Nigerian pensions eye alternatives

Nigeria's growing pension plans - whose AUM are expected to hit $30bn by 2010 - for the first time may be allowed a private equity allocation.

Nigeria’s pension plans would be allowed to invest as much as 5 percent of their portfolios in private equity funds, 20 percent in infrastructure funds and 40 percent in infrastructure bonds, under a proposal floated by the country’s National Pension Commission. At present, they are only allowed to invest in three areas: equities, government bonds and bank deposits.

Nigerian pensions currently have total assets under management of around $11 billion, but this is expected to rise to aproximately $30 billion over the next five years due to a rapid rise in the number of people contributing to schemes.

The proposals (which can be viewed in full at www.pencom.gov.ng) include various stipulations that must be satisfied for investment in any given area. For example, any debt instruments Nigerian pensions invest in must have a minimum credit rating of BBB awarded by at least two recognised credit rating companies.

For private equity funds, at least 90 percent of any fund committed to must be invested in companies or projects within Nigeria. The proposals also say that any commitments to private equity funds will be subject to a “transitional arrangement” involving pre-approval by the National Pension Commission.

The proposals come just a few days after details emerged of a new $1 billion sovereign wealth fund being launched by President Goodluck Jonathan in a move designed to divert more of the country's oil revenues to infrastructure development.  

The proposals have been motivated by a desire to improve the overall returns on pension portfolios, allowing them to channel funds into infrastructure financing. Nigeria, Africa’s third-largest economy after South Africa and Egypt, is said to require billions of dollars for a desperately needed upgrade of infrastructure such as power plants, roads and bridges.