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Deepening The Nigerian Capital Market Amidst Global Turmoil; Pension Funds As A Vital Home-Grown Recipe


The Pension Reform Act 2014 (“PRA 2014”), the governing law of the Nigerian pension industry which repealed and replaced the Pension Reform Act 2004, provides for the investment of pension fund assets in the capital market (see Section 86, PRA 2014 which provides that pension assets can be invested in equities and debt instruments of corporate bodies such as governments, CBN, banks and public limited companies which are quoted on the NSE). Specific capital market products are further listed as parts of the “Allowable Instruments” in the Regulation on Investment of Pension Fund Assets 2012 (“RIPFA”), which is the extant investment guideline made by the National Pension Commission (“PenCom”) and preserved under the PRA 2014 (see Section 4.0 of the RIPFA, 2012).

There are ongoing reforms by PenCom to make more capital market investment windows open to Pension Fund Administrators (“PFA”). These are contained in a 2015 Draft Regulation on Investment of Pension Fund Assets (“Draft Regulation”) that is presently awaiting approval to become operative (see Section 4.0 of the Draft Regulation, which seeks to increase the number of capital market products included in the list of “Allowable Instruments”).


As at December 2015, total pension assets under management stood at circa N5 trillion. According to sector analysts, only 12% of this sum (about N600 billion), is currently invested in equities and some 15% (about N750 billion) invested in debt instruments while a whopping 70% (about N3.5 trillion) is held in the Federal Government’s bonds and treasury bills.

Mounir Gwarzo, director-general of the Securities and Exchange Commission, recently opined that the huge funds “are not supposed to be in FGN bonds or treasury bills, they are supposed to be in the market”. As a domestic long-term source of capital, pension fund assets, are a most important institutional investor within a country for boosting liquidity on the stock exchange as well as deepening the capital market (see Raddatz and Schmukler in “Pension Funds and Capital Market Development: How much Bang for the Buck?”, World Bank Development Research Group; Policy Research Working Paper 4787, 2008).