PFAs flock to infrastructure bonds on high yields

Pension fund administrators (PFAs) are showing a strong appetite for corporate infrastructure bonds, targeting high-yields in the debt market.

PFAs invested N91.12 billion in infrastructure bonds in the first six months (H1) of 2023, according to the National Pension Commission (PenCom). They raised their stake to N103.86 billion in the corresponding period of 2024, representing a 14 percent increase, according to the Pension Fund Operators Association of Nigeria (PenOp).

Oguche Agudah, chief executive officer, PenOp, said PFAs have recognised the significant infrastructure gap in Nigeria and are actively investing to bridge it through corporate infrastructure bonds.

“This form of investment is not solely focused on generating returns; it is also aimed at enhancing the quality of life for both contributors and retirees. By channelling funds to infrastructure projects, pension funds play a vital role in fostering economic growth and development,” Agudah said.

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He explained that N26.72 billion was invested in corporate infrastructure bonds in January 2024, but investments fell to N15.86 billion in June. These ongoing investments, he said, reflect a strategic approach to not only secure financial returns but also support sustainable development across Nigeria, improving public services and contributing to the nation’s overall economic stability.

According to him, the decline in the amount of bonds has been due to existing bonds maturing.

“There is a healthy appetite for corporate infrastructure bonds, and pension fund managers have repeatedly insisted that they would like to see more come to the market,” Agudah further said.

Pension funds investments in infrastructure have continued to swell, with their recent stake of N230 billion in Sukuk bonds and the Nigeria Infrastructure Debt Fund (NIDF).

A breakdown shows that PFAs invested N127 billion in Sukuk bonds (I-IV) for federal road projects between 2017 and 2023 and N103 billion in the Nigerian Infrastructure Debt Fund over the period.

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The roads that attracted this investment were: Kano-Maiduguri Expressway, Kaduna Eastern Bypass, Enugu-Port Harcourt Express, Ibadan Ilorin Express, Ahmadu Bello Way VI, and Loko –Oweto Bridge.

Saadu Jijji, chief executive officer, Pal Pensions Limited, said a lot of funding has been invested by the sector without much noise being made about it.

According to him, PFAs are the largest investors in NIDF, which is the biggest infrastructure fund in Nigeria that invests in projects from power to student hostels.

Jijji said PFAs also invested in Dangote Refinery and Petrochemicals when the Dangote Industries issued a N300 billion bond for the completion of the refinery in 2022.

“The PFAs have invested in ACTIS Real Estate fund that has acquired Jabi Lake Mall and will acquire Ikeja City Mall,” he said at a recent meeting with federal legislators in Lagos.

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Other infrastructure investments by PFAs, he noted, are: State bonds, Novare Real Estate, MTN, Niger Delta Exploration and Production Plc, Lagos Free Zone, and the Nigeria Mortgage Refinancing Company (NMRC) where it invested N26 billion from N100 billion guarantee.

Joy Ojakovo, vice president of PenOp, said the Contributory Pension Scheme (CPS) has brought many benefits to individuals and the nation, noting that the industry needs to continue to work with stakeholders to improve the scheme.

“Nigeria’s pension industry has been the fulcrum for a lot of development that has happened in the country over the last 15 years. This fact is not lost on us as pension fund managers. We realise this and we take this responsibility very seriously,” she said.

“Another benefit of CPS is the fact it has provided an opportunity for the accumulation of long-term capital, which serves as an avenue to invest in various sectors of the economy,” Ojakovo said.

“The pension funds have been the largest players in the bond and equity markets. We are very proud of the work we have done in this regard, and we continue to look for opportunities to develop and deepen the market.”

Bankole Opeyemi, a staff member of one of the PFAs, said the integration of Sukuk bonds into the pension fund’s portfolio and the allocation of assets to infrastructure projects are strategic decisions with potential benefits to the pension fund’s overall performance.

He noted that the allocation of assets to infrastructure projects could support the growth of critical infrastructure such as transportation systems, energy generation and housing, which are essential for economic growth and job creation.

The combination of Sukuk bonds and infrastructure development can contribute to the country’s economic growth by providing a stable source of funding for these projects and creating jobs and opportunities for local businesses.