NSSF to change investment approach
Oct 16, 2007
AS pressure for increased returns on workers’ savings with the National Social Security Fund (NSSF) mounts, the fund’s management has responded by launching a five-year plan to guarantee better returns.
By Charles Bwogi
AS pressure for increased returns on workers’ savings with the National Social Security Fund (NSSF) mounts, the fund’s management has responded by launching a five-year plan to guarantee better returns.
David Chandi Jamwa, the managing director, said the plan would end the conservative investment approach which emphasised investment in less profitable fixed incomes and assets as opposed to equities and other investment vehicles.
“We are looking at having a 50:20:30 investment mix for equities (shares), real estate and fixed incomes respectively,†Jamwa said.
According to him, despite the risk involved in equities, they provide better returns and have been utilised by pension funds worldwide.
The new investment model is expected to increase the 7% interest rate by 1% every year starting next year.
The fund, Jamwa said, would look for blue chip (highly-profitable) investments and companies to invest the money.
He said NSSF’s failure to provide a sensible return on investments is due to its low-income levels resulting from an inappropriate investment mix.
“Mandatory social security schemes around the world have managed this challenge by investing in blue chip equities, locally and internationally. Such investments make up a significant proportion of their investment portfolio.â€
Jamwa said the move to acquire a 20% stake in Kampala Serena Hotel is part of efforts to improve returns on investment.
The fund acquired a 20% stake in the Kampala Serena Hotel at a cost of $1.95m (sh3.5b). The hotel is part of the Aga Khan Group of Companies.
Although he could not say the percentage of returns expected, Jamwa said: “We carried out a rigorous due diligence and the results gave us confidence to invest in the business.â€
Mahamud Jan Mohamed of Tourism Promotion Services said the hotel, which started operating in July 2006, registered a 74% occupancy rate against the expected 65% since the beginning of this year and is therefore, a good investment.
Tourism Promotion Services is an investment arm of the Aga Khan Group and a key shareholder in the hotel.
NSSF’s investment portfolio published in July showed that only 5% of the sh830b controlled by the fund was invested in equities compared to 75% tied in fixed income assets like bonds and 17% in real estate.
“Such an investment mix is too cautious to yield meaningful returns for members. Little wonder the fund can only afford a 7% interest when inflation is 8%,†an expert lamented.
Although the diversification of investment has been welcomed by players in the pension sector, some are wary of the proportion allocated to equities.
“The move to increase the fund’s equity portfolio is good, but the 50% ratio is too ambitious given the risky nature of equities,†an investment expert said, adding that a 30% allocation would be better.
The expert explained that unlike private pension schemes that can take any risk to ensure better returns for members for fear of losing business, NSSF does not face this pressure due to its mandatory nature.
Another sector player, however, expressed confidence in the management of the fund and the five-year plan, saying the managers would deliver if they are not interfered with by politicians.
“Sometimes politicians tend to overstep their roles to a level of even assuming investment advisers,†the source said.
Jamwa, however, denied government interference in the management, saying the fund is free to make rational investment and other crucial management decisions.
He said the five-year plan is aimed at protecting members’ value by ensuring a return on investment of 20%, a fund balance of sh2,320b and a maximum pension claim processing time of 21 days by 2012.
Jamwa said the fund also intends to inject $60m (over sh100b) into the mortgage industry, create 5,000 housing units and create 2,000 jobs by 2012.
AS pressure for increased returns on workers’ savings with the National Social Security Fund (NSSF) mounts, the fund’s management has responded by launching a five-year plan to guarantee better returns.
David Chandi Jamwa, the managing director, said the plan would end the conservative investment approach which emphasised investment in less profitable fixed incomes and assets as opposed to equities and other investment vehicles.
“We are looking at having a 50:20:30 investment mix for equities (shares), real estate and fixed incomes respectively,†Jamwa said.
According to him, despite the risk involved in equities, they provide better returns and have been utilised by pension funds worldwide.
The new investment model is expected to increase the 7% interest rate by 1% every year starting next year.
The fund, Jamwa said, would look for blue chip (highly-profitable) investments and companies to invest the money.
He said NSSF’s failure to provide a sensible return on investments is due to its low-income levels resulting from an inappropriate investment mix.
“Mandatory social security schemes around the world have managed this challenge by investing in blue chip equities, locally and internationally. Such investments make up a significant proportion of their investment portfolio.â€
Jamwa said the move to acquire a 20% stake in Kampala Serena Hotel is part of efforts to improve returns on investment.
The fund acquired a 20% stake in the Kampala Serena Hotel at a cost of $1.95m (sh3.5b). The hotel is part of the Aga Khan Group of Companies.
Although he could not say the percentage of returns expected, Jamwa said: “We carried out a rigorous due diligence and the results gave us confidence to invest in the business.â€
Mahamud Jan Mohamed of Tourism Promotion Services said the hotel, which started operating in July 2006, registered a 74% occupancy rate against the expected 65% since the beginning of this year and is therefore, a good investment.
Tourism Promotion Services is an investment arm of the Aga Khan Group and a key shareholder in the hotel.
NSSF’s investment portfolio published in July showed that only 5% of the sh830b controlled by the fund was invested in equities compared to 75% tied in fixed income assets like bonds and 17% in real estate.
“Such an investment mix is too cautious to yield meaningful returns for members. Little wonder the fund can only afford a 7% interest when inflation is 8%,†an expert lamented.
Although the diversification of investment has been welcomed by players in the pension sector, some are wary of the proportion allocated to equities.
“The move to increase the fund’s equity portfolio is good, but the 50% ratio is too ambitious given the risky nature of equities,†an investment expert said, adding that a 30% allocation would be better.
The expert explained that unlike private pension schemes that can take any risk to ensure better returns for members for fear of losing business, NSSF does not face this pressure due to its mandatory nature.
Another sector player, however, expressed confidence in the management of the fund and the five-year plan, saying the managers would deliver if they are not interfered with by politicians.
“Sometimes politicians tend to overstep their roles to a level of even assuming investment advisers,†the source said.
Jamwa, however, denied government interference in the management, saying the fund is free to make rational investment and other crucial management decisions.
He said the five-year plan is aimed at protecting members’ value by ensuring a return on investment of 20%, a fund balance of sh2,320b and a maximum pension claim processing time of 21 days by 2012.
Jamwa said the fund also intends to inject $60m (over sh100b) into the mortgage industry, create 5,000 housing units and create 2,000 jobs by 2012.