The National Pension Commission has directed Pension Fund Administrators (PFAs) to invest a minimum of 60 per cent of their funds on projects within Nigeria.
The revised regulation on investment of pension fund assets issued to PFAs by PenCom recently set the minimum value of the projects to be considered for investments with pension funds as N5 billion.
There have been calls by Nigerians that the country’s growing pension funds should be invested in infrastructure that would benefit people.
An amendment to the Pension Reform Act (PRA), 2004 in 2014 provided a legal backing for PFAs to now invest pension funds in infrastructure.
The PRA 2014 provided in Section 86 that pension funds could be invested in real estate development, a provision which will enable Nigerians to have access to housing and close the gap in housing development in Nigeria.
With the new development, infrastructure investments through pension funds skyrocketed by over 600 per cent, from N2.23 billion in January, 2017, to N16.07 billion as at August 31, 2018.
However, this translates to less than 3 per cent of Nigeria’s N8.63 trillion pension assets as at December, 2018.
The revised regulation indicated that pension fund assets could be invested in infrastructure through eligible bonds and Sukuk, as long as they are for core infrastructure projects, whose business plans and financial projections indicate that they are viable as well as economically and financially rewarding for investment by pension funds.
The Acting Director General of PenCom, Aisha Umar-Dahir, said the commission introduced infrastructure as an approved asset class in 2010 but the move did not immediately translate into investments by PFAs due to limited availability of investible infrastructure products that meet the minimum criteria for pension fund investment.
“The commission sought to address this by actively engaging stakeholders in the capital market to facilitate the development of these investible instruments and other necessary conditions to encourage pension fund investments in infrastructure, that is credit enhancement mechanisms,” the PenCom boss said.
She said the commission supported the establishment of Infrastructure Credit Guarantee Company Limited (InfraCredit) which provides local currency guarantees to enhance the credit quality of debt instruments issued to finance infrastructure assets in Nigeria.
“The company had provided credit guarantee for an infrastructure bond issued by Viathan Funding Plc. in December, 2017, with pension funds subscribing for over 70 per cent of the issuance. These efforts are gradually bearing fruits as infrastructure investments by pension funds have grown,” she said.
However, the revised regulation has shown that PenCom is concerned with the safety of pension funds even as more PFAs invest in infrastructure.