularly in private markets.
“I think the other thing to highlight is that before the regulator made this pronouncement, we had already started to move money locally because we thought there were certain opportunities, especially in private markets, that we wanted to get exposure to,” he said.
The final 50% offshore allowance will continue to give BPOPF significant exposure to international markets, which Loeto said the fund would continue using alongside domestic investments.
“The good thing is we are still allowed to invest offshore, and a significant portion of it at 50 percent,” he said.
“The hope is that we are able to continue to deliver, if not do better than what we are doing at the moment.”
