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Challenges of Investment of Pension Funds By Eyamba T. Henshaw Commissioner Technical National Pension Commission. Outline. Pension Funds Investment Pre-requisites for Pension Fund Investment Guidelines Portfolio of Pension Funds Pension Fund Investment Challenges Ways Forward.

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Challenges of Investment of Pension FundsByEyamba T. HenshawCommissioner TechnicalNational Pension Commission
outline
Outline
  • Pension Funds Investment
  • Pre-requisites for Pension Fund
  • Investment Guidelines
  • Portfolio of Pension Funds
  • Pension Fund Investment Challenges
  • Ways Forward
pension fund investment

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
Pension Fund Investment
pension fund investment cont d

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
Pension Fund Investment … cont’d
pension fund investment cont d1

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
Pension Fund Investment … cont’d
pension fund investment cont d2

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
Pension Fund Investment … cont’d
pre requisites for pension fund investments
Pre-requisites for Pension Fund Investments
  • 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
portfolio of pension funds
Portfolio of Pension Funds
  • 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
portfolio of pension funds cont d
Portfolio of Pension Funds .. CONT’D

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

NOTE: weights are per scheme total

pension fund investment challenges

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
Pension Fund Investment Challenges
pension fund investment challenges cont d

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
Pension Fund Investment Challenges …Cont’d
pension fund investment challenges cont d1

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
Pension Fund Investment Challenges …Cont’d
the way forward

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
THE WAY FORWARD
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Thank You!

National Pension Commission

Plot 174, Adetokunbo Ademola Crescent

Wuse II, Abuja

09 – 4138736 – 40

[email protected]

www.pencom.gov.ng

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