By Vincent Shimutwikeni
In 2015, the Namibian Government introduced a transformative regulatory measure aimed at stimulating domestic economic development through long-term institutional capital. This was formally enacted through Regulation 13(5) of the Pension Funds Regulations.
The regulation mandates that all registered pension funds allocate a minimum of 1.75% and up to a maximum of 3.5% of the market value of their total assets to unlisted investments, in accordance with Part 8 of the Regulations.
At the heart of this policy intervention was the rationale that unlisted investments, typically channelled through Special Purpose Vehicles (SPVs) or Unlisted Investment Managers (UIMs) could unlock funding for sectors traditionally underserved by mainstream capital markets.
The Government’s intention was clear: to crowd in pension fund capital into domestic productive sectors such as infrastructure, SMEs, agriculture, renewable energy, and industrialisation, thereby fostering economic diversification, job creation, and inclusive growth.
These unlisted investment vehicles were structured predominantly as 10-year closed end funds, with optional two-year extensions, a design reflective of global private equity norms. This approach aligns with the illiquidity premium theory, where long-term investors such as pension funds are expected to tolerate liquidity constraints in exchange for higher returns.
Now, a decade since the inception of Regulation 13(5), many of these funds have either reached or are approaching the end of their initial investment terms. This provides a timely opportunity for reflection.
As stewards of pension savings, it is imperative that we ask critical and honest questions: Have these investments delivered on their developmental promises? Are the underlying assets secure and returns aligned with fiduciary obligations to pensioners?
Have we struck the right balance between national interest and the retirement security of workers?
In the spirit of transparency and accountability, there is a growing need to evaluate whether Regulation 13(5) has achieved its policy objectives or whether it now requires recalibration in light of market realities and the overriding duty to protect pensioners’ money. We need to carefully examinene the outcomes, challenges, and future prospects of mandatory unlisted investments in Namibia’s pension fund landscape.
How have they performed
In theory, Regulation 13(5) was meant to stimulate a new asset class and drive capital into productive sectors. In practice, however, the landscape in 2015 was not sufficiently mature to absorb the incoming capital efficiently.
At the time, Namibia had a very limited pipeline of viable, investment-ready unlisted projects. The ecosystem lacked experienced fund managers, credible business proposals, proper governance mechanisms, and robust oversight structures. The necessary architecture to deploy this capital prudently was simply not in place.
As a result, many pension funds were forced into a constrained investment universe with few quality options, leading to suboptimal portfolio allocations. Several of these investments, now at or near maturity, have underperformed significantly. Many stand in a position where they are unable to return even the initial capital invested, let alone generate the returns expected to justify the risk.
These investments may have underperformed due to a combination of factors, including an underdeveloped investment ecosystem with a limited pool of experienced fund managers, possible shortcomings in due diligence by trustees, and potential weaknesses in governance within some UIMs.
High fees, low transparency, and misaligned incentives could have further eroded value. Moreover, external shocks such as COVID-19 and the lack of well-developed exit opportunities in Namibia’s market environment may have made it challenging for funds to realise meaningful returns.
From a timing perspective, the economic downturn that began around 2016 particularly affecting the construction sector would have also negatively impacted unlisted private equity investments, many of which were exposed to this industry.
What this means for pensioners:
At the core of this policy’s impact is the pensioner, whose long-term financial security depends on prudent management of retirement savings. When unlisted investments fail to preserve capital, pension fund growth is compromised, potentially leading to lower retirement benefits, difficulty in meeting future liabilities, and even adjustments to contribution rates or benefit structures.
This underperformance also increases pressure on trustees to account for past decisions and consider more cautious investment strategies going forward.
Should the cap be revised?
Some stakeholders advocate for increasing the 3.5% cap on unlisted investments, arguing that the current threshold is too low to meaningfully drive sustainable economic development or allow pension funds to play a stronger role in reducing socio-economic inequality. They propose that raising the cap, coupled with a focus on responsible investment, could enhance the developmental impact of pension fund capital.
However, any increase in the cap must be carefully assessed in light of its impact on pension fund members, especially in defined contribution (DC) funds, where each member’s retirement outcome is directly linked to the performance of their individual investment. In these funds, increased exposure to unlisted investments could raise the risk to members’ savings if those investments underperform.
The Government Institutions Pension Fund (GIPF) is uniquely positioned in this regard, as it operates under a defined benefit (DB) model. In DB funds, members are guaranteed a specific pension benefit upon retirement, regardless of investment performance, with the employer (typically government) bearing the investment risk. This buffer allows GIPF to absorb potential shortfalls without directly impacting member benefits.
In contrast, most other funds in Namibia are DC in nature, meaning members bear the full investment risk. Therefore, increasing the unlisted investment cap without safeguards could jeopardise members’ retirement security. Any change in policy must consider this fundamental difference and strike a balance between developmental ambitions and fiduciary responsibility.
Alternative Strategies for Economic Growth
Instead of solely increasing the unlisted investment cap, alternative strategies to boost the economy could include creating a stronger pipeline of bankable projects, improving the Regulation to allow for investments in socially uplifting asset classes like housing, and enhancing SME support and participation in agribusiness for Namibia’s push towards food self-sufficiency.
Government can also focus on reducing red tape, supporting SME development through targeted grants or blended finance, accelerating growth of Agri-sector and investing in infrastructure that unlocks economic potential. Strengthening financial markets and encouraging local entrepreneurship can further stimulate inclusive, sustainable growth without placing undue risk on pensioners’ savings.
Conclusion
Ten years later, it is essential to ask whether Regulation 13(5) should be recalibrated. While the developmental intent remains noble, the implementation has exposed systemic weaknesses that must be addressed.
Perhaps the policy should evolve towards a performance-based compliance framework where investment in unlisted assets is encouraged through incentives rather than mandates, and where governance, transparency, and investor protection are significantly strengthened.
In the end, the conversation must return to first principles: fiduciary duty, accountability, and long-term sustainability. The future of unlisted investing in Namibia will depend not just on regulation but on building an ecosystem that genuinely supports growth, innovation, and, most importantly, the retirement dreams of the people.
*Vincent Shimutwikeni is RFS Fund Administrators, Manager: Legal Support
