Seeking Safe Haven for Pension Funds

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James Emejo writes on the rather endless search for bankable infrastructure projects to benefit from the over N6 trillion pension assets currently idling away

The endless controversy on the utilisation of pension assets for infrastructure development is fast becoming monotonous, with every workshop and seminar groping to find creative ways of unleashing the funds particularly at a period of fiscal challenges occasioned by global crisis.

It’s rather unfortunate that even after series of conferences with stakeholders from various sectors of the economy trying to strategise on ways to tap into the huge pension resources for roads and housing among others, the story hasn’t really changed.

The pension industry apex regulator, the National Pension Commission (PenCom), had repeatedly held that safety of investments was paramount to funds commitment, noting that unless government particularly provided guarantees, pension assets would be jeopardised.

The commission’s strict stance is not surprising nevertheless, given the magnitude of corruption witnessed in the management of workers’ pension in the defunct pension scheme.

PenCom’s position is further strengthened by the provision of the Pension Reform Act 2014, which stipulates the ratio of investment of assets in certain instruments and safety conditions that should be satisfied.

Meanwhile, one wonders why it’s still difficult for government to issue guarantees and satisfy regulatory requirements needed to unleash pension funds for infrastructure, particularly the proposed mass housing project for Nigerians.

Earlier in the year, the Minister of Power, Works and Housing, Mr. Babatunde Fashola, had, while delivering a keynote address at the Nigerian Pension Industry Strategy Implementation Roadmap retreat, which was organised by PenCom, challenged pension fund administrators in the country to consider investing pension assets into the power sector, real estate and other critical infrastructure and stop blaming the lack of investible vehicles for holding on to the massive assets.

According to him, fund administrators had over time been reluctant to commit their assets to sectors including power, housing, petroleum among others because they see such sectors as too risky and had often blamed the absence of investible instruments to invest in.

The minister had concluded that contrary to the excuse given by asset managers, “those investible vehicles exist.”

He further proved his point by drawing attention to the fact that the foreign fund managers particularly from South Africa had taken advantage of available opportunities in the country and committed huge capital into sectors, which were currently avoided and described as risky by domestic fund managers.

Fashola had alluded that the problem with pension managers in the country was “likely a poverty of ideas or the abundance of risk elevating attitudes, some of which I have alluded to, such as judicial and political, and these must change.”

According to him, “In contrast to the mismanagement that used to be the story of our own pension funds, the most prolific of the pension funds in Africa, which is the South African Public Investment Corporation (PIC) has over $150 billion assets under management.

“In Nigeria alone, they have $289 million in Dangote Cement , $98million approved but yet to be drawn for Notore Fertiliser, $230million in MTN Nigeria, $270million in Erin Energy (formerly CAMAC) and $150million in Mainstream Energy Solutions (in the power sector of Nigeria).”

“By contrast, the question to ask is what is the ‘home-based’ pension fund doing? If, as I have shown, the “visiting” pension fund from South Africa has a total of $897million in our economy.”

Interestingly, as stakeholders strategise to seek ways of wooing pension investment in infrastructure, former President Olusegun Obasanjo, who is revered as the father of modern pension reforms in Nigeria, had at a recent gathering said though he was excited over the successes so far recorded in the Nigerian pension industry, further innovations must be undertaken with caution, adding that pension assets are sacrosanct and must be preserved “no matter what we do.”

And if anything, his statement was seen as reinforcing the need for operators to adhere strictly to the investment guidelines of pension funds under the amended Pension Reforms Act 2014.

Obasanjo had said,“I like innovation but innovation must be with caution; we can’t be too adventurous.” He said pensioners must have access to their money whenever they needed it.

This is so because liquidity is critical for pension administrators as retirees will always require access to their funds almost every now and then. It is impossible to meet their needs if monies are trapped in long-term projects whose returns could not be assured.

However, amid the increasing call for pension asset deployment into infrastructure, Head of the Investment Supervision Department, National Pension Commission (PenCom), Mr. Ehimeme Ohioma, had insisted that existing conditions were still inappropriate for the investment of pension assets into infrastructure as widely canvassed.

According to him, there are currently no guarantees for the safety of products that are seeking financing from pension assets, which had accumulated to about N6 trillion under the Contributory Pension Scheme (CPS).

He said though pension assets were a potential source of private financing to help fund infrastructure in the country, the funds could only invest indirectly in infrastructure through structured instruments, such as bonds and funds for now.

He was speaking in Calabar, Cross River State on “Pension Funds for Economic Development: Investing Pension Funds in Infrastructure” at a seminar for pension, insurance and labour correspondents and business editors, which was organised by the commission.

He noted that the dearth of alternative asset products in the Nigerian financial markets and current liquidity risks are challenges for pension funds investment in infrastructure.

Other major constraints to pension funds commitment to infrastructure according to him, include policy inconsistencies characterised by historic examples of project development challenges with government as well as the consistently higher yields offered on ‘risk-free’ FGN fixed income instruments, which had further crowded out alternative assets.

He said for pension assets to be invested in infrastructure, there must be availability of commercially viable projects; full repayment guarantee by the federal government especially in the early stages of projects financing.

Furthermore, he said strong political will and consistency in formulation of policies to retain investor confidence were also critical, adding that there must be an open and transparent transactions’ procedures and processes, in terms of biddings process, contractors’ selection, pricing, stressing that the government should institute policies to attract global infrastructure advisors and managers, in order to build capacity and facilitate knowledge/skills transfer to Nigerians.

He declared that the funds would not be compromised on the minimum requirements/criteria for pension fund investments in infrastructure, as stipulated in the investment regulation as well as adequate safeguard for pension fund assets.

But, as participants at the seminar had opined, the current situation requires PenCom to think out of the box and devise other avenues through which it could safely deploy pension assets for economic development because it may be impossible to get the perfect investment condition it so desires under the present political and economic realities in the country.