The total amount of assets invested in Private Equity Funds (PEF) by Pension Funds Administrators, (PFAs) increased to N37.27 billion as at May 2018.
This figure represents a 35 percent increase from the N27.59 billion that was recorded as at the first quarter of 2018, according to data from the National bureau of statistics (NBS).
While data from the NBS still reflects first quarter (Q1) pension asset contributions, a statement signed by Peter Aghahowa, a spokesperson for National Pension Commission (PenCom) on Sunday showed PEFs gulped N37.27 billion of the total N8.14 trillion pension fund asset as at May 2018, accounting for about 0.5 percent of total pension fund asset as at the said date.
“It is the long-term nature of private equity that makes it a particularly well-suited investment for pension systems that are required to manage the accounts of participants so they can ultimately meet their retirement goals.
“In addition to creating a better alignment between long-term liabilities and incoming cash flow, private equity offers pension fund contributors an outperformance potential that is uncorrelated to other assets,” Aghahowa added.
Data compiled by BusinessDay and obtained from NBS shows that in Q1 2017, PEFs got investment worth N17. 4 billion from PFAs, accounting for about 0.27 percent of the total N6.4 trillion pension fund asset.
This investment crawled to N25.4 billion as at December 31, 2017, representing a 46 percent increase from the Q1 figure and accounted for about 0.34 percent of the total N7.5 trillion pension fund asset.
Investment by PFAs in PEF increased to N27.6 billion as at end of March 2018, but still accounted 0.35 percent of the total N0.35 percent.
As at Q1 2018, private equity funds had the fourth lowest investment by PFAs among other asset classes after Infrastructure funds, Mutual funds and Supra-National bonds. These asset classes got N7.9 billion, N19.2 billion and N7.3 billion respectively.
This however, begin to arouse questions that an asset class that as being viable and rewarding good long term investment returns despite political uncertainties is receiving such poor investment from pension fund administrators.
Eguarekhide Longe CEO/MD AIICO pensions said in a phone response to BusinessDay that “the limit by regulator for investment in private equity funds is 5 percent of funds under management, so as such we can’t expect to see a very high up take,”
“Secondly, private equity is place vanilla, as you need to put up so much together, there has to be a team of people who must come together to propose a certain style of investment of real companies .Hence, we won’t find a lot of private equity offers coming up and the once that come up, people will review them and decide whether they can back the sponsors that also, is a reason why you will not see a huge commitment to private equity funds,”
“Lastly, not every PFA operator is comfortable with the private equity off take because they do not understand it very well, or they are not comfortable with feeding their contributors money to third party to do real sector investing, that is why you will find out that most people that have committed much to private equity funds are those that have some certain degree of investment banking backgrounds, which makes it a little easier for them to understand what the people are offering, the process by which the private equity investment are made and harvested”
Private equity is an asset class unlike any other. Whereas most traditional investments focus on providing funding to entities that have the potential to grow, private equity offers something in addition to capital – private equity investors are active investors.
When a private equity investment is made, a partnership is formed and the investor is motivated to work with a company’s management team to create value