Having been in operation for over eleven years, investors are still unable to access the accumulated pension fund which is in excess of N5.3 trillion due to inability to meet criteria in the investment guidelines. Investigation by Financial Vanguard revealed that Pension Fund Administrators, (PFAs) in charge of channeling the fund into qualified investment vehicles are yet to see any credible investment vehicle from Nigerians.
Even government bodies, especially state governments that are clamouring for the fund to be invested in infrastructure have not been able to come up with an infrastructure bond as the guideline stipulates. Minister of Works, Power and Housing, Mr. Babatunde Fashola recently approached pension operators to see if part of the fund could be channeled into infrastructure but was told that even the Federal Government must meet the criteria in the guidelines.FG-&-Money
Aside from the government, other interested investors have consistently failed to meet the requirements as stipulated in the investment guidelines. As such, the fund has continued to be invested in zero risk investment vehicles, despite the fact that the infrastructure deficit of the country needs long-term funds for investment in the sector.
Although the guidelines clearly state the investment criteria, Financial Vanguard’s findings showed that the National Pension Commission, (PenCom) ensures that interested investors abide strictly by the law. PenCom ensures that in the case of infrastructural investment, there must be a competitive bidding process for any contract, the bidders must be qualified to carry out the contract, there must be a time limit for completion of the contract, there must be a monitoring team to monitor the progress or otherwise of the contract, there must be experts to ascertain that the quality of products the investors purport to buy are up to standard.
Due to these oversight functions of PenCom, Nigerians have not been able to access the fund as most investors that have come forward to use part of the fund for investment are merely looking for quick profits, while PenCom on its part stands guard to ensure that pensioners’ money are not wasted on unrealistic projects.
Director-General of PenCom, Mrs. Chinelo Anohu-Amazu said, “I have always been a proponent of investment in infrastructure for a simple reason that this is one investment if handled properly would benefit both the contributors and retirees alike. The Federal Government bonds are safe but it is not something you can see and feel like infrastructure.
“When we were doing this reform in 2001/02, we were in Mexico and had gone to other South American countries where they have implemented the contributory system. We were going down a road and what we saw on the signboard on the road was ‘contributory pension fund.’ This is the kind of thing we want to see in Nigeria. Ten years down the line there is no such signboard in Nigeria and the funds are growing. Who will use the roads?
“The reason for the criteria in the guideline is to make sure that the funds are safeguarded, shrouded from the vagaries of human discrepancies and all. Countries like Singapore and Canada have utilized their pension funds effectively for their citizens. It is not something that is outlandish; the key thing is: How did that utilisation happen?
“Why are Nigerians not meeting the guidelines? What is preventing those who are looking to build things for the community from meeting the guidelines? What is preventing you from having access to the pension fund?” Anohu-Amazu queried.
“If the PFAs per chance invest in something they ought not to have invested in, it would read on its raider that instant and they have two options, either to rescind the transaction or we will take our license back, very simple. Now if we haven’t seen a lot of investment in infrastructure it is because a lot of people have not met the guidelines,” she said.
Guideline on investment of pension fund in infrastructure
PenCom set the minimum value of individual projects that pension fund assets could be invested in at N5 billion.
According to PenCom, as much as 15 per cent of the total value of pension fund assets under management could be invested in infrastructure through infrastructure bonds and another 5 per cent of the total value of pension fund assets could be invested in infrastructure through infrastructure funds, making 20 per cent of the total value of accumulated pension asset. Also, both outlets must meet the conditions for the investment of pension fund in infrastructure before PFAs could channel pension fund assets into such investments.
The pension regulator cited section 5.2.3 of the draft “Regulation on Investment of Pension Fund Assets” saying it provided that pension assets could be invested in infrastructural projects through eligible Bonds, Sukuk subject to two major conditions.
“The infrastructure project shall be not less than N5 billion in value and awarded to a concessionaire with good track record through an open and transparent bidding process in accordance with the due process requirements set out in the Infrastructure Concession and Regulatory Commission Act (ICRC Act) and any regulation made pursuant thereto and certified by the Infrastructure Concession and Regulatory Commission (ICRC) and approved by the Federal Executive Council (FEC),” PenCom said.
Other conditions for the investment of pension assets on infrastructure include that the project’s business plans and financial projections indicate that they are viable as well as economically and financially rewarding for investment by pension funds.
The Bonds or Sukuks issued to finance the infrastructure project shall have robust credit enhancements including guarantees by the Federal Government or eligible bank/development finance institution or MDFOs and a maturity date that precedes the expiration of the concession. It should also have a feasible and enforceable redemption procedure in the event of project suspension, cancellation or, in the case of regulated sectors, when changes in regulatory or policy decisions make the project to differ significantly from its original financial projections.
Where infrastructure projects are financed through infrastructure funds, the value of the infrastructure fund shall not be less than N5 billion and the infrastructure fund must have a well defined and publicised investment objectives and strategy as well as disclosures of pricing of underlying assets, including any other necessary information.
All annual financial statements of the fund shall be audited by reputable firms of chartered accountants and the infrastructure fund shall have satisfactory pre-defined liquidity/exit routes such as IPO, sale to other PE Funds, Trade sale, sale to a strategic investor etc. The funds shall be managed by experienced fund managers, versed in infrastructure financing and registered with the Securities and Exchange Commission, (SEC) as fund managers.
Some other conditions for the investment of pension assets in infrastructure include that a minimum of 60 per cent of the infrastructure fund shall be invested in projects within Nigeria and where an infrastructure fund does not have development finance institutions or MDFOs as co-investors, but the fund manager has a minimum investment manager rating of BBB issued by a rating company registered or recognised by SEC and the fund manager shall retain a minimum investment of 3 per cent of the infrastructure fund.
Where the infrastructure fund has development finance institutions or multilateral development finance organisations as co-investors, the fund manager shall retain a minimum of 1 per cent of the infrastructure fund and the fund shall have an advisory board with independent representatives of institutional investors being in majority.
And prior to investment and during the tenor of investment in any infrastructure fund, PFAs are to ensure that the advisory board has responsibility over audit functions regarding the evaluation of projects prior to investment; transactions with parties related to the infrastructure fund manager and strategies concerning divestiture of investments in which the private equity fund has interests.
In order to ensure maximum utilisation of the pension fund, PenCom is of the opinion that even before investors go ahead to float a bond, they should study the investment guidelines thoroughly. Anohu-Amazu said, “If you are desirous of the pension fund going into your investment, study the guidelines. So that at the time you are creating that bond you are ready.
Former Director General of Lagos State Pension Commission (LASPEC), Mr. Rotimi Hussain said that it is ideal that the pension industry left the fund strictly in the hands of pension fund administrators and custodians because they are the professionals. He said that pension funds have been so seriously ring-fenced that in over eleven years of practice there has never been a single case of fraud being reported.
Hussain said, “But it could get to a worrisome level where you keep accumulating funds and you leave that kind of fund in low yield investment for years in a developing economy. PenCom have laid down the investment guidelines, however, if you study the investment guidelines closely, they are stringent because the conditions are so strict.
“It is important to note that safety of the pension fund takes very high premium over and above returns. Nobody says you shouldn’t make returns but not at the risk of losing money. So the industry is not going to throw money after risky investments,” Hussain stated.