Pension fund investment in govt securities is driven by returns, safety – Leadway Pensions


Mr. David Alao is Acting Asset Manager of Leadway Pensure and a member of the Pension Fund Operators Association of Nigeria (PenOp). In this discourse he maintains that pension funds investment in government securities should be channelled into infrastructure development. 

By Rosemary Onuoha

WHY do we have more of the pension fund invested in government instruments?

A total of 77 per cent of pension fund is invested in federal government instruments and about four per cent in corporate bonds while about six per cent is in money market. If the federal government instruments can yield returns of 22 per cent and money market pays 18 per cent, why should I invest in money market?

In recent times the exposure of PFAs in equities has declined. In December 2015 PFAs had about 9.75 per cent in  equities but recently,  it is about 8.12 per cent. In 2015 and 2016 the capital market did not do well. Even as the market has improved, PFAs did not increase their asset allocation.

David Alao

Between  2015 to 2017, the exposure in government bonds and treasury bills has increased from 66 per cent to 77 per cent. State government bonds have come down from 2.8 per cent to 1.2 per cent. Investment in domestic money market instruments has come down from about 11 per cent to just about 5 per cent simply because federal government bonds are offering more returns.

Economic rational business

So the certainty that an FGN bond that can bring 22 per cent and will not default is the reason for the preference.

Why the little interest in state government securities? 

The opportunities we see in the market drive our asset allocation. Our job is to find the best investment outlets that will give the best return with low risk for our contributors. We are economic rational business in the sense that if it looks like we have excessive risks than we are willing to take then we will not invest in it. If a state cannot pay salary why should I buy their instrument?

Any plans to invest in infrastructure going forward?

The truth of the matter is that 77 per cent of pension funds are invested in federal government securities. So a large chunk of the money is with the government already. So if the government is saying that we are keeping the money in the banks, it is not true. The fact that the money is with government means that if they want to put it in infrastructure,  they should put it there.

They should just ensure and guarantee that the money will be repaid. So rather than putting the money in an infrastructure project that may or may not work, we will give the money to the government and let government put it into infrastructure. In other words, we have transferred the risk of investment to the government.

There is so much pressure on pension fund to be invested into infrastructure; however there are some structural problems that are not entirely government issues. For example  the national public policy law has not been passed, the right of way laws have not been passed as well and they are all in the National Assembly.

Unless there is a right of way law or national public policy law, the structural issues that surround some certain infrastructure will remain. It means that the risk still remains high and we are protecting people’s retirement.

Our promise to participants in the scheme is safety of funds and unless an investment provides that safety of funds we will find others ways of de-risking or passing the risk to someone else and that is why a large percentage of the money that we invest is in government grants because the guarantee of the government is there and we are sure that we will get our money back.



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