Getting cash is not the concern of fund managers whether pension administrators or insurance firms as it is very much available, but selecting viable investment to channel those funds for optimal return is a big issue, experts have observed.
Real estate is seen as a dicey venture by most fund managers, even as the low performance of real estate investment trusts (REITs) coupled with asset and liability mismatch as well as the paucity of bankable projects deters investment flow to the sector.
Experts say fund managers prefer locking their clients’ money in government securities that deliver 12 to 14 percent return above the current inflation figure of 11 percent, to having their hands burnt by financing real estate projects.
“Money is not the problem. The problem is that we don’t have quality real estate products,” said Chuks Umeche, investment banking associate at Stanbic IBTC Capital Limited at a break-out session at the recently-held African Real Estate Conference and Award (AFRECA 2019), which held in Lagos.
“There is dearth of bankable real estate projects in the market. The ones currently in the market are not doing well.” He added.
In as much as PFAs look for funds that yield good return, the safety of capital also matter to them. This explains why the bulk of pension funds find their way into government securities.
Putting this into context, total pension assets is worth N9.3 billion as at June 30, 2019, in which 70 percent are invested in Federal Government Bonds while real estate got a paltry 3 percent, according to figures from the National Pension Commission.
The poor performance of Nigeria’s REITs, as pointed out by Umeche, also dampens fund managers’ appetite for real estate assets. Nigeria’s REITs lack sufficient liquidity to distribute profit to owners as all of them are struggling to stay afloat.
REITs are corporation or trusts that use pooled capital of investors to purchase and manage income property and mortgage loans. Nigeria’s REITs are among the worst performers globally on account of illiquidity. The three listed REITs – UPDC, Union Homes and Skye Shelter Fund—have plunged to a record low.
Real estate mutual funds have, however, returned 4.6 percent gain to investors since January 2019, emerging the fourth best performer across seven asset classes. From the insurers’ point of view, the mismatch between assets and liability is the chief constraint restraining insurance firms from funding real estate.
An executive director at African Reinsurance Corporation Limited based in South Africa, Ibrahim Ibisomi, explained that unlike the pension industry where funds are preserved for the future, insurers sit mostly on short-term funds.
“Policy-holders can call for their funds anytime. So it doesn’t make sense putting those funds in real estate with long gestation period,” Ibisomi said at the conference, adding, “except for some life insurers that invest in real estate because pulling funds out of life insurance is rigorous.”
Insurance is yet to get warm embrace in Nigeria with a penetration rate of 0.3 percent below peer African nations, aggravating the disinterest of insurers in real estate.
Experts also blamed fund managers’ apathy for real estate on the country’s weak regulatory framework and poor infrastructure. This is because no housing sector can thrive in an environment with inadequate facilities.
Drawing lessons from South Africa, Ibisomi posited that the country was able to revamp its housing sector by putting in place friendly regulations.
“Nigeria’s infrastructure stock to GDP of 35 percent is below South Africa’s 80 percent. It will be nice if fund managers can start from infrastructure financing before moving to alternative asset class,” he said.
ISRAEL ODUBOLA
