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Pension Funds Investment

Pre-requisites for Pension Fund

Investment Guidelines

Portfolio of Pension Funds

Pension Fund Investment

Challenges

Ways Forward

The main goals of pension investment are to: Ensure adequate, affordable and

sustainable benefits to contributors Secure safety & security of funds Ensure adequate liquidity to pay all

pension benefits of contributors as and when due

Achieve an optimal trade-off of risk and return through strategic asset allocation

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The Pension Reform Act, 2004 stipulated the type of investments allowed

National Pension Commission issues regulations and guidelines for the

investment of pension funds: Regulations on Investment of Pension Fund Assets Regulations on Valuation of Pension Fund Assets Regulations on Fees Structure Guidelines and Format for Rendering Returns on

Pension Fund Investment by Operators on Daily Basis

monitors pension fund investments on daily basis

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Role of Pension Fund Operators Pension Fund Administrators

manage pension fund assets makes investment decisions

set investment objectives formulate asset allocation strategies tactically select assets for investment analyse fund liabilities and future cash flow

requirements review investment performance and render

daily valuation report on pension fund investments to PenCom

Role of Pension Fund Operators .. Cont’d Closed Pension Fund Administrators

perform same role as PFAs on pension fund investments for their sponsoring organisations

render monthly reports to PenCom Pension Fund Custodians

keep custody of pension fund assets on trust execute investment transactions on behalf of

PFAs

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Authorised Markets for Trading Floor of Recognised Stock Exchange Money Market Trading Platform

Quality of Instruments Instruments/Issuers must be rated Records of past profitability and/or

dividends payouts Instruments must be readily marketable

Regulated investment limits (asset class/instruments) & performance benchmarks

S/N ASSET CLASS MAXIMUM INVESTMENT AS % OF PENSION FUND ASSET

PER ISSUER PER ISSUE MINIMUM BENCHMARK

1 Government Securities

FGN 100% Maximum of 100% of total issue of FGN bond.

No limit. Weighted Average Govt. 2 year bond rate (on bonds only).States 20% Maximum of 2% of

Pension Fund Assets in one State Govt.

Maximum of 2% of any one issue by a State Govt.

2Corporate Bonds /Debt (including REITs, Mortgage and Asset Backed securities)

30% Maximum of 2.5% of all issues by one corporate.

Maximum of 2.5% of any one issue.

Weighted Average Govt. 2 year bond rate + 1%.

3Money Market Instruments

35% Maximum of 1.0% of Pension Fund Assets in all instruments issued by one bank.

Not applicable. 365 day T Bill Rate.

4Ordinary Shares 25% Maximum of 1.0% of

Pension Fund Assets in any one corporate.

Maximum of 1.0% of issued capital.

NSE all share index (ASI).

5Open and Close – end Funds

5% Maximum of 0.5% of Pension Fund Assets to one issuer.

Maximum of 0.5% of

any issued Close end

fund.

Maximum of 0.5% of

Pension Assets in any

Open/Hybrid Fund.

NSE All Share Index (ASI).

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Pension Fund Assets: Generated pool of

long term investible funds for the first time in Nigeria

The industry has approximately N679.55 worth of assets as at 31 October, 2007

RSA assets – N159.05 billion

CFPA assets – N195.01 billion

AES assets – N325.50 billion

RETIREMENT SAVINGS ACCOUNTS ASSETS AS AT 31 OCTOBER, 2007

NAME OF SECURITY  

TOTAL WEIGHT NGN

million

(%)

FGN SECURITIES 65,259.31 41.03%

STATE GOVT SECURITIES 0 0.00%

CORPORATE DEBT SECURITIES 0 0.00%QUOTED STOCKS 36,201.15 22.76%

MONEY MARKET INSTRUMENTS 52,302.97 32.88%

OPEN/CLOSE ENDED FUNDS 1,668.33 1.05%

UNINVESTED CASH 855.66 0.54%

CASH /OTHER ASSETS 1,407.11 0.88%REAL ESTATE 370 0.23%

CREDIT INTEREST/DIVIDEND EXPECTED 1,171.53 0.74%PAYABLES -187.09 -0.12%

TOTAL PENSION FUND ASSETS 159,048.97 100.00%

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Portfolio of Closed Pension Fund Administrators and Approved Existing Schemes as at 31 October, 2007

TYPE OF SECURITY

CPFA AES

AMOUNT (N) WEIGHT (%) AMOUNT (N) WEIGHT (%)

FGN Securities 48,282.23 24.76% 83,655.17 25.70%

State Government Securities 107.14 0.05% 0.00 0.00%

Corporate Debt Securities 50.00 0.03% 105.25 0.03%

Domestic Equity 51,450.34 26.38% 106,554.67 32.74%

Foreign equity 3,304.91 1.69% 0.00 0.00%

Domestic Money Market Securities 28,549.98 14.64% 61,202.66 18.80%

Foreign Money Market Securities 27,126.53 13.91% 0.00 0.00%

Mutual Funds 1,171.66 0.60% 455.06 0.14%

Property/Real Estate 27,121.21 13.91% 45,479.80 13.97%

Cash & Other Assets 5,936.70 3.04% 17,007.38 5.23%

Interest/Dividend 0.00 0.00% 3,891.37 1.20%

Unqouted Equities 1,908.29 0.98% 5,062.71 1.56%

Leasing 0.00 0.00% 2,601.00 0.80%

Payables 0.00 0.00% -520.71 -0.16%

TOTAL 195,008.99 100.00% 325,494.36 100.00%

NOTE: weights are per scheme total

Securing the safety and security of pension funds

Ensuring that pension funds invested earn real returns

Underdeveloped capital market for equities and fixed income securities

Dearth of investments instruments High costs for raising investments

in the capital market Investment in real estate Clamour for use of fund balances as

collateral Introduction multi-fund portfolios Fees

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Shifting financial market from dependence on bank funding to Capital Market funding in order to facilitate economic development

Banks and asset management companies to develop corporate skills

Maintenance of macroeconomic stability

Ensuring that conflict of interest is minimised or prevented

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Inadequate capacity in the pension industry Operators Regulator Contributing public

Limited number of Rating Agencies and poor rating culture

Coordination between all institutions concerned CBN, SEC, NSE, DMO , CSCS, FIRS

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Encouraging companies to get listed on the stock exchange & solicit risk rating

Possibility of off-shore investments to mitigate against risk

Development of new investment instruments Corporate Bonds, REITs, Mortgage

Backed Bonds, Infrastructural Bonds, etc

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Thank You!

National Pension Commission

Plot 174, Adetokunbo Ademola Crescent

Wuse II, Abuja09 – 4138736 – 40

info@pencom.gov.ngwww.pencom.gov.ng