Soaring oil prices and the outbreak of the Russian-Ukrainian conflict have contributed to the uncertainty facing financial markets. This could potentially have negative implications for the Namibian pension fund industry’s investment assets.
The sector’s investment assets weathered threats stemming from Covid-19, higher than expected inflation rates and relatively tighter central bank policies during the review period.
According to the April 2022 Financial Stability Report released by the Bank of Namibia last week, investment returns were recorded at 15.6% in 2021, rising from 6.7% and 5.8% in 2020 and 2019, respectively.
“Strong performance was seen in particular in the first and fourth quarters of 2021. The performance in the first quarter of 2021 was due to the deployment of the Covid-19 vaccine as well as a relatively large stimulus from the US government,” reads the article. The report.
Additionally, financial markets weathered the threat of the Omicron variant Covid-19 as well as the prospect of tighter central bank policies to end the fourth quarter of 2021 positively.
The sector remained operationally resilient throughout 2021, despite the effects of interest rate hikes in various jurisdictions, among others. During the period under review, the assets of the pension fund sub-sector increased by 17.9% to reach N$212.9 billion at the end of December 2021 due to the favorable performance of the financial markets. In terms of investment mix, the pension fund industry held at least 45.7% of its assets in equities during the reporting period. Bonds and insurance policies made up the rest of the subsector’s top three investment vehicles.
“The reduction in equity exposure over time has coincided with revisions to the investment regulations governing these funds. Chief among the revisions was the phased increase in the minimum domestic holding requirement from 35% in 2014 to 45%, effective March 2019.
Inherently, shocks in the financial markets will channel the most severe distress to the investment assets of the subsector, given the composition of the industry’s investments. The Financial Institutions Supervisory Authority of Namibia (Namfisa) therefore monitors developments in financial markets in relation to inflation and geopolitics,” the report adds.
Regarding the geographical distribution of funds, the exposure of the pension fund sub-sector to the domestic economy increased during 2021.
The industry’s national exposure increased from 45.6% in December 2020 to 49.4% in December 2021. He noted that the proportional growth in national assets is attributable to national holding requirements mandated by legislation. Pension fund investment assets held in the domestic economy amounted to N$104.6 billion as of December 2021, including N$107.0 billion held outside Namibia during the same period reference.