PenCom directs PFAs to invest 60% of infrastructure fund locally … Sets N5bn as minimum value for projects
The National Pension Commission has directed Pension Fund Administrators (PFAs) to invest a minimum of 60 per cent of the infrastructure fund in projects within Nigeria.
The revised regulation on investment of pension fund assets issued to PFAs by PenCom recently also set the minimum value of the projects to be considered for investments with pension funds as N5 billion.
There have been calls by Nigerians that the country’s growing pension funds should be invested in infrastructure projects that would benefit people at the bottom of the pyramid.
An amendment to the Pension Reform Act (PRA), 2004 in 2014 provided a legal backing for PFAs to now invest pension funds in infrastructure unlike before the amendment.
The PRA 2014 provided in Section 86 that pension funds could be invested in real estate development, a provision which will enable Nigerians to have access to housing and close the gap in housing development in Nigeria.
With the new development, infrastructure investments through pension funds skyrocketed by over 600 per cent, from N2.23 billion in January, 2017, to N16.07 billion as at August 31, 2018.
However, this translates to less than 3 per cent of Nigeria’s N8.63 trillion pension assets as at December, 2018.
The revised regulation seen by Daily Trust indicated that pension fund assets can be invested in infrastructure projects through eligible bonds and Sukuk, as long as they are for core infrastructure projects, whose business plans and financial projections indicate that they are viable as well as economically and financially rewarding for investment by pension funds.
The bond or sukuk issued to finance the infrastructure project shall have credit enhancements, being guarantees by the Federal Government of Nigeria or eligible MDFOs and any agency backed by a Sovereign or Development Finance Institution; have a maturity date that precedes the expiration of the concession where applicable; and have a feasible and enforceable redemption procedure in the event of an adverse event such as project suspension and cancellation.
Where infrastructure projects are financed through Infrastructure Funds, the infrastructure fund shall have well defined and publicised investment objectives and strategy as well as disclosures of pricing of underlying assets, including any other necessary information.
In an interview with Daily Trust, the Acting Director General of PenCom, Aisha Umar-Dahir, said the commission introduced infrastructure as an approved asset class in 2010 but the move did not immediately translate into investments in infrastructure by PFAs due to limited availability of investible infrastructure products that meet the minimum criteria for pension fund investment.
“The commission sought to address this by actively engaging stakeholders in the capital market to facilitate the development of these investible instruments and other necessary conditions to encourage pension fund investments in infrastructure, that is credit enhancement mechanisms,” the PenCom boss said.
She said the commission supported the establishment of Infrastructure Credit Guarantee Company Limited (InfraCredit) which provides local currency guarantees to enhance the credit quality of debt instruments issued to finance infrastructure assets in Nigeria. “The company had provided credit guarantee for an infrastructure bond issued by Viathan Funding Plc. in December, 2017, with pension funds subscribing for over 70 per cent of the issuance. These efforts are gradually bearing fruits as infrastructure investments by pension funds have grown,” she said.
However, the revised regulation has shown that PenCom is concerned with the safety of pension funds even as more PFAs invest in infrastructure.
The regulation is also concerned with who manages the infrastructure fund, mandating that PFAs must ensure that the key Principals, namely the Chief Executive Officer and Chief Investment Officer of the Fund Manager shall each have at least 10 years relevant and continuous experience in infrastructure financing or investment management and shall not exit the Fund without prior notice to the PFAs, which shall not be less than 90 days from the exit date.
The regulation mandated that the ‘exit clause’ shall be expressly stated as a condition in the investment agreement/ covenant between the PFA and the Fund Manager.