February 2, 2023

Pension fund infrastructure investment stagnates below 1%

By Rosemary Iwunze

Due to non-availability of eligible instruments, pension funds investments into infrastructure has continued to stagnate below one per cent mark despite the steady growth in pension fund assets.

Vanguard investigations reveal that the infrastructure fund which is an investment vehicle has continued to remain unattractive to Pension Fund Administrators, PFAs, even when the investment guideline permits them to invest up to 15 per cent of the fund into infrastructure.

Analysis of figures released by the National Pension Commission, PenCom, show that in the fourth quarter of 2022, Q4’22, while total pension fund assets stood at N14.9 trillion, investment into infrastructure fund was N112.9 billion representing 0.75 per cent of the available fund.

In Q3’22, while total pension fund assets stood at N14.4 trillion, investment in infrastructure fund was N103.65 billion representing 0.72 per cent of pension assets.

In Q2’22, while total pension assets stood at    N14.3 trillion, investment into infrastructure fund was N88.37 billion representing 0.62 per cent of pension assets.

In Q1’22, while total pension fund assets stood at N13.9 trillion, investment in infrastructure fund was N75.18 billion representing 0.54 per cent.

Meanwhile the bulk of the pension assets are going into Federal Government Bond borrowing instrument which are used for government recurrent expenditure.

It will be recalled that PenCom guideline on investment of pension fund into infrastructure stipulates that a maximum of 15 percent of the total pension asset would be deployed to infrastructure fund.

Reacting to the poor allocation to infrastructure, PenCom had stated: “The main challenge inhibiting PFAs from investing the pension assets for infrastructure development is the non-availability of eligible instruments (funds and bonds) in the financial market. The Commission and the pension industry would support efforts at issuing eligible instruments for pension funds to support infrastructure development in Nigeria.”

Head, Research and Strategy Management, PenCom, Mr. Ibrahim Kangiwa, said that the Commission is into engagement with relevant stakeholders in a bid to promote safe investment in infrastructure development.

However, PenCom emphasized that such investments must be done in safe and well-structured vehicles that align with the provisions of the Pension Reform Act, 2014 (PRA 2014) and the Regulation of Investment of Pension Fund Assets.

“This establishes transparency and fair valuation, thus removing all ambiguity on the real market values    and tradability of the assets. PFAs can then readily buy and sell at prevailing market prices. The eligibility requirement ensures that the assets are real, liquid and within tolerable risk levels,” PenCom stated.

However, industry analysts are of the opinion that investment climate in the infrastructure sector has remained unattractive.

Director Center for Pension Rights Advocacy, Mr. Ivor Takor, stated that pension funds are long term investable funds that can be leverage for economic development, given the right institutional and legal framework as well as economic conditions.