Players in the Nigerian pension industry have called for regulatory guidelines that would enable them to invest in export-orientated businesses, toll roads, real estate and high-growth unlisted companies so as to boost returns.
According to a Bloomberg report on Thursday, this call comes as high inflation and currency depreciation erode value for the contributors to the nation’s pension scheme.
The monthly data from the National Pension Commission has revealed that as of June, the pension funds stood at N24.63tn, with a majority of it invested in government-backed instruments.
The Chief Executive Officer of the Pension Fund Operators Association of Nigeria, Oguche Agudah, was quoted as saying, “Pension funds are looking toward alternative investments to be able to cover any potential losses.”
The CEO of Access ARM Pensions, Dave Uduanu, highlighted some of the potential alternative asset classes to include export-orientated businesses, toll roads, real estate and high-growth unlisted companies.
The Stanbic IBTC Pension Managers Ltd CEO, Olumide Oyetan, in his comments, said that the pension fund industry is also urging the authorities to issue floating-rate bonds that are indexed to the inflation rate, indicating that the availability of the securities would help operators maximise the value of their fixed-income portfolios, currently the largest portion of their balance sheets, and help them guard against negative real returns.
Both Stanbic IBTC Pension and Access ARM Pension also noted that they have already been growing their investments in private equity, infrastructure funds and real estate investment trusts within the current rules.
The Nigerian push to find alternative investments fits in with a broader global trend that has seen increased inflows into private credit, now a $1.5tn market globally.
A spokesperson for the National Pension Commission confirmed that the requested review of the investment guidelines is underway, with new guidelines expected this quarter.
At a sensitisation workshop on investment in alternative assets held in Lagos for chairpersons of the Board Investment Strategy and Risk Management Committees of PFAs, PenCom urged Pension Fund Administrators to diversify their investment portfolios by increasing allocations to alternative assets in a bid to enhance returns and ensure long-term sustainability.
The Director-General of the Commission, Omolola Oloworaran, at the workshop stressed that the current macroeconomic environment, marked by inflation, foreign exchange volatility, and declining purchasing power, requires dynamic and resilient investment strategies, which require a different investment playbook.
“In this context, alternative assets provide a complementary pillar to the core investment strategies of pension funds. Investments in infrastructure and private equity, in particular, help align pension fund portfolios with their investment horizon, provide opportunities for diversification, and enhance risk-adjusted returns,” she said.
As of July, Nigeria’s inflation stood at almost 21.88 per cent and has been in double digits since 2015, eroding returns on fixed-income assets, while the naira has lost almost 70 per cent of its value against the dollar since May 2023 after the harmonisation of segments of the foreign exchange market.
