Fiji Sun

SUVA, Fiji (Jan. 4) – For several years now, commentators have been asking why a pension fund with no experience of the industry, should want to take control of a major telecommunications company in Fiji. And the question has still to be satisfactorily answered.

Now the Asian Development Bank has joined the chorus. The bank suggests that the Fiji National Provident Fund promote competition in the industry by relinquishing its control of [Amalgamated Telecom Holdings] ATH through the sale of licenses to other players.

[PIR editor’s note: Amalgamated Telecom Holdings Limited (ATH) is the parent company of Telecom Fiji and was formed by government in March 1998 as the vehicle for privatization of the telecommunications industry, according to their website.]

Whether that will happen, of course, remains to be seen.

The Fiji National Provident Fund, itself a monopoly, overshadows the whole of the lending industry in Fiji. It is by far the biggest funder of the Government with some 70 percent of its assets held in government paper of one form or another. The fund soaks up government bonds, promissory notes and the other instruments governments and their agencies use to raise money.

This is because, through its sheer size and the legal restrictions on its investment policy, the fund can find insufficient quality projects in which to invest its members' hard earned cash.

It is in effect a captive lender to successive governments, though the present one to its credit has slightly eased the fund's restrictions on offshore investment. Yet it remains the government's (the present and others) primary source of borrowed money.

This is not altogether healthy (though it does reduce the State's exposure to currency and interest rate fluctuations involved in overseas borrowing). The Asian Development Bank's argument that the nation's fledgling capital markets could equally well finance the Government's borrowing may have merit, but surely that would leave the Fiji National Provident Fund and its possible future competitors searching for reliable, reputable and high quality projects in which to invest their members' money.

On the other hand such a development may provide the impetus for more and better projects. It's a tricky equation. But, at the end of the day, the Fiji National Provident Fund's mission is to provide the best returns it can to its members.

It is for this reason that pension funds are traditionally passive investors - that is investors who spread their risk across a wide range of quality activities and companies. To actually take control of one such company would be most unusual.

This is not to say that ATH is not a quality company. Clearly, it is. But the fund members' interests might be better served by a reduced exposure, freeing funds to work harder elsewhere. The Asian Development Bank report deserves close study.

January 5, 2006


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