New Pension Guidelines Allow Investment In Sukuk, Holding Companies

By Nse Anthony-Uko, with agency report
LAGOS, (Sundiata Finance)
The recently amended guidelines for investment of pension funds have paved the way for Pension Fund Administrators (PFAs) to invest in Holding Companies listed on the Nigerian Stock Exchange, as well as in sharia compliant instruments like Sukuk.
Stakeholders said with these openings, the investment market for pension funds has rallied a little, and offers contributors opportunity to earn higher investment returns.
They also believe that it enables them benefit from growth prospect in big holding companies, like FBN Holdings and Stanbic IBTC Holdings, which hitherto was not possible for operators to invest in.
Before now, pension fund investment was concentrated on Federal Government bonds, treasury bills and equities, which analysts said was not good enough to allow for varied investment incomes.
As at April 2017, FGN Bonds attracted 55.7 per cent of pension funds, while Treasury Bills attracted 15.66 per cent. Equities attracted 8.8 per cent, with domestic ordinary shares having 7.4 per cent and foreign ordinary shares having 1.41 per cent.
Dave Uduanu, Managing Director and CEO, Sigma Pensions Limited, said the new guideline is quite radical.
He said the first thing it does, is that it allows investment of pension funds into holding companies that are listed on the stock exchange. For example, companies like Stanbic and FBN Holdings. So, you can see that the market has rallied a bit. The second point is that it allows investment in sharia compliant instruments like Sukuk or other Islamic finance products, which opens up that segment of the market.
According to Uduanu, what is perhaps the most radical change, is the introduction of multi fund, which means that retirees and contributors can select instruments, based on their risk appetite, profile, their age and outlook in investment.
“With these asset classes, we believe that the market will open up. There is provision for minimum investment in equities and alternative asset classes.
“I think the guidelines will unleash investment in alternative asset classes to support infrastructure financing, particularly housing. “It will also support investment in the stock market because of the minimum investment in equities.
Uduanu stated that minimum investment in equities has increased from 25 percent to 65 percent in Fund One. “So now, members have the choice to stay in their PFAs and choose different funds as it were.”
According to him, this is where the market has gone in other jurisdictions, like Mexico, Chile and the US. “Member choice is fundamental and member choices within companies are very important because that enables you to get a menu of fund types, depending on the determining factors.”
Eguarekhide Longe, managing director and CEO, AIICO Pension Managers Limited, said PFAs can now invest in companies with a Holdco structure, such as FBN Holdings Ltd and Stanbic IBTC Holding, as a result of section 5.2.4 (iii) of the guidelines.
Longe said the guidelines mean that individual investment preferences will be catered to, just like in the regular asset management industry. “Thus, for younger contributors capable of absorbing more risk, they will have the option of selecting the funds with larger variable income exposure, while those who would rather be more conservative, due to age, will select the more predictable fixed income Funds.”
According to Longe, enhancement of returns is not the focus, rather it is risk predisposition.
“However, since over the years, the experience is that variable income investments tend to outperform other asset classes, it is expected that for those with a longer term investment horizon, they will ride the fluctuations over the years and earn superior return over the life of the investments that will be made for them in the portfolios that are exposed to higher risks.”

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