Shortage of bankable projects is preventing fund managers from committing about N1.4 trillion in pension funds to private equity, stakeholders have said.

This has raised concerns about the private market’s ability to absorb the additional capital pension funds are making available following recent regulatory changes that increased investment limits for private equity and infrastructure-related funds.

At a Health Cap Africa event held in Lagos, participants called for greater use of blended investment structures, where public and private capital could be combined to reduce investment risks and make projects more attractive to institutional investors.

According to them, such structures could help address concerns that prevent pension funds and other institutional investors from committing more money to private businesses.

The stakeholders affirmed that the next stage of developing Nigeria’s private capital market should focus on building a strong pipeline of bankable projects, improving governance and creating credible exit opportunities for investors.

They said this would allow the increased investment capacity of pension funds and other institutional investors to translate into actual financing for businesses and projects across the economy.

Chief Financial Officer of Leadway Assurance, Yemisi Rotimi, said the industry could commit about N1.4 trillion to private equity but was receiving very few projects that met investment requirements.

She said the challenge was no longer simply increasing the amount pension funds were allowed to invest, but creating enough viable projects to absorb the available capital and generate acceptable returns for pension contributions.

According to her, pension funds have a responsibility to preserve retirement savings and deliver returns to contributors, making it difficult for fund managers to invest in projects where the risk does not match the expected returns.

She said the industry had already invested in fund-of-funds structures, but the returns from some of those investments had not been sufficient compared with the risks involved.

Rotimi said the private investment market also needed to determine the size of the funding gap it was trying to address.

She argued that even N1.4 trillion would be relatively small if the funding requirement for infrastructure, businesses and other private-sector opportunities ran into trillions of naira.

She therefore called for a clearer assessment of the size of the private capital gap and a broader strategy involving pension funds and other sources of capital.

The development came as pension investment limits had recently been increased for some private equity and infrastructure-related funds.

According to the pension industry representative, the allocation limit for private equity and infrastructure-related funds had increased from 10 per cent to 15 per cent for one fund category and from five per cent to 10 per cent for another. In comparison, the limit for an infrastructure fund category was raised from 10 per cent to 25 per cent.

However, stakeholders said the increased limits would have little impact if pension funds could not find suitable projects and investment vehicles.

Head of the Compliance and Enforcement Department at PenCom, Ahmed Lawan, said much of the increased allocation remained unutilised because of a limited pipeline of bankable investments.

Lawan said pension fund managers had to balance the potential social impact of investments with their responsibility to protect retirement savings and ensure that retirees received adequate benefits.