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85% of N8.3 trillion pension fund spent on government T-bills, bonds

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•Lack of right investment instruments is a challenge
The largest pool of domestic capital in the country is the N8.3 trillion sitting in Nigeria’s pension fund, with 85 per cent of the fund primarily financing the government through buying bonds or treasuries.

This was the submission of the Chief Executive Officer, Chapel Hill Denham Group, Mobolaji Balogun, at the 2018 Investment Advisers and Portfolio Managers Forum, and launch of the Association of Corporate and Individual Investment Advisers (CIIA) recently in Lagos.

According to Balogun, who doubles as Chairman, Lafarge Cement Company Plc, the fund being given to the government, which represents 5.8 per cent of Nigeria’s economy is also poorly utilised.

He said 67 per cent of the capital was either spent on government recurrent expenditure and salaries or in servicing government’s debt, leaving only about 30 per cent available for capital expenditure, adding that this might lead to Nigeria becoming potentially the largest ever failed state in the world.

Balogun however noted that if properly financed, the deficit will essentially create an economy that could run at 78 per cent of the Gross Domestic Product (GDP) yearly, and possibly becoming the 7th largest economy in the world by 2050.

But defending fund managers’ interest in government securities, the Managing Director, Crusader Sterling Pensions Limited, Adeniyi Falada, noted that despite the pension fund being the biggest investor in the market with N8.3 trillion under management, only 75 per cent of the fund is invested in federal government securities.

He maintained that the decision to invest fund in government securities is a common sense investment and not out of compulsion, against the background of real returns on investment.

He said: “Looking at the landscape, the only place you can find such returns from the risk adjusted basis, is in the government stocks, bills, and bonds, and the reason why we don’t find requisite investments in other asset classes is largely owned to this fact.

“The number one challenge and task is how to ensure that we are comfortable with other asset classes, and be able to give relevant financial advice that would ensure that these assets classes can also deliver the sort of real returns that the pension fund is looking for.”

Speaking further, Falada said: “We have a situation where out of the N8.3 trillion, there is about N3 trillion that should be going to real estate and infrastructure, but there is an absence of those products that will deliver sustainable returns, and that is why allocation to infrastructure is just at 0.12 per cent and investment in real estate at two per cent.”

Commenting, the President, Nigerian Stock Exchange (NSE), Abimbola Ogunbanjo, said despite the achievements in the pension industry reputed as one of the fastest growing in Nigeria, there are still a lot of grounds to cover.

He noted that the ratio of Nigeria’s pension assets to GDP hovers around seven per cent, compared to other African regional hubs like South Africa, and Kenya, whose pension assets to GDP is at 52 per cent and 40 per cent respectively.

Commenting on the high investment in government securities, a spokesman for National Pension Commission (PenCom), Julius Agaghowa, told The Guardian on the telephone that PenCom is also favourably disposed to investing the fund in alternative assets like the infrastructure bonds.

As a result, he said the Commission had increased allowable investment limits for these asset classes to encourage investors, but the challenge has been getting the right instrument in these asset classes that meet the fund criteria.

He said: “We have always said that the pension fund will have more effect if it goes to the area of infrastructure financing and a good example is the ‘Sukuk Fund’, with a sizable portion from the pension fund.”

“Right now, there is a trace of those instruments but of course the pension fund cannot just go anywhere; there are standards to be met, so those who want the fund to be used in infrastructure has to make sure that there are products that will meet the investment standards and requirements and then the funds will go there, but that has been a challenge.”

He added that PenCom is also addressing the issue of low pension contribution to the GDP through two major initiatives – increasing compliance through recovery agents, and the recent introduction of the Micro Pension Scheme (MPS) which will commence January 2019.


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