Windhoek-The need to cut out middlemen, who at one point were earning in excess of N$3 million per annum without delivering any profits, was what prompted the Social Security Commission (SSC) to invest funds with SME Bank.
Further, the investments were also part of SSC’s new investment approach, which sought to grow its multi-billion-dollar assets, which were previously subjected to stagnation and occasional plundering by those tasked to run the commission, as evidenced in many media reports over the last two decades.
SSC did however concede that it had apprehensions, and had considered withdrawing its funds from SME Bank when news broke that Bank of Namibia had assumed control of the joint venture and relieved the executive and board of their duties following the investigation of dubious investments with South African entities.
However, assurances from Treasury, as well as from the SME Bank’s line ministry of industrialisation and trade, put to rest those apprehensions, says SSC CEO Milka Mungunda.
She was also emphatic that SSC did its due diligence on SME Bank, as it does with other financial institutions, before it decided to invest N$150 million in fixed-term deposits with SME Bank.
The SME Bank kept its word by paying a N$30 million instalment back to SSC this week – on June 13 as originally agreed.
“We did our due diligence to ensure that [SME Bank] complied with [all relevant] policies. And they ticked all the right boxes,” Mungunda says, adding that the subsequent assurance that SME Bank did have the required liquidity coverage helped to inform the decision not to withdraw the investments.
This week SME Bank repaid the SSC investment of N$30 million after it reached the maturity date. The investment was invested for 182 days at an interest rate of 9 percent and it netted the commission about N$1.3 million in interest earnings.
“We are satisfied with how they honoured our investments, and are still confident they will honour the remaining investments,” says Mungunda of the remaining fixed-term deposits that are set to mature on September 15 and December 13 this year.
And that is the very reason that SSC looked at investing its millions in fixed-term deposits, say Mungunda and the commission’s new manager for investments Lorentha Harases.
Previously, asset managers had charged the commission millions of dollars, at ridiculous fees per annum, to manage its assets. And those fees were paid even when the asset managers failed to deliver good returns on investments or when yields were preposterously low.
“Investments were yielding an average of 7.04 percent,” says Harases. And asset managers were claiming 1.08 percent of the total assets under management as management fees.
Since SSC had placed over N$330 million with asset managers, it was paying fees in excess of N$3.3 million to asset managers each year. The fees were paid as contractual obligations irrespective of whether or not the asset managers grew the portfolio.
It was an untenable position for the SSC, which is tasked to administer the provision of social safety nets for employees in the country such as work injury benefits, maternity and death benefits. It meant the SSC was not able to grow the funds entrusted in its care to pay out employees’ claims as and when necessary. It also meant there were serious risks posed to the SSC’s operations, especially when it had to run to banks to ensure sufficient liquidity levels to meet pay-out obligations.
A new investment department was established and the contracts with asset managers were cancelled. As a result, Harases and Mungunda now point at the fact that the SSC has for the first time registered an increase of N$278 million in its assets. It now has a total asset base of over N$3.24 billion.
“The growth is attributable to consistent earnings from fixed income instruments in the internal portfolio as well as interest and dividends received from the external portfolio,” says Harases. The portfolios’ yield to date is 9 percent.
Currently of the N$3.24 billion, only N$809 million is managed internally and N$2.42 billion is managed by external asset managers, who are tasked to invest the assets offshore.
Nevertheless Harases says there is “still room for improvement”.
“Management continuously seeks sound investments which offer attractive returns, as well as further portfolio diversification,” she adds.
Further, the commission is waiting for the green light from Treasury and the labour ministry, its line ministry, to implement reviewed investment policy standards, which the commission says would “address geographic asset allocation and improve the performance of the portfolio, while maximizing returns on the portfolio for further growth”.