PenCom worried only 0.27% of pension investments in Private Equity

The Nigeria’s Pension Commission (Pencom) says it is concerned that just about N14.8 billion, representing barely 0.27 percent of the country’s over N5trillion Pension fund Assets is today invested in Private Equity, as against the maximum allowable limit of five percent of pension assets under management.

Based on the regulator’s records, only six Pension Fund Administrators (PFAs) and six Closed Pension Fund Administrators  (CPFAs) have invested in the Private Equity Funds so far, out of the 21 licensed PFAs and 7 CPFAs.

Currently, the percentage of pension fund assets invested in the stock market is about 15 percent and the regulator says a maximum of 25 percent, while almost 70 percent of the assets are held in the bonds and treasury bills.

The pension industry regulator says that the dismal level of investment in Private Equity, five years after it amended the Regulation on Investment of Pension Fund Assets and introduced Private Equity and Infrastructure Funds as allowable asset classes is not acceptable.

Chinelo Anohu-Amazu, director-general, speaking on Tuesday at a two-day Training Workshop on Private Equity (PE) for members of the  Boards’ Investment Strategy and Risk Management Committees of Licensed Pension

Operators, announced plans to raise the maximum assets allocation to Private Equity to 10%.

She said this would happen under the proposed Multi-fund Investment Structure in the Draft Amended Regulation, which is being finalised.

But industry operators say their major concerns for non-investment in Private Equity are that of valuation (depressing effect on the daily Unit Prices of the RSA Funds); perceived high risk of PE; and limited capacity of most Board members to properly analyse the risks in PE investment, being a new asset class in the Nigerian financial landscape.

There are also some concerns around because members go in and out of the fund on a daily basis, and say they need liquidity which the private equity investment doesn’t provide for them.

“This clearly defines the imperative for this training,” Anohu-Amazu told participants.

The workshop organised by the Commission, in collaboration with the African Venture Capital Association (AVCA) and CDC Group, UK and African Capital Alliance (ACA) Ltd, was to enhance the understanding and knowledge of Non-Executive Directors of PFAs  and CPFAs  in Private Equity, which is an allowable alternative asset class and a veritable outlet for pension funds.

Also, participants gained deeper insight into the operations and management of P.E Funds; were exposed to the opportunities, benefits and risks of P.E investing; and shared experiences on the mechanics of P.E. investments, BusinessDay.

In December 2010, the Commission amended the Regulation on Investment of Pension Fund Assets (Regulation) and introduced Private Equity and Infrastructure Funds as allowable asset classes.

“Unfortunately, since the introduction of the PE asset class, there has not been significant investment, owing to unavailability of products in our market. This has resulted in a dismal level of investment by pension funds, five years thereafter,” Anohu-Amazu stated.

She further noted that increased investment in the alternative asset classes, which include Private Equity  and Infrastructure, is one of the focal points of the ten-Year Strategy Plan of the Nigerian Pension Industry, in its bid to make visible and measurable impact in the socio-economic development of Nigeria. “I therefore implore all participants to maximise the benefits of this training, which is being handled by renowned experts in the PE space.”

Ehimeme Ohioma, Head Investment Supervision Department, Pencom, told BusinessDay that the regulator has been in talks with the PFAs’ management on the issues and challenges in investing part of the pension assets under their management in Private Equity.

“One of the major reasons given is lack of investment,” he said, adding “there are other reasons as well, like valuation issue since the value of the portfolio is on a daily basis.”

He said another issue has to do with illiquidity, since investment in private equity is illiquid. “And because members go in and out of the fund on a daily basis, the PFAs say they need liquidity which the private equity investment doe,How many companies are quoted on the Nigerian Stock Exchange? Below 300, how many of the 300 companies qualify for pension funds investment, based on our strict requirements? They are below 100 and you have this huge volume of funds coming in every month, so more companies need to be quoted, more products need to be available, apart from the traditional bonds,” he observed.

He said there are expectations that government would come out with more infrastructure projects and allow the capital market operators to package products to finance those projects, so that the PFAs can then invest.

“But government also needs to give guarantee that the funds invested will come back.We are in a risky environment. If the pension funds are willing and can invest up to 60 percent of their funds into Federal Government instruments, it’s no brainer for the government to profile key infrastructure projects and issue bonds to invest, and the Pension Funds will invest”, Ohioma added.

ONYINYE NWACHUKWU &  KEHINDE ABDUSALLAM