Hot SourceAfter over 20 years of continued investment of larger chunk of pension funds in federal government securities, National Pension Commission, is now in search of alternative investment portfolios, writes Ebere Nwoji
The National Pension Commission (PenCom) is obviously no longer at ease with the lingering tradition of investing larger chunk of pension assets in federal government instruments such as bonds and public equities. The commission and pension fund operators are earnestly searching for alternative instruments with higher yields where they can stake the whooping N24.11 trillion pension assets on which Nigerian pension sector is currently sitting on.
The reason for search of alternative assets is not far-fetched. The prevailing economic landscape characterised by volatility, rising inflation and declining purchasing power of RSA Contributors, required dynamic and resilient investment strategies in order to make handsome returns to pension fund contributors’ savings account.
The current search for high yielding alternative investment windows initiative which credit goes to the incumbent gentle but vibrant Director General of PenCom, Ms Omolola Oloworaran, is coming after 20 years of religious and tenacious guard on pension assets in terms of operators’ asset class choice of investment. Indeed over these years, managers of the fund believed pension fund is sacrosanct; therefore, should mainly be invested in the assumed safest instrument of Federal Government mainly federal government bonds.
The result of this is that today, over 80 percent of pension fund assets are invested in fixed income securities with Federal Government Securities accounting for 62 percent of total pension assets valued at N24.11 trillion as of 30 May 2025; according to PenCom.
Though safety should be the watch word in investment of pension funds, over these years the fund managers have been risk averse.
Previous regimes in the commission for instance, insisted that pension funds should not be invested in infrastructural development not even in such high yielding but short maturing instrument like commercial papers of even those of blue ship companies like Dangote, strong commercial banks like Access Bank, GTB among others which can hardly default.
PenCom position
The commission had insisted that except commercial paper instrument is regulated by SEC, it cannot allow pension fund to be invested there.
But with the regime of Oloworaran, the time seems to be ripe for the pension sector to launch out for alternative investment instrument that will guarantee higher yields.
The commission demonstrated commitment towards search for these alternative investment windows by organising two-day sensitisation workshop on Investment in Alternative Assets for Chairpersons of Board Investment Strategy and Risk Management Committees of Pension Fund Administrators
At the workshop, Oloworaran, observed that the Nigerian pension funds were yet to fully optimise investment potential, despite the availability of favourable long-term demography to operators.
She said despite the fact that the overarching theme of investment in the pension industry had consistently been the preservation of capital and generation of fair returns, the misperception of safety with liquidity has limited the ability of Pension Fund Administrators (PFAs) to optimally deploy pension funds under their management.
Oloworaran, noted that currently over 80 per cent of pension fund assets were invested in fixed income securities with federal government securities accounting for 62 per cent of total pension assets valued at N24.11 trillion as of 30 May 2025.
She said the allocation to alternative assets (private equity and infrastructure funds) was only about 3 per cent, noting that while traditional asset classes such as bonds and public equities had served their purpose, hence the need for alternative investment asset classes.
“In this context, alternative assets provide a complimentary pillar to core investment strategies of pension funds offers. Investments in infrastructure and private equity, in particular, help align pension fund portfolio with their investment horizon, provide opportunities for diversification of pension assets and enhance risk adjusted returns.
“Let me stress that as Chairpersons of the Investment Strategy and Risk Committees, you occupy a position of trust. You have a fiduciary duty a legal and ethical obligation to act in the best interests of Retirement Savings Account holders at all times. This responsibility includes ensuring that investment decisions are based on sound strategy, robust risk assessments, and are compliant with the guidelines issued by the Commission,” she pointed out.
Operators’ position
Also speaking, president of Pension operators Association (PenOp), which is the umbrella body of pension funds administrators and custodians, Mr Christopher Bajowa, noted that the pension sector has grown significantly both in size and in credibility.
He added that operators have demonstrated that pension assets in Nigeria could be managed professionally, transparently, and responsibly.
“We have shown that retirees can be paid promptly, that pension funds can be grown prudently, and that technology can be deployed to enhance efficiency and customer service. These achievements are commendable, and we should be proud of how far we have come”, he stated. He however said despite these achievements, operators recognised that there were more to do. He said as fiduciaries, operators have dual responsibility not only to safeguard and grow pension assets, but also to contribute meaningfully to the economic development of the country.
“We cannot afford to be passive investors in the face of Nigeria’s infrastructure and development needs.This is why this workshop is so important,” he stated.
Investment Expert’s view
Speaking on alternative areas of investment of pension funds an investment expert and Chartered Accountant with the FMDQ, who does not want his name in print said commercial papers are alternative area of investment for pension fund.
He described commercial papers as short term debt instrument issued by corporations adding that they can be issued up to a tenure of 270 days.
He however explained that because they are issued by corporations, they are typically not very secured like federal government securities.
He said as such they pay higher discount or interest rate.
According to him, the benefit of investing in commercial papers is that they are usually issued at a discount meaning that interest is paid upfront before the maturity of the securities.
He however said it would be good for the PFA to do its own due diligence to be able to understand the issuer of such commercial paper before investing in them to minimise risks.
He said this is a viable area of vestment for pension funds as SEC recently issued a circular mandating registration of commercial paper programmes to be done so as to review the programme before people will start buying so as to reduce risk faced by the buyers.
He said as such commercial papers are one of the instruments the PFAs can explore in their current search for alternative investment instrument.
Alternative Investment Instrument
Oloworaran, in her conclusion said alternative investment instrument would ensure handsome returns and ensure long term sustainability.
According to her, majority of pension funds are invested in traditional fixed income facilities like federal government bonds, treasury bills, all government securities.
She insisted that now what the pension sector needs to do as an industry is to ask, how can we diversify that portfolio to ensure that we generate inflation plus returns to retirees and RSA holders’ retirement savings account holders.
Speaking further, she said, “How do we ensure that pension funds being long term capital can be used to drive infrastructure development because there are great opportunity out there and the best way we can get real returns for pension funds is to begin to invest in real assets.”
