The Nigerian pension industry has a significant investment potential of N1.4 trillion in private equity, but stakeholders say that a shortage of bankable projects is preventing fund managers from committing these funds. This challenge has raised concerns about the private market's ability to absorb the additional capital pension funds are making available following recent regulatory changes. The changes increased investment limits for private equity and infrastructure-related funds.
At a Health Cap Africa event held in Lagos, participants called for greater use of blended investment structures, combining public and private capital to reduce investment risks and make projects more attractive to institutional investors. This approach could address concerns that prevent pension funds and other institutional investors from committing more money to private businesses. The stakeholders emphasized the need for a strong pipeline of bankable projects, improved governance, and credible exit opportunities for investors.
Chief Financial Officer of Leadway Assurance, Yemisi Rotimi, stated that the industry could commit about N1.4 trillion to private equity but was receiving very few projects that met investment requirements. She noted that the challenge was no longer simply increasing the amount pension funds were allowed to invest, but creating enough viable projects to absorb the available capital and generate acceptable returns for pension contributions.
Rotimi emphasized that pension funds have a responsibility to preserve retirement savings and deliver returns to contributors, making it difficult for fund managers to invest in projects where the risk does not match the expected returns. The industry has already invested in fund-of-funds structures, but the returns from some of those investments had not been sufficient compared with the risks involved.
According to Rotimi, the private investment market also needs to determine the size of the funding gap it is trying to address. Even N1.4 trillion would be relatively small if the funding requirement for infrastructure, businesses, and other private-sector opportunities ran into trillions of naira. A clearer assessment of the size of the private capital gap and a broader strategy involving pension funds and other sources of capital are necessary.
Recently, pension investment limits were increased for some private equity and infrastructure-related funds. The allocation limit for private equity and infrastructure-related funds was increased from 10% to 15% for one fund category and from 5% to 10% for another. In comparison, the limit for an infrastructure fund category was raised from 10% to 25%. However, stakeholders say the increased limits will have little impact if pension funds cannot find suitable projects and investment vehicles.
Head of the Compliance and Enforcement Department at PenCom, Ahmed Lawan, noted that much of the increased allocation remained unutilized because of a limited pipeline of bankable investments. Pension fund managers must balance the potential social impact of investments with their responsibility to protect retirement savings and ensure that retirees receive adequate benefits.
Key points
- A shortage of bankable projects is preventing fund managers from committing N1.4 trillion in pension funds to private equity.
- Stakeholders are calling for greater use of blended investment structures to reduce investment risks.
- The pension industry needs a strong pipeline of bankable projects, improved governance, and credible exit opportunities for investors.
