Namibian retirement funds can now invest an extra 5% of their assets offshore. Birte Schneider, managing director, discusses what the offshore investment realignment means for your investments.
The Bank of Namibia (BoN) recently announced an increase in the foreign exposure limit from 35% to 40%. This is positive news for Namibian investors over the long term, particularly for retirement fund members, as it represents a relaxation in exchange control regulations, which allows for greater diversification and flexibility to benefit from the global opportunity set. Separately, the BoN confirmed that no additional limit for Africa exists.
What does this mean for your investments?
Investors in retirement products can now invest up to 40% of their portfolios offshore. In addition, unit trust management companies, such as Allan Gray, can invest up to 40% of their client assets under management offshore. Therefore, the offshore investment limits for our local unit trusts that are mandated to invest offshore, including those that comply with the retirement fund regulations, are increased to 40%.
The revised foreign asset limit affords our portfolio managers greater flexibility in constructing portfolios depending on the relative attractiveness of various asset classes. It also provides additional geographic, sectoral and currency diversification opportunities, which boost the potential for greater risk-adjusted returns over the long term.
Retirement funds in Namibia are governed by Regulation 13 of the Pension Funds Act, which remains unchanged. This means that a minimum of 45% in a portfolio must be invested in domestic assets. The real impact of the increased offshore limit lies within the remaining 55% of the portfolio that can be invested in assets outside of the country. In essence, it is an increased discretion to reduce exposure to both the South African market and the rand. It also provides the opportunity to diversify into sectors underrepresented in the South African and Namibian markets.
Currently, we are still finding South African equities attractive due to their depressed valuations and therefore do not expect any significant changes to the portfolio in the near future. However, decisions regarding offshore allocation levels are not static; they will continue to be made according to our assessment of where the best value can be found over the long term.
Always make considered changes
The revised offshore investment limit provides you with more flexibility in your decision-making. Nonetheless, it is still imperative to think carefully about your long-term goals, objectives and risk tolerance before adjusting your portfolio.