Uganda is contemplating relaxing restrictions against offshore investments by pension and social security schemes seeking a more diverse asset mix.

Whereas the Uganda Retirement Benefits Regulatory Act of 2011 prohibits investment of savers’ funds outside East Africa, the Finance Ministry recently proposed an investment limit of 15-20 per cent of a scheme’s assets in offshore holdings outside the region. But plans to amend the law to incorporate this change have not been confirmed.

“Offshore investments are necessary in facilitating local pension schemes’ access viable assets that are not available in domestic markets, but are critical for growth,” said Moses Bekabye, Urbra’s interim chief executive officer.

“The average ratio for offshore investments is 15-20 per cent, but this issue requires debate between the regulator and industry players in order to reach a compromise position.”

Shocks attributed to the global financial crisis of 2008 left many pension schemes that were holding offshore assets in a dilemma following steep declines in share prices and some government bonds that resulted in huge market-driven losses for investors and savers.

Consequently, some industry regulators increased restrictions on offshore investments and, in some cases, outlawed this asset segment in an effort to protect savers’ money.

The solid growth recorded in contributions and assets held by the state-controlled National Social Security Fund (NSSF) and private pension schemes over the past two years has overshot the availability of new opportunities in the capital markets, industry players said.

NSSF Uganda’s assets increased by 26 per cent to Ush4.38 trillion ($1.6 billion) while monthly contributions rose to Ush50 billion ($18 million) at the end of June, according to the Fund’s records.

Total membership rose to 450,000 while average disposable resources for investment grew to Ush140 billion ($52 million) per month.

The latter comprises maturing government securities and a proportion of monthly collections. In comparison, local fund managers held assets estimated at Ush800 billion ($289.7 million) by close of May, with some pension schemes accumulating assets of more than Ush30 billion ($10.9 million).

On the other hand, scarcity of long-term assets and a shallow pool of listed stocks in the capital markets have constrained fund managers seeking to diversify their investment portfolios.

Though Kenya’s capital markets remain the favourite for many fund managers in East Africa on account of a large pool of listed stocks, and a large collection of actively traded government and corporate bonds of 20 or 30 years and a more friendly tax regime for market players, fierce competition for high-performing assets among institutional investors and muted growth in the number of big initial public offerings has partly eroded its appeal, markets observers said.

Although industry insiders appear supportive of this reform proposal, some players feel the scope of offshore investments is too wide and prone to huge currency risks that affect investments located across borders.

Market players anticipate additional operational costs on external fund managers deemed more competent in executing massive offshore investments scattered in more than one continent.