Strategic Asset Allocation.ppt

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					                International Social Security Association



ISSA REGIONAL CONFERENCE FOR ASIA AND THE PACIFIC

               New Delhi, India, 21-23 November 2006

Management and Performance Challenges Encountered in
       the Investment of Social Security Funds
The Experience of the Social Security and National Insurance Trust of
                               Ghana



                    Kwasi Boatin / Ernest Nyarko

                Social Security and National Insurance Trust
                                    Ghana
      PENSION HOUSE – THE HEAD OFFICE OF
THE SOCIAL SECURITY & NATIONAL INSURANCE TRUST
               Social Security and National      2
                Insurance Trust - Ghana
BACKGROUND
 Ghana’s statutory Pension Scheme was established in
  1991 under PNDCL 247 with SSNIT as the Trustee
 The Scheme covers
      Old age
      Invalidity
      Death and survivors’ lump sum payments
      Health Benefits
 The pensionable age is 60 and the benefit levels under
  the Scheme include:
    50% of average of the best three years salary for a
     contribution period of 240 months
    Pensions are capped at 80% of insured earnings, with
     current minimum monthly pension        at ¢125,000
     (approx. US$14)

                      Social Security and National     3
                       Insurance Trust - Ghana
THE SCHEME’S INVESTMENT
GUIDELINES
 The current investment guidelines of the
  Scheme were developed and adopted in
  2003.
 The guidelines were developed in response
  to the conditions that prevailed when the
  current Board of Trustees assumed office in
  2001
   The Scheme’s investments were skewed
    towards fixed income instruments, when
    market conditions suggested more profitable
    investments
                Social Security and National   4
                 Insurance Trust - Ghana
SSNIT – Asset Allocation Structure (1996 –
2005)

  100%

  80%

  60%

  40%

  20%

   0%
         2005 2004 2003 2002 2001 2000 1999 1998 1997 1996

                Equities    Fixed income      Real Estate   SPI



                           Social Security and National           5
                            Insurance Trust - Ghana
 Performance of SSNIT Portfolio vs. Selected
 Money and Capital Market Instruments
                   Historical Risk Return Analysis of SSNIT's Investment Return vrs
                          Return on Capital Market Instruments (1999 - 2003)
             100
             90                                                               GSE (Ex-AGA)
             80
             70
                                                          GSE
Return (%)




             60
             50
             40
             30
                                                         SSNIT
             20
             10                   Cash                Fixed Income
               -
                   0       10        20           30       40            50    60       70
                                               Standard Deviation


                                          Social Security and National                   6
                                           Insurance Trust - Ghana
INVESTMENT GUIDELINES AND
ASSET ALLOCATION POLICY

 Investment objectives
 Investment programme and structure
 Investment management
     Role and duty of investment Subcommittee
     Role of portfolio managers
     Reporting
     Proxy voting and trading policy
 Performance measurement


                  Social Security and National   7
                   Insurance Trust - Ghana
Asset Allocation and Performance
Measurement
Asset Class                Allocation            Performance Benchmark

Equities
   Active Public Equity     25%                 150-200 bps over the GSE Index
   Unlisted portfolio        4%                 20-25% Return on Equity

Fixed Income
   GOG Bonds                 1%                 5% Real Return (Inflation linke
   Third Party Lending       4%                 Bank of Ghana Prime+100 bps
   Corporate Debt            2%                 Average Comm. Bank Base
                                                 Rate - 150 bps
   Students’ Loans          12%                 1 year Treasury bill rate

Money Market                 32%                 91-Day Treasury Bill rate

Real Estate                  15%                 1 year T-Bill + 200 basis points

SPI/ETIs                      5%                 Cost Recovery (minimum)


                           Social Security and National                             8
                            Insurance Trust - Ghana
INVESTMENT MANAGEMENT
CHALLENGES
 Internal Challenges
      Investment monitoring capacity
      Asset allocation: target vs. actual
 Industry and Regulatory Challenges
      Small country markets
      Corporate governance and trust building
      Legal and regulatory environment
      The pension law vs. foreign investments
      Limited exit opportunities
      Currency risks
      Inadequate infrastructural base
 Other Challenges
      Public perception
      Political factor


                        Social Security and National   9
                         Insurance Trust - Ghana
PERFORMANCE REVIEW
Improved Financial Health

                                                                                               Analysis of Funded Status of
                              Net Surplus vrs Net Assets                                    The Social Security Pension Scheme
                                                                             60%

 Improved financial
 10000
     health
  9000
                                                                             55%


                8000                                                         50%
Billion Cedis




                7000
                6000                                                         45%
                                                               Net Surplus
                5000
                                                               Net Assets
                4000                                                         40%

                3000
                2000                                                         35%

                1000
                   0                                                         30%
                                                                                   2002   2003        2004        2005           2006    2007
                       2001   2002    2003    2004    2005



                                                       Social Security and National                                                     10
                                                        Insurance Trust - Ghana
PERFORMANCE REVIEW
Asset allocation: Target vs. Actual

                      Scheme's Asset Allocation Dec 2005



                               5%                              1%
        100%                  15%                             11%

         80%
                              51%                             58%
         60%
         40%                   4%                              7%
         20%                  25%                             23%

          0%
                          Target                         Actual

    Listed Equities   Unlisted Equities   Fixed Income    Real Estate   Special purpose


                               Social Security and National                               11
                                Insurance Trust - Ghana
PERFORMANCE REVIEW
Improved returns

            Nominal            Average        Real Return
            Return             Inflation
1997-2001     25.4%               23.3%          1.7%

1998-2002     24.9%                 20.7%        3.5%

1999-2003     28.4%                 22.2%        5.1%

2000-2004     32.2%                 22.2%        8.2%

2001-2005     26.1%                 20.2%        4.9%


               Social Security and National             12
                Insurance Trust - Ghana
PERFORMANCE REVIEW
SSNIT’s Portfolio vs. the GSE Benchmark
              SSNIT Listed Equities vrs Benchmark GSE

300%
250%
200%
150%
100%
50%
 0%
-50%   2001          2002              2003            2004   2005

                                   SSNIT      GSE



                        Social Security and National                 13
                         Insurance Trust - Ghana

				
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