INSURANCE firms and Pension funds have been advised to invest in a number of areas such as real estate and international bond markets to hedge against inflation.
Zimbabwe’s hyperinflation environment in the last two years has resulted in a massive erosion of people’s incomes.
Pension funds have been blamed for failing to adequately provide social nets to those retiring out of employment.
Global Renaissance Investment (GRI) chief executive officer Ngoni Dzirutwe said the underperformance of the poor local equities exchange, where most pension funds are invested, should be a wake-up call for institutional investors.
“Most investments undertaken by pension funds and insurance companies are not yielding high enough returns, resulting in actuarial deficits for defined benefit pension schemes due to the current economic environment, characterised by rapidly rising inflation, restrictive investment laws and limited investment products,” he said.
Dzirutwe also advocated for an alternative asset allocation approach which encompasses putting return-seeking assets that aim to generate high returns such as property, infrastructure and commodities in an asset portfolio.
“The key attractiveness of such alternative assets is that investors can benefit from market inefficiencies and conditions of market illiquidity,” he said.
A sound portfolio had to also have liability matching or hedging assets to protect the downside such as bonds and other fixed income assets for cash flow.
“Pension funds should also consider investment in infrastructure such as toll roads, toll railway and toll bridges, alongside commercial property and housing,” he said.
Infrastructure investments offer diversification and consistency and reliability of returns over long term investment horizons and also a variety of investment options.
President Emmerson Mnangagwa has placed infrastructure development at the centre of his 2030 Vision to boost the economy.
Critics, however, have questioned how infrastructure will be funded given the government’s fiscal constraints.
Dzirutwe, who is expected to make his case this month when his company – GRI – hosts a Property Investment and Management master class in Harare, said pension funds should take advantage of Mnangagwa’s call and invest in infrastructure.
The event will have notable speakers like Insurance and Pensions Commissioner Grace Muradzikwa, Real Estate Institute of Zimbabwe (REIZ) president Alexander Millin and Integrated Properties chief executive officer Mike Juru.
Muradzikwa recently noted that the establishment of the Victoria Falls Stock Exchange could help the insurance and pension sector hedge against inflation.
“This development will go a long way in preserving the insurance and pension industry assets as well as in aiding asset and liability matching, given that the industry has US dollar-denominated liabilities,” she said.
Local pension funds are restricted from investing offshore.
However, they are mandated to invest an increasing share of their investments in prescribed assets in the form of locally registered securities, which are issued or guaranteed by the state.
The implication of this is that pension funds are forced to disinvest from higher yielding investments to comply with statutory requirements.
The challenge with prescribed assets is that, the majority of these assets are money market-based assets in the form of treasury securities, agriculture bonds and other forms of money market investments that have yields which fall significantly below inflation. — Staff Writer.