Pension fund managers keep faith with private equity

Desire for diversification of asset classes and performance will continue to drive pension fund managers’ investment in private equities (PEs) over the next five years, a report shows.

This is contained in the African Private Equity and Venture Capital Association (AVCA) and the Pension Fund Operators Association of Nigeria (PenOp) first ever report on Nigerian pension funds engagement with private equity released Tuesday said.

According to the report, 75 percent of 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.

Nigeria’s pension fund industry has grown at an impressive compound annual growth rate (CAGR) of 18 percent over the last five years, culminating in an asset base of N12.3 trillion ($29.9bn) as of December 31, 2020.

Although there has been a concerted effort by both sets of industries to increase the level of pension allocation to private equity, the allocation of Nigeria’s pension funds to the asset class has traditionally been low when compared with their allowable limits.

Read also: Nigeria’s pension fund assets hits N13trn as contributors increase to 9.46mn

The release of this flagship report, according to the partners, aims to bridge the gap between these two complementary industries by investigating and assessing the role of Nigerian pension funds in empowering local investors in Nigeria’s private equity industry.

Further breakdown of the report catalogues some of the obstacles faced by pension funds investing in the asset class. Respondents highlight 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, 49 percent 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, Abi Mustapha-Maduakor, CEO of AVCA, 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.

“This joint publication exemplifies 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,” Maduakor said.

Oguche Agudah, CEO of PenOp, said local pension fund managers had expressed a desire to increase their allocation to private equity and more impactful investments.

However, there are a number of bottlenecks that restrict them, Agudah noted, stating, “The partnership with AVCA helps us to work with industry stakeholders to identify and address these bottlenecks for our mutual benefit, and the benefit of the local economy.”

AVCA is the pan-African industry body that promotes and enables private investment in Africa, and plays a significant role as a champion and effective change agent for the industry, educating, equipping and connecting members and stakeholders with independent industry research, best practice training programmes, and exceptional networking opportunities.

While PenOp was established to promote the operations of the pension industry, provide for self-regulation and ensure that international best practices relating to the industry are observed by the operators registered in Nigeria.

Its role internally is to add value to its members across all levels; information, education, visibility, networking, strategy, product development, etc. Externally, its role is to increase the awareness and visibility of the pension industry and enable external stakeholders to understand and participate in the development of this financial sub-sector wherever and whenever possible.

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