NSSF seeks to hold on to fund management in liberalised sector

A section of the Pension Towers currently under construction. Some stakeholders say the Fund is investing in unviable ventures. Photo BY RACHEL MABALA. 

By Faridah Kulabako & Ismail Musa Ladu

In Summary

The liberalisation of the pension sector will open up space for new players, a situation that is likely to test NSSF’s competitiveness.

 As the liberalisation of the pensions sector takes shape, the National Social Security Fund wants to maintain the role of fund management.

This would be contrary to the Uganda Retirement Benefits Regulatory Authority Act which requires that the service be outsourced. The Act which was enacted last year requires all retirement benefits schemes to outsource administration, trustee, custodian services and fund management services to ensure efficiency and transparency.

In an interview, Mr Richard Byarugaba, the NSSF managing director, said since 80 per cent of the funds’ investment portfolio is in fixed income (TBills, TBonds and fixed deposits), it would not be necessary to outsource the service yet the fund can manage it efficiently. “Outsourcing fund management will increase operational costs yet there might not be any value addition because we can handle it internally,” said Mr Byarugaba.

A fund manager is responsible for implementing an entity’s investing strategy as well as managing its trading portfolio. For their work, fund managers are paid a fee, which is a percentage of the fund’s average assets under management.

Mr Byarugaba said: “13 per cent of our portfolio is in real estate yet very few fund managers can run the real estate portfolio which involves constructing and selling of houses.”

However, Mr Andrew Kasirye, the URBRA chairman maintains all players will have no choice but to comply with the law under a liberalised space.

He says: “The law does not allow a pension scheme provider to perform all the functions such as administration, fund management or play the custodian or trustee role at the same time.

“This means that NSSF will have to outsource some of these functions unless the law is amended to allow them to do all that.”

Mr Kasirye adds that the separation of roles is not only good for corporate governance but will also increase transparency in the management of contributors’ return on investment as well as guarding against fraud and abuse.

He says as the regulator, URBRA will not only license sector players but will also ensure that charges for services offered are reasonable and within acceptable parameters. “I understand NSSF’s fears but as a regulatory authority, we will regulate all players including fund managers, so there shouldn’t be any fears of being overcharged for any services,” he said.

URBRA has also issued regulations to govern the operations of pension schemes and the authority is currently working on investment guidelines which must be followed by all schemes, according to Mr Kasirye.

The investment guidelines restrict schemes from investing savers’ money in any speculative investment and no schemes will be allowed to invest contributors’ money with a bank, non-bank financial institution, insurance company or any other institution with a view of securing loans or mortgages at preferential interest rates.

For instance NSSF which has a drawn out investment guideline is being accused of investing savers’ cash in certain projects that have caused loses to the Fund. For instance the Fund is accused of investing in the Nsimbe estate projects, which was never completed as well as buying the Temangalo land that has since not been developed.

Allegations of impropriety
Although NSSF is said to have invested over Shs8 billion in the Nsimbe Housing project, allegations of impropriety in handling the project were made and the project was suspended on the recommendation of the Inspector General of Government. NSSF has never recovered that money to date.

The above are among a litany of bad investment decisions that the Fund is accused of taking without proper authorisation. However, Mr Byarugaba said the delay in the development of these properties has been due to procurement challenges. However, he added that consultants have been appointed, a master plan drawn and the procurement process will soon start to kick start the development of these projects off the ground.

Because of the restriction by the current law, NSSF has limited investment options, which, according to Mr Byarugaba must be diversified to create more investment vehicles.

Recently Mr Kasirye told this newspaper that the regulatory authority plans to put emphasis on the construction of mini hydro-power dams, roads, hospitals and bonds as key investment vehicles to widen the investment portfolio for retirement benefits schemes and deepen the financial sector.

The above investment vehicles, he said, would offer higher returns compared to real estate and the narrow equities market in the country.

He said: “The real estate industry has in the past attracted a lot of investments and may not be the best vehicle to invest savers’ money going forward as it may soon experience a bubble,” he said before adding that stocks are so volatile to have them as the main investment vehicle for contributors’ money. 

Mr Byarugaba, however, notes that although the real estate sector might have attracted huge private sector investment, NSSF is into organised real estate like the development of satellite cities where there is value. He, however, adds that going forward, the challenge on real estate is likely to change from the old system to more efficient systems in addition to having more new products on board.

Further, he says the recent disposal of the Shs43 billion Alcon case released the Fund from a court battle that had threatened to dent the Fund’s balance sheet. The case would cost savers’ huge sums of loses thus weakening the Fund’s investment position. However, the over 1.3million savers can now anticipate better returns on their savings as the managers would no longer have any excuses but to manage the fund prudently as well as growing the fund’s business portfolio.

Showing interest in pensions sector

By early last month, about 78 firms had applied at the Uganda Retirement Benefits Regulatory Authority seeking approval for the provision of retirement benefits services under the liberalised space. Out of the 78 firms, 11 expressed interest to provide retirement benefits schemes, fund managers (7), administration (5), trustees (53) while the rest expressed interest to offer custodial services.

Although the names of the applicant are still confidential, Prosper recently learnt that one of the applicants under pension services is NSSF, which has been handling administration, trustee, custodial and fund manager services in-house.

A benefits’ scheme receiving mandatory contributions will be required to maintain a minimum deposit of not less than Shs25 billion with the Central Bank or a financial institution approved by the Authority.

Firms that will provide custodial services on the other hand must be financial institutions which must get a no-objection letter from Bank of Uganda before applying to URBRA. So far four banks are licensed to offer custodial services including Housing Finance Bank, Standard Chartered, Stanbic and Barclays.