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Why PFAs see private equities as less attractive to invest

Despite having over N8trillion sitting as Asset Under Management (AUM), Pension fund administrators still see the private equity space as less attracting to invest due to its enormous technicality, industry experts confirmed to BusinessDay.
Some of such technicalities are its high expertise skills as well as the in-depth technical know-how that is required, making fund investors shrug off investment into the asset class, according to two CEOs of leading pension houses in the country.
“Private equity space is an asset class that is very risky because it requires more expertise and knowledge of how it works. That is why the percentage allocation by the pension industry into space is smaller than expected”, said Misbahu Yola, Managing Director and CEO, FCMB Pensions.
Regulation by the National pension commission stipulates a maximum of 10 per cent aggregate investment stake of Assets under management (AUM) in private equity funds by PFAs. Also, in single private equity, PFAs are not to exceed a stake of 5 per cent of assets under management.
However, data from the National Bureau of statistics shows that over time, the entire investment by the industry is below one per cent.
This, however, begins 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 the regulator for investment in private equity funds is 5 per cent of funds under management, so as such we can’t expect to see a very high uptake,”
“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 one that comes 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 offtake because they do not understand it very well, or they are not comfortable with feeding their contributors money to the 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 is made and harvested”
As at the second quarter of 2018, investments by pension administrators into private equity funds stood at N38.3 billion, representing about o.5 per cent of the total N8.23 trillion fund assets by the industry.
Federal government securities including bonds and treasury bills gulped a larger chunk of the asset, accounting for about 70 per cent of the total funds’ asset by the industry, while money market instruments came next accounting about 9 per cent of the total asset funds.
“Exiting private equity is not as easy as that of its public equity counterpart or even exiting a bank account. Hence, there is a lot more risk and that is why exposure to the industry is minimal” Yola said.




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