pension funds and capital markets
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OECD / IOPS GLOBAL FORUM
ON PRIVATE PENSIONSFFagmeedah Petersen
Lurie Independent
Actuary
Pensions Governance Investment
Pension funds and insurers represent significant savingsDrivers of development of Listed and unlisted capital
markets Especially in developing countries – biggest source of
capital for diversified, third party investmentsPension Funds are Asset Allocators relative to liabilitiesPension fund liabilities – Clearly long to very long term
for DB
FFagmeedah Petersen
Lurie Independent
Actuary Pensions Governance Investment
Long Term investors?
Mature DB fund has DMT of around 7yrs for pensioner members (NRA 60), 18yrs for active members (salary-weighted average age 40)
Opportunity to invest for very long term, e.g. unlisted equity held to maturity (IPO)
What is risk for a long term investor?Volatility is noiseValuations are academicLiquidity is irrelevant
FFagmeedah Petersen
Lurie Independent
Actuary Pensions Governance Investment
Long Term investors?
Primary measure of risk not in sentiment (market volatility), but real capital at risk
Patient capital unlocks growth potential and offers opportunity for long term growth
In Developing countries, with young populations, and immature pension funds (I.e. very young average age of membership), opportunity to invest for very long term.
Opportunity for Treasuries to issue debt along full yield curve, even very long term
30 years plus, as observed in SA (stable inflation or inflation-indexation)
FFagmeedah Petersen
Lurie Independent
Actuary Pensions Governance Investment
Long Term investors?
Manage funding to triennial valuation reporting, solvency illustrated for RegulatorsSolvency reserves need funding, trustees need to learn to accept fluctuations in funding level.
Investment performance monitoring 1/4ly, yearly, 3 yearly.Drives churn in market in pursuit of dubious value
opportunities – about 60% of listed equities portfolio holding churned per yearUse longer term performance periods (in surveys, for performance fees calculations)
Regulation limits “more risky” unlisted investments. Limits gradually being relaxed
FFagmeedah Petersen
Lurie Independent
Actuary Pensions Governance Investment
Or a series of short terms?
“Previous trustees did a bad job”Lack of expertise on part of trustees, coupled with trustee
liability – aversion for complex long term investments – default to listed investments with good informationCompulsory investment skill to exist within board
Cash payouts on exit:Fund becomes short term savings accountValuation, liquidity, volatility become important
Legislate compulsory preservation
FFagmeedah Petersen
Lurie Independent
Actuary Pensions Governance Investment
Or a series of short terms?
Gravitate towards listed investmentsImprove integrity of market
Less government interferenceDemutualisationRegulation
Increased demand for capital market services leads to increase in capital investments in market servicesIT – speed of processing, reporting, settlementIncreased regulation – increased knowledge in marketIncreased competition as providers seek market shareImprove efficiency
FFagmeedah Petersen
Lurie Independent
Actuary Pensions Governance Investment
Driving market efficiency
DB funds (and insurers) create demand for Index-linked bonds
Creates critical mass for certain markets – e.g. derivatives market created by demand for effective TAA
Foreign (developed market investors) seeking alternative alpha
Demanding fledgling capital markets grow up Increases efficiency
