SSNIT shifts investment strategy toward fixed-income focused portfolio

The economy’s largest institutional investor, Social Security and National Insurance Trust (SSNIT), has indicated a strategic shift toward a fixed-income focused portfolio – a move that could significantly impact the investment landscape.

The current portfolio of GH¢16.7billion, as of 2023, is heavily weighted toward equities (49.3 percent) and alternative investments (34 percent), with only 16.7 percent allocated to fixed income. However, SSNIT plans to dramatically rebalance this allocation in the short-term; by more than doubling the fixed income allocation to 48.8% while substantially reducing both equities and alternative investments

SSNIT Director-General, Kofi Bosompem Osafo-Maafo, outlined the trust’s new direction during a recent media engagement.

“The strategy is to decrease our real estate portfolio and decrease our equity investments, and that’s going into fixed income which provides us more,” Mr. Osafo-Maafo stated. “If that happens, then we come to a position which is more consistent with where we want to be.”

As the strategy progresses, the fixed income allocation is set to increase further to 60 percent in the long-term, while equities will be reduced to 26 percent and alternative investments stabilised at 14 percent. This shift suggests a move toward a more conservative, income-focused portfolio over time.

“We have an asset allocation policy that is risk management-driven. 60 percent of our investment has to be in fixed income instruments and 40 percent in non-fixed income instruments,” explained Patricia Fosu, General Manager of SSNIT’s Investment and Development Division.

The Trust is considering drastic measures to rebalance its portfolio, including the potential sale of its extensive hotel assets.

Mr. Osafo-Maafo described this as a “brutal decision”, but one that could rapidly accelerate the shift toward desired asset allocation. “Assuming we took the brutal decision of selling the hotels, we would be there,” he explained. “But that’s what we do. That’s fund management. It can’t be static.”

The hotel divestment process, initiated in 2018, has faced challenges due to payment negotiation issues. Negotiations with preferred bidder Rock City, which offered US$61.2million for SSNIT’s 60 percent stake in four hotels, have stalled over payment terms disagreement.

Beyond hotels, SSNIT is eyeing other potential divestments says Ms. Fosu: “We are overly exposed to equities. Our target says that we should be at 26 percent in the long-term, but we’re at 49.3 percent”.

The Trust aims to reduce its investment in unlisted equities from 35.8 percent to 4 percent in the long-term, while increasing listed equities allocation from 13.5 percent to 22 percent.

Investments in real estate will be reduced significantly from the current level of 30.5 percent to 10 percent in the shortest possible timeframe.

“We are completing all our real estate projects. We are not undertaking any new real estate projects until we have been able to sell the properties that we have completed,” Ms. Fosu added.

This shift represents a significant change for SSNIT, which has long been a major player in Ghana’s real estate and equity markets. The Trust is the nation’s largest commercial property developer, with investments spanning student accommodation as well as the power generation and ICT sectors.

On the Ghana Stock Exchange, SSNIT holds investments worth GH¢2.42billion with stakes in 22 out of 36 listed stocks. In the banking sector, it has investments in 8 out of 23 commercial banks.

As SSNIT navigates this transition, it must also manage outstanding government arrears. Mr. Osafo-Maafo noted that of GH¢2.5billion owed, government has paid GH¢1.4billion – with negotiations ongoing for the remainder including interest and penalties.

The Trust’s investment portfolio is predominantly domestic, says Ms. Fosu

“As of December 2023, 99 percent of our investments are domestic. We have 16.2 percent of our investments in the energy sector, about 15.7 percent in services, 3.5 percent in manufacturing, 15.2 percent in the financial services sector and 37.5 percent in real estate,” she added.

This strategic shift by SSNIT could have far-reaching implications for Ghana’s investment landscape. As the country’s largest institutional investor repositions its portfolio, it may trigger a ripple-effect across various sectors of the economy. The move toward fixed income could potentially impact liquidity in the equity markets and real estate sector, while increasing demand for government and corporate bonds.