GIPF limits trustee roles

By: JO-MARÉ DUDDY

THE Government Institutions Pension Fund (GIPF) yesterday afternoon admitted that its board of trustees should not “at all” have been involved in approving money for projects in its Development Capital Portfolio (DCP), which suffered a total loss of over N$1,8 billion before it became dormant.

“With hindsight, a wholesale approach should have been adopted where the trustees would not have been involved in the decision-making process at all,” GIPF Chairman Hartmut Ruppel said in a statement.

Trustees no longer take investment decisions, “professional private equity asset managers” do, Ruppel said.

The DCP controversy was sparked again recently when various confidential reports and letters by the Namibia Financial Institutions Supervisory Authority (Namfisa) were leaked to the media, exposing “fatal flaws” and calling for, among others, a presidential inquiry into the “circumstances under which investments were made and substantial losses were incurred through grand failure of the companies [projects]”.

In Ruppel’s statement yesterday, he said DCP investment decisions were made “at the sole discretion of the trustees of the fund on the recommendation of the investment advisor”. Investec acted as investment advisors from 1996 to November 2000, when they were “replaced” by Sanlam Investment Managers.

“Whilst the process of [approving funds to projects] was acceptable, the main flaw was that the trustees adopted a retail approach to the DCP which required them to make the investment decision,” Ruppel said.

He said the DCP has, to date, shown net returns of N$144,6 million.

A report submitted to Prime Minister Nahas Angula and Finance Minister Saara Kuugongelwa-Amadhila by Namfisa on August 1 2007 stated that the GIPF suffered approximately N$650 million in capital losses through DCP investments. 

According to Namfisa, the fund also lost about N$1,2 billion in “opportunity costs”, money Namfisa believed was lost because of opportunities forgone in the GIPF’s choice of one investment over another.

“A total loss therefore, of over N$1,8 billion,” the Namfisa report said.

Ruppel yesterday said: “Whilst returns could certainly have been better in pure financial terms, it is important to remember that there were also significant social and moral returns that will never be included in the financial returns.”

According to Namfisa, only 20 per cent of the projects had “satisfactory socio-economic benefits”. The rest had “average” or “unsatisfactory” socio-economic benefits.

Ruppel said projects were brought to the GIPF “ by a fairly wide range of different promoters”.

“Some were what may be termed as being well-connected people and some not,” Ruppel said. The trustees looked at each proposal on its merits, helped by the GIPF’s investment advisors, he said.

“The assertion that money was awarded to politically well-connected people only is not true.”

Several trustees served as directors on the companies Namfisa scrutinised in 2007, while some of the shareholders and managers in subsidiary companies of the investment advisors apparently were also shareholders or directors in the DCP-funded projects. “This in itself creates a self-serving circle,” Namfisa said.

Ruppel also denied that trustees approved projects under pressure from Government, saying that the trustees “have always been the final decision-makers as to who was awarded money and were solely accountable for those awards”.

“It is true, however, that Government and other key stakeholders were consulted where it was appropriate to do so. This is normal and healthy business practice,” he said.

According to Ruppel, project applicants submitted “comprehensive financing proposals” to the GIPF or the investment advisors. He also said that the investment advisors carried out due diligence work.

In its 2007 report, Namfisa said in 60 per cent of cases, business plans were unsatisfactory or weren’t presented at all. In 93 per cent of cases, no due diligence was performed.

“In none of the projects was a due diligence performed and found by the [Namfisa] inspectors’ analyses to be of a satisfactory standard,” the report stated.

Ruppel said the GIPF required that each financed project gave collateral for its loan. Namfisa felt that the GIPF “did very little to mitigate their losses in a proper and timeous fashion”.

“It also remains clear that the failure by the trustees, for a considerable number of years, to exercise proper control over the investments of the GIPF, and more specifically to call up securities once the projects fell in arrear with repayments, can be regarded as the single largest contributing factor resulting in enormous losses suffered subsequent to the investing in several doomed enterprises,” Namfisa said.

Ruppel yesterday said that the trustees can “no doubt be criticised in many respects on the DCP, including some of the governance principles they adopted”.

However, when it became evident that there were problems, they “did take decisive and appropriate action”, Ruppel said. This included freezing the DCP, not giving any more money to existing DCP projects and following a “responsible exit strategy in 2004”.

“Every attempt was made to maximise return or minimise loss,” Ruppel said.

The trustees also “did not shirk from taking harsh decisions even when it affected some of them directly”, he said.

This include participating in the Namfisa investigation, launching their own investigation and adopting a new unlisted investment policy. They also laid a criminal complaint against the directors of Namibia Chicken Investments.

Ruppel said that in the trustees’ view, “whilst mistakes were made, they always acted in the best interest of the GIPF, with integrity and good faith”.

In the 2007 report, Namfisa proposed that “the trustees and management of the GIPF be replaced” in terms of the law. “Namfisa has commissioned a legal opinion from a senior advocate in this regard and will avail the opinion to Government if required,” the watchdog said.

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