Investing Pension Fund Assets Securely and Profitably

The draft regulations specify certain requirements to assure the quality of investments and assess the risks in investing in any of the allowable instruments. Issues of rating, approval by relevant authorities, risk level, liquidity and profitability are critical and important.

Similarly, PFAs must be well acquainted with and properly advised on the requirements in the draft regulations relating to institutional framework; authorized markets; conflicts of interest; multi-fund structures; investment limits; performance benchmark; violation of investment limits and penalties for same; voting rights acquired in the PFCs by the PFAs as a result of pension fund assets held by the PFCs on behalf of their respective PFAs; reviewed framework for Closed Pension Fund Administrators; as well as other important legal and regulatory compliance matters.

Considering the recent history of distress in our banking and pension sectors, it is imperative that all hands must be on deck to see that the more liberalized investment windows are not either unintentionally or deliberately abused by licensed pension fund operators, when the draft regulations are issued in final form. PFAs must always seek expert opinion and obtain sound advice in technical matters or those which require specialized skills. The era of negligent, reckless, unbridled and unethical risk-taking must be effectively replaced by a well governed, cultured and professional regime.

Conclusion

The Nigerian pension industry is still in its infant stages and the potential for growth is enormous. With the ongoing reforms, the scope for expansion and the enlarged windows of investment, total funds under management may grow as much as N10 trillion in the next four years. This initiative will not only secure the future of Nigerian workers, especially at retirement, but the huge investible fund can also catalyze our infrastructure development and heighten our chances of becoming one of the top economies of the world by the year 2025.

More support from government is needed for optimum performance of pension fund assets as engines of economic growth. Clearer guidelines should be developed on investments into alternative asset classes like Private Equity Funds while some forms of guarantee are needed to be given, especially by the Federal Government, to encourage PFAs utilize pension fund assets in infrastructure development. 5 To ensure that pensions are secure and the country is stimulated to move rapidly up the economic cycle curve, licensed pension fund operators, especially the PFAs, must be well administered and governed, their staff schooled in best practices and trained in essential and contemporary technical skills; as they venture into investments in the money and capital markets as well as other sensitive segments of the economy.

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