By ETimes
It is possible that Zimbabwe’s public market, the ZSE is in a secular downward trend, read few to zero new listings and more de-listings to come.
Initial Public Offers (IPO) have taken a back seat since peaking in the late 1990’s. It is, however, not unique to the Zimbabwe Stock Exchange (ZSE) as down south the Johannesburg Stock Exchange and east the Nairobi Stock Exchange are facing the same fate. Indeed, stock markets around Africa and the world over, at first designed to fill the capital-raising needs of the 19th century, now appear out of sync with capital formation in the 21st century.
The result is that retail investors are getting excluded from the most lucrative deals. As this is happening, private capital markets continue funding unlisted entities in effect keeping them away from public hands.
Granted, public markets are doing their best to remain attractive and prevent the current exodus. However, true recovery is expected to be a long and a drawn-out process especially with the recurrent costs associated with listing. The big question on how should small investors get involved in private markets remains but is answerable.
Although investment choices in Zimbabwe are limited, one possible way is via pension fund investments into private equity.
In Zimbabwe the Insurance and Pensions Commission (IPEC) has allowed pension schemes to invest up to 12 percent of their assets under management in this class, with investment to date totaling 4 percent of the ZWL108.05 trillion assets under management (September 2022).
As at September 2022, 8 percent of pension scheme funds were invested in government securities. Properties (50 percent), money market (6 percent) and equities (28 percent).
There is, therefore, still ample room for pension schemes to invest more funds in the asset class. In fact, Zimbabwe’s allowable weighting is one of the lowest in Africa –as markets such as Rwanda have an allowable weighting as high as 20 percent.
Perhaps, scheme members should start demanding increased allocation towards private equity.
If applicable, they should advise additional trustee education if that would eventually steer the portfolio towards this alternative asset class.
Why should pensioners make this push? Firstly, many private businesses are now choosing to remain private to avoid the usual rigors of going and staying public. In fact, some will never make it to the ZSE, choosing instead to be acquired.
As a result, public markets are no longer providing adequate access to the various sectors of the economy.
Secondly, multiple studies now show that alternatives such as private equity far outperform public traded stocks. It’s a source of differentiated returns.
Lastly, there is ample evidence showing that when individuals retire, they have not accumulated enough assets in their pension pool to have a decent income in their sunset years. On average, people retire with less than 15 percent of their pre-retirement salary.
The question which then comes to mind is, should pension funds care?
Besides dwindling pension fund performance in recent years, Zimbabwe is a country with young demographics. Most companies have a retirement age of 60, so private equity fits perfectly into that time horizon.
There is a compelling reason why pension schemes should be looking to be active and meaningful limited partners of private equity funds. It is essential they move forward towards alternatives.
While we wait for listed private equity investment trusts, pension schemes provide the best and most cost-effective way for the average person to access this market without having to break the bank – Harare
