Securities and Exchange Commission, Pension Commission and industry operators on Wednesday agreed Nigeria must begin to invest more of its N5.4 trillion pension asset in the capital market to harness domestic potential for growth and to as well proffer strategic solution for catalyzing activities in the market.
But there were concerns as well on the capital market’s inability to attract additional pension funds asset due mainly to lack of viable instruments that could be invested in.
Speaking at the 6th edition of BusinessDay’s Annual Capital Market Conference held in Abuja, Mounir Gwarzo, director general SEC harped on the importance of deepening the country’s capital market with the investment of pension fund savings into productive use for inclusive economic growth.
The global stock market declines have continued to impact foreign portfolio investments (“FPIs”) in Nigeria, affecting liquidity and therefore, the volume of deals closed on the floor of the NSE.
Also, aside from the erosion of investors’ confidence, stock market has also been propelled almost perennially in a bearish direction as the country’s seeming monolithic dependence on oil for foreign exchange earnings at a time that international oil prices are plummeting, is consistently hurting the economy.
“This is a conversation our country must continue to have in order to ensure that the impressive pool of savings we have been able to mobilize over the last decade is put to productive use for inclusive economic growth. Clearly, the growing chorus from different quarters on the best ways to deploy these savings should please all participants in the pension industry as it attests to the remarkable success achieved so far,” Gwarzo said.
While he acknowledged the proactive approach the National Pension Commission (PenCom) has adopted in making the necessary adjustments to the guidelines that allow Pension Fund Administrators (PFAs) sufficient flexibility to determine their optimal strategic asset allocation, Gwarzo stressed that the draft new regulation on investment of pension fund assets has also allowed investment of up to 30% in Equities (for Fund type 1) and up to 45% in corporate debt securities (for Fund types 3 and 4).
“As a whole, we believe the adoption of a multi-fund structure is a very positive development that should produce economies of scale, risk diversification and further deepening the Nigerian capital market through Pension portfolios and management strategies of PFAs. There is therefore an urgent need for the draft guidelines on multi-fund structure to be approved,” he added.
With March 2016 data from PenCom showing that Nigerian PFAs invest only 8.16% of their assets in the domestic listed equities market and 1.24% of their assets in foreign equities which translates to less than 10% of total assets invested in equities, the Director-General expressed confidence that all funds mobilized under the contributory pension scheme when invested by the PFAs is guaranteed with the objectives of safety and maintenance of fair returns on the amount invested.
He stated other goals as “ensuring adequate, affordable and sustainable benefits to contributors, ensuring adequate liquidity to pay all pension benefits of contributors as and when due; and achieving an optimal trade-off of risk and return through strategic asset allocation.
Chinelo Anohu-Amazu, DG Pencom acknowledged that although Nigeria’s pension fund had grown to about N5.4 trillion today with over 7 million contributors, it remains the largest institutional investor today and has the capacity to do more.
But Anohu-Amazu raised concerns that the capital market has not even been able to absorb the 30 percent available, today, but has only been able to do only 10 percent, while the remaining 20 percent remains unallocated.
“The key thing is what is stopping maximizing the utilization of allocated funds,” Anohu-Amazu who does not see the challenge as a regulatory but an operator problem said.
She noted that the PFAs are highly regulated because of the need to protect the fund and ensure its primary mandate as required by law, which is paying requirement benefits promptly and also making sure that the value is not eroded.
“We are waiting for products and the specifications are clearly laid out on the website.
“What I am asking is what are the efforts towards the new regulations coming, what are the efforts towards the existing ones. Why are we not inundated with products that meet requirements set out in the guideline.
“What are the issues. The PFAs are constrained, they are unable to deliver the products they will invest in, so they sit back and this is why we have a preponderant of pension funds in government securities. We have no alternative, so how do we work developing products, that is the challenge,” she said.
While the Director-General of PENCOM harped on the importance of getting assurance of investment return in the commitment of contributory pension funds, other participants at the conference argued that lack of mortgage backed security, lack of coordination to create an attraction to the capital market, big gaps and enabling environment for investors to come in are areas creating uncertainties in full investment of pension fund.
They called on the need for PFAS operators to bring innovative products to the market that will be invested in.
“Structure a product that will satisfy the taste of the PFAS who will provide the fund”. Osaro Eghobamien, Managing Partner of Perchstone and Graeys said during the panelists discussions.
However, the Chief Executive Officer of the Nigeria’s Stock Exchange, who was represented by Haruna Jalo Waziri at the event argued that having followed the debate and risks involved in the injection of pension fund in the capital market, he noted that the Pension Fund Administrators in the country are resentful at investing in available products aside the FGN Bonds just as he called for vibrant competition and incentives for introduction of good and viable products.
“Product should not just come from the market but the user as well could be allowed to introduce products, not only that, we need to create attention, create competition at the PFAS “.
Offering roadmap for PFAs, investors to creating instruments for pension funds, Jude Uzonwanne, Principal, Bain & Co. Insights recommended setting up capital market consortium, comprising of industry stakeholders that will define standards for documentation of new products, establish the right legal frameworks, right logistics, such as ratings needed, right implementation plan and begin to get a long term deal pipeline.
Speaking on the theme; Unlocking Pension Assets, Uzonwanne suggested the process could begin by getting a Special Purpose Vehicle (SPV) which could be rail, road, bridges, real estate and the. Financial advisers to okay the project
He explained that the PFAs can now buy into the SPVs as equity holders, meaning that they will be partners of the project while the SPV issues a bond which has to be approved by SEC and listed on NSE or FMDQ.
He stressed that other PFAs can now invest in the bond, noting that, if the deal could work, it would become a standard for other deals there will be value for everybody involved.
He projected that potentially this could unlock up to N1 trillion over the next two to three years to deepen the financial system, create employment and boost market knowledge.
Welcoming the participants, BisinessDay Editor, Philip Isakpa noted that the capital market offers a great window access for the purpose of pension fund deployment adding that the conference will afford participants a lot of opportunities for creating the instruments that will enhance the growth of the market.
Isakpa said “the capital market conference is not only a BusinessDay affair but we’ve worked with the players in the market and the subject matters being discussed are those brought to us by the players.
“Over the years, this conference has been made possible by our partnership with great institutions that recognize the need for issues to be discussed and debated for the purpose of providing enlightenment and solutions to the problems in the capital market.
“As Nigeria’s leading Business Publication, we have followed with interest over the years in our coverage of the financial market the steady and remarkable growth of the pension funds in the country. In recent time, we have followed the debate around the possibility of expanding the window of which funds could be deployed by custodians and PFAS”.
Onyinye Nwachukwu & Kehinde Abdusallam
