Pension funds set to invest in real sector; as investors seek diversification

Pension funds are setting their sights on investing in the real sector, according to the 2023 outlook survey by Axis Pension Trust, amid the economic woes which is driving investors to seek diversification away from government securities.

According to the survey, investors are now looking to diversify their portfolios in alternative assets, which will set the stage for pension funds to finally invest in the real sector of the economy. This is seen as a positive step towards addressing the structural weaknesses in the Ghanaian economy.

Amidst the limited investment alternative, market analysts are of the view that investors could consider real estate investments and exposure to agriculture and energy-focused private equity (PE) funds as alternative investments, as well as commodities such as gold and other precious metals, infrastructure and cryptocurrencies.

“It is crucial to note that developed countries allocate a significant percentage of pension fund assets to the private sector to drive economic growth. Government expenditure should also be directed towards capital expenditure, generating investments that can drive growth,” the Chief Executive Officer of Axis Pension Trust, Afriyie Oware told the B&FT.

“It is necessary to redefine the direction of the country for the next economic cycle by efficiently allocating resources to the private sector and implementing proper investment guidelines. This will attract private sector investments, drive economic growth, and avoid excessive investing in government debt,” he added.

Nonetheless, effectively harnessing these opportunities will require changes to the existing investment guidelines from the Securities and Exchange Commission (SEC) and the National Pensions Regulation Authority. The changes to the existing investment guidelines will be to increase the investment ceilings on other asset classes as the current ceiling assigns heavyweights to the sovereign debt.

However, the survey further established that the domestic debt exchange programme could be disruptive to both the financial and real sectors for years to come. The growth outlook and its consequential impact on asset prices are highly negative, with the central bank losing credibility in its ability to control inflation and liquidity being drained out of the system.

Economic growth

Money managers who were surveyed say they expect the country to have a challenging 2023, growing at below trend pace of between 2-3 percent. This is due to rising inflation and elevated interest rates, slowdown in government capital expenditure and a decimated consumer population suffering from the effects of the domestic debt exchange programme.

“With the central bank losing credibility in its ability to control inflation and with liquidity being drained out of the system, the growth outlook and its consequential impact on asset prices is highly negative,” the outlook stated in part.

The central government has forecasted the economy to grow by 2.8 percent in 2023, but the heightened uncertainty surrounding the debt exchange programme and its consequential impact on local currency and inflation may necessitate a downward revision of the projection.

“Beyond the domestic debt exchange programme, the government will have to think of bolder and more transformative policies to build fiscal buffers towards a path of sustainability. This includes addressing weaknesses in enforcing compliance and improving tax administration to mobilise domestic resources to support economic recovery,” the report suggested.

Axis Pension indicated that improving the efficiency of revenue collection through institutional reforms such as improved governance and adopting digitisation and e-governance will improve transparency and reduce illicit financial flows.