THE Minister of Finance, Calle Schlettwein, addressed fears that were raised in Parliament by the Popular Democratic Movement about the Government Institutions Pension Fund (GIPF) that might still be exposed to unnecessary risks when investing funds in unlisted business ventures.
PDM Member of Parliament, Elma Dienda wanted to know from the Minister of Finance what measures have been put in place to ensure that the Government Institutions do not suffer the same fate as the GIPF when it incurred substantial financial losses and were forced to write off or dispose of debt.
In response to her question the finance minister stated that during the Development Capital Portfolio (DCP) period, the current regulatory framework to guide pension funds on how to conduct unlisted investments did not exist. He said that at the time there were no local precedents to test such ventures on the success or failure of pension fund investments into unlisted investments.
“The DCP was Namibia’s first ever attempt by a pension fund to invest in local companies that are not listed on any stock exchange,” he said.
Minister Schlettwein added that as a result of the failure of some DCP investment, the Pension Funds Regulations on investments have been amended and introduced Regulation 29 in 2013, which has since changed to Regulation 14. He said the Regulation provides regulatory framework that guides pension funds on how to structure their unlisted investments. This regulatory framework introduced mandatory requirements obliging pension funds to do unlisted investments through a separate special purpose vehicle which is overseen by a Governing Board, comprised of mainly independent persons and administered by a skilled and licensed Unlisted Investment Manager.
“NAMFISA has also introduced a new quarterly reporting obligation referred to as the Chart of Accounts. This reporting is conducted quarterly and the regulator is able to track the exposure of each pension fund in unlisted investments. To this end, GIPF submits its quarterly regulatory reports to NAMFISA which enables NAMFISA as a Regulator, to monitor its compliance. This reporting obligation did not exist at the time of the DCP investment under question.”
According to Mr. Schlettwein the GIPF has in addition to the quarterly obligations recognised the need to implement some of the investigative findings and recommendations that arose from numerous institutions regarding best practices around unlisted investments such as the Institutional Limited Partners Association which is a global association of institutional investors who invest into unlisted investments, as well as the United Nations’ supported Principles of Responsible Investments (UN-PRI) where the GIPF has become a member and signatory to its responsible investment principles.
“The GIPF has also enhanced its internal capacity on Unlisted Investments by creating a dedicated unit with appropriate skilled personnel that solely focuses on monitoring the unlisted program.”
Minister Schlettwein pointed out that it is important to keep in mind that all investments have risks; therefore, the objective of the above intervention is to ensure that such risks are mitigated as it is not possible to eliminate all risks, and it is also not possible to guarantee that no losses will be incurred in the future.
Mrs Dienda said that the GIPFs Chief Executive Officer that indicated in a recent address that 12 out of 21 investments incurred losses of N$386 578 857. She wanted to know how this was possible if the DCP was established to provide Development Capital to Namibian businesses with “growth potential and development impact”.
In response the finance minister said the intention of the DCP was to promote local businesses and grow the economy through the establishment of Small and Medium Enterprises.
“You will therefore see that the companies that were funded were in sectors that conventional banks usually do not fund such as start-up mining, manufacturing and agriculture in different regions so as to avoid concentration risks in a few regions. These initiatives were intended to have a socio-economic impact on their regions.
The minister said that during the review of the business plans, the key focus was on job creation, regional impact and sustainability of the businesses.
“Although the intentions of the business ventures that GIPF invested in were good, the execution of the projects fell short of the promised and planned deliverables. Some of the business ventures failed due to economic factors that made the assumptions reflected in the original business plans were no longer viable.”
Mrs. Dienda also wanted to know what assessments were done to determine the growth potential of these businesses and how successful such assessments were.
The finance mintsre responded by saying it is worth mentioning that new business ventures or start-up businesses rely on assumptions made in their business plans to make a case for their feasibility.
“The DCP’s target was on those projects that were proposed to be started (green-field projects) or at an early stage of development (brown-field projects). These projects therefore carried much higher risks because they lacked a proven financial track record and clientele base.”
Minister Schlettwein said all investments made under the DCP were required to present a business plan and all other supporting documents to allow the GIPF to gain basic insight into the business. He added that for this purpose, the GIPF had contracted a professional investment management company to assist it. An assessment was carried out by the investment management company and the findings were presented to the GIPF Board of Trustees to decide whether to fund or not.
“Assessments were carried out, however in some cases these projections never came to fruition and this led to the failure of these initiatives.”