James Emejo in Abuja
The Director General, Securities and Exchange Commission (SEC), Mr. Munir Gwarzo wednesday said Pension Fund Administrators (PFAs) remained critical in deepening the nation’s capital market and maintaining its relative stability.
He noted that the major reason for the declines witnessed in the market in January was the exit of foreign portfolio investors which could have been covered up if PFAs had increased their investments in the market.
According to him, “Within January 2016, net foreign portfolio outflows of N9.35 billion accounted for much of the panic witnessed in the market. Under such scenario, if PFAs had increased their allocation to domestic equities by only 1.6 percent of the current N538 billion they invest in the market, it would have largely covered for the exit by foreign investors in that month.
Speaking on “Deepening Nigeria’s Capital Market through Maximum Utilisation of Pension Funds” at the BusinessDay Annual Capital Market conference in Abuja, he said PFAs appeared to have further missed an opportunity to increase allocation to equities when asset prices were “depressed and very cheap”.
Nevertheless, he said: “Going forward however, PFAs can play a crucial role in deepening the market and maintaining its relative stability.”
He expressed delight that the National Pension Commission (PenCom), apex regulatory body, which oversees the PFAs had been proactive in making amendments to the guidelines that allow PFAS sufficient flexibility to determine their optimal strategic asset allocation.
The draft new regulation on investment of pension fund assets allow the investment of up to 30 percent in Equities (for Fund type 1) and up to 45 percent in corporate debt securities (for Fund types 3 and 4).
Gwarzo said the adoption of a multi-fund structure was a positive development that should produce economies of scale, risk diversification and further deepen the Nigerian capital market through Pension portfolios and management strategies of PFAs.
The SEC Boss said the March 2016 data from PenCom showed that Nigerian PFAs invested only 8.16 percent of their assets in the domestic listed equities market and 1.24 percent of their assets in foreign equities.
He said: “This translates to less than 10 percent of total assets invested in equities. At 9.4%p percent allocation to equities, Nigeria has the lowest allocation to equities by pension funds among peer markets.
“In contrast, South African pension funds invest 73% of total assets in equities. Even Botswana (70%), Namibia (66%) and Swaziland (57%) with much smaller and shallower stock markets than Nigeria allocate far more of total assets to equities. The world average for allocation by PFAs to equities is 42% which is more than four (4) folds the level in Nigeria.”
He said so far, this year, SEC had been focusing on attracting more listings, strengthening commodities exchanges, reducing transaction costs, pursuing a unified licensing model to support market making, and market-wide ICT infrastructure upgrade.
“I hope that this conference will bring up valuable insights on the ways to ensure PFAs play a more prominent role in achieving this objective,” he added.