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