Santiago Principles Self-Assessment

The Pula Fund

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  • Pillar 1: Legal
  • Pillar 2: Institutional
  • Pillar 3: Investment
Principle 1

1. The legal framework for the SWF should be sound and support its effective operation and the achievement of its stated objective(s).

1.1. The legal framework for the SWF should ensure legal soundness of the SWF and its transactions.

1.2. The key features of the SWF’s legal basis and structure, as well as the legal relationship between the SWF and other state bodies, should be publicly disclosed.

The Pula Fund, established in 1993, is not a separate legal entity. The Bank of Botswana Act amendment in 1996 promulgated the legal framework supporting the Fund. 

Management of the Pula Fund is in accordance with Section 35 of the Act, which stipulates the establishment and management of long-term investment funds.

The Act tasks the Bank of Botswana with the operational management and transactions of the Pula Fund, in order to ensure the legal soundness of the Fund. In addition, the Ministry of Finance (MoF) assumes the role of the asset-owner on behalf of Government. The Bank of Botswana assesses the needs for primary international reserves (invested in the Liquidity Portfolio) to accomplish its principal objectives. In consultation with MoF, the assets in excess of reserves adequacy requirements (six      months of import cover) form the investments in the long      term (Pula Fund). The Bank determines the policies, terms and conditions for Pula Fund including selection of appropriate investments and the payment of dividends.

The Government of Botswana has allocation in the Pula Fund, via the Government Investment Account, which represents government’s share of the Pula Fund.  The Act details the legal specifications for such activities.

Principle 6

6. The governance framework for the SWF should be sound and establish a clear and effective division of roles and responsibilities in order to facilitate accountability and operational independence in the management of the SWF to pursue its objectives.

The governance structure is detailed in Part IV of the Bank of Botswana Act. A three-tier structure is followed in terms of governance:

The Board of the Bank of Botswana has overall responsibility for the management of the Pula Fund. The Board includes a member from MoF representing the government ownership of the Pula Fund. Other members of the Board include the Governor of the Bank of Botswana and seven (7) independent non-executive directors, which are appointed by the Minister of Finance.  The Board approves the investment policy and the strategic asset allocation while responsibility of developing and implementing the investment guidelines has been devolved to the Investment Committee chaired by the Governor. 

(b) The Investment Committee decides on the execution of the investment strategy, including tactical deviations from the board-approved strategic asset allocation. The Investment Advisor advises on strategic investment, external fund manager selection and monitoring. The custodian provides custody services and measures the performance of both the internally and externally managed Pula Fund portfolios. 

(c) The International Dealing and Strategy Unit within the Financial Markets Department executes the investment strategy and ensures attainment of the desired asset allocation in financial markets. Regular reporting of all the activities of the Pula Fund   to the Board is utilised to ensure operational compliance with the agreed investment strategy.

(d) The Risk Management Department advises on risk management and compliance to the investment guidelines. 

(e) The Verification and Compliance Unit undertakes reconciliation, cash transfer, correspondent banking and Know Your Customer (KYC) processes.

(f) The Payments and Settlement Department executes the back-office functions of the investment process.

(g) The Finance Department executes the accounting, performance and valuation functions of the investment process.


Principle 18

18. The SWF’s investment policy should be clear and consistent with its defined objectives, risk tolerance, and investment strategy, as set by the owner or the governing body(ies), and be based on sound portfolio management principles.

18.1. The investment policy should guide the SWF’s financial risk exposures and the possible use of leverage.

18.2. The investment policy should address the extent to which internal and/or external investment managers are used, the range of their activities and authority, and the process by which they are selected and their performance monitored.

18.3. A description of the investment policy of the SWF should be publicly disclosed.

The investment policy and guidelines for the management of the Pula Fund are underpinned by the objective of preserving purchasing power of assets, always maintain liquidity and to maximise return within acceptable risk parameters.

Periodically, the entire investment strategy and strategic asset allocation is subjected to a review and all investments, both internally and externally managed, are done in accordance with investment guidelines approved by the Board in consultation with the MoF. This consultation process ensures that the owner’s risk tolerance and investment objectives are reflected in the agreed investment strategy.

The investment strategy does not allow the use of leverage and places emphasis on the application of sound risk management practices.

The Pula Fund is invested using both internal and external managers with specific guidelines and precise benchmarks for the measurement and assessment of investment performance. The global custodian assists with performance data, which are reconciled with external fund managers and subjected to performance attribution analysis. Furthermore, an external portfolio consultant assists the Investment Committee in the recruitment and monitoring of the externally managed funds. The Investment Committee regularly undertakes due diligence exercise to assess the operations of the fund managers. 

On a quarterly basis, the performance report is submitted to the Board for monitoring and any remedial action that may be necessary.

The Bank’s investment policy is guided by key objectives of safety, liquidity and return. The details are contained in the Annual Report.