PensionENSION funds and life insurance funds have long been major investors in Zimbabwe, needing to lock up money for decades in income-producing assets so that they can pay out pensions to people who start contributing in their late teens or early 20s and insurance payments to elderly people or their heirs who again start paying in their youth.
These have now been joined by the Public Service Commission Pension Fund, responsible for building assets as the Government switches from a pay-as-you-go pension system for civil servants to a funded pension fund.
The new fund only started in 2018 as one of the myriad of reforms of the Second Republic and it will take time to build up an asset base.
At the moment civil service pensions are in theory paid out of the contributions of presently serving members, backed by the Government for any shortfalls, so in effect are indirectly or directly paid out of taxes.
The idea is that in time the revenue from the investments will provide the money needed to pay pensions, as is the case in the private sector.
This will require the Public Service Commission Pension Fund to become a large owner of assets, probably the largest owner of any pension fund in Zimbabwe considering the fact that the Government is the largest employer.
So the question arises over what sort of assets. The fund can and must invest in commercially viable assets, so that it can raise the revenue that will pay pensions. But it can also make a number of socially-useful investments, so long as these produce the sort of returns that other commercial investments make.
One of these was commissioned by President Mnangagwa last week, the Varsity Heights student accommodation in Chinhoyi for students of the Chinhoyi University of Technology. The need for more student accommodation in the town was urgent and essential. As with all universities, tuition places outnumber any on-campus hostels and halls of residence, and a town the size of Chinhoyi will obviously have far fewer potential private lodgings than large cities.
Some carefully investigated and thought out investment decisions were made, with the Public Service Commission Pension Fund coming in as the lead and majority shareholder in a public-private partnership for the substantial Varsity Heights that can accommodate 384 students in single and double rooms.
Sensibly, for a new pension fund, the Public Service Commission Pension Fund sought partners from the private sector and some more experienced public pensions funds to take up minority positions.
While the new fund put up 80,33 percent of the shareholding, a range of other funds, including First Mutual Life, First Mutual Properties, Deloitte Pension Fund, Nicoz Diamond Insurance and the Local Authorities Pension Fund came in as minority shareholders.
This first gave the Public Service Commission Pension Fund access to some high-level financial advice and experience, without paying a fee, and made it clear that the calculations had been done properly and that the revenue returns expected would fall within the range expected for a respectable pension fund.
There is that extra benefit that the investment is also very socially useful in meeting an urgent need.
Students and their families are not generally well-off, so obviously some care had to be taken that the accommodation charges were affordable, meaning that they are were not greater than private lodging charges, and that they offered very good value.
That appears to be the case and shows that innovation and clear-headed commercial decisions can go together and that investment does not have to be limited to traditional areas and that each decision can be made on its merits.
The advantage of a widely diversified portfolio also minimises risk. Having all one's eggs on just two or three baskets is not the wisest decision, as the decline in some long-term investment assets in recent years as a result of changes in society shows.
The tapping of private funds also shows to them and other private funds that profitable investments can also be socially useful, and that their investments can be spread from office parks and commercial shopping centres into other fields.
No doubt the Public Service Pension Fund will also be looking for a diversified portfolio of investments, some purely commercial even if it takes a lead in socially useful, but commercial viable investments.
We have seen some innovation in the private pension and life fund market, with for example the largest private holder of such funds investing in an upmarket complex in central Harare, and another investor putting in the commercial market with smaller stalls at the main bus terminus in Gweru, both opening better and secure market facilities to micro and small businesses, while still making an acceptable return on invested pension and life funds.
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There have been suggestions that some of the near empty older office blocks in central Harare could be converted into student accommodation, where the lack of on-site parking will not be the sort of handicap that it would for other uses, although this would require major renovation and extra investment, along with some imaginative town-planning decisions.
Other socially useful, but commercially viable investment could be in rented accommodation, that is blocks of flats, but allowing rents to reflect inflation to avoid errors of the past. Then there are the rural and small-town investments.
Shopping complexes and office complexes do not have to be in big cities, although they do need to have a pool of viable tenants.
The Public Service Commission Pension Fund is going to have to create a huge and very diversified asset holding to do its job, and so can take a lead in growing the range of investment decisions, preferably with input from the private sector in partnerships, as it has done in Chinhoyi, and as the President wisely urged it to continue doing.
