BPOPF upbeat about talks over govt’s P30bn debt drive
We have to do more, CEO says Fund jumped 24% to P83bn in 2020 Says returns not the only consideration Gov’t mulls inflation-linked bond
The Botswana Public Officers Pension Fund (BPOPF), the country’s largest single investor outside of government, says it can and is willing to do more to support the government’s P30 billion debt programme, and the results of ongoing negotiations will become clear in due course.
The BPOPF’s assets under management rose 24.4% to P83.6 billion last year, with the returns on global equities anchoring the growth and defying COVID-19 related market pressures on other classes such as fixed income.
The sterling performance allowed the BPOPF to declare returns ranging between 23% and 7.5 percent for the different member portfolios, some of the highest numbers for a single year.
Government, meanwhile, has struggled to secure funds for its P30 billion domestic issuance programme launched last September, with poor uptake of the bonds, offered each month to the market by the Bank of Botswana (BoB). The P30bn programme is providing the bulk of funding for the P6 billion deficit in the 20212022 financial year.
Pension and insurance funds, which are the primary investors for bonds, have reportedly been put off by the returns offered, particularly when these are compared to other higher-yielding securities available in the regional market.
The BoB has urged government to lift the yields offered on bonds, while finance minister, Peggy Serame recently told BusinessWeek talks were ongoing with the market.
This week, BPOPF CEO, Moemedi Malindah said the pension fund expected positive outcomes from its talks with government on the domestic bond programme.
“We have to do more and we believe the engagement that we are making with our stakeholders, including the ministry, is going in the right direction,” Malindah told BusinessWeek.
“When we come back to report, you will see that we have done more.
“You cannot say the returns are low; the lack of participation creates that situation on the ground.” Malindah explained that part of the issue was that pension fund assets are managed by fund managers who have return expectations and other criteria they use for allocating funds. Local fund managers have explained that pension fund investments are guided by their unique set of objectives and constraints, which are in turn based on their beneficiary profiles. “We are talking about what needs to change to help pension funds fully participate and discussions are going in the right direction,” Malindah said. “It’s not just about the returns. There are many other things that need to change and discussions are ongoing around that.” Analysis of the BoB bond auctions since September show that government has not raised the amount it was seeking at any of the auctions. Bidders at the auctions have
consistently sought higher yields, which the BoB, acting as government’s agent, has rejected.
The recent credit downgrade by Moody’s and escalating inflation have also triggered demands for higher yields.
Government notes, such as bonds, are considered the most attractive in the market, offering zero risk and stable returns, which, because the securities are long maturing, mean consistent yields that can be used to match liabilities such as pension annuities over time.
BoB governor, Moses Pelaelo previously told BusinessWeek that investors, who include pension funds, were possibly more interested in the South African market which is highly liquid and features a strong presence of international investors. “When people look at the yields here and those from others, they may have that view, but they forget the risk-adjusted returns between the two markets,” he said.
“Some of the reasons we are getting, we don’t understand and we have to find a reason why this is the case.”
Meanwhile, Serame, who is hoping to raise P4 billion in bonds in the 2021-2022 financial year, said government is considering a new bond product that local pension and insurance funds may find attractive.
“There is consideration to issue inflation-linked bonds to attract investors interested in matching assets and liabilities,” she told BusinessWeek in an emailed response.
The BoB has also mooted the issuance of a hard-currency bond to boost the level of the country’s reserves, which reached record lows last year due to COVID-19 spending.