The current economic landscape characterised by volatility, rising inflation and declining purchasing power of Retirement Saving Account (RSA) contributors requires dynamic and resilient investment strategies for pension assets. As at May 30, total pension asset was valued at N24.11 trillion.
This was the submission of the Director-General, the National Pension Commission (PenCom), Ms Omolola Oloworaran, yesterday, while speaking at a sensitisation workshop on “Investment in Alterative Assets” organised for Chairpersons of Board Investment Strategy and Risk Management Committees of Pension Fund Administrators (PFAs).
She described as worrisome the rising effect of inflation on pension asset, insisting that strategies that optimally balances risks, guarantees return and long-term sustainability, while delivering a discount rate that addresses pension inadequacy, need to be put in place.
She said today, over 80 per cent of pension fund assets are invested in fixed income securities with Federal Government Securities accounting for 62 per cent of total pension assets valued at N24.11 trillion as of May; the allocation to alternatives assets (private equity and infrastructure funds) was only about 3 per cent.
She disclosed that while traditional asset classes such as bonds and public equities have served their purpose, the current economic landscape characterised by volatility, rising inflation and declining purchasing power of Retirement Saving Account (RSA) contributors is requiring dynamic and resilient investment strategies.
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In this context, she added that the alternative assets provide a complimentary pillar to core investment strategies of pension funds offers, noting that investments in infrastructure and private equity, in particular, help align pension fund portfolio with their investment horizon, provide opportunities for diversification of pension assets and enhance risk adjusted returns.
She however said that the major goal of the workshop is to offer practical insights into the potentials benefits of the alternative asset class and explore how pension funds can effectively leverage these opportunities to mitigate portfolio concentration risk, enhance investment returns, and achieve sustainable growth.
She stated that the overarching theme of investment in the pension industry has consistently been the preservation of capital and generation of fair returns.
She pointed out that, the misperception of safety with liquidity has limited the ability of PFAs to optimally deploy pension funds under their management.
The PenCom DG disclosed that consequently, the Nigerian pension funds are yet to fully optimize investment potentials, despite the favourable long-term demography of members.
She further called on Chairpersons of the Investment Strategy and Risk Committees to always remember that they occupy a position of trust.
She said: “You have a fiduciary duty which is a legal and ethical obligation to act in the best interests of Retirement Savings Account holders at all times. This responsibility includes ensuring that investment decisions are based on sound strategy, robust risk assessments, and are compliant with the guidelines issued by the Commission.
“Fiduciary responsibility also means independence of thought. It means resisting undue influence, asking hard questions, and insisting on transparency. It requires that every investment decision is not only justifiable on paper but also defensible in principle. You must continuously interrogate whether your PFAs’ investment strategy aligns with the long-term liabilities of the pension scheme and reflects a prudent balance of risk and return.
“The global financial landscape is becoming more complex, with growing exposure to market volatility, geopolitical uncertainties, and evolving asset classes. In this context, it is no longer sufficient to rely on traditional investment approaches. Your committees must deepen oversight of risk management frameworks, ensure scenario analyses are robust, and advocate for portfolio diversification into permissible but less correlated asset classes such as infrastructure, private equity, and sustainable investments within the confines of regulation”, she said.