People:
Makerere University ‘s plan to venture into real estate sounds good. However, I am not sure about venturing into the stock exchange-bourse really. Why? Because the Ugandan bourse is not well diversified since it most likely has less than 25 listed stocks which make it very risky.
They also seem to be doing things in reverse. They should hire a professional firm to advise them on an investment plan. For instance how much risk is the University willing to take? That will determine the composition of their investment portfolio in terms of weighting -real estate, bonds, and stocks and near cash items.
That said Makerere should take a very hard and sober look at the massive looses suffered by University Foundations in North America during the meltdown. It was in billions of dollars-yap-which forced Harvard with the largest endowment and Yale with the second largest to cut down on a lot of things including student funding and even food services for students.
Actually many University Foundations were forced to exit the stock exchange in order to safeguard their capital from further decline.
The good place for the University to start would be to take over its staff pension now being misused in National Insurance or the former NIC. That should form the seed capital for real estate.
You need a minimum of 25 stocks to have a balanced portfolio. This has been empirically proven in finance. Anything less cannot give you a balanced portfolio to diversify the risk.
True you can lose or make money on the stock exchange. Overall people make more money depending on their time frame. If you invest for the long term and you have a well balanced portfolio, you will make money over time.
That is why I said Makerere seems to be doing things in reverse. The University needs a short term to cover the next 10 years and a long term plan to cover 25 years plus. For example, the University may plan that in 10 years, it will offer scholarships to poor but bright kids extend generous research grants to its faculty and offer better pensions to its retiring staff.
And by staff I do not just mean faculty, but all the folks who work for Makerere from professors, secretaries, cooks to janitors. What is more equitable: sponsoring the kid whose father is an MP or tycoon or offering a scholarship to the son/daughter of the university cook?
Then the university has to weight its investment portfolio accordingly to ensure than in 10 years time, it will be generating enough money to do what the university wants while also growing the principal.
The VC also talked about bonds. But bonds are sensitive to interest rates in an inverse relationship and thus sensitive to inflation. What is the real interest rate in Uganda today (nominal rate minus inflation rate) because that is what bonds would be earning? Bonds are the safest investment but they also pay out very low returns.
Certainly the proposal is good but the VC and the University need to be careful. Political risk is a real possibility in Uganda which means that most foreign investment is actually speculative and looking for short term gains and out.Real estate is the best option. But who would manage their real estate portfolio since the University has failed to maintain Halls of residence.
Also the laws on foundation need to be changed in favour of investments. For example, what channel does the University plan to use to do what the VC promised to do? Through a foundation? But how are foundations treated by tax authorities in Uganda and so on?
The good thing is that what Makerere is promising to do other entities too can do it for money and fund their productive activities. There are surely entities with larger and prime land holding than Makerere.
WBK
Ugandans-At-Heart 