• Travel expenses jump 594 per cent
• Lavish hotels costs rise from P170 000 to over P821 000
• Asset managers exceed allocated limits
Pension funds regulator, the Non-Bank Financial Institutions Regulatory Authority (NBFIRA) has ordered Botswana Public Officers Pension Fund (BPOPF) to put their house in order through a raft of recommendations after a forensic investigation carried out between August and December 2014 revealed discrepancies with regards to the funds control.
The investigation was conducted by Nexus Forensic Services covering a range of fund operations including governance, internal controls, investments etc. Contrary to claims by BPOPF, Nexus investigators found that in some cases the board of trustees adopts a passive approach in discharging their role of identification, controlling and/ or mitigating the fund risks and containing the fund's expenses.
Contrary to requirements that pension fund trustees put in place adequate control and monitoring systems for all pension operations the investigation revealed some discrepancies with regards to the funds control and monitoring functions, including non-adherence to exposure limits. BPOPF Communications Manager DeVilliers Nage refused to field questions on Friday insisting that be sent an email on the recommendations on the NBFIRA investigation.
Under strategic asset allocation for December 2013, investigators found that some asset managers did not adhere to the asset allocation limit within the various portfolios. Various examples were cited in the investigation. Under the developed market equities the strategic limit was set at 15 % and all asset managers exceeded the limit as follows:
Allan Gray exceeded by 38.07%
BIFM exceeded by 21.25%
Coronation exceeded by 18.64%
Fleming exceeded by 17.18%
Investec exceeded by 9.83%
Stanbic exceeded by 14.32%
Under the offshore alternatives no asset manager was given the mandate to invest in this asset class but some three managers did. Coronation invested 6.23%, Fleming invested 5.85%, while Investec invested 0.95% of assets under their management.
The Property Fund far exceeded the allocation/ mandates set, with funds invested more in cash than in property. On Letsema Fund I (Fleming), the cash component amounts to 74.57% against a target of 0 to 10% and the property amounts to 25.43% against a target of 90to 100%. On Letsema Fund II (Messidor), the cash component amounts to 68.58% against a target of 0 to 10% and the property component amounts only 31.42% against a target of 90 to 100%.
The Board of trustees was found to be failing effective risk management as the investigation showed areas where the BPOPF risk registers were not properly maintained. For example, there was no evidence that the marketing and communication department's risk register has been updated since inception. In some instances mitigation strategies were not aligned to the specific risks identified.
Investigators also found that asset managers appointed by BPOPF in turn appointed underlying asset managers to manage offshore investments. Consequently agreements were drawn between the local asset managers and their own appointed underlying managers, an arrangement where BPOPF does not have control over the appointment and/ or performance of the offshore managers. This gave local managers to appoint offshore managers within their associated group of companies without a rigorous due diligence process which would be used as a basis of assessing the competence of the potential asset manager, as international best practice dictates.
Responding to the findings of the investigators BPOPF management said the chairman of the board of trustees cannot be conflicted because he was elected according to the Fund Rules, which supercede the board charter. However, management has promised to harmonise the two instruments to avoid contradictions and alignment with the upcoming Retirement Act. Management declined to comment on the findings of lack of control of asset managers fees by trustees and administrators, but admitted that asset managers' fees are not standardized across asset managers. BPOPF management also conceded that the fund did not have control on verification of asset management fees. While fees were invoiced in line with the rates provided in the asset management agreements, the major problem is that the fees are deducted by the asset managers and no controls are in place for the BPOPF to verify and approve the monthly fee.
The investigation established that there were inconsistencies in asset management costs in comparison to returns. For example, BIFM’s management fees amounted to 12 per cent of the total returns while Coronation’s and Investec management fees in comparison to returns were 26 per cent and 33 per cent respectively. Management said the implementation of the new 2014-16 Investment Strategy will address the challenges as the Fund now appoints both local and offshore managers directly.
The NBFIRA investigation found that there seems to be no controls in place to manage and monitor the fund expenses which seem to be escalating every year. The secretariat expenses grew by 72 per cent between 2012 and 2013 from P27 million to over P46 million, while staff costs increased by 25 per cent. There was a significant increase of 77 per cent in 2013 telephone and fax expenditure compared to 2012. This expenditure was mostly incurred on telephone, cell phone and tablet expenses. One contract (withheld) was found to have recorded an expense of P27 343 in December 2013 alone. “There appears to be insufficient policies or inadequate measures to control and monitor these expenditures,” reads part of the report.
The investigation noted that some trustees and executive management undertook a number of overseas trips to perform due diligence or checking up on asset fund managers. One of the trips was in March 2013 when seven officials travelled to the US and UK for 13 days to meet asset managers, at a total cost of P1.8 million. The trip was undertaken despite the advise from BPOPF accountant that there insufficient funds to incur the expenditure.
Consequently there was an increase of 382 per cent from 2012 (P170 399) to 2013 (P821 130) for local accommodation and a 594 per cent increase for external travel from P80 909.41 to P561 485 in the same period. BPOPF management explained that in the build-up to the formulation of the new investment strategy it became crucial that due diligence of the current offshore managers be carried out by the Fund. “The purpose was to determine that the offshore managers investment strategy is appropriate to where the fund intended to go with the new strategy,” reads a response from management.