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2  Pension Funds Investment  Pre-requisites for Pension Fund  Investment Guidelines  Portfolio of Pension Funds  Pension Fund Investment Challenges  Ways Forward

 The main goals of pension investment are to: Ensure adequate, affordable and sustainable benefits to contributors Secure safety & security of funds Ensure adequate liquidity to pay all pension benefits of contributors as and when due Achieve an optimal trade-off of risk and return through strategic asset allocation 3

4  The Pension Reform Act, 2004 stipulated the type of investments allowed  National Pension Commission issues regulations and guidelines for the investment of pension funds:  Regulations on Investment of Pension Fund Assets  Regulations on Valuation of Pension Fund Assets  Regulations on Fees Structure  Guidelines and Format for Rendering Returns on Pension Fund Investment by Operators on Daily Basis monitors pension fund investments on daily basis

5  Role of Pension Fund Operators  Pension Fund Administrators manage pension fund assets makes investment decisions  set investment objectives  formulate asset allocation strategies  tactically select assets for investment  analyse fund liabilities and future cash flow requirements review investment performance and render daily valuation report on pension fund investments to PenCom

 Role of Pension Fund Operators.. Cont’d  Closed Pension Fund Administrator s perform same role as PFAs on pension fund investments for their sponsoring organisations render monthly reports to PenCom  Pension Fund Custodians keep custody of pension fund assets on trust execute investment transactions on behalf of PFAs 6

7  Authorised Markets for Trading Floor of Recognised Stock Exchange Money Market Trading Platform  Quality of Instruments Instruments/Issuers must be rated Records of past profitability and/or dividends payouts Instruments must be readily marketable  Regulated investment limits (asset class/instruments) & performance benchmarks

S/N ASSET CLASSMAXIMUM INVESTMENT AS % OF PENSION FUND ASSET PER ISSUERPER ISSUEMINIMUM BENCHMARK 1 Government Securities FGN 100% Maximum of 100% of total issue of FGN bond. No limit.Weighted Average Govt. 2 year bond rate (on bonds only). States 20% Maximum of 2% of Pension Fund Assets in one State Govt. Maximum of 2% of any one issue by a State Govt. 2 Corporate Bonds /Debt (including REITs, Mortgage and Asset Backed securities) 30% Maximum of 2.5% of all issues by one corporate. Maximum of 2.5% of any one issue. Weighted Average Govt. 2 year bond rate + 1%. 3 Money Market Instruments 35% Maximum of 1.0% of Pension Fund Assets in all instruments issued by one bank. Not applicable.365 day T Bill Rate. 4 Ordinary Shares 25% Maximum of 1.0% of Pension Fund Assets in any one corporate. Maximum of 1.0% of issued capital. NSE all share index (ASI). 5 Open and Close – end Funds 5% Maximum of 0.5% of Pension Fund Assets to one issuer. Maximum of 0.5% of any issued Close end fund. Maximum of 0.5% of Pension Assets in any Open/Hybrid Fund. NSE All Share Index (ASI). 8

9  Pension Fund Assets: Generated pool of long term investible funds for the first time in Nigeria The industry has approximately N worth of assets as at 31 October, 2007 RSA assets – N billion CFPA assets – N billion AES assets – N billion RETIREMENT SAVINGS ACCOUNTS ASSETS AS AT 31 OCTOBER, 2007 NAME OF SECURITY TOTALWEIGHT NGN million (%) FGN SECURITIES 65, % STATE GOVT SECURITIES 00.00% CORPORATE DEBT SECURITIES 00.00% QUOTED STOCKS 36, % MONEY MARKET INSTRUMENTS 52, % OPEN/CLOSE ENDED FUNDS 1, % UNINVESTED CASH % CASH /OTHER ASSETS 1, % REAL ESTATE % CREDIT INTEREST/DIVIDEND EXPECTED 1, % PAYABLES % TOTAL PENSION FUND ASSETS 159, %

10 Portfolio of Closed Pension Fund Administrators and Approved Existing Schemes as at 31 October, 2007 TYPE OF SECURITY CPFAAES AMOUNT (N)WEIGHT (%)AMOUNT (N)WEIGHT (%) FGN Securities48, %83, % State Government Securities % % Corporate Debt Securities % % Domestic Equity51, %106, % Foreign equity3, % % Domestic Money Market Securities28, %61, % Foreign Money Market Securities27, % % Mutual Funds1, % % Property/Real Estate27, %45, % Cash & Other Assets5, %17, % Interest/Dividend %3, % Unqouted Equities1, %5, % Leasing %2, % Payables % % TOTAL195, %325, % NOTE: weights are per scheme total

 Securing the safety and security of pension funds  Ensuring that pension funds invested earn real returns  Underdeveloped capital market for equities and fixed income securities  Dearth of investments instruments  High costs for raising investments in the capital market  Investment in real estate  Clamour for use of fund balances as collateral  Introduction multi-fund portfolios  Fees 11

 Shifting financial market from dependence on bank funding to Capital Market funding in order to facilitate economic development  Banks and asset management companies to develop corporate skills  Maintenance of macroeconomic stability  Ensuring that conflict of interest is minimised or prevented 12

 Inadequate capacity in the pension industry Operators Regulator Contributing public  Limited number of Rating Agencies and poor rating culture  Coordination between all institutions concerned CBN, SEC, NSE, DMO, CSCS, FIRS 13

 Encouraging companies to get listed on the stock exchange & solicit risk rating  Possibility of off-shore investments to mitigate against risk  Development of new investment instruments Corporate Bonds, REITs, Mortgage Backed Bonds, Infrastructural Bonds, etc 14

15 Thank You! National Pension Commission Plot 174, Adetokunbo Ademola Crescent Wuse II, Abuja 09 – – 40