Proceeds from Pension Fund Investments Lowest Since 2004


By Ebere Nwoji

Pension fund investment managers and administrators have said proceeds from pension fund investments in 2015, hovered between 7 to 8 percent as against 11.9 percent, the year before, the lowest since the inception of the Contributory Pension Scheme (CPS) in the country.
Describing the year 2015 as an exceptional bad year for the pension sub sector, the fund managers blamed the situation on two major reasons: the 2015 election and declining oil prices.

The Managing Director of Pal Pensions Ltd, and past Chairman, Pension Fund Operators Association of Nigeria (PenOp), Mr. Dave Uduanu said in an interview with THISDAY that poor performance of pension investments in 2015, was mainly due to the general election that held during the year and the drop in oil prices.

According to him,”because of these, the stock market didn’t do well at all and also bond yields started to come down because the Central Bank decided to reduce rates. So you find that bond yields dropped from as high as 15 per cent to as low as 10 per cent last year and stock market was negative.”

About 60 percent of pension fund is invested in federal government Bond because the managers felt it is more secure and yields faster returns.
Uduanu said with decline in bond yield during the year, returns on pension investment declined too.

Expressing the dilemma the development has put the fund managers, Uduanu stated: “So pension funds didn’t do well. The returns were at about between seven and eight per cent on the average.

But that was an exceptionally bad year because over the last five years or since inception, the average return on pension fund has been about 11.9 per cent, which up until now has been above inflation. As you know, the mandate of pension funds is to generate positive returns above inflation. But as inflation is beginning to inch up, the challenge now is that the bonds are still low, the stock market is still depressed and there are very few alternative assets to invest these pension funds.”

Against this backdrop, Uduanu said the fund managers, are actively seeking out for opportunities in private equity, infrastructure and housing so that they can continue to invest the funds profitably for the end users.

On the proposed investment of the funds in state bonds, he said the managers are being selective as far as state government bonds are concerned because of some reasons.
He explained: “If you take Lagos state and some of the oil producing states, you would find that a great proportion of these state governments rely on federal allocation to finance the budget. So with the drop in oil prices, there is a bit more risk in investing in state bonds because the monies that they get from the federal government has reduced by as much as 50 per cent and a lot of them have very low Internally Generated Revenues(IGRs).”
He however said though he was not expecting to see a lot of investments in state bonds, about seven per cent of the funds are already invested in the state bonds.

He added that there is selective appraisal of state bonds and each pension fund administrator (PFA) makes its own decision based on personal judgment on the credit rating of the state and the ability to repay the bonds.”