Staff reporter
Zimbabwe’s stock market is feeling the strain as pension funds pivot away from equities in favour of property and alternative assets, a move that the Imara Asset Management has said is weighing heavily on the Zimbabwe Stock Exchange (ZSE).
In a recent quarterly investment notes update to clients, Imara non-executive director John Legat said pension funds’ growing preference for real estate, much of it overvalued, has added to the ZSE’s woes, already battered by persistent currency volatility and waning foreign investor participation.
“Sadly, the local pension fund industry has had to come to terms with the extraordinary push toward investing in alternative assets that was all the rage three years ago.
“Alternative” being anything other than listed equities or money market assets; an asset class that was gaining acceptance globally where such assets existed with a viable model.
Sadly, not in Zimbabwe. Most projects that we looked at did not have the legs, and certainly not in the ZWL era. Our professed negativity toward such assets was not popular with our clients.
“Today, too many pension funds are heavily weighted toward property (which is overvalued in our view) and alternative assets (which have not been written down to reality and have no clear exit mechanism in place), leaving the only liquid assets as money markets and the ZSE/VFEX. These have continued to shrink and form a small portion of pension fund assets,” he said.
Insurance and Pensions Commission Q1 reports reveal that pension fund exposure to listed equities, including cash and money market instruments, has plunged to just 25%, down from nearly 50% previously.
This, Legat said, was underweighting in equities that has coincided with a nearly 10% year-to-date drop in the ZSE All Share Index.
“As pension funds require liquidity to meet ongoing fund expenses, pension payouts, etc., forget the overvalued and illiquid property assets and unsellable alternatives; sell the listed entities such as Delta or Econet; that’s where the liquidity is.
“Yet these are precisely the assets the pension funds need to be invested in. After all, such businesses pay USD dividends on a regular basis! The property assets and the alternatives pay little return, if anything, and should, likely, be written down in value to reflect underlying performance.
“The fact that they are not being valued correctly is only making the situation worse; overvalued pension funds lead to overvalued pension payouts, implying further pressure on the ZSE/VFEX in the absence of reasonable contributions,” he said.
Not surprisingly, he said there was disillusionment with the pension fund industry in Zimbabwe, as indeed is the case elsewhere in the world.
“Pensions, or put another way, savings, are a critical part of life, especially toward the end of life when earnings from a long-term career fall away. The problem in Zimbabwe is that monthly payments to pensioners are small and, in many cases, meaningless. For current pensioners this may reflect the poor performance of the pension,” he added.
Legat warned that the failure to revalue property holdings accurately risks inflating pension responsibilities, further distorting the investment landscape and undermining returns.
“The result is a self-fulfilling prophecy,” said Sibanda and Legat. “Selling pressures to meet liquidity needs are depressing asset prices, fuelling investor panic and discouraging fresh capital inflows.”
