Govt, regulator rethink prescribed assets
The Government has moved to approve a number of alternative investments as prescribed assets to enhance the investing environment for local insurers and pension funds.
Insurance and Pensions Commission (IPEC) commissioner Dr Grace Muradzikwa, has said the Commission is taking input from the industry to continually improve the prescribed assets framework.
“We have reviewed the prescribed assets framework to allow private equity as prescribed assets. Pension funds and insurers are being challenged to come up with alternative investments for prescribed asset status consideration,” she said recently.
“We will be reviewing investment guidelines and we expect renewed interest in alternative investments on the Victoria Falls Stock Exchange, private equity and commodities.”
Due to inflationary pressures that emerged around 2018 due to monetary and currency reforms, yields from typical prescribed assets such as bonds and equities have been sub-optimal.
For instance, official figures show that in 2019 the average real return on a 30-day money market investment by insurers and pension funds was negative 10,1 percent, while investments in Treasury Bills had a real return averaging negative 1 to negative 3 percent depending on tenure.
To rectify this anomaly, the Government moved to approve a number of ‘alternative’ prescribed assets, which the industry itself had called for.
By the end of the third quarter last year, the Government through the industry regulator (IPEC) — had approved a number of new prescribed assets types.
Some of these new prescribed assets include: Datvest-Coutic Investments’ US$3,5 million issue for the development of a specialist hospital; the US$4,5 million Guruve Solar Park; the IH Advisory-Innscor Africa $100 million issue for the purchase of stock feed for Innscor and Colcom and to finance contract farming; the US$4,6 million Zimbabwe Electricity Industry Pension Fund issue for the development of a specialist hospital and specialist psychiatric rehabilitation centre in Harare; and New Glovers (Pvt) Limited’s US$8,3 million solar energy project in Kwekwe, among others.
Zimbabwe Association of Pension Funds (ZAPF) director general, Sandra Musevenzo has, however, cautioned that there is need for some level of regulation with regards to private equity investments.
“Although there is need for due diligence on the part of Trustees, we have highlighted that the Securities and Exchange Commission of Zimbabwe (SECZ), should come up with some guidelines on investments into private equity, which is mostly done by pension funds.”
But despite a broadening of the scope of prescribed assets, local pension funds’ and insurers’ compliance is still below statutory requirements.
Given the extensive contribution of the insurance and pensions sector to an economy, governments have seen it prudent to ensure that a portion of monies from the sector go towards prescribed assets.
In Zimbabwe, pension funds, in particular, are required by law to invest at least 20 percent of their portfolio in prescribed assets.
Life and funeral assurance companies are required to invest 10 percent of market value of the total adjusted assets in prescribed assets.
And short-term insurance companies are required to invest 10 percent of their funds in prescribed assets.
But players in the industry are still to comply with the statutory limits as regards prescribed assets.
In its latest pensions report for the quarter to September 30, 2020, IPEC noted that although pension funds had increased investments into prescribed assets during the period under review, the sector remained below set requirements.
“There was a nominal increase in the total amount invested in prescribed assets to $8,96 billion as at 30 September 2020 from $0,72 billion as at 30 September 2019.
“Notwithstanding the increase in the amounts invested in prescribed assets, the ratio of 8,29 percent was below the regulatory minimum of 20 percent,” said the regulator.
“In an effort to improve industry compliance, the Commission reviewed the framework for approving applications by widening the criteria to include private equity and other instruments that ensure value preservation.
“The Commission urges the industry to be innovative and come up with value preserving instruments which can be considered for prescribed asset status so that the minimum requirement of 20 percent can be met.
“The instruments should be in line with the national developmental thrust as espoused in the National Development Strategy 1 (2021-2025) and the 2021 National Budget Statement.
“In addition, industry is urged to support Government efforts in mobilising resources for critical developmental projects that will also directly or indirectly benefit pensioners and policyholders.”
Over the same period, the funeral assurance sector continued to have the worst numbers in terms of meeting prescribed assets requirements.
Prescribed asset investments continue to be insignificant as they accounted for only 0,03 percent of the total asset portfolio the funeral assurance industry.
“In nominal terms, investments in prescribed assets increased by 39,67 percent from $150 940 as at 30 June 2020 to $210 820 as at 30 September 2020,”highlighted IPEC.
The low compliance may indicate the funeral assurance sector’s need for liquidity, but observers point out that investments such as hospitals and other private equity projects can be cash generative.
For the non-life short term insurers, although there was increase in overall investments in prescribed assets, only one insurer was compliant.
“Investments in prescribed assets increased by 180,78 percent from $102,49 million as at 30 June 2020 to $287,76 million as at 30 September 2020,” said IPEC. -ebuisnesweekly.co.zw
