The rationale behind NSSF’s investment plans
Apr 27, 2008
MARKET MOVER<br><br>Keith Kalyegira has been appointed chief financial officer of the National Social Security Fund (NSSF). He talked to New Vision’s Paul Busharizi and Sylvia Juuko about the rationale behind NSSF’s investment plans
MARKET MOVER
Keith Kalyegira has been appointed chief financial officer of the National Social Security Fund (NSSF). He talked to New Vision’s Paul Busharizi and Sylvia Juuko about the rationale behind NSSF’s investment plans
QUESTION: There has been some concern regarding your decision to invest abroad. What is the rational behind that decision?
ANSWER: Our plan is to limit how much is invested outside Uganda. NSSF’s initiative is to invest not more than 15% of the fund’s assets in equities. We are not planning to go into North America or Europe at a time when the markets are in turmoil. Our emphasis will be in Africa. We would like to invest in funds that give us exposure to stock exchanges in 18-22 African countries including Kenya, Tanzania and Uganda, excluding Zimbabwe. Some of these funds are listed on the Dublin Stock Exchange. This is in a bid to diversify and minimise risks associated with equities. The performance of these funds for the past 10 months since they were created is in excess of 45%. The minimum investment required to enter these funds is $50,000, an opportunity individual Ugandans could take advantage of. As long as the demand for commodities and materials continues to increase globally, and the various African governments continue to invest in infrastructure, coupled with the general improvement in governance across the continent and the increasing skills levels as many Africans return home, African economies will continue to register sustained growth and with them, the companies listed on their stock exchanges.
Qn- Isn’t this the time to go in when equities are at a bargain in the developed markets?
Ans- If you are investing money as an individual, now is the best time to take on risk. But this is a pension fund where you have to recognise a number of issues. You need to wait and be sure that you have reached the bottom and these are early days. Inflation is going on for a long time. It’s going to be a problem for the next five years because of commodity prices. Equities are risky so we plan to manage that risk by diversifying into funds that have exposure into 14 stock markets in Africa. If you do it collectively, it is unlikely that 14 markets will go down at the same time. If three go down, the 11 will more than offset the downturn.
Qn- Will these investments give NSSF members a reasonable return?
Ans- It’s a resounding yes. With these additional returns, we can do so much more. Right now, we are providing only five benefits. Immigration, death, cease of employment and change of career to public service. We need to provide medical and health insurance and it comes at a price. We need to provide death gratuity. Medical may be an additional 1% or 1.5%. Should it come from contributions or additional returns? If you died, your family should be able to get twice your salary as a lumpsum in addition to your benefits.
Qn- NSSF had a good year. Are you going to add one percentage point to the return as promised?
Ans- We plan to make the announcement during the first annual general meeting in the history of the fund for all members who will be represented by their employers. This will be in the next four months. We also want to issue our investment guidelines to the public. Things like businesses with a track record of two years, a credible shareholder and plans to invest on the stock exchange. The managing director approved the guidelines, which will be taken to the investment committee. If they are approved, we will move.
Qn- How much will be invested locally?
Ans- We remain committed to utilising the remaining 80%– 85% of the fund to develop the local economy. In Uganda, we have invested about sh55b on the Uganda Securities Exchange. That is about 14% of the total equities because the total is about sh406b. We cannot increase our investment because of valuation issues. Right now, the equities are quite high so we cannot buy anymore. If you can’t invest in equities locally, then you have to invest abroad. We have invested in Baroda, dfcu, Stanbic and Uganda Clays (UCL). Our biggest shareholding is in UCL where we bought 27%.
We are also looking at supporting creation of a small and medium enterprises fund to be managed by a credible financial institution. We are thinking of an initial $15m, which will be scaled up with time. We will have continued placement of short-medium term deposits with local banks, participate in primary and secondary government security issues and directly purchase equity in local private companies with good governance structures and at least two years of profitability like our acquisition of a stake in Housing Finance and Kampala Serena Hotel.
Qn- How will this be administered?
Ans- We will do it ourselves. It’s within the investment policy, which limits us not to take out more than 49% in equity. This is not lending but NSSF will become equity shareholders in this business. It will be like how we got into Kampala Serena Hotel. Equity is risky but you could get a return of 30% to 50% if the firm is well run. We may have one or two board positions. It doesn’t have to be NSSF. We can nominate anyone in the public to be our representative on this board. This is a good way of monitoring other than using annual reports, which are normally a post-mortem. When you are on the board, you get quarterly reports. When money is invested, we have to agree on a number of issues.
