Rewrite financial investment rules

The Technical Adviser on financial markets to the Ministry of Finance, Dr. Sam Mensah, is advocating a relaxed legal regime to allow insurance companies and other institutional investors to invest in riskier ventures.

Dr. Sam Mensah, who is also the chairman of the Council of the Ghana Stock Exchange (GSE), explained that a number of sectors which need critical capital to stimulate growth could benefit from a system that gives flexibility to the investment programme of institutional investors, particularly insurers and pension fund managers, and at the same time safeguard the interests of policyholders.

“One of the peculiarities of the life insurance companies (in particular) is that they collect premiums and do not have to pay claims for a long time. When people buy life polices, it is usually for the long-term even though you are paying the premium now.

“So insurance companies have this pool of capital/premium they have to invest to be able to pay the future benefits. But currently most of the investments are not going to the areas where we need them most. We need those investments to go into some riskier sets of investment like infrastructure, private equity, venture capital, so that they can support the private sector to grow.

“Currently, the investment guidelines are quite strict, and therefore we have to work with our regulators to open up and allow institutional investors such as insurance companies, mutual funds, pension funds to be able to invest in this segment of the market where we need those kinds of resources,” he said.

Dr. Sam Mensah said attempts have been initiated by various stakeholders to get regulators to find a mutual agreement on how the country can successfully tap into the resources of institutional investors.

He added: “There is an ongoing dialogue. But I think the National Insurance Commission (NIC) also has a responsibility to protect policyholders, so some balance will have to be struck somewhere -- and it takes time”.

The comments come at a time the National Pensions Regulatory Authority has indicated its readiness to begin the transfer of funds from the Temporary Pension Fund Account (TPFA) at the Bank of Ghana to employers with Tier-2 occupational pension schemes for management by licenced trustees.

Additionally, the insurance industry (life and general) is touted as being one of the most promising sectors in the economy after earning a 23% rise in premiums from 2012-2013 -- growing from GH?0.84billion to GH?1.04billion.

Dr. Sam Mensah noted that the increasing accumulation of funds by a number of institutions should spur government and other stakeholders to find ways of loosening-up the laws governing investments by some of those funds to improve the capital market.

He said the shift in economic activities from agriculture to services should encourage regulators to provide capacity for the institutional investors to align their investment activities to the transformation the economy is undergoing.

“We are actually getting to a point where an increasingly larger pool of capital has to be provided for the capital market to meet the economy changing needs.

“There are untapped opportunities that the market can pursue in partnership with the government. This will include, for example, harnessing the pool of capital that is being accumulated by the institutional investors -- unit trusts, pension, insurance and mutual funds -- which are hampered by the fact that their investment rules are very conservative and do not allow them to invest in areas that the new economy is demanding,” he explained.

The GSE, touted as one of the best-performing stock markets in Africa, has long been faced with liquidity challenges despite a bullish run in 2013 as a result of the stellar operating performance of some listed companies.

The GSE Council and Securities and Exchange Commission (SEC) have acknowledged liquidity as one of the major challenges on the local bourse, and have moved to get listed companies to increase their number of shares available on the market as the insufficient amount listed shares on the market is thought to be affecting liquidity and trading activities.

Market watchers have fingered institutional investors such as SSNIT -- which holds a large amountof listed securities -- as being a cause of the liquidity challenges on the exchange, as SSNIT typically invests for the long haul and undertakes little trading.