The investments of Papua New Guinea’s superannuation funds are heavily weighted towards cash and government bonds. But many other opportunities could be developed, senior executives of the two big super funds told the 2019 Business Advantage Papua New Guinea Investment Conference.

‘There’s actually enough capital within PNG to do an awful lot of things but it’s stagnant in pools,’ observed David Brown, Chief Investment Officer for NASFUND.

What is needed, he said, is more recycling of capital.

‘One very good example of that is that we have no tax transparent trust structure. Almost every country has a transparent structure, which means it’s taxed in the hands of the holders, so it becomes an aggregating vehicle.’

‘I see a lot of capital in PNG, but it’s only used once—it stays there under the mattress.’

Brown said an example of what can be done is real estate investment. He said NASFUND has a strong real estate portfolio with a ‘fantastic yield’, but it is heavily concentrated.

‘If you’re sitting on real estate, you can’t liquidate it quickly. But if we were able to put that into a Real Estate Investment Trust (REIT) structure, we would be able to sell portions of that and recycle that capital into more development.

‘You have immediately increased the size of the economy by the sheer velocity of the capital moving around the market.

‘I see a lot of capital in PNG, but it’s only used once—it stays there under the mattress.’

‘To [increase the velocity of capital] you need good securities regulation, enforcement, a tax transparent aggregator and a limited liability partnership or a unit trust structure of some sort. Those organisations then often go onto the listed market.’

NASFUND’s David Brown and Nambawan’s Paul Sayer. Credit: BAI

Bonds and forex

Paul Sayer, Chief Executive Officer of Nambawan Super, said the fund has K7.5 billion of investments, of which 45 per cent is in fixed interest and cash.

‘Predominately that’s in Government Inscribed Stock or Treasury Bills; we have a very big exposure, through those bonds, to the Government.

‘We like the yield that we receive on those bonds, and the Government hasn’t defaulted on payments.’

Sayer said that because of the high yields, buying government paper is ‘a great way that we start off with building a portfolio’.

‘We are supporting the Government through the bond structures to then allow them to fund what they choose is the highest priority to invest into.’

‘We are certainly interested in that investment and continue to have that investment.

‘One of the things that a super fund does is actually back the Government to do the right thing across the population through its ability to raise debt to fund its activities.

‘We are supporting the Government through the bond structures to then allow them to fund what they choose as the highest priority to invest into.’

Sayer said, however, that, with the national government ‘possibly doing further debt raising overseas’, it may mean that the market for local debt will shrink.

‘What do we do with our cash? We need to think around what’s the further investment that we have.’

Sayer acknowledged the fund is constrained by foreign exchange shortages.

He said the fund’s strategic asset allocation dictates that capital should be invested offshore, and there should be a diversification of the fixed interest portfolio. ‘But we can’t get currency,’ he said.

Australian super funds

Another potential source of capital for PNG is Australian super funds, which have A$2.8 trillion (K6.44 trillion) under management.

Sayer told the conference they are most likely to be interested in infrastructure investment.

‘The big industry funds in Australia have got about 8–10 per cent invested in infrastructure: power, ports, utilities.

‘They are long-term investors, so they’re not looking for “Can I trade tomorrow on the stock exchange?” They’re typically looking for that patient capital and getting a return.’