Botswana’s central bank has given its sovereign wealth fund a broader mandate to help ensure the country isn’t denying itself attractive investment returns.
The Pula fund, which holds about 70% of Botswana’s $6.8 billion in foreign reserves, used to be confined to investing in dollars, pounds, yen and euros. New guidelines have increased the number of eligible currencies to 17 and, while the fund is largely adding fixed-income assets, it is also buying some stocks, said the central bank’s head of financial markets, Matthew Wright.
“The policy of aligning our portfolio only on those four currencies did not take into account developments in the global economy, especially those economies outside the advanced ones, which meant a wide range of opportunities were passing us by,” Wright said in an interview in Gaborone, the capital.
Named after the Setswana word for rain, the fund was set up in 1994 to accumulate the arid country’s earnings from sales of diamonds, of which it is the world’s largest producer after Russia. It is not only Africa’s oldest sovereign wealth vehicle, but also among its most conservative, and revisions to its guidelines over the past 25 years have been rare events.
A cautious approach has been maintained, Wright said.
“We did not just look around and say ‘how many markets should we go into?’” he said after a Bank of Botswana briefing Tuesday.
“We had objective criteria to look at the minimum acceptable credit rating, and while before we only invested in AA-rated issuers, we have since reduced this to BBB, which is still quite high.”
In equities, the Pula fund has expanded its focus from major markets to faster-growing countries, especially in Asia, Wright said. As of March, 50% of the fund was invested in fixed-income, with 45% in stocks. The balance is in a strategic fund for “high-yield opportunities.”