Ghana chokes pension funds’ offshore investment

Accra — Ghana is clamping down on private pension fund managers seeking to invest in offshore assets on concerns it could worsen pressure on the country’s currency, the cedi, according to three industry sources.

After pension reforms in 2010, workers’ retirement contributions in the world’s second-biggest cocoa producer enjoyed strong growth, buoyed by a tiered scheme that allows private firms to manage some contributions.

Assets under management by the pension fund industry were 78.2bn cedis (about R88.7bn) in June, of which more than 73% was managed by 39 private fund management firms.

Ghana’s state-run pension fund handles tier-one contributions towards employees’ monthly retirement benefits, which are mandatory, while private firms manage tiers two and three — mandatory and voluntary contributions, respectively — for lump-sum payment at or before retirement.

The majority of contributions are invested in Ghanaian assets, including Ghana government eurobonds. However, private fund managers have been eager to explore offshore investment opportunities since the restructuring of 31bn cedis of their holdings under a local debt rework.

Ghanaian laws permit private fund managers to invest up to 5% of total assets abroad, about 2.8bn cedis of current assets under management, though firms and authorities differ on the necessity of prior approval.

Some fund managers invested in offshore assets earlier this year, the sources, two in the private pension firms and one at the finance ministry said, but were stopped by the regulator, the national pensions regulatory authority (NPRA).

“They [the NPRA] threatened to sanction us but we didn’t find any basis in law,” one of the sources at a fund management company said.

“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 identified, adding that they had $5m in offshore assets.

NPRA CEO John Kwaning Mbroh said “there’s no resistance” to investing pension assets offshore but the regulator needed approval from the government before signing off.

Mbroh said discussions were taking place to streamline the rules and clarify how to value offshore investments for contributors and fund managers, though he did not know when they would conclude.

‘Protecting liquidity’

Ghana is concluding a challenging debt-restructuring under the Group of 20’s (G20’s) common framework initiative after defaulting on most of its $30bn international debt in 2022.

Despite Ghana’s economic recovery, the cedi has depreciated 25% against the US dollar do far this year after weakening about 17% in 2023.

The source at the finance ministry, who also requested anonymity, said the ministry was concerned about the need to “balance the effects” of investing pension funds abroad on domestic liquidity and value appreciation to 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 argue that authorities are overly cautious, pointing out that local mutual funds and African pension funds invest offshore without similar concerns.

They contend the current policy, given high inflation and cedi depreciation, limits value creation and mutes gains.

They also say it’s contradictory to allow foreign pension funds to invest in Ghana’s market while preventing local funds from investing 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 make any difference.

Reuters