The government is taking action against private pension fund managers seeking to invest in offshore assets, citing concerns that such investments could put additional strain on the country’s cedi currency, according to three industry sources.
Pension contributions in Ghana saw substantial growth after reforms in 2010, with a tiered system allowing private firms to manage a portion of the contributions.
As of June, the pension fund industry had assets totaling GH¢78.2 billion ($4.93 billion), with more than 73% of these assets managed by 39 private fund management firms.
The state-run pension fund oversees mandatory tier one contributions for employees’ monthly retirement benefits, while private firms handle tier two and tier three contributions, both mandatory and voluntary, for lump-sum payouts at or before retirement.
Most of these contributions are currently invested in local assets, including Ghana government Eurobonds.
Despite this, private fund managers have expressed interest in offshore investments, especially after restructuring 31 billion cedis of their holdings during a local debt rework.
Ghanaian regulations allow private fund managers to allocate up to 5% of total assets abroad, which amounts to roughly 2.8 billion cedis of the current assets under management. However, there is disagreement between the firms and authorities over whether prior approval is required.
Sources from private pension firms and the finance ministry confirmed that some fund managers attempted to invest offshore earlier this year but were blocked by the National Pensions Regulatory Authority (NPRA).
“They (NPRA) threatened to sanction us but we didn’t find any basis in law,” one of the sources at a fund management company told Reuters.
“We have not exited but we can’t invest more (offshore). It’s a very strange development,” said the source who asked not to be named, adding that they had $5 million in offshore assets.
Head of the NPRA, John Kwaning Mbroh, informed Reuters that there is “no opposition” to offshore pension investments, but emphasized that the regulator requires government approval before granting approval.
Mbroh added that talks are ongoing to simplify the regulations and provide clarity on how to assess the value of offshore investments for both contributors and fund managers, though he could not specify when these discussions would be finalized.
‘PROTECTING LIQUIDITY’
Ghana is wrapping up a tough debt-restructuring process under the G20’s Common Framework, after defaulting on the majority of its $30 billion international debt in 2022.
Although Ghana’s economy is showing signs of recovery, the cedi has depreciated by 25% against the U.S. dollar this year, following a 17% decline in 2023.
An anonymous source from the finance ministry stated that the ministry was focused on managing the impact of investing pension funds overseas, ensuring it doesn’t negatively affect domestic liquidity or the value growth for fund managers.
“The ministry won’t say ‘no’ but it’s about how do we protect the economy, the liquidity,” the source said.
Private pension management firms in Ghana believe the authorities are being overly cautious, highlighting that local mutual funds and African pension funds already invest overseas without facing the same restrictions.
They argue that the existing policy, amid high inflation and the depreciation of the cedi, hampers value growth and limits potential returns.
Furthermore, they find it inconsistent that foreign pension funds are permitted to invest in Ghana’s market, while local funds are barred from making similar investments abroad.
“The world over, pension funds chase value but they want us to chase inflation,” an executive of one of the top five fund managers said, adding that investing 5% of their assets abroad doesn’t even move the needle.