The National Pension Commission (PenCom) has released the Draft Regulation on Investment of Pension Fund Assets to guide Pension Fund Administrators (PFAs) and other investors who have been agitating for the use of accumulated pension fund assets, now in excess N4.6 trillion, to develop infrastructure across the country.
The Commission in a statement signed by its Head, Communication, Emeka Onuora, said while expecting inputs from stakeholders and other interested parties, it has set the minimum value of individual projects that pension fund assets could be invested in at N5 billion.
The statement added that as much as 15 per cent of the total value of pension fund assets under management could be invested in infrastructure through Infrastructure Bonds and another 5 per cent of the total value of pension fund assets could be invested in infrastructure through Infrastructure Funds, making 20 per cent of the total value of accumulated pension asset.
According to the Regulator, pension fund assets could be invested in infrastructure through either Infrastructure Bonds or Infrastructure Funds, saying both outlets must meet the conditions for the investment of pension fund in infrastructure before PFAs could channel pension fund assets into such investments.
The Regulator cited section 5.2.3 of the draft “Regulation on Investment of Pension Fund Assets” saying it provided that pension assets could be invested in infrastructure projects through eligible Bonds, Sukuk subject to two major conditions.
“The infrastructure project shall be not less than N5 billion in value and awarded to a concessionaire with good track record through an open and transparent bidding process in accordance with the due process requirements set out in the Infrastructure Concession and Regulatory Commission Act (ICRC Act) and any regulation made pursuant thereto and certified by the Infrastructure Concession and Regulatory Commission (ICRC) and approved by the Federal Executive Council (FEC),” PenCom said.
Other conditions for the investment of pension assets on infrastructure include that the projects, whose business plans and financial projections indicate that they are viable as well as economically and financially rewarding for investment by pension funds.
The Bonds or Sukuks issued to finance the infrastructure project shall have robust credit enhancements including guarantees by the Federal Government or eligible bank/development finance institution or MDFOs and a maturity date that precedes the expiration of the concession.
It should also have a feasible and enforceable redemption procedure in the event of project suspension, cancellation or, in the case of regulated sectors, when changes in regulatory or policy decisions make the project to differ significantly from its original financial projections.
Where infrastructure projects are financed through Infrastructure Funds, the value of the Infrastructure Fund shall not be less than N5 billion and the Infrastructure Fund must have a well defined and publicised investment objectives and strategy as well as disclosures of pricing of underlying assets, including any other necessary information.
All annual financial statements of the Fund shall be audited by reputable firms of chartered accountants and the Infrastructure Fund shall have satisfactory pre-defined liquidity/exit routes such as IPO, sale to other PE Funds, Trade sale, sale to a strategic investor etc. The Funds shall be managed by experienced Fund Managers, versed in infrastructure financing and registered with the SEC as Fund Managers.
Some other conditions for the investment of pension assets in infrastructure include that a minimum of 60 per cent of the Infrastructure Fund shall be invested in projects within Nigeria and where an Infrastructure Fund does not have development finance institutions or MDFOs as co-investors, but the Fund Manager has a minimum investment manager rating of BBB issued by a rating company registered or recognised by SEC and the fund manager shall retain a minimum investment of 3 per cent of the Infrastructure Fund.
Where the Infrastructure Fund has development finance institutions or multilateral development finance organisations as co-investors, the fund manager shall retain a minimum of 1 per cent of the Infrastructure Fund and the fund shall have an Advisory Board with independent representatives of institutional investors being in majority.
And prior to investment and during the tenor of investment in any Infrastructure Fund, PFAs are to ensure that the Advisory Board has responsibility over audit functions regarding the evaluation of projects prior to investment; transactions with parties related to the Infrastructure Fund Manager and strategies concerning divestiture of investments in which the Private Equity Fund has interests.
It also confirmed that it is still receiving inputs from stakeholders on how to make this work in the overall benefit of the Nigerians and encouraged.
by Mrs. Chinelo Anohu-Amazu, DG PenCom