The much talked about downgrading of the South African economy to a rank below investment grade, means a lot to pension fund managers, not least of them the Government Institutions Pension Fund (GIPF), which holds in excess of N$98 billion of pensioners’ funds.
However, GIPF chief executive officer David Nuyoma was last week cautiously optimistic, saying in as much as the new developments are a cause for discomfort the Fund would not have a knee-jerk reaction to the downgrade, but would assess the situation as it develops.
At present, Nuyoma says, the situation is still fluid. “We are a long-term player [and] we do not react overnight. We have to watch and think long-term, otherwise you move [and] you end up jumping into the fire,” he said.
Further, Nuyoma was quick to point out that GIPF does not only keep its eyes and ears on what is happening in the neighbouring country of South Africa, but on all major developments in the world, from the US president Donald Trump’s inward looking policies to Brexit in the UK.
In general, the emerging policies of populism and nationalistic rhetoric have the GIPF alert on how it manages its funds.
For GIPF it all comes down to the Rand as a trading currency, the exposure of the pension funds in the markets and how economies and markets react to policy pronouncements, such as Brexit, Trump’s ‘Make America Great Again’ and recently to South Africa’s reshuffle of its cabinet and sacking of finance minister Pravin Gordhan.
“Those things, one way or the other, have an impact on us. The situation is still fluid at the moment. We still have to assess in terms of our asset classes how does it affect us. We do not know how it would resolve itself at the end of the day,” Nuyoma said.
All these developments put added pressure on the GIPF boss, who speaks of how these disruptive global economic developments “give [him] serious discomfort”.
“We have major policy announcement being made by global powers, with the US looking in-house and becoming more protectionist. We have Europe, where there is Brexit. How that would impact us we don’t know. With the fullness of time we would see [the impact],” Nuyoma says.
“Ideally I would want to know how I plan the Fund, even know where I would be with the Fund in X-number of years, but these events make it difficult to predict anything,” he says.
“All you have to do is [focus on] the way you structure your Fund. And that is why, despite all this, we managed to have eight percent growth year-on-year, because of the manner the GIPF assets are structured to behave differently to different scenarios,” he says.
Last week’s removal of Gordhan from SA’s finance portfolio disturbed the markets to the extent that two rating agencies, Fitch Ratings and Standard & Poor’s, downgraded South Africa from its investment grade credit rating to a sub-prime level where the country is considered a highly risky investment.
Further, the Rand as a trading currency, plummeted in the past week, losing nearly 10 percent of its value against the US dollar. South African banks and commercial entities listed on the JSE lost nearly N$100 billion – by some estimates – in their listed stocks as share prices went on a tail spin.