6 June 2018

Nigeria: Equities Market to Benefit From Pension Multi-Fund Structure Implementation

There are high expectations that the Nigerian equities would witness more patronage by Pension Fund Administrations (PFA) as from July 1, 2018 when the new multi-fund structure introduced by National Pension Commission (PenCom) will become operational.

While PFAs are allowed by law to invest about 25 per cent of their pension assets in equities, the level is below 10 per cent as most of them prefer investing in federal government bonds.

But in a bid to resolve the challenge of asset-liability risk management experienced by pension funds and improve returns on pension assets, PenCom introduced the multi-fund structure. Under the new structure, the funds are in four categories.

While Fund 1 is targeted at people of 49 years and below who in the quest for higher returns are willing to take more risks, Fund 2 is aimed at people who, are aged 49 years and below but are still working and are satisfied with moderate returns and levels of risks. Fund 3 targets people 50 years and above but still working and have very low risk appetite while in Fund 4 are retirees who have the lowest risk profile of all categories.

Analysts at FSDH Merchant Bank Research said the development would favour the equities market as PFAs would channel more funds to the market.

"The expected additional fund allocation to the equity market may change the current downward trend in the equity market as the market receives more liquidity. Stocks that have strong fundamentals and that pay interim dividend may attract the expected investment from the PFAs," they said.

PenCom Investment Supervision Personnel, Mr. Ibrahim Kangiwa, had explained that the main objective of the RSA multi-fund investment structure is to resolve the challenge of asset-liability risk management experienced by pension funds.

According to him, this would be achieved by: better aligning the risk and return expectations of contributors; better matching of pension assets and liabilities; as well as diversification of pension fund portfolios, as minimum limits are set for aggregate investments in variable income securities for each fund.

The Managing Director and Chief Executive Officer of Stanbic IBTC Pension Managers, Mr. Eric Fajemisin, had said that the company was ready to key into the implementation of new structure.

According to him, the new structure would help in deepening asset accumulation in the country, and provide the crucial capital required for investment in critical sectors of the economy.

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