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Only 0.29% of pension funds allocated to private equity-Report

Investment One acquires Royal Trust Pension Administrators

A survey by African Private Equity and Venture Capital Association (AVCA) has found most pension fund managers have a preference for investment in Private Equity (PE) though, in reality, only a handful of the investment fund, represented by 0.29percent, gets into PE business.

The survey which was in collaboration with the Pension Fund Operators Association of Nigeria (PenOp) showed that the Nigerian pension industry had committed N35.48 billion (over $92 million) to private equity funds, the equivalent of 0.29percent of total pension fund assets as at December 31st 2020.

“However, the potential for pension investment in private equity is enormous and far exceeds current allocations being made to the asset class,” the report added.

It explained further that portfolio ceilings on the investment of pension funds in private equity (of five percent means) that N615 billion (over $1.5 billion) of pension fund assets may be unlocked to invest in private equity funds.

AVCA’s report revealed Nigerian pension funds display a strong appetite for private equity investment both locally and across the continent.

For instance, 75percent of the pension fund managers that participated in the survey plan to accelerate or maintain their current pace of capital commitments to African PE in the next five years, citing a desire for portfolio Diversification and Performance as the most important factors driving their investment plans.

The study discusses the PE landscape on the continent, analysing key market drivers and impediments affecting the industry to provide a deeper understanding of how Nigerian pension funds are evaluating the private equity asset class in the country.

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The report catalogues some of the obstacles faced by pension funds investing in the asset class. Respondents highlighted a perceived weak exit climate and a limited number of established African GPs as significant challenges for pension funds investing in African private equity.

However, 49percent of survey participants did not consider any of the current pension investment regulations to be prohibitive, suggesting that respondents view the existing regulatory environment as conducive for investment in alternative asset classes.

Speaking on the publication, the CEO of AVCA, Abi Mustapha-Maduakor, said “Increasing interest in Africa’s private equity industry from domestic and international investors alike underscores the need to analyse the perceptions and concerns of institutional investors to promote an open dialogue on the continent’s unique business environment”.

The report also highlighted that close to two-thirds (63percent) of Pension Fund Managers that participated in the survey currently manage less than $999 million of pension assets.

The survey respondents collectively manage pension assets amounting to N7.6 trillion (over $19.0 billion) as of December 2020, representing 83percent of the total value of pension assets managed by Pension Fund Administrators in Nigeria.

It noted that just under half (44percent) of Pension Fund Managers that participated in the survey currently manage pension assets valued between $500 million and $999 million, while another 31percent manage between $1 billion and $4.9 billion of pension assets.

According to the report, 88percent of survey respondents have an exposure to Private Equity Funds and Infrastructure Funds, while 75percent have an exposure to Real Estate Funds.

“The vast majority of survey respondents (94%) do not currently have an exposure to Venture Capital Funds, further emphasising this conservative approach,” the report noted.

The report showed four in five of survey respondents currently have capital commitments to private equity in Nigeria while only a third (33percent) have capital commitments to private equity in West Africa, dropping to 27percent with commitments to private equity in sub-Saharan Africa.

“This means that the value of these commitments, slightly over two thirds (69%) of respondents have committed between $1 million and $20 million to Nigerian private equity as larger ticket sizes ($21 million and above) are concentrated in national and regional markets only,” the report noted.

The joint publication exemplified AVCA’s commitment to championing private investment in Africa: bridging the knowledge gap between industry stakeholders by providing topical, informative research on the opportunities private equity has to offer Nigerian pension funds.”