Botswana Public Officers Pension Fund (BPOPF) has defied the Covid-19 onslaught, by recording impressive above target returns at a time when global economies are taking a strain.
The revelation was made by an upbeat Principal Officer (acting), Moemedi Malindah, recently in an Editors' engagement session at the plum offices of the Fund which also house the Hilton Garden Inn, in the Central Business District (CBD), Gaborone.
So far in 2020 BPOPF, which boasts of assets under management worth over P70 billion invested in domestic and offshore markets, has recorded 10 per cent growth against a revised target of 6.6 per cent under the 2017-2022 Strategic Plan.
At the start of the strategy in 2017 the Fund's target was to compound the portfolio by seven (7) per cent annually for the next five years. After two and a half years, BPOPF conducted a mid-term review due to emerging challenges, among them the Covid-19 pandemic that are causing contractions in global economies. The new target has now been set at 6.6% annual growth.
The current 10% performance of 2019/20 is a slight drop from the 11% recorded last year (2018/19). The recent above target performance represent a significant climb from the unimpressive four (4) per cent performance recorded in the first year of the Strategy (2017/18), which was three (3) per cent below target.
"Although we are still doing well we have to be realistic. We revised the target slightly lower in appreciation of the fact that going forward 7% is going to be challenging to achieve. We are currently in the trenches chasing new deals to keep performance at its highest because such good performance may be reversed in subsequent years," said Malindah, content with exceptional performance in recent years which provides some comfort for the remainder of the five year Strategy.
BPOPF assets classes (60 per cent offshore, 40 per cent local) include equities, bonds, property, infrastructure and shares held in traded stocks around the globe. Giving an update on the Fund in view of negative impacts of the Corona virus pandemic globally, Malindah said although ordinarily performance would be expected to be subdued, they have however recorded positive growth.
At 2019/20 financial year end on 31st March 2020, BPOPF was hit badly, declaring a -1 per cent contraction after the portfolio went up the whole year up to 7% before crushing in the last three months to -1 per cent. However, two weeks after that when Covid-19 hit Botswana and lockdowns were imposed beginning April, miracles started happening. "It surprised us; we did not expect the market to rebound and continue to rebound throughout. The portfolio went up to about 10% by last August coupled with very strong performance that is going into the portfolio. For example, take the performance by Letlole la Rona. It was shocking how the property market with closed malls can perform so well. It is a difficult scenario to explain," Malindah conceded the pleasant surprise.
He elaborated further: “The market is not reacting as we would have thought during Covid-19. However the economy is. The market is not directly linked, hence you can have a scenario where the economy is not performing but companies and shares in the market are doing well. We want the economy to take off to support growth of businesses."
In addition, he said, BPOPF has recorded strong performance in offshore markets, which hold the bulk of their assets. The 2017-22 Strategy has also yielded positive results as shown by the current 10% growth, which is well above target for the period.
Malindah explained that although Botswana Stock Exchange (BSE), where a large chunk of their local assets are invested in stocks/ shares, has recorded a decline the BPOPF is not invested in the same weighting. Hence, even as the BSE may be generally on a downward spiral, the stock that their funds are invested will not necessarily be losing grip and therefore remain competitive.
Although the BPOPF performance could be a cause for celebration, Malindah said they cannot afford to bask in the glory because – according to the 2017-22 Strategy – they still have to deliver a nine per cent annual growth up to 2022. Therefore, the Fund is exploring diversified investment strategies to sustain growth, among them forage into China and Africa markets with a P2 billion portfolio, as well as targeting big infrastructure developments that are secure and guarantee good returns. To this end, over the two remaining years of the 2017-22 Strategy, the fund has allocated P3 billion for local infrastructure portfolio.
Asked if BPOPF will consider borrowing Botswana government some funds in view of the recent SOS calls, which include approaching the World Bank for budgetary support in addition to increasing public service levies and fees as well as cutting subsidies, Malindah said anything is possible.
His answer captures the mood at BPOPF aptly: “Botswana continues to enjoy the best credit ratings in the region compared to others, so we remain open for negotiations. Inconclusive discussions around some projects are on-going to see how we can work together.”
Heavily criticised for prioritising offshore over local investment, the BPOPF is on the road to make good on their promise to develop and diversify the local economy by supporting different sectors and in the process create jobs. The P3 billion allocation for infrastructure recently announced by Malindah will target local opportunities, a first for the Fund.
But just like his predecessors, Malindah's tone betrays frustration about liquidity challenges in the local market and the litigious nature of the players in the infrastructure. "It's a very tough environment to pursue infrastructure. It has a lot of related parties that need to get to a certain point for it to happen. These are more contractual long term investments, which take time. However we are working with some parties in Botswana in some of those deals and we are hoping to get something out," he said.
Revealing that they will pump P3 billion into the infrastructure portfolio, Malindah however remains non-committal when asked if their main target will be government or private sector projects. “We are thinking of all types of infrastructure from roads and others. Anybody can come forward and propose a viable partnership for electricity generation, transmission of the electricity, roads, water etc,” he said, reiterating that they are targeting infrastructure as a driver of the local economy that can also boost employment creation in the process.
“You have the capital and there is an expected return on it. If someone can give you that return without any risks, definitely you go for it," he added.
The EU’s Amended List of High-Risk Third Countries, which now includes Botswana among the blacklisted countries, came into force on 1 October 2020. Therefore, Botswana is among the new third countries which have been identified as having strategic deficiencies in their AML/CFT regimes that pose significant threats to the financial system of the Union.
The EU list of high-risk third countries is a step to overhaul anti-money laundering and terrorist financing laws and clamp down on these activities. Consequently, obliged entities in EU Member States must provide for enhanced customer due diligence (CDD) checks by banks, financial institutions under the EU’s AML regulations, when dealing with entities from listed high-risk third world countries.
Could such blacklisting cripple BPOPF offshore investments?
Not necessarily so, replies Malindah calmly, aware of the pin-drop silence that engulfs the spacious boardroom and the curiosity his response draws from the newshounds.
"It is not necessarily a bad thing because it also creates confidence in the market that your assets are clean. Inclusion in such a list does not mean we cannot invest or continue to do business in the EU. The only disadvantage which poses risks is that now transactions from Botswana will be put under intense scrutiny to ensure that the funds are not proceeds of terrorism or money laundering. Such rigorous checks will obviously cause delays in on-boarding of services, which in turn affects our turnaround time," he explained, adding that because BPOPF is not actively turning the portfolio, they will not experience any sudden shocks due to blacklisting.
According to Malindah, ever since issues of grey listing that escalated to black listing cropped up they have had continuous discussions with service providers outside (asset managers) to find out how much they will be exposed. "There has been no impact so far. They have assured us that so far there is no problem," he said.
Perhaps to buttress the point, Malindah volunteers information that the BPOPF has not lost any asset manager handling their offshore investments due to the recent grey and later black listing. He, however, says they remain vigilant in monitoring developments and volatility in such markets. "Our contracts have provisions that cushion against major shocks, hence asset managers are obliged to advise the Fund of any intended termination in reasonable time to give us time to plan or find alternative service providers," he reveals, reiterating that pensioners’ money are in safe hands.