Despite the directive of the National Pension Commission that Pension Fund Administrators should invest 25 per cent of their funds in the capital market, investigations have revealed that the PFAs have not been complying with the order as they now invest in government bonds.
Our correspondent gathered that after the crisis that followed the bubble burst in the Nigerian Stock Exchange at the end of the first half of 2008, the PFAs had dropped their investment in the capital market below 25 per cent.It was gathered that over 80 per cent of the total funds invested by PFAs had been eroded by the decline in the value of stocks.
According to fund managers who spoke to our correspondent in separate interviews, the continuous loss in the value of investment in the stock market made fund managers to reduce their investment in the sector, despite the directive given by PENCOM.The managing director of one of the leading fund managers, who pleaded not to be mentioned, said that lack of confidence in the stock market was responsible for the reduction of the minimum investment by PFAs.
He said, ”Presently, there is serious lack of confidence in the capital market, it‘s not about the fund managers only. A lot of investors have opted out of the stock market because they have lost so much. We cannot continue to put large amount of money in the capital market when there are various investment instruments.”He added that pension funds had the largest exposure to equities and were most hit by the meltdown.
He said, ”Some administrators have disregarded the limit imposed by the regulators because the PFAs were seriously hit when the bubble burst. Administrators have switched to government bonds, which is a bit attractive.”Another fund manager, who also craved anonymity, said that even though funds by PFAs were meant for long term investment, the volatility and continuous loss of value in the market had made fund managers to reduce their investment to less than 10 per cent of the RSA funds.
He said, ”Investments by pension funds are long term in nature, however, the actual average investment by PFAs presently has been less than 10 per cent because of the constant decline in values of shares.”On alternative investment tools, he noted that most financial instruments were not attractive, especially the money market instruments, because of their relatively low yield.