Have you heard the buzzing: if you need capital to start your business approach a pension fund, but how?
At independence, Namibia recorded substantial pension assets, leading to a high level of contractual savings that exceeded 50% of GDP, strangely positioning the country alongside savings giants like the Netherlands and Singapore.
However, with illiquid capital markets and limited investment instruments, Namibian institutional investors, especially pension funds, sought opportunities abroad. Policymakers, alarmed by the increasing capital flight, aimed to harness these savings for domestic investments without compromising returns. Recognizing the pivotal role of pension savings in financial system development, they pursued a policy tailored to Namibia’s unique circumstances.
In 1996, the Development Capital Portfolio (DCP) was launched, the first initiative to use domestic savings to boost the local economy. The DCP aimed to finance development projects, offering loans to previously disadvantaged individuals to integrate them into the mainstream economy while generating investment returns for pension funds.
Unfortunately, the DCP experienced mixed returns causing the Minister of Finance (Minister) to introduce a regulatory framework for unlisted investments (slightly comparable to private equity elsewhere) to balance economic development with safeguarding pension fund investments.
So, in 2008, the Minister amended Regulation 28 of the regulations made under the Pension Funds Act No. 24 of 1956, mandating that pension funds invest a minimum of 2% of pension assets in unlisted investments- effectively creating a new asset class. The current 2018 Pension Fund Regulations require pension funds to invest 1.75% to 3.5% of their total assets in unlisted investments.
In 2013 the Minister introduced Regulation 29 of the Pension Funds Act regulations, prescribing that pension funds invest in unlisted investments by advancing debt or equity capital in a portfolio company through a registered Special Purpose Vehicle (SPV).
A registered Unlisted Investment Manager (UIM) actively manages these unlisted investments on behalf of the SPV by structuring and making the investment decisions, making the UIM pivotal in realising returns on behalf of the SPV. The relationship between the SPV and UIM is mainly guided by the investment plan which sets out the investment objectives of the SPV, the classes and limits of investments, meeting procedures and so on. Both the SPV and UIM are regulated by NAMFISA, ensuring robust oversight driven by the lessons from the results of DCP.
As of 31 March 2024, NAMFISA regulates 21 SPVs and 31 UIMs. The N$4 billion unlisted investments industry, though still emerging, is teeming with challenges and opportunities. The investments cover various industries such as manufacturing, renewable energy, farming and agriculture, education, health services, information technology to name a few.
Critics often point to its slow progress in achieving its ambitious developmental goals. Yet, it stands as a pivotal policy tool, leveraging pension savings to drive local economic growth.
Turning back to the buzz: if you need capital to start your business, approach a registered Unlisted Investment Manager, not a pension fund. UIMs are your gateway to accessing the capital that can fuel your entrepreneurial dreams, leveraging Namibia’s innovative unlisted investment framework.
*Rosalia Mboti is Policy Advisor Capital Markets at NAMFISA
