State pension offshore plan ‘warranted’
• Government employees may score, but economy could suffer
The Government Employees Pension Fund’s plan to move some of its investments offshore was warranted, but could impose additional strain on the rand and trigger more economic woes. Rowan Burger, head of strategy at Momentum Investments, said on Tuesday the fund could get better returns from increased offshore exposure in the short to medium term, which was in line with its fiduciary duty to optimise returns for its members.
The Government Employees Pension Fund’s (GEPF) plan to move some of its investments offshore is warranted, but it can impose additional strain on the rand and trigger more economic woes for the country, investment analysts said on Tuesday.
Rowan Burger, head of strategy at Momentum Investments, said the fund can get better returns from increased offshore exposure in the short to medium term, which was in line with its fiduciary duty to optimise returns for its members.
However, chief economist at Econometrix, Azar Jammine, said a sudden outflow of just a little of GEPF’s funds could be more devastating than even the impact of a credit downgrade.
“A Moody’s downgrade can trigger about R100bn to R150bn of capital outflows … if the GEPF moved just 20% of its funds offshore, we’d be looking at about R400bn in outflows,” he said.
With only 10% of the GEPF’s funds allowed for investment offshore, public servants have been distinctly disadvantaged compared to workers in the private sector, whose pension funds are allowed to invest up to 30% abroad, said Jammine.
“Their investment returns have definitely been jeopardised, so it is necessary to look for investment opportunities offshore. But it has to be done gradually so that the impact doesn’t send shock waves to the rest of the economy.”
The GEPF, which manages more than R2 trillion of public servants’ retirement savings, said last week its plans for shifting some investments offshore were gaining traction. The fund’s investment strategy says only 1% to 5% of its monies can be invested in global equity, and up to 4% in global bonds.
Allocation on African assets is even lower, at a cap of 2% for African bonds and property and 3% for African equity. In 2017, the GEPF was ranked among the 20 biggest pension funds in the world by UK advisory platform Consultancy.uk.
Similar-sized funds in the top 20 have far more global exposure: Canada’s Ontario Teachers’ Pension Plan only had 45% of its assets invested in Canada at the end of 2017. Teacher Retirement System of Texas had 57% of its funds allocated to global equity markets, of which only 18% was in US public equities. Denmark’s ATP penson fund has more assets invested in listed international equities at 37.9bn kroner ($5.92bn) than in listed Danish equities, at 31.9bn kroner ($4.99).
“The GEPF has historically been more constrained in its ability to invest offshore than its peers … It makes good sense that the restriction to invest offshore be lifted,” said Burger.
He said investing offshore was likely to deliver inflationbeating returns, which is what the fund needs to meet growth requirements for its members.
Sonja Saunderson, chief investment officer at Momentum Investments, said for the GEPF, where inflation beating returns are guaranteed to the investor, increasing offshore exposure probably provided the best option to match its liability.