PENCOM ALTERNATE ASSETS SEMINAR

1. A C A PENCOMALTERNATE ASSETS SEMINAR SETTING THE TONE By: Dick Kramer March 5, 2008

2. Outline • Perspective and Purpose • Current Situation • Economic Outlook • Investment Climate • Pension Reform Evaluation • Future Potential and Objectives • The Way Forward

3. Perspective and Purpose • Buoyant Nigerian economy against backdrop of global slowdown • Economic vulnerability due to- • Dependence on petroleum • Major investment barriers • Potential loss of momentum • Risk of market bubble/meltdown • High potential for pension reform success • But • Early in learning curve • Largely undiversified • Vulnerable to market volatility

4. Today’s Focus • Based on global experiences, explore asset diversification • Real estate • Infrastructure • Bond markets • Private equity • Global investments • Search for viable solutions while minimizing risks

5. Current Outlook • Global outlook uncertain with markets highly volatile • US slowdown vs. strong emerging market growth • Sub prime loans as the trigger • Commodity boom due to supply/demand imbalance • Nigeria largely insulated but still vulnerable

6. Investment Climate (Nigeria) • Good, bad and ugly – mixed scene • Positive • Macro economic management • Major reforms including pensions • Opening the playing field – such as telecommunications • Financial sector consolidation • Heightened foreign interest • Focus on rule of law

7. Investment Climate • Good, bad and ugly – mixed scene • Mixed • Teleguided privatization followed by several reversals • Significant infrastructure investment with mixed results • Limited attempts to improve investment climate and ease of doing business in Nigeria • Tendency towards – ready/fire/aim

8. Investment Climate • Good, bad and ugly – mixed scene • Negative • Niger Delta • Power and infrastructure shortfalls • Political transition delays • Protectionist mindset • Excess margin lending for quoted stocks

9. Pension Reform Evolution • Very positive results to date but still in early stages • Compliance still low – less than 25% of quoted companies registered • Pension funds are +/-1% of GDP with potential to grow rapidly (25% by 2020?) • Conservative and highly professional regulation which will need to liberalize over time

10. Investment guidelines are narrowly defined and this lack of diversification has a double barreled effect – Reduced opportunities for returns Increased market volatility risk In recognition of this “fact of life”, PENCOM has sponsored this Alternative Assets Seminar Pension Reform Evolution

11. Let’s dream about what could be Then – be realistic about risks and what could go wrong Objectives should be three fold Optimum risk/return system Pension system evolving to meet national needs Avoiding mines in the future minefield Pension Reform Evolution

12. Growth from +/-1% of GDP to 20-25% by 2015-2020 All of quoted companies registered and broad coverage at all levels of government and SMEs From +/-3m covered to 10+m N1.0 trillion to N5.0-10.0 trillion pension funds Increased coverage to include more of population provided investment results build widespread confidence Future Potential

13. What can go wrong? Return to “muddling through” economic policies Collapse of eligible markets with major impact on public confidence Low investment returns with high fees and expenses Abuse of the system Populist misguided reform Managing Risk

14. 1. Optimum Risk/Return System Investment guidelines that enhance returns and diversify risks Investment vehicles which expand alternatives for sound investments Enabling environment for – Investment climate Expanding capital markets Rule of law Objectives

15. 2. Pension System Evolving to Meet National Needs Progressive investment guidelines coupled with prudent regulation Capacity building and depth of experience within industry players Expansion of coverage to meet national needs Objectives

16. 3. Avoiding Mines in the Future Minefield Learning from global regulatory experience (particularly Chilean type systems) Investment practices utilizing global lessons learnt Sound diversification to cushion potential market failures Objectives

17. Proactive approach to assure successful end results – Public/private partnership and continuous dialogue Linkage to relevant global experiences Development of enabling environment Continuous evolution of investment guidelines in tandem with proven investment alternatives The Way Forward

18. Public/Private Partnership Periodic workshops and an annual “pension summit” Review progress Upgrade skills and share experiences Raise issues Define and support solutions Build public confidence and widespread support The Way Forward

19. Linkage to Relevant Global Experiences External courses and secondments Learning from global players Successes Failures Lessons learnt The Way Forward

20. Enabling Environment Improved investment climate Improved infrastructure Upgraded Rule of Law Expanded Capital Markets Specific reforms Taxation Pass through vehicle REITs ??? The Way Forward

21. Investment Guidelines Systematic development of alternative investment vehicles Competence Governance Proven track records Evolving Investment Guidelines in anticipation of sound investment requirements The Way Forward

22. Nigerian pension system should evolve towards best global practices Public Private Partnership should be nurtured to drive the evolutionary process Risk minimization and sound investment results must both be given priority in building public trust. Long term needs for all Nigerians should be anticipated proactively Conclusions