Stocks of only about 20 of the 214 companies listed on the Nigerian Stock Exchange (NSE) may qualify for investments by Pension Fund Administrators (PFAs).
Bismark Rewane, managing director of Financial Derivatives, disclosed this recently at the breakfast meeting of the Lagos Business School. The requirement that PFAs can only invest in companies that have paid dividends consistently in the last five years by the Pension Act is expected to restrict the investments of the PFAs to only these key stocks listed on the NSE.
Rewane predicted a bounce in the equities market in April as about N119 billion already set aside by various companies and the Federal Government is expected to be released to the PFAs this month.
Analysts however doubt if this would be enough to lift the market which closed on a bearish note in January considering the fact that PFAs are allowed to invest only about 20 percent of these funds in equities and the other 80 percent in FG securities and other investment outlets.
The implication is that of the N119 billion that will be available for PFAs to invest, only N23.8 billion would be invested in equities.
Sources close to the capital market however say the 20 stocks that would qualify for the investment are mainly the big caps which control not less that 70 percent of the total market capitalisation of the NSE.
The 2004 Pension Act saddles PFAs with the responsibility of managing the retirement account of workers. Under the act, employees are to make a minimum contribution of 7.5 percent of their basic salary into a retirement account opened with a PFA while their employers are to make a counterpart contribution of 7.5 percent. At retirement, the employee retirement benefit would comprise of the total contribution plus whatever capital gain or income made on the contributions.
Already about nine PFAs have been licensed by the Pension Commission (PenCom) to operate in the country. Most companies and the Federal Government are also known to have started making the required monthly deductions into a retirement account and these funds are what the PFAs are expected to get the mandate to invest, starting March 2006.