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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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  1. Challenges of Investment of Pension FundsByEyamba T. HenshawCommissioner TechnicalNational Pension Commission

  2. Outline • Pension Funds Investment • Pre-requisites for Pension Fund • Investment Guidelines • Portfolio of Pension Funds • Pension Fund Investment Challenges • Ways Forward

  3. 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

  4. 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

  5. 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

  6. 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

  7. 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

  8. Investment Guidelines

  9. 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

  10. 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

  11. 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

  12. 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

  13. 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

  14. 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

  15. Thank You! National Pension Commission Plot 174, Adetokunbo Ademola Crescent Wuse II, Abuja 09 – 4138736 – 40 info@pencom.gov.ng www.pencom.gov.ng

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