Keith Kalyegira has been appointed chief financial officer of the National Social Security Fund (NSSF). He talked to New Vision’s Paul Busharizi and Sylvia Juuko about the rationale behind NSSF’s investment plans
QUESTION: There has been some concern regarding your decision to invest abroad. What is the rational behind that decision?
ANSWER: Our plan is to limit how much is invested outside Uganda. NSSF’s initiative is to invest not more than 15% of the fund’s assets in equities. We are not planning to go into North America or Europe at a time when the markets are in turmoil. Our emphasis will be in Africa. We would like to invest in funds that give us exposure to stock exchanges in 18-22 African countries including Kenya, Tanzania and Uganda, excluding Zimbabwe. Some of these funds are listed on the Dublin Stock Exchange. This is in a bid to diversify and minimise risks associated with equities. The performance of these funds for the past 10 months since they were created is in excess of 45%. The minimum investment required to enter these funds is $50,000, an opportunity individual Ugandans could take advantage of. As long as the demand for commodities and materials continues to increase globally, and the various African governments continue to invest in infrastructure, coupled with the general improvement in governance across the continent and the increasing skills levels as many Africans return home, African economies will continue to register sustained growth and with them, the companies listed on their stock exchanges.
Qn- Isn’t this the time to go in when equities are at a bargain in the developed markets?
Ans- If you are investing money as an individual, now is the best time to take on risk. But this is a pension fund where you have to recognise a number of issues. You need to wait and be sure that you have reached the bottom and these are early days. Inflation is going on for a long time. It’s going to be a problem for the next five years because of commodity prices. Equities are risky so we plan to manage that risk by diversifying into funds that have exposure into 14 stock markets in Africa. If you do it collectively, it is unlikely that 14 markets will go down at the same time. If three go down, the 11 will more than offset the downturn.
Qn- Will these investments give NSSF members a reasonable return?
Ans- It’s a resounding yes. With these additional returns, we can do so much more. Right now, we are providing only five benefits. Immigration, death, cease of employment and change of career to public service. We need to provide medical and health insurance and it comes at a price. We need to provide death gratuity. Medical may be an additional 1% or 1.5%. Should it come from contributions or additional returns? If you died, your family should be able to get twice your salary as a lumpsum in addition to your benefits.
Qn- NSSF had a good year. Are you going to add one percentage point to the return as promised?
Ans- We plan to make the announcement during the first annual general meeting in the history of the fund for all members who will be represented by their employers. This will be in the next four months. We also want to issue our investment guidelines to the public. Things like businesses with a track record of two years, a credible shareholder and plans to invest on the stock exchange. The managing director approved the guidelines, which will be taken to the investment committee. If they are approved, we will move.
Qn- How much will be invested locally?
Ans- We remain committed to utilising the remaining 80%– 85% of the fund to develop the local economy. In Uganda, we have invested about sh55b on the Uganda Securities Exchange. That is about 14% of the total equities because the total is about sh406b. We cannot increase our investment because of valuation issues. Right now, the equities are quite high so we cannot buy anymore. If you can’t invest in equities locally, then you have to invest abroad. We have invested in Baroda, dfcu, Stanbic and Uganda Clays (UCL). Our biggest shareholding is in UCL where we bought 27%.
We are also looking at supporting creation of a small and medium enterprises fund to be managed by a credible financial institution. We are thinking of an initial $15m, which will be scaled up with time. We will have continued placement of short-medium term deposits with local banks, participate in primary and secondary government security issues and directly purchase equity in local private companies with good governance structures and at least two years of profitability like our acquisition of a stake in Housing Finance and Kampala Serena Hotel.
Qn- How will this be administered?
Ans- We will do it ourselves. It’s within the investment policy, which limits us not to take out more than 49% in equity. This is not lending but NSSF will become equity shareholders in this business. It will be like how we got into Kampala Serena Hotel. Equity is risky but you could get a return of 30% to 50% if the firm is well run. We may have one or two board positions. It doesn’t have to be NSSF. We can nominate anyone in the public to be our representative on this board. This is a good way of monitoring other than using annual reports, which are normally a post-mortem. When you are on the board, you get quarterly reports. When money is invested, we have to agree on a number of issues.