PFAs can play vital role in deepening capital market – SEC

Mounir Gwarzo, Director-General, Securities and Exchange Commission on Wednesday said Pension Fund Administrators (PFAs) should play vital roles in deepening the country’s capital market and maintaining its relative stability.

Gwarzo said th at the 2016 Business Day Capital Market Conference in Abuja.

The theme of the conference is,“ Deepening Nigeria’s capital market through maximum utilisation of pension funds.’’

Gwarzo said deliberations on this would ensure that the impressive pool of savings mobilised over the last decade was put to productive use for inclusive economic growth.

He expressed delight at the proactive adjustments to the guidelines of the National Pension Commission (PenCom) that allowed the PFAs sufficient flexibility to determine their optimal strategic asset allocation.

“The draft new regulation on investment of pension fund assets allow the investment of up to 30% in equities (for Fund type 1) and up to 45% in corporate debt securities (for fund types 3 and 4).

“We believe the adoption of a multi-fund structure should produce economies of scale, risk diversification and further deepening the Nigerian Capital Market through Pension portfolios and management strategies of PFAs.

“ There is therefore an urgent need for the draft guidelines on multi-fund structure to be approved,’’ he said.

Gwarzo said PFAs were meant to ensure safety and maintenance of fair returns on the amount invested and adequate liquidity to pay all pension benefits of contributors as and when due.

He said other objective of the PFAs was to achieve an optimal trade-off of risk and return through strategic asset allocation among others.

According to him, even if PFAs were to invest at the maximum allowable limit of 30% in equities, it would still not be up to the global average of 42%.

He explained that in the interest of contributors, “we need an optimal strategic asset allocation that pays much attention to safety of funds without neglecting optimal return on investment.’’

The Director-General said that in addition to equities, the capital market provided PFAs with a range of investible products capable of bringing in decent returns.

“These include corporate bonds and various types of collective investment schemes like mutual funds, Exchange Traded Funds (ETFs), Real Estate Investment Trusts (REITs), Infrastructure Funds and Private Equity.’’

According to Gwarzo, the most common challenges usually blamed for low allocation to equities by PFAs are volatility and risk.

“With the massive infrastructure investments needed in our country, PFAs are poised to play a very prominent role provided the instruments are de-risked.

“We welcome efforts from market participants on setting up monoline insurance capable of de-risking investment in infrastructure.

He said,“in 2013, SEC put robust rules in place for securities lending, but no PFA took advantage of this platform which could play a critical role in deepening the capital market.

Gwarzo said the SEC under his leadership was committed to developing a robust market capable of meeting the needs of PFAs and all investors.

“We are confident that with greater participation by PFAs and return of retail investors, our capital market will emerge as one of the world’s biggest.

“It would be one of the most liquid market capable of supporting the socioeconomic development of our country.

“And I hope that this conference will bring up valuable insights on the ways to ensure PFAs play a more prominent role in achieving this objective.(NAN)