WINDHOEK - Finance minister Calle Schlettwein has assured members of parliament that the government has put in place various measures to ensure that government institutions do not suffer the same fate as the Development Capital Portfolio (DCP) that saw the country’s biggest pension fund lose an estimated N$660 million.
Close to N$660 million was swindled from the Government Institutions Pension Fund (GIPF) via loans granted through the defunct DCP to several local companies.
It is believed that loans were given to companies that had little or no business track record.
The DCP operated from 1996 to 2006.
The GIPF, however, maintains it was able to
make a profit of N$146 million from the portfolio despite writing off over N$600 million.
However, according to Schlettwein, the pension funds regulations on investments have been amended to avoid similar events repeating themselves.
Pension funds are now expected to do unlisted investments through a separate special purpose vehicle, which is overseen by a governing board, comprised of mainly independent persons and administered by a skilled and licensed investment manager.
Schlettwein was responding to a number of questions by PDM (Popular Democratic Movement) MP Elma Dienda last week in the National Assembly.
Following prosecutor-general Martha Imalwa’s admission that the money was unrecoverable and has been lost to the country for good, there has been widespread criticism and condemnation over the fact that numerous culprits have been let off the hook.
Allaying further fears, Schlettwein added that Namfisa has also introduced a new quarterly reporting obligation referred to as the chart of accounts whereby the regulator is able to track the exposure of each pension fund in unlisted investments.
GIPF, Schlettwein said, has been submitting its quarterly reports.
“This reporting obligation did not exist at the time of the DCP investment under question,” he said in the National Assembly.
In addition, Schlettwein said the GIPF has recognised a need to implement some of the investigative findings and recommendations that arose from numerous institutions regarding best practices around unlisted investments.
He said these unlisted investments include the Institutional Limited Partners Association (a global association of institutional investors who invest in unlisted investments) as well as the United Nations-supported Principles of Responsible Investments (UN-PRI) where GIPF has become a member and signatory to its responsible investment principles.
“GIPF has also enhanced its internal capacity on unlisted investments by having created a dedicated unit with appropriate skilled personnel that solely focus on monitoring the unlisted programme,” he said.
“It is important to keep in mind though that all investments have risks; therefore, the objective of the above intervention is to ensure that such risks are mitigated as it is not possible to eliminate all risks, and it is also not possible to guarantee that no losses will be incurred in the future.”
Schlettwein says the intention of the DCP was to promote local businesses and grow the economy through the establishment of small and medium enterprises.
“You will therefore see that the companies that were funded, were in sectors that conventional banks usually do not fund such as start-up mining, manufacturing and agriculture in different regions so as to avoid concentration risks in a few regions,” he said.
He said these initiatives were intended to have a socio-economic impact on the regions.
During the review of the business plans, Schlettwein said, the key focus was on job creation, regional impact and sustainability of the businesses.
He explained that although the intentions of the business ventures that GIPF invested in were good, the execution of the projects fell short of the promised and planned deliverables.
“Some of the business ventures failed due to economic factors that made the assumptions reflected in the original business plans no longer viable; general lack of good business governance and flawed business models,” he said.
He said new business ventures or start-up businesses rely on assumptions made in their business plans to make a case for their feasibility.
“The DCP’s target was on those projects that were proposed to be started (green-field projects) or at an early stage of development (brown-field projects),” said Schlettwein.
He said those projects therefore carried much higher risks because they lacked a proven financial track record and clientele base. “All investments made under the DCP were required to present a business plan and all other supporting documents to allow GIPF to gain basic insight into the business.”
For this purpose, Schlettwein said GIPF had contracted a professional investment management company to assist it.
“An assessment was carried out by an investment management company and the findings were presented to the GIPF Board of Trustees to decide whether to fund or not,” he said.