Q: What is your position regarding the main changes to the regulatory framework on pension funds that will allow for an increase in the limit of funds that can be invested locally from the previous minimum of 30 percent to 50 percent?
A: As Kgori Capital, we welcome this development. Pension funds form a significant portion of most countries’ deployable assets. We therefore believe that with a staggered and protracted approach to localising pension assets, our market can benefit from an increase in liquidity.
Q: How do you see this development benefiting the Botswana economy?
A: The increases in locally listed equity, (domestic) private equity, and infrastructure could all have positive spillover effects in terms of attracting new local equity listings, supporting burgeoning businesses and thereby job creation, and tapping into the Private-Public Partnership (PPP) model to create a better road and telecommunications infrastructure to encourage a more buoyant economy.
Over and above that, infrastructure investment also requires careful planning and management to ensure that the benefits are maximised and costs minimised. Stakeholders need to balance the economic benefits of infrastructure investment with the long-term costs of debt and ongoing maintenance.
Q: Are there any challenges that you anticipate as fund asset administrators concerning implementing the new changes, maybe in the availability of adequate and suitable local investments?
A: We expect that the results will be different for different asset classes. Cash and money market instruments, for example, will possibly give lower yields, especially at the onset, given the influx of new cash.
Equity prices could be artificially inflated due to supply being exceeded by demand as asset custodians look for investible opportunities. From an overall return perspective for pension members, returns could be lower, given that offshore assets tend to give better returns, albeit with predominantly higher volatilities.
Q: An increase in onshore allocation will mean more capital is available for investment locally. Is the local market ready for this?
A: We believe that more Botswana-based businesses are ready and should go for public listings to expand their service and product offerings, geographical locations, and overall business operations. I do hope that this development will attract more listings.
Meanwhile, corporate governance structures should be introduced or improved to ready Botswana-based businesses for external funding, whether through private equity or public listing, as this is a prerequisite for professional forms of funding.
Q: In what way will the regulatory framework changes contribute to the evolution of the retirement pension funds landscape in Botswana?
A: Transparency: Pension funds may gain better access to information and greater transparency by investing funds in local markets, which can aid in the efficient monitoring and management of investment risks.
Strengthening corporate governance: Increased monitoring and improvement of corporate governance practices because of increased local investments can create a virtuous cycle of improved business performance and higher pension fund returns.
Investment portfolio diversification: The increase in the proportion of pension funds required to be invested locally can help in diversifying investment portfolios. Pension funds can reduce their foreign risk exposure while potentially achieving higher returns by investing in a broader range of assets such as local businesses and infrastructure.
We will possibly see an increase in fund managers in the country.
Q: How do you think a well-regulated environment contributes to and promotes better investment performance?
A: At the very least, a well-regulated environment helps prevent siphoning of pension assets into undeserving assets or pockets. Additionally, a well-regulated environment has the effect of promoting innovation (as opposed to being fearful of innovation), thereby extending the range of investible opportunities within the landscape, or simply promoting efficiencies within the same investible opportunities, both of which will be positive for pension owners.
A well-regulated environment also increases investor confidence, which can help to attract more investment capital.