True to its word, Botswana Public Officers Pension Fund (BPOPF) is on the verge of announcing contracts for local companies in the P1.5 billion incubation programme announced by the CEO, Boitumelo Molefe, last month. Even with sizeable investments both offshore and the rest of Africa, BPOPF's contribution in Botswana has been scarce, motivating the Fund to shift focus to the local market. The incubation programme is meant to boost citizen economic empowerment by targeting the SMMEs, using new locally groomed indigenous asset managers. Giving an update about the incubation programme at the end of August, the only detail omitted by Molefe, was the identity of local companies shortlisted and only awaiting approval to be awarded asset management contracts. At its latest meeting in August, the board of trustees approved the recommendation of Serala Capital to be appointed listed equity managers awarded assets worth P500 million. Should Serala fail the final vetting and due diligence, the portfolio will be passed to runners-up Confianza Capital. Africa Lighthouse Capital and Aleyo Capital have, on the other hand, been approved to be appointed local private equity managers, at P500 million portfolio apiece. Should the two fail the final test, the contract will be passed to Lepako Partners. The development of private equity market is meant to create an investment matrix beyond listed equities to exploit opportunities in the unlisted space with uncorrelated assets during episodes of low growth in the listed space. But even then, BPOPF is not about to abandon listed equities and the cash cow that is the ever oversubscribed bonds. Recognising that many developed countries across the world have developed their economies through capital from local pension funds, BPOPF's P1.5 billion incubation programme targeting start-up asset managers was launched to reverse that and to develop local asset management base which is currently dominated by foreign players. BPOPF provides seedling capital to start-ups to assist them build capacity to grow the local asset management industry to stimulate the economy, create employment opportunities while developing local talent. As Molefe enthuses, a lot of potential remains unlocked in the local market where her Fund currently has only one private equity manager and one property manager. "If you look at our allocations we are overweight equities because we are underweight alternatives,” Molefe openly admitted last month, citing infrastructure development and improved funding for SMMEs as holding the key to employment creation, economic diversification and prosperity.
To demonstrate aggressive investment and huge appetite for ROI there have been changes in allocations on the offshore space where BPOPF used to have two hedge fund managers and one private equity fund of funds manager (several equity managers under one fund). Stanlib Botswana is the global manager holding the emerging markets, developed markets, and international fixed income mandates on behalf of BPOPF. The board endorsed the direct appointment of Brandywine Partnership for the international fixed income mandate and swiftly dropped Threadneedle Partnership from the developed and emerging market portfolios. Threadneedle was replaced by Artisan Global Value and Fundsmith Equity Fund for the USD 180 million developed equity mandate, which was split into two (50/50) between the asset managers. The two managers' strength was in offering a combination that will diversify market equity portfolio, and their impressive performance and track record. The five year annualised returns for Artisan and Fundsmith were 13.36% and 15.56% respectively in USD terms, outperforming the benchmark, which at the time stood at 9.96%. In the emerging market equities portfolio, Milltrust International narrowly defeated Sands EM to replace Threadneedle. An assessment of the two companies showed low correlation to Threadneedle and hence were a good fit to add to the portfolio. Although Sands has an experienced team of professionals to pick stocks, Milltrust was found to have a strong team that picks asset managers. Also, Sands' major undoing was its fee structure which was found to be higher than that of Milltrust. Falcon Money Management, a boutique asset manager that provides investment management utilising alternative asset strategy, was awarded the USD 50 million hedge fund allocation. Closely behind Falcon was Aurum ISIS, an independent alternative absolute return specialist, who lost out because of the 10% performance fee they charge over a hurdle rate of 5%. Both managers charge 1% management fee. BPOPF also has one of Africa’s structured finance fund with Barak Fund Management, with an investment of USD 100 million for the Africa Allocation portfolio. The Mauritius-based outfit offer a structured finance facility with a target return of 10%, throughout the rest of Africa in countries like Nigeria and Kenya. Barak is currently open for fund raising and its long term annualised return for BPOPF is 13.7%. Other finalists were Scipion and Blackstar.
Mascom Wireless kitty
BPOPF board eagerly awaits the completion of an end of year audit process at telecommunications giant Mascom Wireless, where the Fund is the majority shareholder. The board recently expressed concern that they remain clueless about Mascom business as they have not been receiving any reports despite being the major shareholder. They have since been assured that information will be shared with shareholders after the conclusion of an ongoing audit of the company. The current estimated value of Mascom Wireless is between P4.8 billion and P5.2 billion. BPOPF currently holds 40% shareholding at Mascom Wireless while MTN (trading as Mobile Botswana) holds 53% shares. The remaining 7% is held by Econet. The shares are held through an investment company – DECI – whose majority shareholder is BPOPF at 67.7% while Mobile Botswana owns the remaining 33.3%. With an estimated value of P2.8 billion to P3.1 billion, DECI has experienced a 22% growth from a valuation of just P1.6 billion in 2015/16.
Hilton costs rise
The Board also adopted an audit report on the Hilton hotel development in the Central Business District (CBD), Gaborone. The financial audit was conducted by Grant Thornton on the Hilton project following the termination of portfolio management agreement between BPOPF and Fleming Asset Management (FAM). Citizen economic empowerment requirements were only adhered to after intervention by the Fund. Although it was presented to the board in 2013 as being between P200 million to P300 million, which excluded any escalation or contingency, the estimated project cost was found to be P336.2 million. The audit also revealed that a total cost of approximately P15 million constituted of land costs, transfer duty costs and additional development costs were excluded. Such costs when added to the development cost would increase the cost from P336 million to P351 million. An insurance shortfall of P33 million that needed to be rectified, was also uncovered and corrected.
An investment consultant engaged by BPOPF has advised the board that in general there was nothing of concern with asset managers. However, it was noted that for the local alternative manager, Capital Management Botswana, there is need to visit the manager to obtain more information on the investment process/ philosophy. It is not always rosy at BPOPF whose investment at PUMA declined by 35% from P280 million to P181 million due to lack of marketability discount factor of 17.5%. BPOPF has a P49 million investment at Funeral Services Group, which owns and operates Lyns Funeral parlour and mortuaries and Phomolong Cementry in Phakalane.