Giant GIPF appetite for bonds

Augetto Graig - The Government Institutions Pension Fund (GIPF) is the behemoth of the Namibian financial market with N$104 billion in assets under management, but its appetite for government debt instruments seems insatiable.

According to Immanuel Kadhila, manager of the GIPF treasury department, anticipation for today’s special government bond auction is high.

Kadhila expects approximately N$1 billion worth of government bonds to be up for grabs and GIPF will also participate.

“These are good assets and will create good returns for our members,” he says.

Already GIPF holds roughly 40% of the N$40 billion the government owes locally.

“It’s good debt, not bad debt,” Kadhila says. “They bring a good return and they pay on time so we pay our members on time.”

Last year the giant pension fund was very aggressive at such special auctions run by the Bank of Namibia (BoN), and bought N$3.5 billion worth of bonds.

'Best kind of debt'

GIPF holds N$8.9 billion worth of assets in its government bond portfolio. The treasury department, started in 2015, has also accumulated N$2.3 billion of money market instruments, bringing the department’s total assets under management to N$11.2 billion.

Kadhila half-jokingly said they would love to push this total up to N$100 billion, predominantly through government debt instruments. According to him government debt is the best kind of debt, which is why the legal regulations on pension funds allow for so much investment in these vehicles.

GIPF general manager for investments Conville Britz explains that only the shortfall between income and expenditure of the national budget is made up with government debt instruments.

Kadhila also points out that buying government bonds is not the same as the swap GIPF did with the BoN in recent months to prop up the country’s foreign currency reserves.

That deal involved swapping South African rand-denominated bonds with Namibian bonds. “There was no money that went to government or between GIPF and BoN,” Kadhila says, addressing a popular misconception.

Everyman’s opportunity

BoN confirmed today’s auction, explaining that they always try to time such auctions to coincide with big payouts that occur when government bonds mature.

According to Helvi Fillipus, the central bank’s manager for investment and domestic markets, the GC17 bond is set to mature on Monday. A number of coupons; period interest payments, are also set to be paid on the day. The principal repayment for the GC17 is N$793 million, a lot of money to be pumped into the system, she said.

Almost all of the existing government bonds will be available at today’s auction, from the GC20 which matures in 2020 to the GC45 which pays out in 2045.

The minimum required to participate in the government bond auction is N$50 000 and individuals are welcome to take part. For those with less disposable income, BoN holds a treasury note auction every Thursday where the buy-in is only N$10 000. These mature after three, six, nine or twelve months. Treasury notes do not attract coupon payments but mature much sooner.

Performance

Individuals already take advantage of this opportunity, Fillipus says. The BoN provides them with a brochure of the instruments on offer and offer helpful advice. Because it is better to spread the debt even smaller buyers are accommodated, she says.

Overall the GIPF performed relatively well during the financial year ended August, achieving 7.5% growth. Though less than the previous year, and a far cry from the heady years when more than 20% was achieved, the growth is still good news in troubled times.

Almost half of the fund’s investments are in Namibia, about 18% in South Africa, 7% in the rest of Africa, and 26% in the rest of the world.

Allocation by asset class is dominated by 55% equities, 11% fixed interest investments, 16.8% properties, 2.5% private equity and 2% cash, with loans, derivatives and other classes of investments making up the rest.