Investing Pension Fund Assets Securely and Profitably

The draft regulations essentially expand the scope of investment windows available to the PFAs, who ordinarily may be tempted to make wrong investment choices with unintended negative long-term crisis for both the scheme and registered contributors thereunder. When the draft regulations become effective, previously prohibited technical and specialist investment portfolios in the capital and money markets will be opened to the PFAs. The most crucial challenge that is likely to confront the PFAs going forward, will be how to substantially invest huge pension fund assets to yield the highest possible returns while keeping same secure within legal, regulatory, and risk management frameworks.

It is therefore critical that PFAs be well guided by relevant financial and legal due diligence, conducted by professional and experienced advisers. This will ensure that operations of the PFAs are in conformity with the law, global best practices in investment risk management and corporate governance. Section 90(2) of the Act requires that, every PFA shall conduct extensive research and due diligence prior to investment as well as utilize the risk rating reports that have been undertaken by any risk rating company registered under the ISA, on investment instruments and securities.

To be lawful, investment of pension fund assets will also have to comply with the required stipulations of the Investments and Securities Act 2007 as enforced by the Securities and Exchange Commission (SEC). PFAs must also ensure compliance with relevant codes of corporate governance issued by the CBN, regulating investments in financial services.

Available Investment Windows in the Draft Regulations

Section 4 of the draft regulations specifies some of the technical and specialist areas of investment, where PFAs will need expert financial and legal advice when the draft regulations become operative. These include:

1. Bonds, Sukuk, Treasury Bills and other securities (including bonds denominated in foreign currencies) issued by the Federal Government and the CBN or their agencies as well as special purpose vehicles and companies created or owned by the Federal Government of Nigeria.

2. Bonds and Sukuk issued by eligible State and Local Governments or State Government Agencies or wholly owned companies of the State Government.

3. Bonds, Sukuk, Debentures, redeemable/convertible Preference Shares and other debt (noninterest) instruments issued by listed corporate entities; Bonds (including Sukuk) and debt securities issued by eligible unlisted companies; and Asset Backed Securities including Mortgage Bonds, Mortgage Backed Securities and Infrastructure Bonds or Sukuk.

4. Ordinary Shares of public limited liability companies listed on a securities exchange registered by SEC.

5. Money Market instruments of banks and Commercial Papers issued by corporate entities.

6. Open/Close-ended/Hybrid Investment Funds, including Exchange Traded Funds and NonInterest (Shariah) Compliant Investment Funds, which are registered with the SEC.

7. Specialist Investment Funds, whose underlying assets are tangible physical assets, including Real Estate Investment Trusts (REITs); Private Equity Funds; and Infrastructure Funds which must all be registered with the SEC.

8. Supranational Bonds and Sukuk issued by a Multilateral Development Finance Organizations (MDFO) such as the World Bank Group, African Finance Corporation, African Development Bank and other MDFOs recognised by the SEC.

9. Global Depositary Receipts/Notes (GDRs/Ns), Eurobonds and Sukuk issued by listed Nigerian companies.