FFagmeedah Petersen
Lurie Independent
Actuary Pensions Governance Investment
Driving market efficiency
Crowding out unlistedsListed’s get disproportionate allocation of capital
flowsListed’s hothouse – valuations and consensus
forecasts don’t support priceListed’s management fees high, despite number of
listed’s service providersLucrative, high margin listed fees disincentivises
unlisted investment managementTrustees need to negotiate more
GDP’s &market caps in Africa
FFagmeedah Petersen
Lurie Independent
Actuary Pensions Governance Investment
Country Currency GDP US$bn GDP% of Continent market cap US$bn % of market cap
South Africa ZAR 467.80 18.8% 361.53 64.6%
Egypt EGP 405.40 16.3% 52.71 9.4%
Nigeria NGN 296.10 11.9% 46.24 8.3%
Morocco MAD 125.00 5.0% 62.62 11.2%
Tunisia TND 76.07 3.1% 4.71 0.8%
Kenya KES 61.22 2.5% 8.82 1.6%
Tanzania TZS 51.07 2.1% 1.48 0.3%
Côte d'Ivoire (BRVM) XOF 32.85 1.3% 5.04 0.9%
Ghana GHS 31.13 1.3% 5.53 1.0%
Uganda UGX 29.13 1.2% 0.49 0.1%
Botswana BWP 26.04 1.0% 1.27 0.2%
Zambia ZMK 16.10 0.6% 3.79 0.7%
Mauritius MUR 14.27 0.6% 2.43 0.4%
Namibia NAD 10.69 0.4% 1.47 0.3%
Malawi MWK 10.59 0.4% 1.33 0.2%
Swaziland SZL 5.36 0.2% 0.10 0.0%
TOTALS 1,658.82 66.7% 559.56 100.0%
GDP of continent 2,485.70
FFagmeedah Petersen
Lurie Independent
Actuary Pensions Governance Investment
Country Currency GDP US$bn GDP% of Continent market cap US$bn % of market cap
South Africa ZAR 467.80 18.8% 361.53 64.6%
Egypt EGP 405.40 16.3% 52.71 9.4%
Nigeria NGN 296.10 11.9% 46.24 8.3%
Morocco MAD 125.00 5.0% 62.62 11.2%
Tunisia TND 76.07 3.1% 4.71 0.8%
Kenya KES 61.22 2.5% 8.82 1.6%
Tanzania TZS 51.07 2.1% 1.48 0.3%
Côte d'Ivoire (BRVM) XOF 32.85 1.3% 5.04 0.9%
Ghana GHS 31.13 1.3% 5.53 1.0%
Uganda UGX 29.13 1.2% 0.49 0.1%
Botswana BWP 26.04 1.0% 1.27 0.2%
Zambia ZMK 16.10 0.6% 3.79 0.7%
Mauritius MUR 14.27 0.6% 2.43 0.4%
Namibia NAD 10.69 0.4% 1.47 0.3%
Malawi MWK 10.59 0.4% 1.33 0.2%
Swaziland SZL 5.36 0.2% 0.10 0.0%
TOTALS 1,658.82 66.7% 559.56 100.0%
GDP of continent 2,485.70
FFagmeedah Petersen
Lurie Independent
Actuary Pensions Governance Investment
Country Currency GDP US$bn GDP% of Continent market cap US$bn % of market cap
South Africa ZAR 467.80 18.8% 361.53 64.6%
Egypt EGP 405.40 16.3% 52.71 9.4%
Nigeria NGN 296.10 11.9% 46.24 8.3%
Morocco MAD 125.00 5.0% 62.62 11.2%
Tunisia TND 76.07 3.1% 4.71 0.8%
Kenya KES 61.22 2.5% 8.82 1.6%
Tanzania TZS 51.07 2.1% 1.48 0.3%
Côte d'Ivoire (BRVM) XOF 32.85 1.3% 5.04 0.9%
Ghana GHS 31.13 1.3% 5.53 1.0%
Uganda UGX 29.13 1.2% 0.49 0.1%
Botswana BWP 26.04 1.0% 1.27 0.2%
Zambia ZMK 16.10 0.6% 3.79 0.7%
Mauritius MUR 14.27 0.6% 2.43 0.4%
Namibia NAD 10.69 0.4% 1.47 0.3%
Malawi MWK 10.59 0.4% 1.33 0.2%
Swaziland SZL 5.36 0.2% 0.10 0.0%
TOTALS 1,658.82 66.7% 559.56 100.0%
GDP of continent 2,485.70
Pension funds demand infrastructure and greenfields investments – increased packaging / preparation of investment opportunities
Unfortunately very few venture capital opportunities offered – deal pipeline restriction for private equity type of investments
Uncertain / opaque private equity investments and vehicles create mistrust on part of willing long term investors, especially in less developed markets in Africa
Need to be seen as more mainstreamRegulator to provide guidelines Regulators and market entities need to share information and
expertise, and platforms, both in the private and listed space
FFagmeedah Petersen
Lurie Independent
Actuary Pensions Governance Investment
Investors driving markets
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